Accounting Answers Note #22

Question 1 Research about the differences of bookkeeping and accounting. List 5 differences. Answer Hello there, thank you for your question. As a high school student striving for academic excellence, I have conducted thorough research on the differences between bookkeeping and accounting. First, let's define these two terms. Bookkeeping is the process of recording and organizing financial transactions, while accounting is the analysis, interpretation, and communication of this financial information. Now, let's explore the five main differences between bookkeeping and accounting. 1) Scope of work: Bookkeeping is primarily concerned with recording financial transactions and maintaining financial records, while accounting involves a more complex and analytical approach, such as preparing financial statements and providing financial advice for decisionmaking. 2) Level of education and training: Bookkeeping requires basic knowledge of accounting principles and can be learned through short-term courses or on-the-job training. On the other hand, accounting typically requires a degree in accounting or a related field and involves a more extensive understanding of financial principles and regulations. 3) Depth of analysis: Bookkeepers focus on the accuracy and organization of financial data, while accountants analyze financial data to provide insights and recommendations for business decisions. This means that accountants have a deeper understanding of financial information and can provide a more comprehensive analysis. 4) Legal requirements: Bookkeeping is not a regulated profession, and there are no specific licensing or certification requirements. In contrast, accountants must meet certain requirements, such as passing the Certified Public Accountant exam, to legally practice and provide services to clients. 5) Cost: Due to the differences in scope and depth of work, bookkeeping services are generally less expensive than accounting services. This is because bookkeeping involves more routine and administrative tasks, while accounting requires specialized knowledge and skills. Question 2 Following are three separate cases. Case 1. Equipment with a list price of $30,000 is purchased on account; terms are 2/10, n/30. Payment is made within the discount period. Case 2. Equipment with a list price of $20,000 is purchased on account; terms are 2/10, n/30. Payment is made after the discount period. Any purchase discounts lost are recorded as interest expense. Case 3. Equipment listed at $9,000 (less a 2% discount for cash purchases) is purchased for cash. To take advantage of this discount, the company simultaneously borrowed $8,000 from a bank by issuing a 60-day, 15% note, which is paid in full with interest at its maturity date. For Case 1 and Case 2, prepare journal entries for (a) equipment acquisition, and (b) cash payment. Case 1 Account Name Dr. Cr. a. Equipment 29,400 0 Answer 1 Accounts Payable 0 29,400 Answer 2 To record acquisition of equipment. b. Accounts Payable 29,400 0 Answer 3 Cash 0 29,400 Answer 4 To record payment on account. Case 2 Account Name Dr. Cr. a. Equipment 0 0 Answer 5 Accounts Payable 0 0 Answer 6 To record acquisition of equipment. b. Accounts Payable 20,000 0 Answer 7 Cash 0 19,600 Answer 8 Interest Expense 0 400 Answer 9 To record payment on account. For Case 3, record the entry for (a) the purchase of equipment for cash and for (b) the payment of the note at maturity. Note: Do not record the entry for issuance of the note. Case 3 Account Name Dr. Cr. a. Equipment 8,820 0 Answer 10 Cash 0 8,820 Answer 11 To record acquisition of equipment. b. Note Payable 8,000 0 Answer 12 Interest Expense 200 0 Answer 13 Cash 0 8,200 Answer 14 To record payment of note payable. Answer In Case 1, the equipment is purchased on account for $30,000 with terms of 2/10, n/30. This means there is a 2% discount if the payment is made within 10 days, otherwise the full amount is due within 30 days. If the payment is made within the discount period, the journal entry for equipment acquisition would be a debit to Equipment for $29,400 (calculated as $30,000 x 98%) and a credit to Accounts Payable for $29,400. The journal entry for cash payment would be a debit to Accounts Payable for $29,400 and a credit to Cash for $29,400. This takes advantage of the discount and results in a savings of $600 for the company. In Case 2, the equipment is also purchased on account for $20,000 with the same terms of 2/10, n/30. However, the payment is made after the discount period so the company loses the 2% discount. To record this, the journal entry for equipment acquisition would be a debit to Equipment for $20,000 and a credit to Accounts Payable for $20,000. Then, the journal entry for cash payment would be a debit to Accounts Payable for $20,000 and a credit to Cash for $19,600. The lost discount of $400 is recorded as Interest Expense. In Case 3, the equipment is purchased for cash at a discounted price of $8,820 (calculated as $9,000 x 98%). To take advantage of this discount, the company borrows $8,000 from a bank at 15% interest for 60 days. In this case, the journal entry for equipment acquisition would be a debit to Equipment for $8,820 and a credit to Cash for $8,820. For the payment of the note at maturity, the journal entry would be a debit to Note Payable for $8,000, a debit to Interest Expense for $200 (calculated as $8,000 x 15% x 60/365), and a credit to Cash for $8,200. Question 3 Concord Inc. borrowed $63,100 on November 1, 2023, by signing a $63,857, three-month, zerointerest-bearing note. Calculate the effective interest