西方财务会计课后习题答案

西方会计学课后题答案第二章1、以下有关“资产=负债+所有者权益”等式的表述不正确的是（）。

[单选题] *是编制资产负债表的理论基础表明了企业一定时期的财务状况(正确答案)反映了资产、负债、所有者权益三要素之间的内在联系和数量关系该等式也称为静态会计等式2.下列各项中，导致企业当期营业利润减少的是（）。

[单选题] *租出非专利技术的摊销额(正确答案)对外公益性捐赠的商品成本支付的税收滞纳金自然灾害导致生产线报废净损失3.下列各项中，关于企业应付票据会计处理的表述正确的是（）。

[单选题] *应将到期无力支付的商业承兑汇票的账面余额转作短期借款申请银行承兑汇票支付的手续费应计入当期管理费用应将到期无力支付的银行承兑汇票的账面余额转作应付账款应以商业汇票的票面金额作为应付票据的入账金额(正确答案)4.下列各项中，企业销售商品收到银行承兑汇表应借记的会计科目是（） [单选题] *其他应收款应收票据(正确答案)其他货币资金银行存款5.企业以银行存款偿还到期的短期借款，关于这笔经济业务，下列说法正确的是（）。

[单选题] *导致资产、负债同时减少(正确答案)导致资产、负债同时增加导致负债内部增减变动，总额不变导致所有者权益减少，负债减少6.某企业赊销设备一台，成本50万元，合同约定三个月内付款，应填制（） [单选题] *付款凭证转账凭证(正确答案)收款凭证累计凭证7.下列各项中，不影响留存收益总额的是（）。

[单选题] *以盈余公积发放现金股利以盈余公积转增资本以盈余公积弥补亏损(正确答案)以实现的净利润分配现金股利某企业2020年当期所得税费用为650万元，递延所得税负债的年初数为45万元，年末数为58万元;递延所得税资产的年初数为36万元，年末数为32万元。

不考虑其他因素，该企业2020年应确认的所得税费用为（）万元。

[单选题] *650633667(正确答案)6639.2019年10月1日，甲股份有限公司委托证券公司发行股票5 000万股，每股面值1元，每股发行价格6元，向证券公司支付佣金900万元，从发行收入中扣除。

西方财务会计第六章答案chapter 6 Accounting for merchandising businessesClass Discussion Questions1. Mercha ndising businesses acquire merchandise for resale to customers. It is the selling ofmerchandise, instead of a service, that makes the activities of a merchandising business dif-ferent from the activities of a service business.2. Yes. Gross profit is the excess of (net) sales over cost of merchandise sold. A net loss ariseswhen operating expenses exceed gross profit. Therefore, a business can earn a gross profit but incur operating expenses in excess of this gross profit and end up with a net loss.3. a. Incr ease c. Decreaseb. Increase d. Decrease4. U nder the periodic method, the inventory records do not show the amount available for saleor the amount sold during the period. In contrast, under the perpetual method of accounting for merchandise inventory, each purchase and sale of merchandise is recorded in the invento-ry and the cost of merchandise sold accounts. As a result, the amount of merchandise availa-ble for sale and the amount sold are continuously (perpetually) disclosed in the inventory records.5. The multiple-step form of income statement contains conventional groupings for revenuesand expenses, with intermediate balances, before concluding with the net income balance. In the single-step form, the total of all expenses is deducted from the total of all revenues, with-out intermediate balances.6. The major advantages of the single-step form of income statement are its simplicity and itsemphasis on total revenues and total expenses as the determinants of net income. The major objection to the form is that such relationships as gross profit to sales and income from opera-tions to sales are not as readily determinable as when the multiple-step form is used.7. a. 2% discount allowed if paid within ten days of date of invoice; entire amount of invoicedue within 60 days of date of invoice.b. Payment due within 30 days of date of invoice.c. Payment due by the end of the month in which the sale was made.8. a. A credit memorandum issued by the seller of merchandise indicates the amount for whichthe buyer's account is to be credited (credit to Accounts Receivable) and the reason for the sales return or allowance.b. A debit memorandum issued by the buyer of merchandise indicates the amount for whichthe seller's account is to be debited (debit to Accounts Payable) and the reason for the purchases return or allowance.9. a. The buyerb. The seller10. E xamples of such accounts include the following: Sales, Sales Discounts, Sales Returns andAllowances, Cost of Merchandise Sold, Merchandise Inventory.Ex. 6–1a. $490,000 ($250,000 + $975,000 – $735,000)b.40% ($490,000 ÷ $1,225,000)c. No. If operating expenses are less than gross profit, there will be a net income. On the otherhand, if operating expenses exceed gross profit, there will be a net loss.Ex. 6–2 : $15,710 million ( $20,946 million – $5,236 million ) Ex. 6–3a. Purchases discounts, purchases returns and allowancesb. Transportation in;c. Merchandise available for saled. Merchandise inventory (ending)Ex. 6–41. The schedule should begin with the January 1, not the December 31, merchandise inventory.2. Purchases returns and allowances and purchases discounts should be deducted from (notadded to) purchases.3. The result of subtracting purchases returns and allowances and purchases discounts frompur chases should be labeled ―net purchases.‖4. Transportation in should be added to net purchases to yield cost of merchandise purchased.5. The merchandise inventory at December 31 should be deducted from merchandise availablefor sale to yield cost of merchandise sold.A correct cost of merchandise sold section is as follows:Cost of merchandise sold:Merchandise inventory, January 1, 2006 ........ $132,000 Purchases ........................................................... $600,000Less: Purchases returns and allowances$14,000Purchases discounts .............................. 6,000 20,000 Netpurchases ..................................................... $580,000Add transportation in ....................................... 7,500Cost of merchandise purchased ................. 587,500 Merchandise available for sale ......................... $719,500 Less merchandise inventory,December 31, 2006....................................... 120,000 Cost of merchandise sold .................................. $599,500 Ex. 6–5 Net sales: $3,010,000 ( $3,570,000 – $320,000 – $240,000 ) Gross profit: $868,000 ( $3,010,000 – $2,142,000 )Ex. 6–6THE MERIDEN COMPANYIncome StatementFor the Year Ended June 30, 2006Revenues:Net sales ................................................................................. $5,400,000Rent revenue ......................................................................... 30,000Total revenues................................................................... $5,430,000 Expenses:Cost of merchandise sold ..................................................... $3,240,000Selling expenses .................................................................... 480,000 Administrative expenses ...................................................... 300,000 Interest expense .................................................................... 47,500 Total expenses ................................................................... 4,067,500 Net income ..................................................................................... $1,362,500Ex. 6–71. Sales returns and allowances and sales discounts should be deducted from (not added to)sales.2. Sales returns and allowances and sales discounts should be deducted from sales to yield "netsales" (not gross sales).3. Deducting the cost of merchandise sold from net sales yields gross profit.4. Deducting the total operating expenses from gross profit would yield income from operations(or operating income).5. Interest revenue should be reported under the caption ―Other income‖ and should be addedto Income from operations to arrive at Net income.6. The final amount on the income statement should be labeled Net income, not Gross profit.A correct income statement would be as follows:THE PLAUTUS COMPANYIncome StatementFor the Year Ended October 31, 2006Revenue from sales:Sales .................................................................... $4,200,000Less: Sales returns and allowances ............... $81,200Sales discounts ....................................... 20,300 101,500Net sales ........................................................ $4,098,500 Cost of merchandise sold ........................................ 2,093,000 Gross profit .............................................................. $2,005,500 Operating expenses:Selling expenses ................................................. $ 203,000Transportation out ............................................ 7,500Administrative expenses ................................... 122,000Total operating expenses ............................ 332,500 Incomefrom operations .......................................... $1,673,000 Other income: Interest revenue ................................................. 66,500Net income ................................................................ $1,739,500 Ex. 6–8a. $25,000 c. $477,000 e. $40,000 g. $757,500b. $210,000 d. $192,000 f. $520,000 h. $690,000Ex. 6–9a. Cash ......................................................................................... 6,900Sales ................................................................................... 6,900 Cost of Merchandise Sold ...................................................... 4,830 Merchandise Inventory .................................................... 4,830b. Accounts Receivable ............................................................... 7,500Sales ................................................................................... 7,500 Cost of Merchandise Sold ...................................................... 5,625 Merchandise Inventory .................................................... 5,625c. Cash ......................................................................................... 