Solutions, Volume 2, 2nd Edition Over 1,700 questions and problems with
available solutions
Basic Accounting Concepts, Principles, and Procedures, Volume 2, 2 Solutions,
Volume 2, 2nd Edition by Gregory Mostyn
• Learning Goal 1: Explain the Meaning of “Accounting Period”
• Learning Goal 2: Explain the Basic Principles for Recording Revenues and Expenses
• Learning Goal 4: Analyze Accounts and Prepare Adjusting Entries
• Learning Goal 5: Prepare and Use an Adjusted Trial Balance
• Learning Goal 7: Prepare and Use a Worksheet; Use a Classified Balance Sheet
• Learning Goal 8: Prepare Closing Entries
• Learning Goal 9: Describe the Complete Accounting Cycle
• Learning Goal 10: Distinguish Service Operations From Merchandising Operations
• Learning Goal 11: Explain and Use the Periodic Inventory Method
• Learning Goal 12: Complete the Period-End Procedures — Periodic Method
• Learning Goal 13: Explain and Use the Perpetual Inventory Method
• Learning Goal 14: Complete the Period-End Procedures — Perpetual Method
• Learning Goal 15: Identify an Accounting System; Explain and Use Its Features
• Learning Goal 16: Report and Control Cash
• Learning Goal 17: Record, Report, and Control Receivables
• Learning Goal 18: Record, Report, and Control Merchandise Inventory
• Learning Goal 19: Record, Report, and Control Fixed Assets and Intangibles
• Learning Goal 20: Record, Report, and Control Current Liabilities and Payroll
• Learning Goal 21: Prepare and Analyze a Statement of Cash Flows
, Learning Goal 1: Explain the Meaning of “Accounting Period” S
SOLUTIONS Learning Goal 1
Multiple Choice
1. b
2. d
3. c
4. c
5. a Although all the other items are important as well—especially (b) and (d).
6. c
7. c
Reinforcement Problems
LG 1-1. The life of a business is divided into regular, equal accounting periods because:
■■ Income measurement: Net income can only be measured over a period of time.
■■ Timeliness: Financial information is needed frequently and regularly.
■■ Comparability: Selecting equal time periods makes information comparable.
The issues created are:
a. Deciding what is the best way to measure financial change during each period.
b. The need to carefully define the elements that will measure the change.
c. Knowing in what periods revenues and expenses should be recorded.
d. Making sure that all revenues and expenses do get recorded.
LG 1-2. The active policy falls into 2017, 2018, and 2019.
July 1 July 1
Sept. 10 Sept. 9
2017 2018 2019
LG 1-3. No! Rosie’s Company earned the $12,000 in only one month, while Greg’s Company
needed a year to earn the same amount. Rosie’s Company will earn 12 × $12,000 = $144,000 in
a year. The length of the time period makes a big difference!
LG 1-4.
A revenue can either increase an asset or decrease a liability, but always increases retained
●●
earnings.
An expense can either increase a liability or decrease an asset, but always decreases
●●
retained earnings.
Mostyn-Vol 2_SG1.indd 1 15/04/
, 2 Section I · Adjusting the Accounts
SOLUTIONS Learning Goal 2, continued
LG 1-5.
Sonora Company, Inc.
Income Statement
For the Year Ended December 31, 2017
Revenues and gains
Service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $475,200
Operating expenses
Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $269,220
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,400
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,750
Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,130
Repairs expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,100
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 397,600
Income before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,600
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,620
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61,980
Sonora Company, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2017
Retained earnings, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $181,300
Add: net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,980
Less: dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,000)
Retained earnings, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $218,280
Sonora Company, Inc.
Balance Sheet
December 31, 2017
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,440
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,330
Office Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,600
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,300
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $258,670
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,390
Unearned Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,390
Stockholders’ equity
Paid-in capital
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,280
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,280
Total liabilities and stockholder’s equity . . . . . . . . . . . . . . . . . . . $258,670
Mostyn-Vol 2_SG1.indd 2 15/04/
, Learning Goal 2: Explain the Basic Principles for Recording Revenues and Expenses S
SOLUTIONS Learning Goal 2
Multiple Choice
1. d Business income (or loss) is more properly measured using accrual basis accounting because
accrual basis accounting recognizes (records) noncash revenues as well as cash revenues, and
noncash expenses as well as cash expenses.
