The ending balance of Retained Earnings can best be described as:

A) The amount of net income over the life of the company.
B) The amount of dividends paid over the life of the company.
C) The amount of cash received from stockholders over the life of the company.
D) The amount of net income over the life of the company not paid to owners in the form of dividends.

After Bunker Hill Assay Services Inc. had completed all postings for March in the current year (2016), the sum of the balances in the following accounts payable ledged did not agree with the $37,600 balance of the controlling account in the general ledger:

Most decisions made by management impact the ratios analysts use to evaluate performance. Indicate (by letter) whether each of the actions listed below will immediately increase (I), decrease (D), or have no effect (N) on the ratios shown. Assume each ratio is less than 1.0 before the action is taken.

The Role of Accounting as an Information System

$$\begin{array}{lccc} \text{Action}&\text{Current Ratio}&\text{Acid-Test Ratio}&\text{Debt to Equity Ratio}\\ \text{1. Issuance of long-term bonds}\\ \text{2. Issuance of short-term notes}\\ \text{3. Payment of accounts payable}\\ \text{4. Purchase of inventory on account}\\ \text{5. Purchase of inventory for cash}\\ \text{6. Purchase of equipment with a 4-year note}\\ \text{7. Repayment of long-term notes payable}\\ \text{8. Issuance of common stock}\\ \text{9. Payment for advertising expense}\\ \text{10. Purchase of short-term investment for cash}\\ \text{11. Reclassification of long-term notes payable to current notes payable}\\ \end{array}$$

Aubrae Company is making adjusting entries for the year ended December 31, 2011. In developing information for the adjusting entries, the accountant learned the following:

a. A two-year insurance premium of $3,600 was paid on October 1, 2011, for coverage beginning on that date.

b. At December 31, 2011, the following data relating to Shipping Supplies were obtained from the records and supporting documents.

$$\begin{array} {lrrrrr} \text{Shipping supplies on hand, January 1, 2011}& \hspace{10pt}\text{\$\hspace{10pt}11,000}&\\ \text{Purchases of shipping supplies during 2011}& \hspace{10pt}\text{60,000}&\\ \text{Shipping supplies on hand, counted on December 31, 2011}& \text{20,000}&\\ \end{array}$$

Required:

1. Using the process illustrated in the chapter, record the adjusting entry for insurance at December 31, 2011, assuming that the premium was paid on October 1, 2011, and the bookkeeper debited the full amount to Prepaid Insurance.

2. Using the process illustrated in the chapter, record the adjusting entry for supplies at December 31, 2011, assuming that the purchases of shipping supplies were debited in full to Shipping Supplies.

3. What amount should be reported on the 2011 income statement for Insurance Expense? For Shipping Supplies Expense?

4. What amount should be reported on the December 31, 2011, balance sheet for Prepaid Insurance? For Shipping Supplies?

Journalize the adjusting entry needed on December 31, the end of the current accounting period. Include an explanation for the entry.

• The beginning balance of supplies was $2,700. During the year, Rowling purchased supplies costing$6,400, and at December 31 supplies on hand total $2,100.

Consider the following transactions. 1. Receive cash from customers, $15,000. 2. Pay cash for employee salaries,$9,000. 3. Pay cash for rent, $3,000. 4. Receive cash from sale of equipment,$8,000. 5. Pay cash for utilities, $1,000. 6. Receive cash from a bank loan,$4,000. 7. Pay cash for advertising, $7,000. 8. Purchase supplies on account,$3,000. Required: Post transactions to the Cash T-account and calculate the ending balance. The beginning balance in the Cash T-accow1t is $5,000.

Consider the following transactions.

$$\begin{matrix} \text{ } & \text{Accrual-Basis} & \text{ } & \text{Cash-Basis} & \text{ } & \text{ }\\ \text{Transaction} & \text{Revenue} & \text{Expense} & \text{Revenue} & \text{Expense}\\ \text{1. Receive cash from customers at the time} & \text{ } & \text{ } & \text{ } & \text{ }\\ \text{of service, $\$ 3,700$ .} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{2. Issue common stock for cash, $\$ 6,000$ .} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{3. Receive cash from customers who were} & \text{ } & \text{ } & \text{ } & \text{ }\\ \text{previously billed, $\$ 1,700$ .} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{4. Incur utilities cost in the current month} & \text{ } & \text{ } & \text{ } & \text{ }\\ \text{but do not pay, $\$ 600$ .} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{5. Pay workers' salaries for the current} & \text{ } & \text{ } & \text{ } & \text{ }\\ \text{month, $\$ 700$ .} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{6. Pay for rent one year in advance, $\$ 3,600$ .} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{7. Repay a long-term note to the bank,} & \text{ } & \text{ } & \text{ } & \text{ }\\ \text{$\$ 3,000$ .} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{8. Pay workers' salaries for the previous} & \text{ } & \text{ } & \text{ } & \text{ }\\ \text{month, $\$ 850$ .} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{9. Pay dividends to stockholders, $\$ 500$ .} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{10. Purchase office supplies for cash, $\$ 540 .$} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \end{matrix}$$

For each transaction, determine the amount of revenue or expense, if any, that is recorded under accrual-basis accounting and under cash-basis accounting.