10,200Sales ................................................................................... 10,200 Cost of Merchandise Sold ...................................................... 6,630 Merchandise Inventory .................................................... 6,630d. Accounts Receivable—American Express ........................... 7,200Sales ................................................................................... 7,200 Cost of Merchandise Sold ...................................................... 5,040 Merchandise Inventory .................................................... 5,040e. Credit Card Expense (675)Cash (675)f. Cash ......................................................................................... 6,875Credit Card Expense (325)Accounts Receivable—American Express ..................... 7,200Ex. 6–10It was acceptable to debit Sales for the $235,750. However, using Sales Returns and Allow-ances assists management in monitoring the amount of returns so that quick action can be taken if returns become excessive.Accounts Receivable should also have been credited for $235,750. In addition, Cost of Mer-chandise Sold should only have been credited for the cost of the merchandise sold, not the selling price. Merchandise Inventory should also have been debited for the cost of the merchandise re-turned. The entries to correctly record the returns would have been as follows: Sales (or Sales Returns and Allowances) ............................. 235,750 Accounts Receivable ......................................................... 235,750 Merchandise Inventory .......................................................... 141,450 Cost of Merchandise Sold ................................................ 141,450 Ex. 6–11a. $7,350 [$7,500 –$150 ($7,500 × 2%)]b. Sales Returns and Allowances .............................................. 7,500Sales Discounts (150)Cash ................................................................................... 7,350Merchandise Inventory .......................................................... 4,500 Cost of Merchandise Sold ................................................ 4,500Ex. 6–12(1) Sold merchandise on account, $12,000.(2) Recorded the cost of the merchandise sold and reduced the merchandise inventory account,$7,800.(3) Accepted a return of merchandise and granted an allowance, $2,500.(4) Updated the merchandise inventory account for the cost of the merchandise returned,$1,625.(5) Received the balance due within the discount period, $9,405. [Sale of $12,000, less return of$2,500, l ess discount of $95 (1% × $9,500).]Ex. 6–13a. $18,000b. $18,375c. $540 (3% × $18,000)d. $17,835Ex. 6–14a. $7,546 [Purchase of $8,500, less return of $800, less discount of $154 ($7,700 × 2%)]b. Merchandise InventoryEx. 6–15Offer A is lower than offer B. Details are as follows:A BList price ............................................................................... $40,000 $40,300Less discount ......................................................................... 800 403 $39,200 $39,897 Transportation (625)$39,825 $39,897Ex. 6–16(1) Purchased merchandise on account at a net cost of $8,000.(2) Paid transportation costs, $175.(3) An allowance or return of merchandise was granted by the creditor, $1,000.(4) Paid the balance due within the discount period: debited Accounts Payable, $7,000, and cre-dited Merchandise Inventory for the amount of the discount, $140, and Cash, $6,860.Ex. 6–17a. Merchandise Inventory .......................................................... 7,500Accounts Payable ............................................................. 7,500b. Accounts Payable ................................................................... 1,200Merchandise Inventory .................................................... 1,200c. Accounts Payable ................................................................... 6,300Cash ................................................................................... 6,174Merchandise Inventory (126)a. Merchandise Inventory .......................................................... 12,000Accounts Payable—Loew Co. ......................................... 12,000b. Accounts Payable—Loew Co. ............................................... 12,000Cash ................................................................................... 11,760Merchandise Inventory (240)c. Accounts Payable*—Loew Co. ............................................. 2,940Merchandise Inventory .................................................... 2,940d. Merchandise Inventory .......................................................... 2,000Accounts Payable—Loew Co. ......................................... 2,000e. Cash (940)Accounts Payable—Loew Co. (940)*Note: The debit of $2,940 to Accounts Payable in entry (c) is the amount of cash refund due from Loew Co. It is computed as the amount that was paid for the returned merchandise, $3,000, less the purchase discount of $60 ($3,000 × 2%). The credit toAccounts Payable of $2,000 in en-try (d) reduces the debit balance in the account to $940, which is the amount of the cash refund in entry (e). The alternative entries below yield the same final results.c. Accounts Receivable—Loew Co. .......................................... 2,940Merchandise Inventory .................................................... 2,940d. Merchandise Inventory .......................................................... 2,000Accounts Payable—Loew Co. ......................................... 2,000e. Cash (940)Accounts Payable—Loew Co. ............................................... 2,000 Accounts Receivable—Loew Co. .................................... 2,940Ex. 6–19a. $10,500b. $4,160 [($4,500 – $500) ? 0.99] + $200c. $4,900d. $3,960e. $834 [($1,500 – $700) ? 0.98] + $50Ex. 6–20a. At the time of sale c. $4,280b. $4,000 d. Sales Tax PayableEx. 6–21a. Accounts Receivable ............................................................... 9,720Sales ................................................................................... 9,000Sales Tax Payable (720)Cost of Merchandise Sold ...................................................... 6,300 Merchandise Inventory .................................................... 6,300b. Sales Tax Payable ................................................................... 9,175Cash ................................................................................... 9,175a. Accounts Receivable—Beta Co. ........................................... 11,500Sales ................................................................................... 11,500 Cost of Merchandise Sold ...................................................... 6,900 Merchandise Inventory .................................................... 6,900b. Sales Returns and Allowances (900)Accounts Receivable—Beta Co. (900)Merchandise Inventory (540)Cost of Merchandise Sold (540)c. Cash ......................................................................................... 10,388Sales Discounts (212)Accounts Receivable—Beta Co. ...................................... 10,600 Ex. 6–23a. Merchandise Inventory .......................................................... 11,500Accounts Payable—Superior Co. ................................... 11,500b. Accounts Payable—Superior Co. (900)Merchandise Inventory (900)c. Accounts Payable—Superior Co. ......................................... 10,600Cash ................................................................................... 10,388Merchandise Inventory (212)Ex. 6–24a. debit c. credit e. debitb. debit d. debit f. debitEx. 6–25(b) Cost of Merchandise Sold (d) Sales (e)Sales Discounts(f) Sales Returns and Allowances (g) Salaries Expense (j) Supplies ExpenseEx. 6–26a. 2003: 2.07 [$58,247,000,000 ÷ ($30,011,000,000 + $26,394,000,000)/2]2002: 2.24 [$53,553,000,000 ÷ ($26,394,000,000 + $21,385,000,000)/2]b.These analyses indicate a decrease in the effectiveness in the use of the assets to generateprofits. This decrease is probably due to the slowdown in the U.S. economy during 2002–2003. However, a comparison with similar companies or industry averages would be helpful in making a more definitive statement on the effectiveness of the use of the assets.Ex. 6–27a. 4.13 [$12,334,353,000 ÷ ($2,937,578,000 + $3,041,670,000)/2]b. Although Winn-Dixie and Zales are both retail stores, Zales sells jewelry at a much slowervelocity than Winn-Dixie sells groceries. Thus, Winn-Dixie is able to generate $4.13 of sales for every dollar of assets. Zales, however, is only able to generate $1.53 in sales per dollar of assets. This makes sense when one considers the sales rate for jewelry and the relative cost of holding jewelry inventory, relative to groceries. Fortunately, Zales is able to counter its slow sales velocity, relative to groceries, with higher gross profits, relative to groceries. Appendix 1—Ex. 6–28a. and c.SALES JOURNALCost of MerchandiseSold Dr.Invoice Post.Accts. Rec. Dr. MerchandiseDate No. Account Debited Ref.Sales Cr. Inventory Cr.2006Aug. 3 80 Adrienne Richt ................... ?12,000 4,0008 81 K. Smith .............................. ?10,000 5,50019 82 L. Lao .................................. ?9,000 4,00026 83 Cheryl Pugh ........................ ?14,000 6,50045,000 20,000b. andc.PURCHASES JOURNALAccounts Merchandise OtherPost Payable Inventory Accounts Post.Date Account Credited Ref.Cr. Dr. Dr. Ref. Amount2006Aug. 10 Draco Rug Importers ................. ?8,000 8,00012 Draco Rug Importers ................. ?3,500 3,50021 Draco Rug Importers ................. ?19,500 19,50031,000 31,000d.Merchandise inventory, August 1 ............................................... $ 19,000Plus: August purchases ................................................................ 31,000Less: Cost of merchandise sold ................................................... (20,000)Merchandise inventory, August 31 ............................................. $ 30,000ORQuantity Rug Style Cost2 10 by 6 Chinese* $ 7,5001 8 by 10 Persian 5,5001 8 by 10 Indian 4,0002 10 by 12 Persian 13,000 $ 30,000*($4,000 + $3,500)。

