- Listed below are several terms and phrases associated with the FASB’s conceptual framework. Pair each item from List A with the item from List B that is most appropriately associated with it.
Predictive value
Relevance
Timeliness
Distribution to owners
Confirmatory value
Understandability
Gain
Faithful representation
Comprehensive income
Materiality
Comparability
Neutrality
Recognition
Consistency
Cost-effectiveness
Verifiability
2. Identify the accounting concept that relates to each statement or phrase below.
Statement
1. Inflation causes a violation of this assumption.
2. Information that could affect decision making should be reported.
3. Recognizing expenses in the period they were incurred to produce revenue.
4. The basis for measurement of many assets and liabilities.
5. Relates to the qualitative characteristic of timeliness.
6. All economic events can be identified with a particular entity.
7. The benefits of providing accounting information should exceed the cost of doing so.
8. A consequence is that GAAP need not be followed in all situations.
9. Not a qualitative characteristic, but a practical justification for some accounting choices.
10. Assumes the entity will continue indefinitely.
3. The following transactions occurred for the Microchip Company.
On October 1, 2024, Microchip lent $92,000 to another company. A note was signed with principal and 8% interest to be paid on September 30, 2025.
- On November 1, 2024, the company paid its landlord $9,900 representing rent for the months of November through January. Prepaid rent was debited at the time of payment.
- On August 1, 2024, collected $15,900 in advance rent from another company that is renting a portion of Microchip’s factory. The $15,900 represents one year’s rent and the entire amount was credited to deferred rent revenue at the time cash was received.
- Depreciation on office equipment is $5,800 for the year.
- Vacation pay for the year that had been earned by employees but not paid to them or recorded is $9,300. The company records vacation pay as salaries expense.
- Microchip began the year with $3,300 in its asset account, supplies. During the year, $7,800 in supplies were purchased and debited to supplies. At year-end, supplies costing $3,900 remain on hand.
Required:
Prepare the necessary adjusting entries at December 31, 2024 for each of the above situations. Assume that no financial statements were prepared during the year and no adjusting entries were recorded.
Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.
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The following is the post-closing trial balance for the Whitlow Manufacturing Corporation as of December 31, 2023.
| Account Title | Debits | Credits |
| Cash | $ 5,200 | |
| Accounts receivable | 2,200 | |
| Inventory | 5,200 | |
| Equipment | 11,200 | |
| Accumulated depreciation | $ 3,700 | |
| Accounts payable | 3,200 | |
| Accrued liabilities | 0 | |
| Common stock | 8,000 | |
| Retained earnings | 8,900 | |
| Sales revenue | 0 | |
| Cost of goods sold | 0 | |
| Salaries expense | 0 | |
| Rent expense | 0 | |
| Advertising expense | 0 | |
| Dividends | 0 | |
| Totals | $ 23,800 | $ 23,800 |
The following transactions occurred during January 2024:
| January 1 | Sold inventory for cash, $3,700. The cost of the inventory was $2,200. The company uses the perpetual inventory system. |
| January 2 | Purchased equipment on account for $5,700 from the Strong Company. The full amount is due in 15 days. |
| January 4 | Received a $100 invoice from the local newspaper requesting payment for an advertisement that Whitlow placed in the paper on January 2. |
| January 8 | Sold inventory on account for $5,200. The cost of the inventory was $3,000. |
| January 10 | Purchased inventory on account for $9,600. |
| January 13 | Purchased equipment for cash, $700. |
| January 16 | Paid the entire amount due to the Strong Company. |
| January 18 | Received $4,400 from customers on account. |
| January 20 | Paid $700 to the owner of the building for January’s rent. |
| January 30 | Paid employees $3,200 for salaries for the month of January. |
| January 31 | Paid a cash dividend of $800 to shareholders. |
Required:
- Prepare general journal entries to record each transaction.
Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.
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The following is the post-closing trial balance for the Whitlow Manufacturing Corporation as of December 31, 2023.