Consider the following set of transactions occurring during the month of May for Bison Consulting Company. For each transaction, indicate the impact on (1) the balance of cash, (2) cash-basis net income, and (3) accrual-basis net income for May. The first answer is provided as an example.

$$\begin{matrix} \text{Impact on:} & \text{Cash Balance} & \text{Cash-Basis Net Income} & \text{Accrual-Basis Net Income}\\ \text{(a) Receive $\$ 1,500$ from customers who} & \text{$+\$ 1,500$} & \text{$+\$ 1,500$} & \text{$\$ 0$}\\ \text{were billed for services in April.} & \text{ } & \text{ } & \text{ }\\ \text{(b) Provide $\$ 3,200$ of consulting services} & \text{ } & \text{ } & \text{ }\\ \text{to a local business. Payment is not} & \text{ } & \text{ } & \text{ }\\ \text{expected until June.} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{(c) Purchase office supplies for $\$ 400$ on} & \text{ } & \text{ } & \text{ }\\ \text{account. All supplies are used by the} & \text{ } & \text{ } & \text{ }\\ \text{end of May.} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{(d) Pay $\$ 600$ to workers. $\$ 400$ is for work in} & \text{ } & \text{ } & \text{ }\\ \text{May and $\$ 200$ is for work in April.} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{(e) Pay $\$ 200$ to advertise in a local} & \text{ } & \text{ } & \text{ }\\ \text{newspaper in May.} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \text{Totals} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_} & \text{\_\_\_\_\_}\\ \end{matrix}$$

Journalize the adjusting entry needed on December 31, the end of the current accounting period. Include an explanation for the entry.

• The beginning balance of supplies was $3,000. During the year, Castaway purchased supplies costing$6,200, and at December 31 supplies on hand total $2,200.

If a company prepares its financial statements according to International Financial Reporting Standards, how would it account for convertible bonds it issues for $12.5 million? What is the conceptual justification?

Golden Eagle Company prepares monthly financial statements for its bank. The November 30 and December 31 adjusted trial balances include the following account information:

$$\begin{array}{lllll} \text{ } & \text{November 30} & \text{ } & \text{December 31}\\ \hline \text{ } & \underline{Debit} & \underline{Credit} & \underline{Debit} & \underline{Credit}\\ \text{Supplies} & \text{$2,000$} & \text{ } & \text{$3,500$} & \text{ }\\ \text{Prepaid Insurance} & \text{$8,000$} & \text{ } & \text{$6,000$} & \text{ }\\ \text{Salaries Payable} & \text{ } & \text{$11,000$} & \text{ } & \text{$16,000$}\\ \text{Deferred Revenue} & \text{ } & \text{$3,000$} & \text{ } & \text{$1,500$}\\ \end{array}$$

The following information also is known: a. Purchases of supplies in December total $4,500. b. No insurance payments are made in December. c.$11,000 is paid to employees during December for November salaries. d. On November 1, a tenant pays Golden Eagle $4,500 in advance rent for the period November through January. Deferred Revenue is credited. Show the adjusting entries that were made for supplies, prepaid insurance, salaries payable, and deferred revenue on December 31.

Which one of the following accounts will have a credit balance?

a. Salary Expense

b. Supplies

c. Common Stock

d. Dividends

Boilermaker House Painting Company incurs the following transactions for September.

$$\begin{matrix} \text{1. September 3} & \text{Paint houses in the current month for \$20,000 on account.}\\ \text{2. September 8} & \text{Purchase painting equipment for \$21,000 cash.}\\ \text{3. September 12} & \text{Purchase office supplies on account for \$3,500.}\\ \text{4. September 15} & \text{Pay employee salaries of \$4,200 for the current month.}\\ \text{5. September 19} & \text{Purchase advertising to appear in the current month for \$1,000 cash.}\\ \text{6. September 22} & \text{Pay office rent of \$5,400 for the current month.}\\ \text{7. September 26} & \text{Receive \$15,000 from customers in (1) above.}\\ \text{8. September 30} & \text{Receive cash of \$6,000 in advance from a customer who plans to have }\\ \text{ } & \text{his house painted in the following month.}\\ \end{matrix}$$

1. Record each transaction. Boilermaker uses the following accounts: Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Deferred Revenue, Common Stock, Retained Earnings, Service Revenue, Salaries Expense, Advertising Expense, and Rent Expense. 2. Post each transaction to T-accounts and compute the ending balance of each account. At the beginning of September, the company had the following account balances: Cash, $46,100; Accounts Receivable,$1,700; Supplies, $500; Equipment,$7,400; Accounts Payable, $1,200; Common Stock,$25,000; Retained Earnings, $29,500. All other accounts had a beginning balance of zero. 3. After calculating the ending balance of each account, prepare a trial balance.

Which of the following steps would be done last when preparing a trial balance?

a. List the name of the company, the title of the trial balance, and the date the trial balance is prepared.
b. List the accounts from the ledger, and enter their debit or credit balance in the Debit or Credit column of the trial balance.
c. Verify that the total of the Debit column equals the total of the Credit column.
d. Total the Debit and Credit columns of the trial balance.