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Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition by Donald E. Kieso, Paul D. Kimmel, Jerry J. Weygandt

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SOLUTION TO EXERCISE 4-11

1. Yes 5. Yes
2. No 6. No
3. Yes 7. Yes
4. No 8. No

Explanation:

  1. An expense accrual type adjustment can always be reversed. The reversing entry will eliminate the payable balance established by the adjustment and create a credit balance (an abnormal balance) in the expense account at the beginning of the new period. Thus, when the related cash is paid for the interest, the payment can be recorded by a credit to Cash and a debit to Interest Expense for the entire amount paid. (The abnormal balance in the expense account which was created by the reversing entry is eliminated with the posting of the cash payment entry.) This entry to record the cash payment is simpler than the alternate route of using no reversal and recording a portion of the payment (representing the accrued amount) by a debit to a payable account and the remainder (incurred in the new period) by a debit to the expense account.
  2. An adjusting entry to record depreciation should never be reversed. It would not make sense to reverse this adjustment because to do so would reduce the depreciation to date (accumulated depreciation).
  3. A revenue accrual type adjustment can always be reversed. The reversing entry will eliminate the receivable balance established by the adjustment and create a debit balance (an abnormal balance) in the revenue account at the beginning of the new period. Thus, when the related cash is collected from the tenant, the receipt can be recorded by a debit to ...

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