Principles of Accounting I Assignment 1. (A) How does the time period assumption affect an accountant’s analysis of business transactions?
(B) Explain the terms fiscal year, calendar year, and interim periods.
2. Rick Marsh, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Marsh’s law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why?
3. In completing the engagement in question 2, Marsh pays no costs in March, $2,000 in April, and $2,500 in May (incurred in April). How much expense should the firm deduct from revenues in the month when it recognizes the revenue? Why?
4. Explain why accrual accounting requires adjusting entries?
5. How are revenues and expenses reported on the income statement under (a) the cash basis of accounting and (b) the accrual basis of accounting?
6. Fees for services provided are billed to a customer during 2009. The customer remits the amount owed in 2010. During which year would the revenues be reported on the income statement under (a) the cash basis? (b) the accrual basis?
7. Employees performed services in 2012, but the wages were not paid until 2013. During which year would the wages expense be reported on the income statement under (a) the cash basis? (b) The accrual basis?
8. Is the matching concept related to (a) the cash basis of accounting or (b) the accrual basis of accounting?
9. Is the cash balance on the unadjusted trial balance the amount that should normally be reported on the balance sheet? Explain.
10. Is the supplies balance on the unadjusted trial balance the amount that should normally be reported on the balance sheet? Explain.
11. Why are adjusting entries needed at the end of an accounting period?
12. What is the difference between adjusting entries and correcting entries?
13. Identify the four different categories of adjusting entries frequently required at the end of an accounting period.
14. If the effect of the debit portion of an adjusting entry is to increase the balance of an asset account, which of the following statements describes the effect of the credit portion of the entry?
a. Increases the balance of a liability account.
b. Increases the balance of a revenue account.
c. Increases the balance of an expense account.
15. If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following statements describes the effect of the debit portion of the entry?
a. Increases the balance of an expense account.
b. Increases the balance of a revenue account.
c. Increases the balance of an asset account.
16. Does every adjusting entry have an effect on determining the amount of net income for a period? Explain.
17. What is the nature of the balance in the prepaid insurance account at the end of the accounting period (a) before adjustment? (b) After adjustment?
18. On July 1 of the current year, a business paid the July rent on the building that it occupies. (a) Do the rights acquired at July 1 represent an asset or an expense? (b) What is the justification for debiting Rent Expense at the time of payment?
19. (a) Explain the purpose of the two accounts: Depreciation Expense and Accumulated Depreciation. (b) What is the normal balance of each account? (c) Is it customary for the balances of the two accounts to be equal in amount? (d) In what financial statements, if any, will each account appear?
20. Thomas Magnum began operations as a private investigator on January 1, 2010. The trial balance columns of the worksheet for Thomas Magnum, P. I. at March 31 are as follows.

THOMAS MAGNUM, P. I.
Worksheet
For the Quarter Ended March 31, 2010
Trial Balance
Account Titles Dr. Cr.
Cash 11,400
Accounts Receivable 5,620
Supplies 1,050
Prepaid Insurance 2,400
Equipment 30,000
Notes Payable 10,000
Accounts Payable 12,350
T. Magnum, Capital 20,000
T. Magnum, Drawing 600
Service Revenue 13,620
Salaries Expense 2,200
Travel Expense 1,300
Rent Expense 1,200
Miscellaneous Expense 200 . .
55,970 55,970
Other data:
1. Supplies on hand total $380.
2. Depreciation is $1,000 per quarter.
3. Interest accrued on 6-month note payable, issued January 1, $300.
4. Insurance expires at the rate of $200 per month.
5. Services provided but unbilled at March 31 total $530.
Instructions:
(a) Enter the trial balance on a worksheet and complete the worksheet.
(b) Prepare an income statement and owner’s equity statement for the quarter and a classified balance sheet at March 31.T. Magnum did not make any additional investments in the business during the quarter ended March 31, 2010.
(c) Journalize the adjusting entries from the adjustments columns of the worksheet.
(d) Journalize the closing entries from the financial statement columns of the worksheet​