Concept explainers
(a)
Income statement:
This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.
Generally Accepted Accounting Principle (GAAP):
Two generally accepted accounting principles that relates to adjusting the accounts are as follows:
- The revenue recognition principle
- The expenses recognition principle
The revenue recognition principle:
The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.
The expense recognition principle:
The expense recognition principle refers to the expenses that should match with revenue (matching principle) in the period when the company incurred expenses in order to generate the revenue.
To prepare: The correct income statement of Company AP for the quarter ended March 31, 2017.
(b)
To explain: The effects of GAAP principle which was not recognized at the time of preparing the income statement.
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Chapter 4 Solutions
Financial Accounting: Tools for Business Decision Making, 8th Edition
- You have been recently hired as an assistant controller for XYZ Industries, a large, publically held manufacturing company. Your immediate supervisor is the controller who also reports directly to the VP of Finance. The controller has assigned you the task of preparing the year-end adjusting entries. In the receivables area, you have prepared an aging accounts receivable and have applied historical percentages to the balances of each of the age categories. The analysis indicates that an appropriate estimated balance for the allowance for uncollectible accounts is $180,000. The existing balance in the allowance account prior to any adjusting entry is a $20,000 credit balance. After showing your analysis to the controller, he tells you to change the aging category of a large account from over 120 days to current status and to prepare a new invoice to the customer with a revised date that agrees with the new category. This will change the required allowance for uncollectible accounts…arrow_forwardYou are a financial accountant for a small business and have been tasked with preparing a monograph for the company's financial statements. The monograph should include a list of economic events that have occurred over the course of one month, including: 1) receivables, 2)merchandising assets, 3)sales, 4)VAT, 5) prepaid expenses and revenues (these five categories have to be in your monograph as mandatory). Your list should include 15 economic events. For each economic event, you will need to create a general journal entry, post the entry to the general ledger, prepare a trial balance, and ultimately prepare the company's income statement and balance sheet. To complete this assignment, you will need to: 1. Create a list of at least 15 economic events that have occurred over the course of one month. Make sure to include the mandatory economic events mentioned above and any other important events that you can think of. 2. For each economic event, create a general journal entry and post…arrow_forwardBe creative. You are a financial accountant for a small business and have been tasked with preparing a monograph for the company's financial statements. The monograph should include a list of economic events that have occurred over the course of one month, including: 1) receivables, 2) merchandising assets, 3) sales, 4) VAT, 5) prepaid expenses and revenues (these five categories have to be in your monograph as mandatory). Your list should include 15 economic events. For each economic event, you will need to create a general journal entry, post the entry to the general ledger, prepare a trial balance, and ultimately prepare the company's income statement and balance sheet. To complete this assignment, you will need to: 1. Create a list of at least 15 economic events that have occurred over the course of one month. Make sure to include the mandatory economic events mentioned above and any other important events that you can think of. 2. For each economic event, create a general journal…arrow_forward
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- Picasso Graphics is a graphics arts design consulting firm. Pablo Taylor, its treasurer and vice president of finance, has prepared a classified balance sheet as of July 31, 2016, the end of its fiscal year. This balance sheet will be submitted with Picasso Graphics’ loan application to Paris Trust & Savings Bank.In the Current Assets section of the balance sheet, Pablo reported a $56,000 receivable from Becky Holt, the president of Picasso Graphics, as a trade account receivable. Becky borrowed the money from Picasso Graphics in January 2014 for a down payment on a new home. She has orally assured Pablo that she will pay off the account receivable within the next year. Pablo reported the $56,000 in the same manner on the preceding year’s balance sheet.Evaluate whether it is acceptable for Pablo to prepare the July 31, 2016, balance sheet in this manner.arrow_forwardPicasso Graphics is a graphics arts design consulting firm. Pablo Taylor, its treasurer and vice president of finance, has prepared a classified balance sheet as of July 31, 2016, the end of its fiscal year. This balance sheet will be submitted with Picasso Graphics' loan application to Paris Trust & Savings Bank. In the Current Assets section of the balance sheet, Pablo reported a $56,000 receivable from Becky Holt, the president of Picasso Graphics, as a trade account receivable. Becky borrowed the money from Picasso Graphics in January 2014 for a down payment on a new home. She has orally assured Pablo that she will pay off the account receivable within the next year. Pablo reported the $56,000 in the same manner on the preceding year's balance sheet. Evaluate whether it is acceptable for Pablo to prepare the July 31, 2016, balance sheet in this manner. Must be 150+ words, good grammar and source a similar real life experience or similar concepts discussed in financial…arrow_forwardPicasso Graphics is a graphics arts design consulting firm. Pablo Taylor, its treasurer and vice president of finance, has prepared a classified balance sheet as of July 31, 2016, the end of its fiscal year. This balance sheet will be submitted with Picasso Graphics' loan application to Paris Trust & Savings Bank. In the Current Assets section of the balance sheet, Pablo reported a $56,000 receivable from Becky Holt, the president of Picasso Graphics, as a trade account receivable. Becky borrowed the money from Picasso Graphics in January 2014 for a down payment on a new home. She has orally assured Pablo that she will pay off the account receivable within the next year. Pablo reported the $56,000 in the same manner on the preceding year's balance sheet. Evaluate whether it is acceptable for Pablo to prepare the July 31, 2016, balance sheet in this manner.arrow_forward
- Picasso Graphics is a graphics arts design consulting firm. Pablo Taylor, its treasurer and vice president of finance, has prepared a classified balance sheet as of July 31, 2016, the end of its fiscal year. This balance sheet will be submitted with Picasso Graphics' loan application to Paris Trust & Savings Bank. In the Current Assets section of the balance sheet, Pablo reported a $56,000 receivable from Becky Holt, the president of Picasso Graphics, as a trade account receivable. Becky borrowed the money from Picasso Graphics in January 2014 for a down payment on a new home. She has orally assured Pablo that she will pay off the account receivable within the next year. Pablo reported the $56,000 in the same manner on the preceding year's balance sheet. Evaluate and share on thoughts on whether it is acceptable for Pablo to prepare the July 31, 2016, balance sheet in this mannerarrow_forwardAssume you are a newly hired accountant for a local manufacturing firm. You have enjoyed working for the company and are looking forward to your first experience participating in the preparation of the company’s financial statements for the year-ending December 31, the end of the company’s fiscal year. As you are preparing your assigned journal entries, your supervisor approaches you and asks to speak with you. Your supervisor is concerned because, based on her preliminary estimates, the company will fall just shy of its financial targets for the year. If the estimates are true, this means that all 176 employees of the company will not receive year-end bonuses, which represent a significant portion of their pay. One of the entries that you will prepare involves the upcoming bond interest payment that will be paid on January 15 of the next year. Your supervisor has calculated that, if the journal entry is dated on January 1 of the following year rather than on December 31 of the current…arrow_forwardZach Allen is the accountant for a large retail company. It is now the end of the accounting period and time to prepare financial statements. Zach has requested that the company's sales manager give him an estimate of uncollectible credit sales for the period. Zach says that he needs this information so that he can record bad debt expense. The sales manager tells Zach to "not worry about it. You can just record the expense as the accounts become uncollectible." Comment on this situation and who you think is right. Do you see any problem with the "wait and record approach"?arrow_forward
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