CHAPTER 91. To protect inventory from customer theft, retailers use two-way mirrors, cameras, security guards,locked display cabinets, and inventory tags that set off an alarm if the inventory is removed from the store.2. Perpetual. The perpetual inventory system provides the more effective means of controlling invento-ries, since the inventory account is updated for each purchase and sale. This also assists managers in determining when to reorder inventory items.3. The receiving report should be reconciled to the initial purchase order and the vendor's invoice beforerecording or paying for inventory purchases. This procedure will verify that the inventory received matches the type and quantity of inventory ordered. It also verifies that the vendor's invoice is charging the company for the actual quantity of inventory received at the agreed-upon price.4. An employee should present a requisition form signed by an authorized manager before receiving in-ventory items from the company's warehouse.5. A physical inventory should be taken periodically to test the accuracy of the perpetual records.6. a. Gross profit for the year was overstated by $18,500.b. Merchandise inventory and owner’s equity were overstated by $18,500.7. Fess Company. Since the merchandise was shipped FOB shipping point, title passed to Fess Companywhen it was shipped and should be reported in Fess Company's financial statements at December 31, the end of the fiscal year.8. Manufacturer's9. No, they are not techniques for determining physical quantities. The terms refer to cost flow assump-tions, which affect the determination of the cost prices assigned to items in the inventory.10. No, the term refers to the flow of costs rather than the items remaining in the inventory. The inventorycost is composed of the earliest acquisitions costs rather than the most recent acquisitions costs.11. a. Fifo c. Fifo； b. Lifo d. Lifo12. Fifo13. Lifo. In periods of rising prices, the use of lifo will result in the lowest net income and thus the lowestincome tax expense.14. Yes. The inventory method may be changed for a valid reason. The effect of any change in methodand the reason for the change should be fully disclosed in the financial statements for the period in which the change occurred.15. Net realizable value (estimated selling price less any direct cost of disposition, such as sales commis-sions).16. By a notation next to "merchandise inventory" on the balance sheet or in a footnote to the financialstatements.17. Inventories estimated by the gross profit method are useful in preparing interim statements and inestablishing an estimate of the cost of merchandise destroyed by fire or other disasters.Ex. 9–1Switching to a perpetual inventory system will strengthen Onsite Hardware’s internal controls over inve n-tory, since the store managers will be able to keep track of how much of each item is on hand. This should minimize shortages of good-selling items and excess inventories of poor-selling items.On the other hand, switching to a perpetual inventory system will not eliminate the need to take a physical inventory count. A physical inventory must be taken to verify the accuracy of the inventory records in a perpetual inventory system. In addition, a physical inventory count is needed to detect shortages of inven-tory due to damage or theft.Ex. 9–2Include in inventory: c, e, g, I；Exclude from inventory: a, b, d, f, hEx. 9–3a.Balance SheetMerchandise inventory $1,950 understatedCurrent assets $1,950 understatedTotal assets $1,950 understatedOwner’s equity$1,950 understatedIncome StatementCost of merchandise sold $1,950 overstatedGross profit $1,950 understatedNet income $1,950 understatedEx. 9–4When an error is discovered affecting the prior period, it should be corrected. In this case, the merchandise inventory account should be debited and the owner’s capital a ccount credited for $12,800.Failure to correct the error for 2005 and purposely misstating the inventory and the cost of merchandise sold in 2006 would cause the balance sheets and the income statements for the two years to not be compa-rable2,1214,260 Inventory, March 31: $1,295 ($630 + $665)Ex. 9–7a. $700 ($50 × 14 units)；b. $663 [($45 × 5 units) + ($47 × 4 units) + ($50 × 5 units)]Ex. 9–8a. $360 (8 units at $33 plus 3 units at $32)；b.$318 (6 units at $28 plus 5 units at $30)c. $341 (11 units at $31; $1,240 ÷ 40 units = $31)Cost of merchandise available for sale:6 units at $28 ................................................................................. $ 16812 units at $30 (360)14 units at $32 (448)8 units at $33 (264)40 units (at average cost of $31) ...................................................... $1,240Ex. 9–1. a. LIFO inventory < (less than) FIFO inventoryb. LIFO cost of goods sold > (greater than) FIFO cost of goods soldc. LIFO net income < (less than) FIFO net incomed. LIFO income tax < (less than) FIFO income tax2. Under the lifo conformity rule a company selecting lifo for tax purposes must also use lifo for finan-cial reporting purposes. Thus, in periods of rising prices the reported net income would be lower than would be the case under fifo. However, the lower reported income would also be shown on the corpo-ration’s tax return; thus, there is a tax advantage from using lifo. Firms electing to use lifo b elieve the tax advantage from using lifo outweighs any negative impact from reporting a lower earnings number to shareholders. Lifo is supported because the tax impact is a real cash flow benefit, while a lower lifo earnings number (compared to fifo) is merely the result of a reporting assumption.Ex. 9–10Unit Unit TotalInventory Cost Market Lower Commodity QuantityPrice Price Cost Marketof C or MM76 8 $150 $160$1,200 $1,280 $1,200T53 20 75 70 1,500 1,400 1,400A19 10 275 2602,750 2,600 2,600J81 15 50 40 750 600 600K10 25 101 105 2,525 2,625 2,525Total $8,725 $8,505$8,325Ex. 9–11The merchandise inventory would appear in the Current Assets section, as follows:Merchandise inventory —at lower of cost, fifo, or market ............................................. $8,325 Alternatively, the details of the method of determining cost and the method of valuation could be presented in a note.Ex. 9–12Retail Merchandise inventory, June 1 $160,000 $180,000Purchases in June (net) 680,000 1,020,000Merchandise available for sale $840,000 $1,200,000Ratio of cost to retail price:70%$1,200,000840,000 $ Sales for June (net)875,000 Merchandise inventory, June 30, at retail price $ 325,000 at estimated cost ($325,000 × 70%)$ 227,500 Ex. 9–13 a. Merchandise inventory, Jan. 1$180,000 Purchases (net), Jan. 1–May 17 750,000 Merchandise available for sale$930,000 Sales (net), Jan. 1–May 17$1,250,000 Less estimated gross profit ($1,250,000 × 35%)437,500 Estimated cost of merchandise sold812,500Estimated merchandise inventory, May 17 $117,500 b. ments. It is also useful in estimating the cost of merchandise destroyed by fire or other disasters. Ex. 9–14a. Apple: 147.8 {$4,139,000,000 ÷ [($45,000,000 + $11,000,000) ÷ 2]}American Greetings: 3.1 {$881,771,000 ÷ [($278,807,000 + $290,804,000) ÷ 2]}b. Lower. Although American Greetings’ business is seasonal in natu re, with most of its revenue gener-ated during the major holidays, much of its nonholiday inventory may turn over very slowly. Apple, on the other hand, turns its inventory over very fast because it maintains a low inventory, which al-lows it to respond quic kly to customer needs. Additionally, Apple’s co mputer products can quickly become obsolete, so it cannot risk building large inventories.Ex. 9–15a. Number of days’ sales in inventory =sold/365 goods of Cost period of end Inventory, Albertson’s, 5$25,242/36$2,973 = 43 days ；Kroger, 5$37,810/36$4,175 = 40 days Safeway, 5$22,303/36$2,558 = 42 days ；Inventory turnover = inventory Average sold goods of Cost Albertson’s, $3,196)/2($2,973$25,242+ = 8.2；Kroger, $4,178)/2($4,175$37,810+ = 9.1Safeway, $2,437)/2($2,558$22,303+ = 8.9 b.The number of days’ sale in inventory and inventory turnover ratios are consistent. Alber t son’s has slightly more inventory than does Safeway. Kroger has relatively less inventory (2–3 days) than does Albert son’s and Safeway.CHAPTER 101. A. TANGIBLE ；B.CAPABLE OF REPEATED USE IN THE OPERATIONS OF THE BUSI-NESSe. Long-lived2. a. Property, plant, and equipment ； b. Current assets (merchandise inventory)3. Real estate acquired as speculation should be listed in the balance sheet under the caption "Invest-ments," below the Current Assets section.4. $375,0005. Ordinarily not; if the book values closely approximate the market values of fixed assets, it is coinci-dental.6. a. No, it does not provide a special cash fund for the replacement of assets. Unlike most expenses,however, depreciation expense does not require an equivalent outlay of cash in the period to which the expense is allocated.b. Depreciation is the cost of fixed assets periodically charged to revenue over their expected usefullives.7. 