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Chapter 4: Q14RQ (page 216)
What are permanent accounts? Are permanent accounts closed in the closing process?
Permanent accounts are the accounts which are not closed at the end of the year. No, it is not closed.
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Why are financial statements prepared in a specific order? What is that order?
What are reversing entries? Are they required by GAAP?
Grant Film Productions wishes to expand and has borrowed \(100,000. As a condition for making this loan, the bank requires that the business maintain a current ratio of at least 1.50. Business has been good but not great. Expansion costs have brought the current ratio down to 1.40 on December 15. Rita Grant, owner of the business, is considering what might happen if she reports a current ratio of 1.40 to the bank. One course of action for Grant is to record in December \)10,000 of revenue that the business will earn in January of next year. The contract for this job has been signed. Requirements 1. Journalize the revenue transaction, and indicate how recording this revenue in December would affect the current ratio. 2. Discuss whether it is ethical to record the revenue transaction in December. Identify the accounting principle relevant to this situation, and give the reasons underlying your conclusion.
End of the Line Montana Refrigeration has these account balances at December 31, 2018: Notes Payable, long-term \( 9,200 Accounts Payable \) 3,600 Prepaid Rent 2,500 Accounts Receivable 6,600 Salaries Payable 2,600 Cash 3,500 Service Revenue 15,600 Depreciation Expense鈥擡quip. 400 Office Supplies 1,300 Equipment 24,000 Accumulated Depreciation鈥擡quip. 4,000 Common Stock 6,000 Advertising Expense 900 Rent Expense 1,800 Requirements 1. Calculate End of the Line Montana Refrigeration鈥檚 current ratio. 2. How much in current assets does End of the Line Montana Refrigeration have for every dollar of current liabilities that it owes?
The adjusted trial balance of Bradley Irrigation System at December 31, 2018, follows: BRADLEY IRRIGATION SYSTEM Adjusted Trial Balance December 31, 2018 Account Title Office Supplies Cash Debit Credit Accounts Receivable Prepaid Insurance Building Accumulated Depreciation鈥擝uilding Equipment Accumulated Depreciation鈥擡quipment Accounts Payable Interest Payable Salaries Payable Unearned Revenue Notes Payable (long-term) Common Stock Dividends Retained Earnings Service Revenue Insurance Expense Salaries Expense Supplies Expense Balance \( 12,000 \) 202,100 \( 202,100 21,000 \) 25,300 57,300 40,700 3,500 2,000 1,800 13,000 51,000 28,300 4,700 6,800 21,000 3,200 56,000 32,000 1,200 16,200 1,400 2,000 1,200 2,600 Interest Expense Depreciation Expense鈥擝uilding Depreciation Expense鈥擡quipment Total Requirements 1. Prepare the company鈥檚 income statement for the year ended December 31, 2018. 2. Prepare the company鈥檚 statement of retained earnings for the year ended December 31, 2018. 3. Prepare the company鈥檚 classified balance sheet in report form at December 31, 2018. 4. Journalize the closing entries for Bradley Irrigation System. 5. Compute the company鈥檚 current ratio at December 31, 2018. At December 31, 2017, the current ratio was 1.7. Did the company鈥檚 ability to pay current debts improve or deteriorate, or did it remain the same?
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