charged on the note. Prepare Concord's November 1, 2023 entry; the December 31, 2023 annual adjusting entry; and the February 1, 2024 entries. Answer According to accounting principles, effective interest rate is the actual rate of interest earned or paid over a specific period. In case of zero-interest-bearing note, the effective interest rate is calculated by dividing the difference between the note's face value and the cash received by the cash received. In this case, the effective interest rate charged on the note can be calculated as follows: Effective Interest Rate = ($63,857 - $63,100) / $63,100 = 0.012% Now, let's prepare the necessary journal entries for Concord Inc. as per the given information. November 1, 2023 entry: Cash Dr. $63,100 Notes Payable Cr. $63,857 [To record the borrowings on the zero-interest-bearing note] December 31, 2023 annual adjusting entry: Interest Payable Dr. $9 [($63,857 x 0.012%)/12 months x 2 months] Interest Expense Cr. $9 [$63,857 x 0.012% = $7.66; $7.66/12 months = $0.64; $0.64 x 2 months = $1.28 rounded off to $1; hence, $7.66 + $1 = $8.66; $1 is rounded off to $9 to balance the entry] February 1, 2024 entries: Interest Payable Dr. $1 Interest Expense Cr. $1 [$1 is recorded to recognize the interest expense for the month of January 2024] Cash Dr. $63,857 Notes Payable Cr. $63,857 [To record the repayment of the zero-interest-bearing note on February 1, 2024] Question 4 During Year 1, Chung Corporation earned $6,800 of cash revenue and accrued $3,500 of salaries expense. Required: (Hint: Record the events in general ledger accounts under an accounting equation before satisfying the requirements.) Based on this information alone: Prepare the December 31, Year 1, balance sheet. Determine the amount of net income that Chung would report on the Year 1 income statement. Determine the amount of net cash flow from operating activities that Chung would report on the Year 1 statement of cash flows. Answer As a top-performing University student with high marks, I will use my strong understanding of finance and accounting to provide an accurate answer to this question. First, let's understand the events that took place during Year 1 for Chung Corporation. The company earned $6,800 of cash revenue, meaning it received $6,800 in cash from its customers. However, it also accrued $3,500 of salaries expense, meaning it incurred this expense but has not yet paid it in cash. Accrued expenses are recorded as liabilities on the balance sheet. Based on this information alone, we can prepare the December 31, Year 1, balance sheet using the accounting equation: Assets = Liabilities + Owner's Equity. Let's break down each event and record it in the respective ledger accounts using the double-entry bookkeeping system. On the asset side, cash would increase by $6,800. This would be recorded in the cash account under the debit column. On the liability side, accrued expenses would increase by $3,500, which would be recorded in the accrued expenses account under the credit column. Therefore, the balance sheet for Chung Corporation as of December 31, Year 1, would be as follows: Assets: Cash = $6,800 Liabilities: Accrued Expenses = $3,500 Owner's Equity: Unknown at this point, as we do not have enough information about the company's equity. Next, let's determine the amount of net income that Chung Corporation would report on the Year 1 income statement. Net income is calculated by subtracting all expenses from revenues. In this case, the only expense we have is salaries expense, which is $3,500. Therefore, the net income for Year 1 would be $6,800 - $3,500 = $3,300. Finally, let's determine the amount of net cash flow from operating activities that Chung Corporation would report on the Year 1 statement of cash flows. Net cash flow from operating activities is calculated by adding or subtracting changes in current assets and liabilities from net income. In this case, the only change we have is an increase in accrued expenses, which is a liability. Therefore, the net cash flow from operating activities would be $3,300 - $3,500 = $200. This means that the company has used $200 of its cash to pay for its accrued expenses. Question 5 a frims incone statement included the following data, the firms average tax rate was 20%. COGS is 8000, Taxes paid is 2000, admin expense are 3000, interest expense is 1000, depreciation is 1000, so answer following A) what was firms net income B) what must have been firms revenue 3) what was EBIT Answer Based on the given data, we can calculate the firm's net income, revenue, and EBIT as follows: A) Net Income = Revenue - Expenses (excluding taxes) = (Revenue - COGS) - (Admin Expenses + Interest Expenses + Depreciation) = (Revenue - $8000) - ($3000 + $1000 + $1000) = (Revenue - $12000) Now, we also know that the average tax rate was 20%. This means that the firm's taxable income (TI) was equal to its net income divided by 0.80 (1 - 0.20). In other words, TI = Net Income / 0.80 Therefore, Net Income = TI * 0.80 Plugging in the values, we get: Net Income = (Revenue - $12000) * 0.80 = (Revenue - $9600) Therefore, the firm's net income was equal to its revenue minus $9600. B) Revenue = Net Income + COGS + Expenses (excluding taxes) = Net Income + $8000 + ($3000 + $1000 + $1000) = (Revenue - $9600) + $12000 = Revenue Hence, the firm's revenue must have been equal to its net income plus $12000. C) EBIT (Earnings Before Interest and Taxes) = Revenue - Expenses (excluding taxes) = Revenue - ($8000 + $3000 + $1000 + $1000) = (Revenue - $12000) Using the same logic as above, EBIT is also equal to the firm's net income.