12 years8. a. No ；b. No9. a. An accelerated depreciation method is most appropriate for situations in which the decline inproductivity or earning power of the asset is proportionately greater in the early years of use than in later years, and the repairs tend to increase with the age of the asset.b. An accelerated depreciation method re-duces income tax payable to the IRS in the earlier periods ofan asset’s life. Thus, cash is freed up in the earlier periods to be used for other business pu rposes.c. MACRS was enacted by the Tax Reform Act of 1986 and provides for depreciation for fixed assets acquired after 1986. 10. No. Accounting Principles Board Opinion No. 20, Accounting Changes , is quite specific about thetreatment of changes in depreciableassets ’ estimated service lives. Such changes should be reflected in the amounts for depreciation expense in the current and future periods. The amounts recorded for de-preciation expense in the past are not affected.11. Capital expenditures are recorded as assets and include the cost of acquiring fixed assets, adding a component, or replacing a component of fixed assets. Revenue expenditures are recorded as expenses and are costs that benefit only the current period and are incurred for normal maintenance and repairs of fixed assets.12. Capital expenditure (component replacement)13. a. No, the accumulated depreciation for an asset cannot exceed the cost of the asset. To do so wouldcreate a negative book value, which is meaningless.b. The cost and accumulated depreciation should be removed from the accounts when the asset is nolonger useful and is removed from service. Presumably, the asset will then be sold, traded in, or discarded.14. a. All purchases of fixed assets should be approved by an appropriate level of management. In addi-tion, competitive bids should be solicited to ensure that the company is acquiring the assets at the lowest possible price.b. A physical count of fixed assets will verify the accuracy of accounting records. It will also detectmissing fixed assets that should be removed from the records and obsolete or idle fixed assets that should be disposed of. 15. a. Over the years of its expected usefulness ；b. Expense as incurredc. Goodwill should not be amortized, but written down when impaired.Ex. 10–1a. No. The $859,600 represents the original cost of the equipment. Its replacement cost, which may bemore or less than $859,600, is not reported in the financial statements.b. No. The $317,500 is the accumulation of the past depreciation charges on the equipment. The recog-nition of depreciation expense has no relationship to the cash account or accumulation of cash funds. Ex. 10–2 $18,000 [($312,000 – $42,000) ÷ 15]Ex. 10–3s,, $ ,$hour 0007500018000345 = $4.36 depreciation per hour 1,250 hours at $4.36 = $5,450 depreciation for JulyEx. 10–4a. Credit to Accumulated Truck No. Rate per Mile Miles Operated Depreciation 1 20.0 cents 40,000 $ 8,0002 21.012,000 2,100*3 17.5 36,000 6,3004 20.021,000 4,200Total $20,60012,000) is limited to $2,100, which reduces the bookvalue of the truck to $6,600, its residual value.b. Depreciation Expense —Trucks ................................................................. 20,600Accumulated Depreciation —Trucks ............................................ 20,600Ex. 10–5First Year Second Year a. 8 1/3% of $84,000 = $7,000 8 1/3% of $84,000 = $7,000b. 16 2/3% of $84,000 = $14,000 16 2/3% of $70,000* = $11,667*$84,000 – $14,000Ex. 10–6a. Year 1: 9/12 × [($54,000 – $10,800) ÷ 12] = $2,700Year 2: ($54,000 – $10,800) ÷ 12 = $3,600b. Year 1: 9/12 × 16 2/3% of $54,000 = $6,750Year 2: 16 2/3% of ($54,000 – $6,750) = $7,875Ex. 10–7a.Current PrecedingYear Year Land and buildings $ 426,322,000 $ 418,928,000Machinery and equipment 1,051,861,000 1,038,323,000Total cost $1,478,183,000 $1,457,251,000Accumulated depreciation 633,178,000 582,941,000Book value $ 845,005,000 $ 874,310,000comparison of the total cost and accumulated depreciation reveals that Interstate Bakeries purchased $20,932,000 ($1,478,183,000 – $1,457,251,000) of additional fixed assets, which was offset by the additional depreciation expense of $50,237,000 ($633,178,000 – $582,941,000) taken during the cur-rent year.b. The book value of fixed assets should normally increase during the year. Although additional depre-ciation expense will reduce the book value, most companies invest in new assets in an amount that is at least equal to the depreciation expense. However, during periods of economic downturn, compa-nies purchase fewer fixed assets, and the book value of their fixed assets may decline. This is appar-ently the case with Interstate Bakeries.Ex. 10–8Capital expenditures:New component: 4, 6, 7Replacement component: 1, 2, 9, 10Revenue expenditures: 3, 5, 8Ex. 10–9a. Mar. 15 Removal Expense ............................................................... 1,500Cash .................................................................................... 1,500b. Mar. 15 Depreciation Expense ........................................................ 6,000Accumulated Depreciation ................................................. 6,000 15Accumulated Depreciation ................................................................... 18,000Carpet ................................................................................. 18,00030 Carpet 45,000Cash .................................................................................... 45,000c. Dec. 31 Depreciation Expense ........................................................ 2,250*Accumulated Depreciation ................................................. 2,250 *($45,000 ÷ 15 years) × 9/12Ex. 10–10a. Cost of equipment ................................................................................................... $240,000Accumulated depreciation at December 31, 2006(4 years at $22,500* per year) ................................................................... 90,000Book value at December 31, 2006 .......................................................................... $150,000*($240,000 – $15,000) ÷ 10 = $22,500b. 1. Depreciation Expense—Equipment .................................................... 11,250Accumulated Depreciation—Equipment .................................... 11,2502. Cash .......................................................................................135,000Accumulated Depreciation—Equipment...................................... 101,250Loss on Disposal of Fixed Assets ................................................. 3,750Equipment ................................................................................... 240,000Ex. 10–11a. 2003 depreciation expense: $15,000 [($96,000 – $6,000) ÷ 6]2004 depreciation expense: $15,0002005 depreciation expense: $15,000；b. $51,000 ($96,000 – $45,000)c. Cash ...........................................................................................38,000Accumulated Depreciation—Equipment ................................................... 45,000Loss on Disposal of Fixed Assets .............................................................. 13,000 Equipment .................................................................................... 96,000d. Cash ...........................................................................................53,000Accumulated Depreciation—Equipment ................................................... 45,000 Equipment .................................................................................... 96,000Gain on Disposal of Fixed Assets ................................................ 2,000Ex. 10–12a. $205,000 ($315,000 – $110,000)b. $303,750 [$315,000 – ($110,000 – $98,750)], or$303,750 ($205,000 + $98,750)Ex. 10–13a. $205,000 ($315,000 – $110,000)b. $315,000. The new printing press’s cost cannot exceed $315,000 on a similar exchange. The $18,500loss on disposal ($128,500 book value – $110,000 trade-in allowance) must be recognized.Ex. 10–14a. Depreciation Expense—Equipment ........................................................... 8,000Accumulated Depreciation—Equipment...................................... 