Question

Which of the following would require an adjusting entry at the end of the current year?

	a.	Unpaid salaries at the end of the year.
	b.	Estimated bad debts in the following year
	c.	Cash received from customers for services to be performed next year
	d.	All of the above
	e.	A and B

Timberline Co. generally provides services for $1,200, but offers a $200 discount to senior citizens. When providing a service on account to a senior citizen for $1,000, Timberline would record the following:

	a.	Credit Service Revenue for $1,000
	b.	Debit Sales Discounts for $200
	c.	Credit Accounts Receivable for $1,200
	d.	Credit Service Revenue for $1,200
	e.	Debit Accounts Receivable for $1,200

The accounting group responsibility for the establishment of worldwide financial accounting rules is:

	a.	The International Accounting Standards Board
	b.	United Way
	c.	International Organization of Securities Commissions
	d.	The World Bank
	e.	The Financial Accounting Standards Board

Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share. The entry to record the issuance will include a:

	a.	Debit to Cash $1,500.
	b.	Credit to Additional Paid-In Capital $1,400.
	c.	Credit to Common Stock of $100.
	d.	Debit Dividends for $1,500
	e.	Three of the above answers are correct..

The net increase/decrease in cash reported in the Statement of Cash Flows equals:

	a.	Net income reported in the Income Statement
	b.	The change in stockholders’ equity reported in the Statement of Stockholders’ Equity
	c.	Stockholders’ Equity reported in the Balance Sheet
	d.	The change in the balance of the Cash account reported in the Balance Sheet
	e.	The amount of revenues less expenses and dividends during the year

Answer 1

Ans: Solution of the questions is as follows:-

1. Adjustment entries are required for, Unpaid salaries at the end of the year & Estimated bad debts in the following year. These entries are to be passed before closing the books of accounts for that F.Y. Whereas cash advance received from customers for services to be provided in next year doesn’t require any adjustment as it would already reflect Cr. Balance in its account. It would be squared off next year as and when goods are sold/ services are provided to them against the advances received.
   In case of Unpaid salaries & estimated Bad debts the following entries are to be passed.

1. Unpaid salaries at the end of the year -
   Salary A/c                   Dr.       xxx
           To Accrued Salary                      xxx
2. Estimated bad debts in the following year -
   Bad debts A/c            Dr.       xxx
           To Provision for Bad debts A/c xxx

2. The accounting group responsibility for the establishment of worldwide financial accounting rules is The Financial Accounting Standards Board (FASB), an independent nonprofit organization that is responsible for establishing accounting and financial reporting standards for companies and nonprofit organizations in the United States.
   FASB has the authority to establish and interpret generally accepted accounting principles (GAAP) in the United States for public and private companies, as well as for nonprofit organizations. GAAP refers to a set of standards for how companies, nonprofits, and governments should prepare and present their financial statements.

3. Recording transaction for Timberline Co. :-

Accounts receivables A/c    Dr.      1000
Sales Discount A/c                Dr.        200
              To Service Revenue A/c                1200

Here since we have received only $1000 from our senior citizen customers so the balance of $200 is the discount & the service revenue A/c is credited with full $1200.

4. Entries for issue of common stock by Hayes Corporation is as follows:-

Cash/Bank A/c                    Dr.        $ 1500

        To Common Stock A/c                               $100
         To Additional Paid-In Capital                  $1,400

Since the stock are issued @ $15 so the amount received is $1500. Out of which the value of Common stock @ $1 for 100 common stock = $ 100 is credited to Common stock A/c & the balance i.e the excess amount received is credited to additional paid in capital A/c. It is also known as Premium, the amount received over and above the Par value of stock is known as Additional Paid-In Capital or Premium.

5. The net increase/decrease in cash reported in the Statement of Cash Flows equals to the change in the balance of the Cash account reported in the Balance Sheet. It shows the net increase / decrease due to various transactions of various activities of the business (Operating Activities, Investing Activities, and Financing Activities)during the whole F.Y.