2. c 3. d 4. b 5. d 6. b 7. c 8. a
9. a Expenses must be matched with revenues. Also, concerning (d) remember that a cash basis
balance sheet will never show receivables or payables, because revenues and expenses cannot
be accrued—they must always be received or paid in cash.
Reinforcement Problems
LG 2-1. The periodicity (time-period) assumption is the assumption that the life of a business can
be divided into regular, fixed time intervals. The revenue recognition principle tells accountants
how to determine the amount of revenue that should be recorded in any particular time period.
The matching principle tells accountants how to determine the amount of expense that should be
recorded in any particular time period.
LG 2-2.
a. When cash basis is used, accounts receivable and accounts payable do not appear on the
balance sheet. An account receivable results from noncash revenue. Noncash revenue
transactions are not recorded on a cash basis. Accounts payable result from noncash expenses
or purchases not paid for. Because there are no cash payments, these transactions would not be
recorded.
b. Unlike cash basis, accrual basis accounting records all revenues (cash and noncash), so it is not
necessary for cash to be received in order to record revenue. However, all receipts of cash are
not revenue. Examples: Loans and owner investments are not revenue.
c. Unlike cash basis, accrual basis accounting records all expenses (cash and noncash), so it is not
necessary for cash to be paid in order to record an expense. However, all payments of cash are
not expenses. Examples: Buying assets for cash and paying back loans.
d. The manager is incorrect because it is not yet earned. The order is not yet finished and
delivered to the customer, so no revenue can be recorded. Intentionally recording the revenue
on December 31 would be a violation of the revenue recognition principle, would overstate the
year’s revenue, and would be a fraudulent transaction.
LG 2-3.
Which Period to record:
Situation principle? Revenue / Expense
a. C
ape Fear Company performed $500 of repair revenue $500 January revenue
services in January and was paid in March. recognition
b. W
ilkes Delivery Company used $250 of matching $250 August expense. This expense can-
automotive supplies in August. not be traced to any particular revenue.
Mostyn-Vol 2_SG2.indd 1 12/2
available solutions
Basic Accounting Concepts, Principles, and Procedures, Volume 2, 2 Solutions,
Volume 2, 2nd Edition by Gregory Mostyn
• Learning Goal 1: Explain the Meaning of “Accounting Period”
• Learning Goal 2: Explain the Basic Principles for Recording Revenues and Expenses
• Learning Goal 4: Analyze Accounts and Prepare Adjusting Entries
• Learning Goal 5: Prepare and Use an Adjusted Trial Balance
• Learning Goal 7: Prepare and Use a Worksheet; Use a Classified Balance Sheet
• Learning Goal 8: Prepare Closing Entries
• Learning Goal 9: Describe the Complete Accounting Cycle
• Learning Goal 10: Distinguish Service Operations From Merchandising Operations
• Learning Goal 11: Explain and Use the Periodic Inventory Method
• Learning Goal 12: Complete the Period-End Procedures — Periodic Method
• Learning Goal 13: Explain and Use the Perpetual Inventory Method
• Learning Goal 14: Complete the Period-End Procedures — Perpetual Method
• Learning Goal 15: Identify an Accounting System; Explain and Use Its Features
• Learning Goal 16: Report and Control Cash
• Learning Goal 17: Record, Report, and Control Receivables
• Learning Goal 18: Record, Report, and Control Merchandise Inventory
• Learning Goal 19: Record, Report, and Control Fixed Assets and Intangibles
• Learning Goal 20: Record, Report, and Control Current Liabilities and Payroll
• Learning Goal 21: Prepare and Analyze a Statement of Cash Flows
, Learning Goal 1: Explain the Meaning of “Accounting Period” S
SOLUTIONS Learning Goal 1
Multiple Choice
1. b
2. d
3. c
4. c
5. a Although all the other items are important as well—especially (b) and (d).
6. c
7. c
Reinforcement Problems
LG 1-1. The life of a business is divided into regular, equal accounting periods because:
■■ Income measurement: Net income can only be measured over a period of time.
■■ Timeliness: Financial information is needed frequently and regularly.
■■ Comparability: Selecting equal time periods makes information comparable.
