Question

Q 2-29 Why are adjusting entries necessary? Q 2-30 Why aren’t all transactions recorded in the gen- eral journal? Q 2-31 Describe the filing deadline for Form 10-K. Q 2-32 Identify the usual forms of a business entity and describe the ownership characteristic of each. Q 2-33 Why would the use of insider information be of concern if the market is efficient?

Answer 1

Q 2-29 Why are adjusting entries necessary?

Adjusting entries are necessary due to the time period assumption because economic life of a business is divided into artificial periods. At the end of the accounting period company makes adjusting entries so that revenues can be recorded in the same period in which it has been earned and similarly expenses can be recognized in the same period in which they have incurred. For example; at the end of the period we record depreciation so that we can show the actual cost of the asset.

Q 2-30 why aren’t all transactions recorded in the general journal?

All transactions are not recorded in the general journal because there are various types of special journals like sales journal, Purchase journal, Cash Receipt journal, Cash Payment journal and all the transactions related to these types of Journals are recorded in these special journals . These types of Journals help in improving the efficiency of record keeping that could not be obtained by using only the general Journal.

Q 2-31 Describe the filing deadline for Form 10-K.

For large accelerated filer whose value is $700 million or having market value more than 700 million can file the form 10- K in 60 days

Companies whose value is 75 million or more but less than 700 million can file the form 10-K in 75 days.

Companies whose value is less than 75 million can file the form 10-K in 90 days.

Q 2-32 identifies the usual forms of a business entity and describes the ownership characteristic of each.

Three types of business activities are described as follows:-

1. Sole Proprietorship: - This form of business is run by single person or an individual basically referred to as sole proprietor or owner. He bears all the risk and enjoys all the profits of the business.
2. Partnership: - It is a form of business run by two or more persons who have agreed to share the profits and losses of business together. The risks and rewards are shared among the partners either equally or in the mutually agreed ratio.
3. Company: - It has its legal identity separate from its members. Members may come, members may go but a company goes on forever. This means that business of the company

Q 2-33 why would the use of insider information be of concern if the market is efficient

According to efficient market hypothesis prices change due to new information which has been available in the market. It does not have access to inside information. Therefore, it resulted in abnormal returns for the user of insider information.