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Financial Accounting IFRS 3rd Edition Solutions Manual Weygandt Kimmel
Kieso
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TEST BANK for Financial Accounting IFRS 3rd Edition by Jerry J.
Weygandt, Paul D. Kimmel, Donald E. Kieso
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CHAPTER 3
Adjusting the Accounts
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives Questions
Brief Exercises Do It! Exercises
A Problems
B Problems
*1. Explain the time period assumption.
1 1 1
*2. Explain the accrual basis of accounting.
2, 3, 4, 5 1 2, 3, 10,
*3. Explain the reasons for adjusting entries.
6, 7 1
*4. Identify the major types of adjusting entries.
8, 18 2, 8 4, 6, 11
*5. Prepare adjusting entries for deferrals.
8, 9, 10, 11, 12, 13, 18, 19, 20
2, 3, 4, 5, 6, 8
2 5, 6, 7, 8, 9, 10, 11, 12, 13, 15
1A, 2A, 3A, 4A, 5A, 6A
1B, 2B, 3B, 4B, 5B
*6. Prepare adjusting entries for accruals.
8, 14, 15, 16, 17, 18, 19, 20
2, 7, 8 3 5, 6, 7, 8, 9, 10, 11, 12, 13, 15
1A, 2A, 3A, 4A, 5A, 6A
1B, 2B, 3B, 4B, 5B
*7. Describe the nature and 21 9, 10 4 10, 11, 12, 1A, 2A, 3A, 1B, 2B, 3B,
purpose of an adjusted trial balance.
13, 14 5A, 6A 5B
*8. Prepare adjusting entries for the alternative treatment of deferrals.
22 11 17, 18 6A
*9. Discuss financial reporting concepts.
23, 24, 25, 26, 27, 28
12, 13 14, 15
19, 20, 21, 22, 23
- Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter.
WEYGANDT FINANCIAL ACCOUNTING, IFRS EDITION, 3e
ADJUSTING THE ACCOUNTS
ADJUSTING THE ACCOUNTS (Continued)
- CHAPTER
- BE1 3 C Simple 4 – Number LO BT Difficulty Time (min.)
- BE2 4 – 6 AN Moderate 6 –
- BE3 5 AN Simple 3 –
- BE4 5 AN Simple 3 –
- BE5 5 AN Simple 2 –
- BE6 5 AN Simple 2 –
- BE7 6 AN Simple 4 –
- BE8 4 – 6 AN Simple 5 –
- BE9 7 AP Simple 4 –
- BE10 7 AP Simple 2 –
- BE11* 8 AN Moderate 3 –
- BE12* 9 K Simple 3 –
- BE13* 9 K Simple 2 –
- BE14* 9 K Simple 2 –
- BE15* 9 K Simple 1 –
- DI1 1, 2 K Simple 2 –
- DI2 5 AN Simple 6 –
- DI3 6 AN Simple 4 –
- DI4 7 AN Moderate 20 –
- EX1 1 C Simple 3 –
- EX2 2 E Moderate 10 –
- EX3 2 AP Simple 6 –
- EX4 4 AN Simple 5 –
- EX5 5, 6 AN Moderate 10 –
- EX6 4 – 6 AN Moderate 10 –
- EX7 5, 6 AN Moderate 8 –
- EX8 5, 6 AN Moderate 8 –
- EX9 5, 6 AN Simple 8 –
- EX10 2, 5– 7 AN Moderate 8 –
- EX11 4 – 7 AN Moderate 12 –
- EX12 5 – 7 AN Moderate 8 –
- EX13 5 – 7 AN Simple 8 – Number LO BT Difficulty Time (min.)
- EX14 7 AP Simple 12 –
- EX15 5, 6 AN, S Moderate 8 –
- EX16 2 AN Moderate 8 –
- EX17* 8 AN Moderate 6 –
- EX18* 8 AN Moderate 10 –
- EX19* 9 K Simple 3 –
- EX20* 9 C Simple 3 –
- EX21* 9 K Simple 6 –
- EX22* 9 E Simple 10 –
- EX23* 9 E Simple 10 –
- P1A 5 – 7 AN Simple 40 –
- P2A 5 – 7 AN Simple 50 –
- P3A 5 – 7 AN Moderate 40 –
- P4A 5, 6 AN Moderate 30 –
- P5A 5 – 7 AN Moderate 60 –
- P6A 5 – 8 AN Moderate 40 –
- P1B 5 – 7 AN Simple 40 –
- P2B 5 – 7 AN Simple 50 –
- P3B 5 – 7 AN Moderate 40 –
- P4B 5 , 6 AN Moderate 30 –
- P5B 5 – 7 AN Moderate 60 –
- BYP1 5, 6 AN Simple 10 –
- BYP2 — AN Simple 10 –
- BYP3 2 – 7 S Moderate 15 –
- BYP4 3 – 6 C Simple 10 –
- BYP5 3 – 6 E Moderate 10 –
ANSWERS TO QUESTIONS
1. (a) Under the time period assumption, an accountant is required to determine the relevance of each business transaction to specific accounting periods. (b) An accounting time period of one year in length is referred to as a fiscal year. A fiscal year that extends from January 1 to December 31 is referred to as a calendar year. Accounting periods of less than one year are called interim periods.
