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ch03

CHAPTER3

UnderstandingtheAccounting

InformationSystem

ASSIGNMENTCLASSIFICATIONTABLE（BYTOPIC）

Topics

Questions

BriefExercises

Exercises

Problems

1.

Transactionidentification.

1,2,3,5

1,2

1,2,3,4,19

1

2.

Nominalaccounts.

4,7

3.

Trialbalance.

6,13

2,3,4

1,2,7

4.

Adjustingentries.

8,14,16,17

3,4,5,6,7,

8,9,10

5,6,7,8,

9,10,22

1,2,3,4,5,6,7,8,9,11

5.

Financialstatements

11,12,25,26

1,2,4,6

6.

Closing.

15

12

13,14,18

1,4,8,9,11

7.

Inventoryandcost

ofgoodssold.

9,10,11,12

11

12,14,15,16

8.

Comprehensiveaccountingcycle.

1,2,6,11

*9.

Cashvs.AccrualBasis

18,19,20

13

20,21

10

*10.

Reversingentries.

21

14

22

*11.

Worksheet

22

23,24,25

11

*ThesetopicsaredealtwithintheAppendixtotheChapter.

ASSIGNMENTCLASSIFICATIONTABLE（BYLEARNINGOBJECTIVE）

LearningObjectives

BriefExercises

Exercises

Problems

1.Understandbasicaccountingterminology.

2.Explaindouble-entryrules.

3.Identifystepsinaccountingcycle.

4.Recordtransactionsinjournals,posttoledgeraccounts,andprepareatrialbalance.

1,2,3,4,

5,6,7

1,2,3,4,19

1,4,8,9

5.Explainthereasonsforpreparingadjustingentries.

3,4,5,6,

7,8,9,10

5,6,7,8,

9,10,22

2,3,4,5,6,7,8,9,11

6.Preparefinancialstatementsfromtheadjustedtrailbalance.

11,12

1,2,4,6,

7,8,9,11

7.Prepareclosingentries.

12

13,14,18

1,4,8,9,11

8.Explainhowtoadjustinventoryaccounts

atyear-end.

11

15,16,17

  *9.Differentiatethecashbasisofaccountingfromtheaccrualbasisofaccounting.

13

20,21

10

*10.Identifyadjustingentriesthatmaybereversed.

14

22

*11.Preparea10-columnworksheet.

23,24,25

11

*ThesetopicsaredealtwithintheAppendixtotheChapter.

ASSIGNMENTCHARACTERISTICSTABLE

Item

Description

LevelofDifficulty

Time

（minutes）

E3-1

Transactionanalysis–servicecompany.

Simple

15–20

E3-2

Correctedtrialbalance.

Simple

10–15

E3-3

Correctedtrialbalance.

Simple

15–20

E3-4

Correctedtrialbalance.

Simple

10–15

E3-5

Adjustingentries.

Moderate

10–15

E3-6

Adjustingentries.

Moderate

15–20

E3-7

Analyzeadjusteddata.

Complex

15–20

E3-8

Adjustingentries.

Moderate

10–15

E3-9

Adjustingentries.

Moderate

15–20

E3-10

Adjustingentries.

Complex

25–30

E3-11

Preparefinancialstatements.

Moderate

20–25

E3-12

Preparefinancialstatements.

Moderate

20–25

E3-13

Closingentries.

Simple

10–15

E3-14

Closingentries.

Moderate

10–15

E3-15

Missingamounts.

Simple

10–15

E3-16

Findmissingamounts–periodicinventory.

Moderate

20–25

E3-17

Costofgoodssold–periodicinventory.

Moderate

10–15

E3-18

Closingentriesforacorporation.

Moderate

10–15

E3-19

Transactionsofacorporation,includinginvestment

anddividend.

Moderate

10–15

*E3-20

Cashtoaccrualbasis.

Moderate

15–20

*E3-21

Cashtoaccrualbasis.

Moderate

10–15

*E3-22

Adjustingandreversingentries.

Complex

20–25

*E3-23

Worksheet.

Simple

10–15

*E3-24

Worksheetandbalancesheetpresentation.

Moderate

20–25

*E3-25

Partialworksheetpreparation.

Moderate

10–15

P3-1

Transactions,financialstatements–servicecompany.

Moderate

25–35

P3-2

Adjustingentriesandfinancialstatements.

Moderate

35–40

P3-3

Adjustingentries.

Moderate

25–30

P3-4

Financialstatements,adjustingandclosingentries.

Moderate

40–50

P3-5

Adjustingentries.

Moderate

15–20

P3-6

Adjustingentriesandfinancialstatements.

Moderate

25–35

P3-7

Adjustingentriesandfinancialstatements.

Moderate

25–35

*P3-8

Adjustingandclosing.

Moderate

30–40

*P3-9

Adjustingandclosing.

Moderate

30–35

*P3-10

Cashandaccrualbasis.

Moderate

35–40

*P3-11

Worksheet,balancesheet,adjustingandclosingentries.

Complex

40–50

ANSWERSTOQUESTIONS

1.Examplesare:

（a）Paymentofanaccountspayable.

（b）Collectionofanaccountsreceivablefromacustomer.

（c）Transferofanaccountspayabletoanotepayable.

2.Transactions（a）,（b）,（d）areconsideredbusinesstransactionsandarerecordedintheaccountingrecordsbecauseachangeinassets,liabilities,orequitieshasbeeneffectedasaresultofatransferofvaluesfromonepartytoanother.Transactions（c）and（e）arenotbusinesstransactionsbecauseatransferofvalueshasnotresulted,norcantheeventbeconsideredfinancialinnatureandcapableofbeingexpressedintermsofmoney.

