Brief Exercise 1

Indicate in which section of the balance sheet each of the following accounts is classified. Use the symbols CA for current assets, NCA for noncurrent assets, CL for current liabilities, LTL for long-term liabilities, and SHE for stockholders' equity.

a. Prepaid Rent
b. Dividends Payable
c. Salaries Payable
d. Accumulated Depreciation: Equipment
e. Retained Earnings
f. Mortgage Payable (due in 15 years)
g. Unearned Service Revenue
h. Accounts Receivable
i. Land
j. Office Supplies

Brief Exercise 2

Indicate whether a debit or credit is required to close each of the following accounts. Use the symbols D if a debit is required, C if a credit is required, and N if the account is not closed at the end of the period.

a. Salary Expense
b. Unexpired Insurance
c. Consulting Fees Earned
d. Depreciation Expense
e. Dividends
f. Retained Earnings
g. Interest Revenue
h. Accumulated Depreciation
i. Income Taxes Expense
j. Unearned Revenue
k. Income Summary (of a profitable company)
l. Income Summary (of an unprofitable company)

Brief Exercise 3- Profitability and Liquidity Measures

Cat Fancy, Inc., has provided the following information from its most current financial statements:

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $125,000
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Total stockholders' equity, January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,000
Total stockholders' equity, December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,000

a. Compute the company's net income percentage in 2015.
b. Compute the company's return on equity in 2015.
c. Compute the company's current ratio at December 31, 2015.

Exercise 4- Accounting Terminology

Listed below are nine technical terms used in this chapter:
Liquidity
Adequate disclosure
Income summary
Nominal accounts
After-closing trial balance
Interim financial statements
Real accounts
Closing entries
Dividends

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer "None" if the statement does not describe any of the items.

a. The accounting principle intended to assist users in interpreting financial statements.

b. A term used to describe a company's ability to pay its obligations as they come due.

c. A term used in reference to accounts that are closed at year-end.

d. A term used in reference to accounts that are not closed at year-end.

e. A document prepared to assist management in detecting whether any errors occurred in posting the closing entries.

f. A policy decision by a corporation to distribute a portion of its income to stockholders.

g. The process by which the Retained Earnings account is updated at year-end.

h. Entries made during the accounting period to correct errors in the original recording of complex transactions.

Exercise 5- Interim Results

Custodian Commandos, Inc., provides janitorial services to public school systems. The business adjusts its accounts monthly, but closes them only at year-end. Its fiscal year ends on December 31.A summary of the company's total revenue and expenses at the end of five selected months is as follows:

a. Rank the company's fiscal quarters from most profitable to least profitable.
b. Compute the company's income for the month of September.
c. Compute the company's net income (or loss) for the first two months of the third quarter.

Provide a possible explanation why profitability for the first two months of the third quarter differs significantly from profitability achieved in the third month of the quarter (as computed in part b ).

Brief Exercise 6

Alberto & Sons, Inc., a retailer of antique figurines, engages in the following t transactions during October of the current year:

Oct. 1 Purchases 100 Hummels at $50 each.
Oct. 5 Sells 50 of the Hummels at $80 each.
Compute Alberto &Sons's gross profit for October.

Brief Exercise 7

Home Sweet Home Inc. is a retailer of home accessories. The company's inventory balance a t the beginning of the year was $600,000; Home Sweet Home purchased $500,000 of goods during January, and sales during January were $800,000. What is the balance that would appear in Home Sweet Home's inventory account on February 1 assuming use of a periodic inventory system?

Brief Exercise 8

Murphy C o. is a high-end retailer of fine fashions for men. Murphy's inventory balance at the beginning of the year is $300,000, and Murphy purchases $600,000 of goods during the year. Its inventory balance at the end of the year is $250,000. What is the cost of goods sold for the year?

Exercise 9

As a fund-raiser, the pep band at Melrose University sells T-shirts fans can w ear when attending the school's 12 home basketball games. As the band's business manager, you must choose among several options for ordering and selling the T-shirts.

1. Place a single order in October large enough to last the entire season. The band must pay for the shirts in full when the order is placed. A 5 percent quantity discount applies to this option.

2. Place a series of small orders, as needed, throughout the season. Again, payment in full is due when the order is submitted. No discount applies to this option.

3. Have band members sell shirts directly to members of the student body. Cash is collected immediately as sales are made.

4. Sell all of the T-shirts through the university bookstore. The bookstore would receive a 6 percent commission on total sales and would remit to the band its share of the proceeds in a lump-sum payment at the end of the season.

a. Describe which combination of options would give the pep band the shortest operating cycle.

b. Describe which combination of options would give the pep band the longest operating cycle.

c. Discuss briefly the advantages and disadvantages of each option.