LO: 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
2. The two principles that relate to adjusting the accounts are: The revenue recognition principle, which states that revenue should be recognized in the accounting period in which the performance obligation is satisfied. The expense recognition principle, which states that efforts (expenses) should be matched with accomplishments (revenues).
LO: 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
3. The law firm should recognize the revenue in April. When a company agrees to perform a service for a customer it has a performance obligation. The revenue recognition principle states that revenue should be recognized in the accounting period in which the performance obligation is satisfied which is April in this case.
LO: 3.
Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
4. Information presented on an accrual basis is more useful than on a cash basis because it reveals relationships that are likely to be important in predicting future results. To illustrate, under accrual accounting, revenues are recognized when earned so they can be related to the economic environment in which they occur. Trends in revenues are thus more meaningful.
LO: 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
5. Expenses of £4,700 should be deducted from the revenues in April. Under the expense recognition principle efforts (expenses) should be matched with accomplishments (revenues).
LO: 3.
Difficulty: Easy BLOOMCODE: Application AACSB: Reflective thinking
6. No, adjusting entries are required by the revenue recognition and expense recognition principles.
LO: 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
7. A trial balance may not contain up-to-date information for financial statements because: (1) Some events are not journalized daily because it is not efficient to do so. (2) The expiration of some costs occurs with the passage of time rather than as a result of daily transactions. (3) Some items may be unrecorded because the transaction data are not yet known.
LO: 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
8. The two categories of adjusting entries are deferrals and accruals. Deferrals consist of prepaid expenses and unearned revenues. Accruals consist of accrued revenues and accrued expenses.
LO: 3.5, 3.
Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
9. In the adjusting entry for a prepaid expense, an expense is debited and an asset is credited.
LO: 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
10. No. Depreciation is the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner. Depreciation results in the presentation of the book value of the asset, not its fair value.
LO: 3.
Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
11. Depreciation expense is an expense account whose normal balance is a debit. This account shows the cost that has expired during the current accounting period. Accumulated depreciation is a contra asset account whose normal balance is a credit. The balance in this account is the depreciation that has been recognized from the date of acquisition to the statement of financial position date.
LO: 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
LO: 3.
Difficulty: Medium BLOOMCODE: Analysis AACSB: Analytic
*19. (a) Salaries and Wages Payable. (d) Supplies Expense. (b) Accumulated Depreciation. (e) Service Revenue. (c) Interest Expense. (f) Service Revenue.
LO: 3.5, 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
*20. Disagree. An adjusting entry affects only one statement of financial position account and one income statement account.
LO: 3.5, 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
*21. Financial statements can be prepared from an adjusted trial balance because the balances of all accounts have been adjusted to show the effects of all financial events that have occurred during the accounting period.
LO: 3. Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
*22. For Supplies Expense (prepaid expense): expenses are overstated and assets are understated. The adjusting entry is: Assets (Supplies)...................................................................................... XX Expenses (Supplies Expense) ............................................................ XX
For Rent Revenue (unearned revenues): revenues are overstated and liabilities are understated. The adjusting entry is: Revenues (Rent Revenue) ....................................................................... XX Liabilities (Unearned Rent Revenue) .................................................. XX
LO: 3. Difficulty: Medium BLOOMCODE: Application AACSB: Reflective thinking
*23. (a) The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions about providing capital. (b) The fundamental qualitative characteristics are relevance and faithful representation. The enhancing qualities are comparabiIity, verifiability, timeliness, and understandability.
LO: 3. Difficulty: Easy BLOOMCODE: Knowledge
AACSB: Reflective thinking
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 3-
(a) Prepaid Insurance—to recognize insurance expired during the period.
(b) Depreciation Expense—to account for the depreciation that has occurred
on the asset during the period.