3.Transaction（a）:

AccountsReceivable（debit）,ServiceRevenue（credit）.

Transaction（b）:

Cash（debit）,AccountsReceivable（credit）.

Transaction（c）:

OfficeSupplies（debit）,AccountsPayable（credit）.

Transaction（d）:

DeliveryExpense（debit）,Cash（credit）.

4.RevenueandexpenseaccountsarereferredtoastemporaryornominalaccountsbecauseeachperiodtheyareclosedouttoIncomeSummaryintheclosingprocess.Theirbalancesarereducedtozeroattheendoftheaccountingperiod;therefore,thetermtemporaryornominalissometimesgiventotheseaccounts.

5.Thedouble-entrysystemmeansthatforeverydebitamounttheremustbeacreditamountandvice-versa.Atleasttwoaccountsareaffected.Itdoesnotmeanthateachtransactionmustberecordedtwice.

6.Althoughitisnotabsolutelynecessarythatatrialbalancebetakenperiodically,itiscustomaryanddesirable.Thetrialbalanceaccomplishestwoprincipalpurposes:

（1）Itteststheaccuracyoftheentriesinthatitprovesthatdebitsandcreditsofanequalamountareintheledger.

（2）Itprovidesalistofledgeraccountsandtheirbalanceswhichmaybeusedinpreparingthefinancialstatementsandinsupplyingfinancialdataabouttheconcern.

7.（a）Realaccount;balancesheet.

（b）Realaccount;balancesheet.

（c）Merchandiseinventoryisgenerallyconsideredarealaccountappearingonthebalancesheet.Ithastheelementsofanominalaccountwhentheperiodicinventorysystemisused.Itmayappearontheincomestatementwhenthemultiple-stepformatisused.

（d）Realaccount;balancesheet.

（e）Realaccount;balancesheet.

（f）Nominalaccount;incomestatement.

（g）Nominalaccount;incomestatement.

（h）Realaccount;balancesheet.

8.AtDecember31,thethreedays’wagesduetotheemployeesrepresentacurrentliability.Therelatedexpensemustberecordedinthisperiodtoproperlyreflecttheexpenseincurred.

9.（a）Inaservicecompany,revenuesareservicerevenuesandexpensesareoperatingexpenses.Inamerchandisingcompany,revenuesaresalesrevenuesandexpensesconsistofcostofgoodssoldplusoperatingexpenses.

（b）Themeasurementprocessinamerchandisingcompanyconsistsofcomparingthesalespriceofthemerchandiseinventorytothecostofgoodssoldandoperatingexpenses.

QuestionsChapter3（Continued）

10.ThepurposeoftheCostofGoodsSoldaccountistoactasaclearingaccountforbringingtogetherthoseitemsdirectlyaffectingcostofgoodssoldforthisperiod.Exampleofitemsthatwouldappearinthisaccountare:

（1）Purchases,

（2）PurchaseDiscounts,（3）PurchaseReturns,（4）PurchaseAllowances,（5）Transportation-in,（6）Inventory（beginning）,and（7）Inventory（ending）.Theendingbalancerepresentsthecostofgoodssold.

11.ThepurposeoftheCostofGoodsSoldaccountistoaccumulatethecostsofissuancesfrominventory.Inaperpetualinventorysystem,wheninventoryissold,CostofGoodsSoldisdebitedandInventoryiscredited.Attheendoftheperiod,CostofGoodsSoldisclosedtoIncomeSummary.

12.Onthebalancesheet,theeffectoftheerroris

（1）theequipmentaccountisunderstated,and

（2）theCapitalaccount（proprietorship–partnership）orRetainedEarnings（Corporation）isunderstated.Ontheincomestatement,

（1）purchasesandcostofgoodssoldareoverstatedand

（2）netincomeisunderstated.（Notetoinstructor:

Theinstructorshouldalsobereadytodiscusstheeffectthattheomissionofthedepreciationchargeonthecomputermighthave.）

13.（a）Nochange.

（b）Beforeclosing,balancesexistintheseaccounts;afterclosing,nobalancesexist.

（c）Beforeclosing,balancesexistintheseaccounts;afterclosing,nobalancesexist.

（d）Beforeclosing,abalanceexistsinthisaccountexclusiveofanydividendsortheincomeorlossfortheperiod;afterclosing,thebalanceisincreasedordecreasedbytheamountofnetincomeornetloss,anddecreasedbydividendsdeclared.

（e）Nochange.

14.Adjustingentriesarepreparedpriortothepreparationoffinancialstatementsinordertobringtheaccountsuptodateandarenecessary

（1）toachieveapropermatchingofrevenuesandexpensesinmeasuringincomeand

（2）toachieveanaccuratepresentationofassets,liabilitiesandstockholders’equity.

15.Closingentriesarepreparedtotransferthebalancesofnominalaccountstocapital（retainedearnings）aftertheadjustingentrieshavebeenrecordedandthefinancialstatementsprepared.Closingentriesarenecessarytoreducethebalancesinnominalaccountstozeroinordertopreparetheaccountsforthenextperiod’stransactions.

16.Cost–SalvageValue=DepreciableCost:

$3,000–$0=$3,000.DepreciableCost÷UsefulLife=DepreciationExpenseForOneYear$3,000÷5years=$600peryear.Theassetwasusedfor

6months（7/1–12/31）,therefore1/2-yearofdepreciationexpenseshouldbereported.AnnualdepreciationX6/12=amounttobereportedon2007incomestatement:

$600X6/12=$300.

17.

December31

InterestReceivable

10,000

Inter