The issues created are:
a. Deciding what is the best way to measure financial change during each period.
b. The need to carefully define the elements that will measure the change.
c. Knowing in what periods revenues and expenses should be recorded.
d. Making sure that all revenues and expenses do get recorded.
LG 1-2. The active policy falls into 2017, 2018, and 2019.
July 1 July 1
Sept. 10 Sept. 9
2017 2018 2019
LG 1-3. No! Rosie’s Company earned the $12,000 in only one month, while Greg’s Company
needed a year to earn the same amount. Rosie’s Company will earn 12 × $12,000 = $144,000 in
a year. The length of the time period makes a big difference!
LG 1-4.
A revenue can either increase an asset or decrease a liability, but always increases retained
●●
earnings.
An expense can either increase a liability or decrease an asset, but always decreases
●●
retained earnings.
Mostyn-Vol 2_SG1.indd 1 15/04/
, 2 Section I · Adjusting the Accounts
SOLUTIONS Learning Goal 2, continued
LG 1-5.
Sonora Company, Inc.
Income Statement
For the Year Ended December 31, 2017
Revenues and gains
Service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $475,200
Operating expenses
Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $269,220
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,400
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,750
Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,130
Repairs expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,100
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 397,600
Income before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,600
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,620
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61,980
Sonora Company, Inc.
Statement of Retained Earnings
For the Year Ended December 31, 2017
Retained earnings, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $181,300
Add: net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,980
Less: dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,000)
Retained earnings, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $218,280
Sonora Company, Inc.
Balance Sheet
December 31, 2017
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,440
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,330
Office Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,600
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,300
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $258,670
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,390
Unearned Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,390
Stockholders’ equity
Paid-in capital
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,280
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,280
Total liabilities and stockholder’s equity . . . . . . . . . . . . . . . . . . . $258,670
Mostyn-Vol 2_SG1.indd 2 15/04/
, Learning Goal 2: Explain the Basic Principles for Recording Revenues and Expenses S
SOLUTIONS Learning Goal 2
Multiple Choice
1. d Business income (or loss) is more properly measured using accrual basis accounting because
accrual basis accounting recognizes (records) noncash revenues as well as cash revenues, and
noncash expenses as well as cash expenses.
2. c 3. d 4. b 5. d 6. b 7. c 8. a
9. a Expenses must be matched with revenues. Also, concerning (d) remember that a cash basis
balance sheet will never show receivables or payables, because revenues and expenses cannot
be accrued—they must always be received or paid in cash.
Reinforcement Problems
LG 2-1. The periodicity (time-period) assumption is the assumption that the life of a business can
be divided into regular, fixed time intervals. The revenue recognition principle tells accountants
how to determine the amount of revenue that should be recorded in any particular time period.
The matching principle tells accountants how to determine the amount of expense that should be
recorded in any particular time period.
LG 2-2.
a. When cash basis is used, accounts receivable and accounts payable do not appear on the
balance sheet. An account receivable results from noncash revenue. Noncash revenue
transactions are not recorded on a cash basis. Accounts payable result from noncash expenses
or purchases not paid for. Because there are no cash payments, these transactions would not be
recorded.
b. Unlike cash basis, accrual basis accounting records all revenues (cash and noncash), so it is not
necessary for cash to be received in order to record revenue. However, all receipts of cash are
not revenue. Examples: Loans and owner investments are not revenue.
c. Unlike cash basis, accrual basis accounting records all expenses (cash and noncash), so it is not
necessary for cash to be paid in order to record an expense. However, all payments of cash are
not expenses. Examples: Buying assets for cash and paying back loans.
d. The manager is incorrect because it is not yet earned. The order is not yet finished and
delivered to the customer, so no revenue can be recorded. Intentionally recording the revenue
on December 31 would be a violation of the revenue recognition principle, would overstate the
year’s revenue, and would be a fraudulent transaction.
LG 2-3.
Which Period to record:
Situation principle? Revenue / Expense
a. C
ape Fear Company performed $500 of repair revenue $500 January revenue
services in January and was paid in March. recognition
b. W
ilkes Delivery Company used $250 of matching $250 August expense. This expense can-
automotive supplies in August. not be traced to any particular revenue.
Mostyn-Vol 2_SG2.indd 1 12/2
