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ACC 212 Chapter 3: ACC 212 ch 3 textbook outline

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indigozebra710
22 Jan 2019
School
GVSU
Department
Accounting
Course
ACC 212
Professor
Spindler

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Document Summary

Operating activities: day to day functions involved in running a business. Income statement accounts: summarizes the financial impact of operating activities. Operating activities are the primary source for revenues and expense. Revenues: the amounts a business charges its customers when it provides a good or service. Revenue is reported when the company gives the product or service, regardless of when it is paid. Expenses: costs of operating business, incurred to generate revenues. Expense is reported when the company uses something. Reported when the company uses the resources, regardless of when the company pays for them. Summarizes the overall impact of revenues and expenses in a single number. The amount by which stockholders equity increases as a result of a companies profitable operations. Time period assumption: reporting the long life of a company in short chunks. Income statement; current period vs. balance sheet; longer. The income statement depicts a flow of what happened over a period of time.

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Related Questions

I. True/False 2 points

Indicate whether the sentence or statement is true or false.

____ 1. Revenues and gains are generally recognized when they are realized or realizable and they have been earned through substantial completion of the activities involved in the earnings process.

____ 2. The proportional performance method has been developed to reflect revenue earned on service contracts under which many acts of service are to be performed before the contract is completed.

____ 3. Beginning with the Tax Reform Act of 1986, the tax laws eliminated the use of the completed-contract method.

____ 4. The most popular input measure under percentage-of-completion accounting is the cost-to-cost method.

____ 5. Estimates of architects and engineers of percentage-of-completion are not acceptable under generally accepted accounting principles.

____ 6. At the conclusion of a construction contract, the balance in Construction in Progress will be exactly equal to the amount in Progress Billings on Construction Contracts when using the percentage-of-completion method.

____ 7. If analysis of construction contracts indicates that there will be an overall loss on the contract, the loss should immediately be recognized in full under the completed-contract method and the percentage-of-completion method.

____ 8. Under the cost recovery method, no income is recognized on a sale until the cost of the item sold is recovered through cash receipts with all subsequent receipts reported as revenues.

____ 9. The cost recovery method is the most conservative revenue recognition method.

____ 10. If a company is heavily involved in installment sales, the operating cycle of the business is normally defined as the average period of the installment contracts.

I need assistance with preparing journal entries for the belowitems.

This is the first year of operations for the city – 20X4. Thefollowing transactions are summarized for the city this year:

The city levied $9,000,000 of general property taxes, $8,800,000of which has been collected. It expects to collect the balanceshortly after the end of the year. These taxes are unassigned; theycan be used for any legitimate city purpose. You believe thesetaxes should be recorded in the general fund, but you decide todouble check by reviewing the GASB’s following website: Touringthe Financial Statements, Part III: The Governmental Fundsnoting the explanation for general funds.http://www.gasb.org/cs/ContentServer?pagename=GASB/GASBContent_C/UsersArticlePage&cid=1176156735732

The City received a state grant of $200,000 to purchasecomputers. This grant is restricted by the state for a specificpurpose. You need to determine in which fund you should record(categorize) the state grant for the purchase of the computers. Youremember reading in GASB Statement No. 54 that governmental fundbalance information is reported in five different classifications(nonspendable, restricted, committed, assigned and unassigned).Further, you decide to read the Fact Sheet about Fund BalanceReporting and Governmental Fund Type Definitions.

The City issued $12,000,000 in long-term bonds to construct acity building. The proceeds must be used for the intended purpose.You are unsure of the fund in which you record the proceeds of thelong-term bonds, designated to construct a city building; however,you remember the major types of expenditures: operating, capital,debt service, and intergovernmental charges. Capital expendituresrelate to the acquisition of capital assets (such as the citybuilding). You recall that such expenditures may be recorded in theGeneral Fund, Special Revenue Funds, or Capital Projects Funds,depending on the source of funding. You review the National Centerfor Education Statistics Government-wide Reporting requirements fortypes of expenditures and accounting treatments.

The City constructed the school building for $11,000,000. Youdecide to account for the construction of the school building as anexpenditure, causing the City Controller’s asking for yourjustification in doing so. In gathering information from which toprepare a response, you note two things: 1) fund accounting followsthe modified accrual basis of accounting and 2) fund accountingfinancial statements are the Fund Balance Sheet and the Statementof Fund Revenues, Expenditures, and Other Changes in Fund Balances.To prepare the memo to explain your decision to the CityController, you browse the GASB Website in search of anauthoritative explanation about the use of expenditure or expensesfor fund accounting.

Knowing that GASB Statement No. 54 provides governmental fundrequirements for constructing buildings, you search GASB for anexplanation as to why capital assets and long-term liabilities arenot included on Fund Balance Sheets. Further, you are interested inlearning more about the nature of the Statement of Fund Revenues,Expenditures and Other Changes in Fund Balances.

The City incurred $6,000,000 in general operating expenditures,$5.5. million of which has been paid. You review GASB No 54 and theGASB website to help you explain why the City uses the termexpenditures instead of expenses for fund accounting.

Using its state grant, the City purchased computers for$100,000. As with the construction of the building, the City wouldrecognize the acquisition as an expenditure. You must justify tothe City Controller why the correct recording of the computers areexpenditures, even though the City would record them as assets in asupplementary ledger or list. When the government-wide statementsare prepared, the computers would be recognized asassets.

The City transferred $1,100,000 from the general fund to thedebt service fund to make the first payments of both principal andinterest that are due the following year. Viewed as broken downinto its components, this transaction is straightforward, involvingsimple entries to each of the two funds. You research which fundsto use for this transfer using the GASB websites above and otherwebsites that you find during your research.