8,000b. Accumulated Depreciation—Equipment ................................................... 152,000Equipment .................................................................................................. 385,000Loss on Disposal of Fixed Assets .............................................................. 28,000 Equipment .................................................................................... 280,000Cash .............................................................................................. 35,000Notes Payable ............................................................................... 250,000* *$385,000 – $100,000 – $35,000Ex. 10–15a. $55,000. The new truck’s cost cannot exceed $55,000 in a similar e xchange.b. $54,000 ($55,000 – $1,000) or $54,000 ($30,000 + $24,000)Ex. 10–16a. $80,000,000 ÷ 100,000,000 tons = $0.80 depletion per ton15,500,000 × $0.80 = $12,400,000 depletion expenseb. Depletion Expense ..................................................................................... 12,400,000Accumulated Depletion ................................................................ 12,400,000Ex. 10–17a. ($472,500 ÷ 15) + ($75,000 ÷ 12) = $37,750 total patent expenseb. Amortization Expense—Patents ................................................................ 37,750Patents .......................................................................................... 37,750Ex. 10–18a. Current year: Ratio of fixed assets to long-term liabilities (debt) = $181,758,000/$14,610,000 =12.4Preceding year: Ratio of fixed assets to long-term liabilities (debt) = $174,659,000/$12,150,000 =14.4b. The ratio of fixed assets to long-term liabilities has declined from 14.4 in the preceding year to 12.4in the current year. This indicates a decrease in the margin of safety for long-term creditors. However, the ratio of fixed assets to long-term liabilities is large enough that Intuit will be able to borrow with relative ease.Appendix Ex. 10–19First year: 12/78 × $84,000 = $12,923；Second year: 11/78 × $84,000 = $11,846Appendix Ex. 10–20First year: 9/12 × 12/78 × $43,200 = $4,985Second year: (3/12 × 12/78 × $43,200) + (9/12 × 11/78 × $43,200) = $6,231CHAPTER 111. TO MATCH REVENUES AND EXPENSES PROPERLY, THE LIABILITY TO COVERPRODUCT WARRANTIES SHOULD BE RECORDED IN THE PERIOD DURING WHICH THESALE OF THE PRODUCT IS MADE.2. When the defective product is repaired, the repair costs would be recorded by debiting Product War-ranty Payable and crediting Cash, Supplies, or another appropriate account.3. Yes. Since the $5,000 is payable within one year, Company A should present it as a current liability atSeptember 30.4. a. Income or withholding taxes, social security, and Medicareb. Employees Income Tax Payable, Social Security Tax Payable, and Medicare Tax Payable5. There is a ceiling on (a) the social security portion of the FICA tax and (d) federal unemploymentcompensation tax.6. The deductions from employee earnings are for amounts owed (liabilities) to others for such items asfederal taxes, state and local income taxes, and contributions to pension plans.7. Yes. Unemployment compensation taxes are paid by the employer on the first $7,000 of annual earn-ings for each employee. Therefore, hiring two employees, each earning $12,500 per year, would re-quire the payment of twice the unemployment tax than if only one employee, earning $25,000, was hired.8. 1. c； 2. c； 3. a； 4. b； 5. b9. The use of special payroll checks relieves the treasurer or other executives of the task of signing alarge number of regular checks each payday. Another advantage of this system is that reconciling the regular bank statement is simplified. The paid payroll checks are returned by the bank separately rom regular checks and are accompanied by a statement of the special bank account. Any balance shown on the bank's statement will correspond to the sum of the payroll checks outstanding because the amount of each deposit is exactly the same as the total amount of checks drawn.10. a. Input data that remain relatively unchanged from period to period (and therefore do not need to bereintroduced into the system frequently) are called constants.b. Input data that differ from period to period are called variables.11. a. If employees’ attendance records are kept and their preparation supe rvised in such a manner as toprevent errors and abuses, then one can be assured that wages paid are based on hours actually worked. The use of ―In‖ and ―Out‖ cards, whereby employees indicate by punc hing a time clock their time of arrival and departure, is especially useful. Employee identification cards or badges can be very helpful in giving additional assurance.b. The requirement that the addition of names on the payroll be supported by written authorizationsfrom the Personnel Department can help ensure that payroll checks are not being issued to ficti-tious persons. Endorsements on payroll checks can be compared with other samples of employees' signatures.12. If the vacation payment is probable and can be reasonably estimated, the vacation pay expense shouldbe recorded during the period in which the vacation privilege is earned.13. Employee life expectancies, expected employee retirement dates, employee turnover, employeecompensation levels, and invest-ment income on pension contributions are factors that influence the future pension obligation of an employer.Ex. 11–1Current liabilities:Federal income taxes payable ............................................................................................. $ 42,0001 Advances on magazine subscriptions ................................................................................. 155,2502 Total current liabilities ........................................................................................................ $197,250 1$120,000 × 35%；26,900 × $30 × 9/12 = $155,250The nine months of unfilled subscriptions are a current liability because Web World received payment prior to providing the magazines.Ex. 11–2a. 1. Merchandise Inventory ........................................................................ 196,000Interest Expense ........................................................................... 4,0001Notes Payable ............................................................................. 200,0002. Notes Payable ...................................................................................... 200,000Cash ............................................................................................ 200,000b. 1. Notes Receivable ................................................................................. 200,000Sales ............................................................................................ 196,000Interest Revenue ......................................................................... 4,0002. Cash .......................................................................................200,000Notes Receivable ........................................................................ 200,000 1$200,000 × 8% × 90/360Ex. 11–3a. $90,000 × 6% × 90/360 = $1,350 for each alternative.b. (1) $90,000 simple-interest note: $90,000 proceeds(2) $90,000 discounted note: $90,000 – $1,350 interest = $88,650 proceedsc. Alternative (1) is more favorable to the borrower. This can be verified by comparing the effectiveinterest rates for each loan as follows:Situation (1): 6% effective interest rate($1,350 × 360/90) ÷ $90,000 = 6%Situation (2): 6.09% effective interest rate($1,350 × 360/90) ÷ $88,650 = 6.09%The effective interest rate is higher for the second loan because the creditor lent only $88,650 in re-turn for $1,350 interest over 90 days. In the simple-interest loan, the creditor must lend $90,000 for90 days to earn the same $1,350 interest.Ex. 11–4a. Accounts Payable ....................................................................................... 9,000Notes Payable ............................................................................... 9,000b. Notes Payable............................................................................................. 9,000Interest Expense ................................................................................... 75*Cash .............................................................................................. 9,075 *$9,000 × 5% × 60/360 = $75Ex. 11–5a. June 30 Building .............................................................................. 730,000Land ................................................................................... 250,000Note Payable ............................................................... 800,000Cash ............................................................................. 180,000b. Dec. 31 Note Payable ...................................................................... 40,000Interest Expense ($800,000 × 8% × 1/2) ............................ 32,000Cash ............................................................................. 72,000c. June 30 Note Payable ...................................................................... 