Financial Accounting: An Integrated Statements Approach, 2nd Edition

186 Chapter 4 Accounting Information Systems

EXERCISES

The following accounts appeared in recent financial statements of Continental Airlines:

Accounts Payable Flight Equipment

Aircraft Fuel Expense Landing Fees

Air Traffic Liability Passenger Revenue

Cargo and Mail Revenue Purchase Deposits for Flight Equipment

Commissions Spare Parts and Supplies

Identify each account as either a balance sheet account or an income statement account. For each

balance sheet account, identify it as an asset, a liability, or stockholders’ equity. For each income

statement account, identify it as a revenue or an expense.

For each account listed in Exercise 4-1, indicate whether its normal balance is a debit or a credit.

The following accounts have been adapted from recent financial statements of Time Warner:

Accounts Receivable

Accumulated Depreciation

Advertising Revenues

Cable Television Equipment

Compact Discs and DVD Merchandise

Interest Expense

Music Catalogs and Copyrights

Notes Payable (due December 6, 2019)

Property, Plant, and Equipment

Exercise 4-1

Chart of accounts

Goal 3

Exercise 4-2

Normal account balances

Goal 3

Exercise 4-3

Chart of accounts

Goal 3

8. What proof is provided by a trial balance?


9. If the two totals of a trial balance are equal, does it mean
   that there are no errors in the accounting records? Explain.


10. Assume that when a purchase of supplies of $1,030 for
    cash was recorded, both the debit and the credit were
    journalized and posted as $1,300. (a) Would this error
    cause the trial balance to be out of balance? (b) Would
    the trial balance be out of balance if the $1,030 entry had
    been journalized correctly, but the credit to Cash had
    been posted as $1,300?


11. Banks rely heavily upon customers’ deposits as a source
    of funds. Demand deposits normally pay interest to the
    customer, who is entitled to withdraw at any time
    without prior notice to the bank. Checking and NOW
    (negotiable order of withdrawal) accounts are the
    most common form of demand deposits for banks.
    Assume that LaDuke Storage has a checking account at
    City Savings Bank. What type of account (asset, liabil-
    ity, stockholders’ equity, revenue, expense, dividends)
    does the account balance of $15,500 represent from the
    viewpoint of (a) LaDuke Storage and (b) City Savings
    Bank?


12. Why are closing entries required at the end of an ac-
    counting period?


13. What is the difference between adjusting entries and
    closing entries?


14. What types of accounts are closed by transferring their
    balances (a) as a debit to Retained Earnings, (b) as a
    credit to Retained Earnings?


15. What is the purpose of the post-closing trial balance?


16. The fiscal years for several well-known companies were
    as follows:

Company Fiscal Year Ending

Wal-Mart January 31

JCPenney January 26

Best Buy February 28

The Gap Inc. January 31

Federated Department Stores February 3

The Limited, Inc. January 31

What general characteristic shared by these companies

explains why they do not have fiscal years ending

December 31?