E3-5 Devin Wolf Company has the following balances in selected accounts on December should adopt the…
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Question “E3-5 Devin Wolf Company has the following balances in selected accounts on December should adopt the…”
Answer
E 3:
(a) Accrual basis accounting records transactions that affect a company’s financial statements only in the period in which they occur, rather than the periods when the company receives cash. Accrual-basis information is useful as it shows relationships that can be used to predict future results. Cash-basis accounting records revenue only when cash arrives, while expenses are only recognized when cash is spent. Cash-basis accounting can lead to misleading financial statements.
(b) Some politicians might prefer a cash-basis accounting method to an accrual basis system. This is because, if an accrual system is used, it could lead to billions of government liabilities that would need reporting in the federal budget. These additional liabilities could make the deficit worse. This is not what politicians want to see, and for which they should be held accountable.
(c) Dear Senator,
After taking a course in accounting principles, I have come to understand that the Federal government uses an accrual-basis rather than a cash-basis accounting system.
This is shocking! I am shocked at this practice! There must be billions in liabilities hidden in contracts that haven’t yet been paid. Although I know that the deficit will increase dramatically if accrual systems are implemented, citizens should have a better understanding of where our government is at all times.
Sincerely,
CONCERNED STUDENT
E3-3:
(a) Cash received from revenue……………………………………………………………….. $108,000
Cash paid for expenses………………………………………………………………………. (72,000)
Cash-basis net income……………………………………………………………… $ 36,000
(b) Revenues [($108,000 – $25,000) + $36,000]………………………………………… $119,000
Expenses [($72,000 – $30,000) + $42,000]…………………………………………… (84,000)
Accrual-basis net income…………………………………………………………. $ 35,000
E 3-4:
1. Unearned revenue.
2. Accrued expense.
3. Accrued expense.
4. Accrued revenue.
5. Prepaid expense
6. Unearned revenue.
7. Accrued revenue.
8. Prepaid expense
9. Prepaid expense
10. Prepaid expense
11. Accrued expense.
E 3 –
1.
(a) Dec. 31 Interest Expense…………………………………………. 300
Interest Payment
($10,000 x 9% x 4/12)…………………………… 300
(b). Aug. 31 Interest Expense
($10,000 x 9% x 8/12)………………………………… 600
Interest Payable…………………………………………. 300
Notes Payable…………………………………………….. 10,000
Cash…………………………………………………….. 10,900
E 3:
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