EXERCISES CHAPTER 4
1. Cadillac Jack's Restaurant had the following selected
transactions during May:
a. May 1: received $800 in advance for a banquet to be
served late
b. May 5: paid electricity expenses, $700
c. May 9: received cash for the day's sales, $1,400
d. May 23: served a banquet, receiving a note receivable,
$1,200
e. May 31: accrued salary expense, $900
f. May 31: prepaid building rent for June, July, and August,
$3,000
•Show how each transaction would be handled using the cash
basis and the accrual basis. Under each column, give the
amount of revenue or expense for May
•Compute income (loss) before tax for May under the two
accounting methods
•Which method better measures income and assets?
2. Identify the accounting concept or principle that gives the
most direction on how to account for each of the following
situations:
a. A construction company is building a highway system, an
construction may take three years. When should the
company record the revenue it earns?
b. A physician performs a surgical operation and bills the
patient's insurance company. It may take three months to
collect from the insurance company. Should the physician
record revenue now or wait until cash is collected?
c. A utility bill is received on December 30 and will be paid
next year. When should the company record utility expense?
d. Salary expense of $35,000 is accrued at the end of the
period to measure income properly
e. March has been a particularly slow month, and the business
will have a net loss for the first quarter of the year.
Management is considering not following its customary
practice of reporting quarterly earnings to the public.
Investors depend on quarterly earnings reports to decide
whether to buy, hold, or sell the company's stock
3. Journalize the adjusting entries needed on December 31, the
end of the current accounting period, for each of the following
independent cases affecting Fiber Optic Engineering, Inc.
(FOE):