40,000Interest Expense ($760,000 × 8% × 1/2) ............................ 30,400Cash ............................................................................. 70,400Ex. 11–6a. $4,650,000, or the amount disclosed as the current portion of long-term debt.b. By the end of 2002, the bank credit line was reduced to $299,000; thus, the bank credit line was near-ly paid off in 2002. The difference between the $34,783,000 that would be due in the coming period and the $4,650,000 disclosed as the current portion must have been funded (i.e., replaced) by long-term notes payable. Indeed, of the $50 million increase in the term loans ($95 million – $45 million), around $35 million must have been used to eliminate the bank credit line.c. The current liabilities declined by $4,351,000 ($4,650,000 – $299,000).Ex. 11–7a. Product Warranty Expense (2% × $750,000) ............................................ 15,000Product Warranty Payable ............................................................ 15,000b. Product Warranty Payable (960)Wages Payable (570)Supplies (390)Ex. 11–8a. The warranty liability represents estimated outstanding automobile warranty claims. Of these claims,$14,166 million is estimated to be due during 2003, while the remainder ($9,125 million) is expected to be paid after 2003. The distinction between short-term and long-term liabilities is important to。

Chapter 2Check Points(5 min.) CP 2-1 Hickman’s payment was not an expense.Hickman acquired an asset, Equipment, because the computer is an economic resource of the business.(5 min.) CP 2-2a. $12,800b. $ 3,000c. $56,300d. $ 500e. $ 5,800 [Service revenue of $8,500 ($5,500 + $3,000) – Total expenses of $2,700 ($1,100 +$1,200 + $400) = Net income of $5,800]e. $ 500(5-10 min.) CP 2-3Cash Accounts Receivable 30,000 4,000 6,0002,000 Bal. 6,000Bal. 28,000(5 min.) CP 2-4 Increased total assets: May 1 (Cash)May 1 (Medical supplies)May 3 (Cash, Accounts receivable)Increased total liabilities: M ay 1 (Accounts payable)Decreased total assets: May 2 (Cash)(10 min.) CP 2-5JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Apr. 15 Cash……………………………………50,000Note Payable………………………50,000 Borrowed money from the bank.22 Accounts Receivable……………….9,000Service Revenue………………….9,000 Performed service on account.28 Cash……………………………………6,000Accounts Receivable…………….6,000 Received cash on account.29 Utilitie s Expense (600)Accounts Payable (600)Received utility bill.30 Salary Expense………………………3,000Cash…………………………………3,000 Paid salary expense.Chapter 2 Transaction Analysis 5730 Interest Expense (300)Cash (300)Paid interest expense.(10-15 min.) CP 2-6Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Supplies………………………………..2,000Accounts Payable…………………2,000 Purchased supplies on account.Accounts Payable (500)Cash (500)Paid cash on account.Req. 2Accounts Payable500 2,000Bal. 1,500Req. 3Biaggi’s business owes $1,500, as shown in the Accounts Payable account.(10-15 min.) CP 2-7Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Accounts Receivable………………..1,200Service Revenue…………………..1,200 Performed service on account.Cash (500)Accounts Receivable (500)Received cash on account.Req. 2Cash Accounts Receivable Service Revenue500 1,200 500 1,200 Bal. 500 Bal. 700 Bal. 1,200 Req. 3a. The Center earned $1,200: S ervice Revenueb. Total assets $1,200: C ash………………….. $ 500Accounts receivable. 700Total assets…………. $1,20058Financial Accounting 6/e Solutions Manual(10 min.) CP 2-8Old NavyTrial BalanceDecember 31, 20X8ACCOUNT DEBIT CREDITMillionsCash……………………….…...$ 2Other assets (9)Accounts payable……………$ 1Other liabilities (2)Stockholders’ equity (2)Revenues (30)Expenses……………………... 24 ___Total……………………….……$35 $35Old Navy’s net income:$6 million ($30 – $24)(10 min.) CP 2-9 1. Total assets = $53,800 ($33,300 + $2,000 + $500 +$18,000)2. Total liabilities = $1003. Total stockholders’ equity = $53,700 ($53,800 – $100)4. Net income = $5,800 ($8,500 – $1,100 – $1,200 – $400)(10 min.) CP 2-101. Total debits = $121,600 ($58,600 + $81,000 – $18,000)Total credits = $ 58,600Difference = $ 63,000 ($121,600 – $58,600)$63,000 / 9 = $7,000 (an integer), which suggests either atransposition or a slide2. Total debits = $76,600 ($58,600 + $20,000 – $2,000)Total credits = $58,600Difference = $18,000 ($76,600 – $58,600)$18,000 / 9 = $2,000 (original amount of accountsreceivable)3. Total debits = $56,600 ($58,600 – $ 2,000)Total credits = $60,600 ($58,600 + $ 2,000)Difference = $ 4,000 ($60,600 – $56,600)$4,000 / 2 = $2,000 (original amount of accounts receivable)Chapter 2 Transaction Analysis 59(5 min.) CP 2-12Cash Computer Equipment250,000 100,000Accounts Payable Common Stock100,000 250,000Total debits = $350,000 ($250,000 + $100,000)Total credits = $350,000 ($100,000 + $250,000)Exercises(10-15 min.) E 2-1 TO: Home OfficeFROM: Store ManagerDuring the first week, I borrowed $320,000 on a note payable. I used the store’s beginning cash plus the borrowed money to purchase land, a building, copy equipment, and supplies. After all these transactions, the store’s balance sheet appears as follows:Kinko’sOklahoma City StoreBalance SheetDateASSETS LIABILITIESCash $ 80,000* Note payable $320,000 Supplies 10,000Copy equipment 60,000 STOCKHOLDERS’ EQUITYLand 90,000 Common stock 40,000 Building 120,000 Total liabilities and ________ Total assets $360,000 stockholders’ equity $360,000 _____*$40,000 + $320,000 – $90,000 – $120,000 – $60,000 – $10,000 = $80,000(5-10 min.) E 2-2 a. Issuance of stockRevenue transactionb. Purchase of asset on accountBorrow moneyc. Purchase of asset for cashSale of asset for cashCollection of an account receivabled. Payment of dividends to ownersExpense transactione. Pay a liability60Financial Accounting 6/e Solutions Manual(10-20 min.) E 2-4 Req. 1Analysis of TransactionsASSETS = LIABILITIES + STO CKHOLDERS’ EQUITYDate Cash + AccountsReceivable +MedicalSupplies + Land =AccountsPayable +NotePayable +CommonStock +RetainedEarningsType of Stockholders’Equity TransactionOct. 6 40,000 40,000 Issued stock9 (30,000) 30,00012 2,000 2,00015 Not a transaction of the business.15-31 4,000 4,000 8,000 Service revenue 15-31 (1,400) (1,400) Salary expense (1,000) (1,000) Rent expense(300) (300) Utilities expense31 500 (500)31 10,000 10,00031 (1,500) (1,500)Bal. 20,300 4,000 1,500 30,000 500 10,000 40,000 5,30055,800 55,800Chapter 2 Transaction Analysis 61(continued) E 2-4 Req. 2a. $55,800b. $4,000c. $10,500 ($500 + $10,000)d. $45,300 ($55,800 – $10,500, or $40,000 + $5,300)e. $5,300 (Revenue, $8,000 minus total expenses of $2,700, equals net income, $5,300.)62Financial Accounting 6/e Solutions Manual(10-15 min.) E 2-5JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Oct. 6 Cash………………………………………..40,000Common Stock……………………….40,000 Issued stock to owner.9 Land………………………………………...30,000Cash…………………………………….30,000 Purchased land.12 Medical Supplies…………………………2,000Accounts Payable……………………2,000 Purchased supplies on account.15 Not a transaction of the business.15-31 Cash………………………………………..4,000Accounts Receivable……………………4,000Servi ce Revenue……………………..8,000 Performed service for cash and on account.15-31 Salary Expense…………………………..1,400Rent Expense……………………………..1,000Utilities Expense (300)Cash…………………………………….2,700 Paid expenses.31 Cash (500)Medical Supplies (500)Sold supplies.31 Cash………………………………………..10,000Note Payable…………………………..10,000 Borrowed money.31 Accounts Payable……………………….1,500Cash…………………………………….1,500 Paid on account.(10-15 min.) E 2-6 Req. 1Total assets = $145 million ($100 + $60 – $55 + $35 + $26 – $21)Req. 2Company owes $41 million [$60 – $55 + $35 + $22 – $21]Req. 3Net income = $4 million ($26 – $22)Chapter 2 Transaction Analysis 63(10-20 min.) E 2-7 Req. 1 (journal entries)JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Aug. 1 Cash……………………………………………19,500Common Stock…………………………...19,500 Issued common stock to owner.2 Office Supplies (800)Accounts Payable (800)Purchased office supplies on account.4 Land……………………………………………14,000Cash………………………………………..14,000 Paid cash for land.6 Cash……………………………………………2,000Service Revenue…………………………2,000 Performed services for cash.9 Accounts Payable (100)Cash (100)Paid cash on account.17 Accounts Receivable……………………….1,200Service Revenue…………………………1,200 Performed service on account.23 Cash (900)Accounts Receivable (900)Received cash on account.31 Salary Expense………………………………1,000Rent Expense (500)Cash………………………………………..1,500 Paid cash expenses.(continued) E 2-7Req. 2Ending cash = $6,800($19,500 – $14,000 + $2,000 – $100 + $900 – $1,500)Expects to collect on account = $300 ($1,200 – $900)Total liabilities = $700 ($800 – $100)Net income (profit) = $1,700 ($2,000 + $1,200 – $1,000 – $500)64Financial Accounting 6/e Solutions Manual(20-30 min.) E 2-8 Req. 1Cash Accounts ReceivableAug. 1 19,500 Aug. 4 14,000 Aug. 17 1,200 Aug. 23 9006 23 2,0009009311001,500Aug. 31 300Aug. 31 6,800Office Supplies LandAug. 2 800 Aug. 4 14,000Aug. 31 800 Aug. 31 14,000Accounts Payable Common StockAug. 9 100 Aug. 2 800 Aug. 1 19,500 Aug. 31 700 Aug. 31 19,500 Service Revenue Salary ExpenseAug. 