ac

Listed below are nine technical accounting terms:

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer “None” if the statement does not correctly describe any of the terms.

 a.

The net amount at which an asset is carried in the accounting records as distinguished from its market value.

 b.

An accounting concept that may justify departure from other accounting principles for purposes of convenience and economy.

 c.

The offsetting of revenue with expenses incurred in generating that revenue.

 d.

Revenue earned during the current accounting period but not yet recorded or billed, which requires an adjusting entry at the end of the period.

 e.

Entries made at the end of the period to achieve the goals of accrual accounting by recording revenue when it is earned and by recording expenses when the related goods and services are used.

 f.

A type of account credited when customers pay in advance for services to be rendered in the future.

 g.

A balance sheet category used for reporting advance payments of such items as insurance, rent, and office supplies.

 h.

An expense representing the systematic allocation of an asset’s cost over its useful life.

Carnival Corporation is the world’s largest cruise line company. Its printing costs for brochures are initially recorded as Prepaid Advertising and are later charged to Advertising Expense when they are mailed. Passenger deposits for upcoming cruises are considered unearned revenue and are recorded as Customer Deposits as cash is received. Deposited amounts are later converted to Cruise Revenue as voyages are completed.

b.

Prepare the adjusting entry necessary when brochures costing $18 million are mailed. (Enter your answers in dollars not in millions. Omit the “$” sign in your response.)

c.

In its most recent annual report, Carnival Corporation reported Customer Deposits in excess of $2.8 billion. Prepare the adjusting entry necessary in the following year as $90 million of this amount is earned. (Enter your answers in dollars not in millions. Omit the “$” sign in your response.)

The geological consulting firm of Gilbert, Marsh, & Kester prepares adjusting entries on a monthly basis. Among the items requiring adjustment on December 31, 2011, are the following:

1.

The company has outstanding a $50,000, 9 percent, two-year note payable issued on July 1, 2010. Payment of the $50,000 note, plus all accrued interest for the two-year loan period, is due in full on June 30, 2012.

2.

The firm is providing consulting services to Texas Oil Company at an agreed-upon rate of $1,000 per day. At December 31, 10 days of unbilled consulting services have been provided.

a.

Prepare the two adjusting entries required on December 31 to record the accrued interest expense and the accrued consulting revenue earned. (Do not round intermediate calculations. Round your answers to the nearest whole dollar. Omit the “$” sign in your response.)

 1.

 2.

Assume that the $50,000 note payable plus all accrued interest are paid in full on June 30, 2012. What portion of the total interest expense associated with this note will be reported in the firm’s 2012 income statement? (Omit the “$” sign in your response.)

  Total interest

$ 

Assume that on January 30, 2012, Gilbert, Marsh, & Kester receive $25,000 from Texas Oil Company in full payment of the consulting services provided in December and January. What portion of this amount constitutes revenue earned in January? (Omit the “$” sign in your response.)

  Revenue earned

To prepare the revenue and expense accounts for recording transactions of the following period.

To apportion the proper amounts of revenue and expense to the current accounting period.

To establish the proper amounts of assets and liabilities in the balance sheet.

To accomplish the objective of offsetting the revenue of the period with all the expenses incurred in generating that revenue.

Coyne Corporation recently hired Elaine Herrold as its new bookkeeper. Herrold was not very experienced and made six recording errors during the last accounting period. The nature of each error is described in the following table.

Instructions

Indicate the effect of the following errors on each of the financial statement elements described in the column headings in the table. Use the following symbols: O = overstated, U = understated, and NE = no effect.

Error

Total
Revenue

Total
Expenses

Net
Income

Total
Assets

Total
Liabilities

Owners’
Equity

  Recorded a dividend as an expense reported in the income statement.

  Recorded the payment of an account payable as a debit to accounts payable and a   credit to an expense account.

  Failed to record depreciation expense.

d.

  Recorded the sale of capital stock as a debit to cash and a credit to retained   earnings.

e.

  Recorded the receipt of a customer deposit as a debit to cash and a credit to fees   earned.

f.

  Failed to record expired portion of an insurance policy.

g.

  Failed to record accrued interest earned on an outstanding note receivable.

Net income is overstated; balance in the retained earnings account is correct.

Net income is correct; balance in the capital stock account is correct.

Net income is understated; balance in the capital stock account is correct.

Net income is understated; balance in the retained earnings account is understated.

Ventura Company adjusts its accounts monthly and closes its accounts on December 31. On October 31, 2011, Ventura Company signed a note payable and borrowed $120,000 from a bank for a period of six months at an annual interest rate of 9 percent.

How much is the total interest expense over the life of the note? How much is the monthly interest expense? (Assume equal amounts of interest expense each month.) (Do not round your intermediate calculations and round your final answer to nearest dollar amount. Omit the “$” sign in your response.)

  Total interest expense

  Monthly interest expense

In the company’s annual balance sheet at December 31, 2011, what is the amount of the liability to the bank? (Omit the “$” sign in your response.)

  Bank liability

Prepare the journal entry to record issuance of the note payable on October 31, 2011. (Omit the “$” sign in your response.)

Oct. 31

Prepare the adjusting entry to accrue interest on the note at December 31, 2011. (Do not round your intermediate calculations and round your final answer to nearest dollar amount. Omit the “$” sign in your response.)

Dec. 31

Assume the company prepared a balance sheet at March 31, 2012. State the amount of the liability to the bank at this date. (Omit the “$” sign in your response.)

  $