(c) Unearned Service Revenue—to record revenue earned for services
provided.
(d) Interest Payable—to recognize interest accrued but unpaid on notes
payable.
LO: 3.
Difficulty: Easy BLOOMCODE: Comprehension AACSB: Reflective thinking
BRIEF EXERCISE 3-
Item
(a)
Type of Adjustment
(b)
Account Balances before Adjustment
1. Prepaid Expenses Assets Overstated
Expenses Understated
2. Accrued Revenues Assets Understated
Revenues Understated
3. Accrued Expenses Expenses Understated
Liabilities Understated
4. Unearned Revenues Liabilities Overstated
Revenues Understated
LO: 3.5, 3.
Difficulty: Medium BLOOMCODE: Analysis AACSB: Analytic
BRIEF EXERCISE 3-
Dec. 31 Supplies Expense ................................................ 5,
Supplies (£6,700 – £1,300) ........................... 5,
Supplies Supplies Expense
12/31 Bal. 1,
LO: 3.
Difficulty: Medium BLOOMCODE: Analysis AACSB: Analytic
Unearned Service Revenue Service Revenue
12/31 Bal. 11,
LO: 3.
Difficulty: Medium BLOOMCODE: Analysis AACSB: Analytic
BRIEF EXERCISE 3-
1. Dec. 31 Interest Expense .......................................... 320
Interest Payable .................................... 320
2. 31 Accounts Receivable ................................... 1,
Service Revenue ................................... 1,
3. 31 Salaries and Wages Expense ...................... 900
Salaries and Wages Payable ................ 900
LO: 3.
Difficulty: Medium BLOOMCODE: Analysis AACSB: Analytic
BRIEF EXERCISE 3-
Account
(a)
Type of Adjustment
(b)
Related Account
Accounts Receivable Accrued Revenues Service Revenue
Prepaid Insurance Prepaid Expenses Insurance Expense
Accum. Depr.—Equipment Prepaid Expenses Depreciation Expense
Interest Payable Accrued Expenses Interest Expense
Unearned Service Revenue Unearned Revenues Service Revenue
LO: 3.4, 3.5, 3.
Difficulty: Medium BLOOMCODE: Analysis AACSB: Analytic
BRIEF EXERCISE 3-
KWUN COMPANY
Income Statement
For the Year Ended December 31, 2017
(in thousands)
Revenues
Service revenue .................................................... W38,
Expenses
Salaries and wages expense ............................... W16,
Rent expense ........................................................ 4,
Insurance expense ............................................... 2,
Supplies expense ................................................. 1,
BRIEF EXERCISE 3-
KWUN COMPANY
Retained Earnings Statement
For the Year Ended December 31, 2017
(in thousands)
Retained earnings, January 1 ......................................................... W 7,
Add: Error! Reference source not found. Net income ...................... 13,
Less: Dividends .............................................................................. 6,
Retained earnings, December 31 ................................................... W14,
LO: 3.
Difficulty: Medium BLOOMCODE: Application AACSB: Analytic
*BRIEF EXERCISE 3-
(a) Apr. 30 Supplies ........................................................ 11,
Supplies Expense ................................. 11,
(b) 30 Service Revenue ........................................... 20,
Unearned Service Revenue .................. 20,
LO: 3.
Difficulty: Medium BLOOMCODE: Analysis AACSB: Analytic
*BRIEF EXERCISE 3-
(a) Predictive value.
(b) Confirmatory value.
(c) Materiality.
(d) Complete.
(e) Free from error.
(f) Comparability.
(g) Verifiability.
(h) Timeliness.
LO: 3.
Difficulty: Easy BLOOMCODE: Knowledge AACSB: Reflective thinking
*BRIEF EXERCISE 3-
(a) Relevant.
(b) Faithful representation.
(c) Consistency.
LO: 3.
Difficulty: Easy BLOOMCODE: Knowledge AACSB: Reflective thinking
*BRIEF EXERCISE 3-
(a) 3. Verifiable.
(b) 4. Timely.
(c) 1. Predictive value.
(d) 2. Neutral.
LO: 3.
Difficulty: Easy BLOOMCODE: Knowledge AACSB: Reflective thinking
*BRIEF EXERCISE 3-
(c)
LO: 3.
Difficulty: Easy BLOOMCODE: Knowledge AACSB: Reflective thinking
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 3-
1. (d) 2. (e) 3. (h) 4. (c)
LO: 3.1, 3.
Difficulty: Easy BLOOMCODE: Knowledge AACSB: Reflective thinking
