E2-2

a)
b)
c)
d)
e)

False. Relevance and faithful representation

False. Predictive value, confirmatory value, materiality
False. Faithful representative includes free of error, completeness, neutrality
True
False. Enhancing characteristics relate to both relevance and faithful
representation
f) True

E2-3
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
E2-4
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)

Confirmatory value
Cost constraint
NEUTRALITY
Comparability
Neutrality
Faithful representation and relevance
Timeliness
Relevance
Comparability
VERIFIABILITY ARRIVING AT DIFF AMOUNTS OF A VALUE
Comparability
Confirmatory value
Comparability (consistency)
NEUTRALITYIGNORES THE ECONOMIC CONSEQUENCES OF A STANDARD OR
RULE
verifiability
relevance
timeliness, verifiability, understandability, comparability
materiality
faithful representation
relevance and faithful representation
TIMELINESS ISSUANCE OF INTERIM REPORTS

E2-5
a) GAINS AND LOSSES- ARISES FROM PERIPHERAL OR INCIDENTAL TRANSACTIONS
b) liability
c) Investment by owners & COMPREHENSIVE INCOME INCREASES OWNERSHIP
INTEREST
d) Distribution to owners
e) Comprehensive income
f) Assets
g) Comprehensive income
h) Expenses, revenues
i) Equity
j) Revenues
k) DISTRIBUTION TO OWNERS DECREASES ASSETS DURING THE PERIOD BY
PURCHASING THE COMPANYS OWN STOCK
l) comprehensive income

E2-6
a)
b)
c)
d)

Expense recognition principle

Historical cost
Full disclosure
GOING-CONCERN ASSUMPTION-RATIONALE WHY PLANT ASSETS ARE NOT
REPORTED AT LIQUIDATION VALUE
e) ECONOMIC ENTITY ASSUMPTION
f) PERIODICITY ASSUMPTION
g) MONETARY UNIT

E2-7
a) Historical cost
b) Full disclosure
c) EXPENSE RECOGNITION PRINCIPLE- INTANGIBLE ASSETS ARE AMORTIZES OVER
PERIODS BENEFITED
d) Fair value
e) Economic entity
f) Full disclosure
g) Revenue recognition
h) Full disclosure
i) Revenue & expense
j) THE USE OF CONSOLIDATED STATEMENTS IS JUSTIFIED-ECONOMIC ENTITY
ASSUMPTION
k) Periodicity
l) Expense recognition FAIR VALUE-AN ALLOWANCE FOR DOUBTFUL ACCOUNTS IS
ESTABLISHED
m) Expense GOODWILL IS RECORDED ONLY AT TIME OF PURCHASE-HISTORICAL
n) Expense
E3-1
Equip 14,000
Cash 32000
Owners capital 46000
NO ENTRY NOT A TRANSACTION
Supplies
700
A/P 700
Rent expense
600
Cash 600
A/R 1100
Revenue
1100
Cash 2300
Unearned revenue 2300
Cash 2300
Revenue 2300
Insurance expense 110
Cash 110
Administrative salaries expense 1160
Cash 1160
Supplies expense 120
Supplies 120
Equipment 6100

Owners capital 6100

E3-2
Cash
4800
A/R
2750
Prepaid insurance800
Equipment
8000
A/P
4400
Tax Payable
560
Owners capital
12700
Owners drawing
1500
Service revenue
6690
Salaries expense 4200
Advertising exp 1400
Property tax exp 900
21350
E3-6
1. A/R 750
Service Revenue 750
2. utility expense 520
a/p
520
3. interest exp500
interest pay500
dep exp
400
accumulated dep 400
4. 12000/12=1000/month
insurance expense 1000
prepaid insurance
5. supplies expense 1100
supplies
1100

1000

E3-7
a) beg + 850 -950 = 700; beg = 800
b) 400*12=4800 insurance premium total; 6 months ago august 1st
c) salary expense 1800
salaries payable 700
cash 2500
end wage payable 800= beg+1800-2500
d) end unearned service rev 750= beg+1600-2000
E3-16
Close Revenue
Revenue 410,000
I.S. 410,000
Close expenses
I.S. 336700
Sales Returns and Allowances12000
Sales Discounts
15000
COGS
225700

Selling exp
Admin exp
Income tax esp
Close income summary
I.S. 73300
R/E 73300
Close dividends
R/E 18000
Dividends 18000

16000
38000
30000

E3-18 Cash to Accrual Basis

Collections 142,600 +(END A/R) 15927 (BEG A/R) 9250 + (BEG UR)2840 (END
UR)4111
Expenses 55470+ 2108 -3435 +1917-3232
P3-3
P3-4
a) Journalize adjusting entire
Supplies Expense 4000
Supplies
4000
Depreciation exp 15000
Acc. dep
15000
Interest exp
11000
Interest pay
11000
b) Prepare adjusted trial balance
Cash
28700
A/R
33700
Inventory
45000
Supplies
1500
Equipment
133000
Acc-Dep
39000
N/P
51000
Interest P
11000
A/P
48500
Common Stock
90000
R/E
8000
Sales Rev
757200
Sales Return & A
4200
COSG
495400
Sales & Wage Exp
140000
Advertising esp
26400
Utilities exp
14000
Main & R Exp
12100
Delivery exp
16700
Rent exp
24000
Supplies exp
4000
c) Prepare multiple-step income statement, R/E statement, and B/S
Income Statement
Sales Revenue

Sales
Less: Sales Return & A
Net Sales:
COGS:
Gross Profit:
Operating Expenses
Selling Expenses
Salaries and Wages Exp
Advertising exp
Rent Exp
Delivery exp
Utilities exp
Depreciation Exp
Supplies Exp
Total Selling Exp:
Administrative Expenses
Salaries and Wages Exp
Maintenance & R Exp
Rent Exp
Ulities exp
Total Admin Exp:
Total Op. Exp:
Income from Operations:
Other expenses and losses
Interest Exp
NET LOSS:

757,200
-4200
75300
-495400
257600
98000
26400
19200
16700
11200
15000
4000
-190500
42000
12100
4800
2800
-61700

R/E Statement
Beg R/E
+/- Net Income
End R/E

8000
-5600
2400
Balance Sheet

d) Journalize closing entries

Close Revenues
Revenue
757200
I.S.
757200
Close Expenses
I.S. 762800
Sales Return and A
4200
COSG
495400
S &W Exp
140000
Ad exp
26400
Utilities exp
14000
M & R Exp
12100
Delivery exp
16700
Rent Exp
24000
Supplies Exp
4000
Dep Exp
15000
Int exp
11000

-252200
5400
-11000
(5600)

Close I.S.
R/E 5600
I.S. 5600
e) Prepare post-closing trial balance
P3-10