6 2,000 Aug. 31 1,00017 1,200 Aug. 31 1,000Aug. 31 3,200Rent ExpenseAug. 31 500Aug. 31 500(continued) E 2-8Req. 2Coaxial Electronic Systems, Inc.Trial BalanceAugust 31, 20X6ACCOUNT DEBIT CREDITCash…………………………...$ 6,800Accounts receivable (300)Office supplie s (800)Land…………………………...14,000Accounts payable…………..$ 700Common stock………………19,500Service revenue……………..3,200Salary expense………………1,000Rent expense (500)Total…………………………...$23,400 $23,400Req. 3Total a ssets ($6,800 + $300 + 800 + $14,000)……..$21,900Total liabilities (700)Total stockholders’ equity ($21,900 –$700)………$21,200Chapter 2 Transaction Analysis 65(10-15 min.) E 2-9JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT1. Cash…………………………………..10,000Common Stock…………………..10,000 Issued common stock.2. Cash…………………………………..7,000Note Payable……………………..7,000 Borrowed money; signed note payable.3. Land…………………………………..31,000Cash………………………………..8,000Note Payable……………………..23,000 Purchased land by paying cashand signing a note payable.4. Supplies (600)Accounts Payable (600)Purchased supplies on account.5. Cash (100)Su pplies (100)Sold supplies for cash.6. Equipment……………………………6,000Cash………………………………..6,000 Paid cash for equipment.7. Accounts Payable (300)Cash (300)Paid cash on account.Cash balance = $2,800 ($10,000 + $7,000 – $8,000 + $100 – $6,000 – $300)Company owes $30,300 ($7,000 + $23,000 + $600 – $300)(10-20 min.) E 2-10Req. 1Whirlpool Appliance ServiceTrial BalanceJune 30, 20X6ACCOUNT DEBIT CREDIT Cash…………………………...$ 9,000Accounts receivable………..15,500Building……………………….40,250Land…………………………...29,000Accounts payable………….. $ 4,300Note payable………………… 13,000Common stock……………… 48,800Retained earnings………….. 21,350*Dividends……………………..6,000Service revenue…………….. 22,00066Financial Accounting 6/e Solutions ManualSalary expense………………8,000Utilities expense…………….1,400Delivery expense (300)Total…………………………...$109,450 $109,450 *Total debits…………………………………………$109,450 Total credits, ex cluding retained earnings…… (88,100) Retained earnings…………………………………$ 21,350 (continued) E 2-10Req. 2Whirlpool Appliance ServiceIncome StatementMonth Ended June 30, 20X6Service revenue………………...$22,000Salary expense…………………$8,000Ut ilities expense………………..1,400Delivery expense (300)Total expenses…………………. 9,700Net income………………………$12,300 (15-25 min.) E 2-11Car Connection, Inc.Trial BalanceDecember 31, 20X3ACCOUNT DEBIT CREDIT Cash…………………………...$ 4,600*Accounts receivable……….. 12,600*Inventory……………………... 17,000Supplies (600)Land…………………………... 55,000Accounts payable…………..$13,100*Common stock………………48,300*Sales revenue……………….. 35,700Cost of goods sold…………. 3,900Salary expense……………… 1,700Rent expense (800)Utilities expense……………. 900* _______Total…………………………...$97,100 $97,100_____*Explanations:Cash: $4,200 + $400 = $4,600Accounts Receivable: $13,000 – $400 = $12,600Accounts Payable: $12,000 + $1,000 – $100 + $200 = $13,100Common Stock: $47,900 + $400 = $48,300Utilities Expense: $700 + $200 = $900(5-15 min.) E 2-12 Cash Accounts Receivable(a) 12,500 (b) 1,500 (f) 8,300(d) 1,800 Bal. 8,300(e) 400(g) 2,000Bal. 6,800Office Supplies Office Furniture(c) 800 (a) 9,000Bal. 800 Bal. 9,000Accounts Payable Common Stock(e) 400 (c) 800 (a) 21,500Bal. 400 Bal. 21,500 Dividends Service Revenue(g) 2,000 (f) 8,300 Bal. 2,000 Bal. 8,300 Salary Expense Rent Expense(d) 1,800 (b) 1,500Bal. 1,800 Bal. 1,500(10-20 min.) E 2-13Req. 1LaVell Oxford, AttorneyTrial BalanceJuly 31, 20X8ACCOUNT DEBIT CREDITCash…………………………...$ 6,800Accounts receivable………..8,300Office supplies (800)Office furniture………………9,000Accounts payable…………..$ 400Common stock………………21,500Dividends……………………..2,000Service revenue……………..8,300Salary expense………………1,800Rent expense……………….. 1,500Total…………………………...$30,200 $30,200Req. 2The business performed well during July. The result of operations was net income of $5,000, as shown by the income statement accounts:Service revenue………………….$ 8,300Salary expense………..$1,800Rent expense…………. 1,500Total expenses……………….. (3,300)Net income……………………….. $ 5,000(20-30 min.) E 2-14Reqs. 1 and 3Cash Accounts ReceivableDec. 2 7,000 Dec. 2 500 Dec. 18 1,7009 800 3 3,00012 200Bal. 4,100Supplies EquipmentDec. 5 300 Dec. 3 3,000Furniture Accounts PayableDec. 4 3,600 Dec. 4 3,6005 300Bal. 3,900 Common Stock DividendsDec. 2 7,000Service Revenue Rent ExpenseDec. 9 800 Dec. 2 50018 1,700Bal. 2,500Utilities Expense Salary ExpenseDec. 12 200(continued) E 2-14Req. 2JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Dec. 2 Cash……………………………………..7,000Common Stock……………………..7,0002 Rent Expense (500)Cash (500)3 Equipment……………………………...3,000Cash………………………………….3,0004 Furniture………………………………..3,600Accounts Payable………………….3,6005 Supplies (300)Accounts Payable (300)9 Cash (800)Service Revenue (800)12 Utilities Expense (200)Cash (200)18 Accounts Receivable…………………1,700Service Revenue…………………...1,700 (continued) E 2-14Req. 4Matthew Rogers, Certified Public Accountant, P.C.Trial BalanceDecember 18, 20XXACCOUNT DEBIT CREDIT Cash…………………………...$ 4,100Accounts receivable………..1,700Supplies (300)Equipment……………………3,000Furniture……………………...3,600Accounts payable…………..$ 3,900Common stock………………7,000Dividends……………………..—Service revenue……………..2,500Rent expense (500)Utilities expense (200)Salary expense………………—Total…………………………...$13,400 $13,400(20-40 min.) E 2-15a. Net income for March – Given as follows:Retained EarningsFeb. 28 Bal. 7,000MarchMarch dividends 15,800 net income X = $19,300Mar. 31 Bal. 10,500$7,000 + X – $15,800 = $10,500X = $19,300b. Total cash paid during March:CashFeb. 28 Bal. 11,600March receipts 81,200 March payments X = $87,800Mar. 31 Bal. 5,000$11,600 + $81,200 – X = $ 5,000X = $87,800 (continued) E 2-15c. Cash collections from customers during March:Accounts ReceivableFeb. 28 Bal. 24,300March saleson account 49,400 March collections X = $47,000 Mar. 31 Bal. 26,700$24,300 + $49,400 – X = $26,700X = $47,000d. Cash paid on a note payable during March:Note PayableFeb. 28 Bal. 13,900 March MarchX =17,500 payments on note X new borrowing 25,000Mar. 31 Bal. 21,400 $13,900 + $25,000 – X = $21,400X = $17,500(20-30 min.) E 2-16Req. 1Road Runner, Inc.Trial BalanceDecember 31, 20X5Cash…………………………...$ 4,200Accounts receivable………..7,200Supplies (800)Land…………………………...34,000Accounts payable…………..$ 5,800Note payable…………………5,000Common stock………………20,000Retained earnings…………..7,300Service revenue……………..9,100Salary expense………………3,400Advertising expense………. 900 _______Totals………………………….$50,500 $47,200Out of balanceby $3,300The correct balance of Accounts Receivable is $3,900 ($7,200 – $3,300). After this correction, total debits will be $47,200 ($50,500 – $3,300), the same as total credits.(continued) E 2-16Req. 2Road Runner, Inc.Trial BalanceDecember 31, 20X5Cash ($4,200 –$400)……………………$ 3,800Accounts receivable($7,200 –$3,300 + $7,000)..............10,900 Supplies.. (800)Land ($34,000 + $80,000)………………114,000Accounts payable ($5,800 + $2,000)…$ 7,800 Note payable ($5,000 + $80,000)……...85,000 Common stock…………………………..20,000 Retained earnings………………………7,300 Service revenue ($9,100 + $7,000)……16,100 Salary expense ($3,400 + $400)………3,800Advertising expense ($900 + $2,000). 2,900Tot als……………………………………...$136,200 $136,200Req. 3a. Total assets = $129,500 ($3,800 + $10,900 + $800 + $114,000).b. Road Runner is profitable, as indicated by the excess of revenue ($16,100) over totalexpenses ($6,700 = $3,800 + $2,900).(10-15 min.) E 2-17San Francisco:Income statement June July Medical expense…………..$40,000 $ -0- Balance sheet June 30 July 31 Cash…………………………$55,000 $23,000*Accounts payable…………40,000 8,000** Bay Area:Income statement June July Service revenue…………..$40,000 $ -0- Balance sheet June 30 July 31 Cash………………………… $ -0- $32,000Accounts receivable……..40,000 8,000**Explanation:San Francisco’s expense is Bay Area’s revenue.San Francisco’s cash payment is Bay Area’s cash receipt.San Francisco’s account payable is Bay Area’s account receivable. __________*$55,000 – $32,000 = $23,000**$40,000 – $32,000 = $ 8,000。

