Chapter 2 Progressive Problem Accounting cycle

Level One: Remember

The steps in the accounting cycle are listed below in alphabetic order. In the spaces provided, number

them according to their correct sequence.

___ Analyze transactions.

___ Close the temporary accounts to retained earnings.

___ Obtain information about external transactions from source documents.

___ Post from the journal to the general ledger accounts.

___ Prepare a post-closing trial balance.

___ Prepare an adjusted trial balance.

___ Prepare an unadjusted trial balance.

___ Prepare financial statements.

___ Record adjusting entries and post to the general ledger accounts.

___ Record the transactions in a journal.

Level Two: Understand

Consider the following descriptions of various steps in the accounting cycle. For each description,

indicate the relevant step number based on the listing in the chapter. The first item is provided as an

example.

5 Verify, for the first time, the equality of debits and credits in the ledger.

___ Account for timing differences between cash flow and accrual basis measurements.

___ Determine the appropriate journal entry (if any) for the event.

___ Extract, from the accounting information system, the balance sheet and related documents.

___ Prepare the accounting information system for a new fiscal period.

___ Reorganize the data in the accounting information system from chronological to account-based.

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Level Three: Apply

In each of the following independent situations, prepare the appropriate adjusting entry.

a) At the beginning of April 20×4, TNG Corporation had $250 supplies on hand. During April, TNG

purchased an additional $350 worth of supplies. At the end of April, supplies inventory totaled

$200.

b) At the beginning of May 20×4, YSC Corporation’s general ledger showed a credit balance in

Allowance for Bad Debts of $300. During May, YSC wrote off $120 in bad debts; sales on

account for that month totaled $7000. YSC estimates bad debt expense at 1% of total credit

sales.

c) THR Corporation’s weekly payroll totals $10,500; employees are paid every Friday for the current

week’s work. The last day of THR’s fiscal period in 20×4 fell on Wednesday. THR employees

work five days per week.

d) On July 1, 20×4, DJS Corporation received $15,000 from a customer for an upcoming consulting

engagement. By the end of July 20×4, the engagement was 30% complete.

e) TGG purchased equipment with a list price of $4,000 on July 1, 20×4; TGG made a down

payment of $3,000 and financed the remainder via accounts payable. The equipment vendor’s

usual list price for the equipment was $5,000. TGG paid $1,000 to prepare the equipment for

use; its estimated life is 3 years, after which the equipment will have no salvage value. TGG uses

straight-line depreciation; the adjusting entry is recorded at the end of December 20×4.

Level Four: Analyze

Determine which of the following items would require an adjusting entry in 20×4. For those that would,

indicate the type of adjustment required (e.g., accrued revenue, prepaid expense).

a. April 1, 20×4: Paid for one quarter’s advertising that will start immediately.

b. May 10, 20×4: Billed customers for work completed.

c. November 3, 20×4: Received cash from customers for work to begin in 20×5.

d. June 20, 20×4: Determined that an in-progress consulting engagement was 30% complete. The

customer had not been billed.

e. October 3, 20×4: Estimated taxes for the third quarter totaled $16,000, to be paid in January 20×5.

f. July 19, 20×4: Received a memo from the corporate office indicating that the receivable from TRL

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