| Account Title | Debits | Credits |
| Cash | $ 5,200 | |
| Accounts receivable | 2,200 | |
| Inventory | 5,200 | |
| Equipment | 11,200 | |
| Accumulated depreciation | $ 3,700 | |
| Accounts payable | 3,200 | |
| Accrued liabilities | 0 | |
| Common stock | 8,000 | |
| Retained earnings | 8,900 | |
| Sales revenue | 0 | |
| Cost of goods sold | 0 | |
| Salaries expense | 0 | |
| Rent expense | 0 | |
| Advertising expense | 0 | |
| Dividends | 0 | |
| Totals | $ 23,800 | $ 23,800 |
The following transactions occurred during January 2024:
| January 1 | Sold inventory for cash, $3,700. The cost of the inventory was $2,200. The company uses the perpetual inventory system. |
| January 2 | Purchased equipment on account for $5,700 from the Strong Company. The full amount is due in 15 days. |
| January 4 | Received a $100 invoice from the local newspaper requesting payment for an advertisement that Whitlow placed in the paper on January 2. |
| January 8 | Sold inventory on account for $5,200. The cost of the inventory was $3,000. |
| January 10 | Purchased inventory on account for $9,600. |
| January 13 | Purchased equipment for cash, $700. |
| January 16 | Paid the entire amount due to the Strong Company. |
| January 18 | Received $4,400 from customers on account. |
| January 20 | Paid $700 to the owner of the building for January’s rent. |
| January 30 | Paid employees $3,200 for salaries for the month of January. |
| January 31 | Paid a cash dividend of $800 to shareholders. |
- & 3. Enter the beginning balances as of January 1, 2024 and post the entries to T-accounts.
Note: Enter the date of the transaction in the column next to the amount.
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The following is the post-closing trial balance for the Whitlow Manufacturing Corporation as of December 31, 2023.
| Account Title | Debits | Credits |
| Cash | $ 5,200 | |
| Accounts receivable | 2,200 | |
| Inventory | 5,200 | |
| Equipment | 11,200 | |
| Accumulated depreciation | $ 3,700 | |
| Accounts payable | 3,200 | |
| Accrued liabilities | 0 | |
| Common stock | 8,000 | |
| Retained earnings | 8,900 | |
| Sales revenue | 0 | |
| Cost of goods sold | 0 | |
| Salaries expense | 0 | |
| Rent expense | 0 | |
| Advertising expense | 0 | |
| Dividends | 0 | |
| Totals | $ 23,800 | $ 23,800 |
The following transactions occurred during January 2024:
| January 1 | Sold inventory for cash, $3,700. The cost of the inventory was $2,200. The company uses the perpetual inventory system. |
| January 2 | Purchased equipment on account for $5,700 from the Strong Company. The full amount is due in 15 days. |
| January 4 | Received a $100 invoice from the local newspaper requesting payment for an advertisement that Whitlow placed in the paper on January 2. |
| January 8 | Sold inventory on account for $5,200. The cost of the inventory was $3,000. |
| January 10 | Purchased inventory on account for $9,600. |
| January 13 | Purchased equipment for cash, $700. |
| January 16 | Paid the entire amount due to the Strong Company. |
| January 18 | Received $4,400 from customers on account. |
| January 20 | Paid $700 to the owner of the building for January’s rent. |
| January 30 | Paid employees $3,200 for salaries for the month of January. |
| January 31 | Paid a cash dividend of $800 to shareholders. |
- Prepare an unadjusted trial balance as of January 31, 2024.
- The unadjusted trial balance as of December 31, 2024, for the Bags Consulting Company appears below. December 31 is the company’s reporting year-end.
| Account Title | Debits | Credits |
| Cash | $ 13,950 | |
| Accounts receivable | 6,000 | |
| Prepaid insurance | 2,400 | |
| Land | 175,000 | |
| Buildings | 40,000 | |
| Accumulated depreciation—buildings | $ 16,000 | |
| Office equipment | 72,000 | |
| Accumulated depreciation—office equipment | 28,800 | |
| Accounts payable | 26,400 | |
| Salaries payable | 0 | |
| Deferred rent revenue | 9,000 | |
| Common stock | 170,000 | |
| Retained earnings | 43,800 | |
| Service revenue | 71,500 | |
| Interest revenue | 2,600 | |
| Rent revenue | 0 | |
| Salaries expense | 25,000 | |
| Depreciation expense | 0 | |
| Insurance expense | 0 | |
| Utilities expense | 17,700 | |
| Maintenance expense | 16,050 | |
| Totals | $ 368,100 | $ 368,100 |
Information necessary to prepare the year-end adjusting entries appears below.
- The buildings have an estimated useful life of 50 years with no salvage value. The company uses the straight-line depreciation method.
- The office equipment is depreciated at 10 percent of original cost per year.
- Prepaid insurance expired during the year, $1,200.
- Accrued salaries at year-end, $900.
- Rent to customers who paid in advance has been provided for $6,800.
Required:
- From the trial balance and information given, prepare adjusting entries.
- Post the beginning balances and adjusting entries into the appropriate T-accounts.
- Prepare an adjusted trial balance.
- Prepare closing entries.
- Prepare a post-closing trial balance.