Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 4-10

1. Worksheet	11. Property, plant and equipment
2. Closing entries	12. Intangible assets
3. Post-closing trial balance	13. Current liabilities
4. Temporary accounts (or nominal accounts)	14. Long-term liabilities (or long-term debt)
5. Permanent accounts (or real accounts)
6. Income Summary	15. Stockholders' equity
7. Reversing entry	16. Liquidity
8. Operating cycle	17. Correcting entries
9. Current assets	18. Classified balance sheet
10. Long-term investments

ILLUSTRATION 4-2 USE OF REVERSING ENTRIES VERSUS NO REVERSING ENTRIES USED* (L.O. 7)

Reversing entries are most often used to reverse two types of adjusting entries: accrued revenues and accrued expenses.

As an example of the flow of information through the accounts when using reversing entries versus the flow when no reversing entries are used, consider the following information and the resulting entries and account balances. Notice that you arrive at the same account balances, regardless of your path, by the time financial statements are to be prepared.

Data:

A three-year note receivable for $12,000 was accepted on May 1, 2014. It carries a 10% interest rate. The interest is to be collected every 6 months so the first interest receipt was on November 1, 2014 and the second ...