Chapter 9Stockholders’ EquityCheck Points(5 min.) CP 9-11. The stockholders hold ultimate power in a corporation.2. The chairperson of the board of directors is usually the mostpowerful person in a corporation.3. The president is in charge of day-to-day operations.4. The treasurer has primary responsibility for cash.5. The controller manages the accounting.(5-10 min.) CP 9-2 1. The right to vote on management matters clearly separates astockholder from a creditor.2. The common stockholders are the real owners of a corporation3. Preferred stockholders have priority over commonstockholders in (1) receipt of dividends and (2) receipt of assets if the corporation liquidates.4. Common stockholders benefit more from a successfulcorporation because the preferred stockholders’ dividends are limited to a specified amount. The common stockholders’ potential for gains through an increase in the company’s stock price is unlimited.(5-10 min.) CP 9-3 1. The $61,938,000 was paid-in capital. It was not a profit andtherefore had no effect on net income.2. The par value of stock has no effect on total paid-in capital.Total paid-in capital is the total amount that stockholders have invested in (paid into) a corporation, including the par value of stock issued plus any additional paid-in capital.(10 min.) CP 9-4Thousands1. Common stock, December 31, 2003………………$ 649Common stock, December 31, 2002 (623)Increase during 2003…………………………….. $ 26 Additional paid-in capital, December 31, 2003….$3,937,160Additional paid-in capital, December 31, 2002…. 3,108,131 Increase during 2003…………………………….. 829,029 Total increase in paid-in capital during 2003…… $829,055 eBay must have issued common stock during 2003,as shown by the increase in the Common Stock account.JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDITThousands 2. Cash……………………………………………………829,055Common Stock (26)Additional Paid-in Capital ……………………...829,029 Issued stock.3. eBay had a profit during 2003, as indicated by theincrease in Retained Earnings.(10 min.) CP 9-5 Case A — Issue stock and buy the assets in separatetransactions:JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Cash………………………………………500,000Common Stock (10,000 ⨯$5)……...50,000Paid-in Capital in Excess of Par….450,000 Issued stock.Building…………………………………..400,000Equipment……………………………….100,000Cash……………………………………500,000 Purchased plant assets.Case B — Issue stock to acquire the assets:JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Building………………………………….400,000Equipment……………………………….100,000Common Stock (10,000 ⨯$5)……..50,000Paid-in Capital in Excess of Par….450,000 Issued stock to acquire building and equipment.The balances in all accounts are the same:Building…………………………………… $400,000Equipment……………………………….… 100,000Common Stock…………………………... 50,000Paid-in Capital in Excess of Par……… 450,000(5-10 min.) CP 9-6Millions Stockholders’ equity:Common stock, $.01 par, 376 million shares issued... $ 4 Paid-in capital in excess of par. (198)Retained earnings (846)Other stockholders’ equity (29)Total stockholders’ equity……………………………….. $1,077(10 min.) CP 9-7Millions a. Total revenues……………………………………………….. $1,099Total expe nses (805)Net income………………………………….………………. $ 294 b. Accounts payable…………………………………………. $ 22Other current liabilities.......................................... 2,566 Long-term liabilities. (25)Total liabilities……………………………………………… $2,613 c. Total liabilities (from Req. b)……………………………. $2,613Total stockholders’ equity (from CP 9-6)……………… 1,077 Total assets………………………………………………… $3,690(5 min.) CP 9-8JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDITMillions Treasury Stock (28)Cash (28)Cash (7)Treasury Stock (3)Paid-in Capital from Treasury StockTransactions (4)Overall, stockholders’ equity decreased by $21 million ($28 million paid out minus $7 million received).(5-10 min.) CP 9-9 General Dynamics does not have more treasury stock than the amount of stock the company has issued. That would be impossible, because treasury stock is also issued stock.A company’s balance of Treasury Stock can exceed the sum of Common Stock and Additional Paid-In Capital because treasury stock is accounted for at cost whenever it is purchased. Common Stock and Additional Paid-In Capital hold historical balances that arose from the original issuance of the stock, which may have occurred when the stock price was much lower.(10 min.) CP 9-10JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT20X6Dec. 15 Retained Earnings($50,000 ⨯ .045) + (25,000 ⨯$.50)…..14,750Dividends Payable…………………14,750 Declared a cash dividend……………20X7Jan. 4 Dividends Payable……………………14,750Cash………………………………….14,750 Paid the cash dividend.During 20X6, Retained Earnings increased by $46,000 (net income of $60,750 – dividends of $14,750).(5-10 min.) CP 9-111. $150,000 (100,000 shares ⨯ $1.50 per share)2. Preferred: $150,000Common: $150,0003. Cumulative, because it is not labeled noncumulative4. Preferred: $450,000 ($150,000 ⨯ 3)Common: $200,000 ($650,000 – $450,000)(5-10 min.) CP 9-12 Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Aug. 12 Retained Earnings (60,000 ⨯ .05 ⨯$11.50)………34,500Common Stock (60,000 ⨯ .05 ⨯$1)…………... 3,000Paid-in Capital in Excess of Par-Common…..31,500Req. 2No effect on total assets.No effect on total liabilities.No effect on total stockholders’ equity.(10 min.) CP 9-13 Total stockholders’ equity…………………………….$4,053,000 Less: Preferred stock…………………………………(310,000) Preferred dividends in arrears(30,000 ⨯ $10 ⨯.08)……………………………. (24,000) Common equity…………………………………………$3,719,000 Number of common shares outstanding(60,000 –1,400)……………………………………….) 58,600 Book value per share of common stock…………… $ 63.46(5-10 min.) CP 9-14 (a) Rate of returnon common= Net income – Preferred dividendsstockholders' Average common stockholders’ equity equity(b) Rate of returnon total assets =Net income + Interest expenseAverage total asssets1. Preferred stockholders have the first claim on the company’snet income through preferred dividends. Therefore, preferred dividends are subtracted from net income to compute ROE.Preferred dividends are not subtracted in computing ROA because the preferred stockholders have invested in the company. Net income includes both the preferred stockholders’ and the common stockhold ers’ returns on their investments.2. Creditors have loaned money to the company and earn interest.Stockholders have invested in the corporation’s stock and thus own the company’s net income. The sum of interest expense plus net income is the return to the two groups that have financed the company.(5-10 min.) CP 9-15Rate of return on totalassetsNet Interest=income + expense=$1,221 + $276 Average total assets ($15,084 + $13,753) / 2=$1,497= 10.4%$14,419Note: 10% is considered good in most industries. Therefore, Sara Lee’s 10.4% return is good.Rate of return Net Preferredon common= income – dividends=$1,221 – $0stockholders’ Average common ($2,052 + $1,742) / 2 equity stockholders’ equity= $1,221= 64.4% $1,897Note: 15% is considered good in most industries, so Sara Lee’s return on equity is outstanding!(5-10 min.) CP 9-16Millions Cash flows from financing activities:Borrowed money.............................................$397 Paid off debt (151)Issued common stock (53)Purchased treasury stock (139)Net cash provided by financing activities………$160Exercises(5-10 min.) E 9-1 DATE: _____________TO: Katy Jax and Marta FraserFROM: Student NameRE: Steps in forming a corporationThe first step in organizing a corporation is to obtain a charter from the state. The charter authorizes the corporation to issue a certain number of shares of stock to the owners of the business, who are called stockholders. The incorporators (Jax and Fraser) will need a set of bylaws to determine how the corporation is to be governed internally. The stockholders will elect a board of directors who in turn appoint officers to manage the corporation on a day-to-day basis.Student responses may vary.(10-15 min.) E 9-2 Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Feb. 19 Cash (1,000 ⨯ $6.50) ............................ 6,500Common Stock (1,000 ⨯ $2.50) ..... 2,500Paid-in Capital in Excess ofPar — Common ........................... 4,000Mar. 3 Cash ..................................................... 50,000Preferred Stock .............................. 50,00011 Inventory .............................................. 11,000Equipment ........................................... 8,500Common Stock (3,300 ⨯ $2.50) ..... 8,250Paid-in Capital in Excess ofPar — Common ........................... 11,250Req. 2Stockholders’ equity:Preferred stock, $1.50, no par5,000 shares authorized, 500 shares issued………$50,000 Common stock, $2.50 par,100,000 sha res authorized, 4,300 shares issued…10,750 Paid-in capital in excess of par-common($4,000 + $11,250)……………………………………….15,250 Retained earnings (deficit)………………………….……(42,000) Total stockholders’ equity……………………….……$34,000(10-15 min.) E 9-3Stockholders’ EquityPreferred stock, $4.50 no-par, 5,000 sharesauthorized, 300 shares issued ................................. $ 20,000 Common stock, $1 par, 10,000 shares authorized,4,000 shares issued .................................................. 4,000 Paid-in capital in excess of par — common ................ 86,000* Retained earnings .......................................................... 88,000 Total stockholders’ equity ....................................... $198,000_____*Computation:June 23: 1,000 shares ⨯ ($22 –$1) =………………………………$21,000 July 12: $25,000 + $43,000 – (3,000 shares ⨯$1.00) =………... 65,000$86,000(10 min.) E 9-4Paid-in capital consists of:Preferred equity:Issued for cash (5,000 shares ⨯ $110) ........ $ 550,000 Common equity:Issued for cash (50,000 shares ⨯ $15) ....... 750,000 Issued for organization cost ....................... 20,000 Issued for patent .......................................... 150,000 Total paid-in capital ............................................... $1,470,000Unused data:Net incomeDividends declared(10-15 min.) E 9-5Stockholders’ Equity (Millions)Common stock, $0.25 par, 800 sharesauthorized, 361 shares i ssued..............................$ 90 Paid-in capital in excess of par................................. 1,188 Retained earnings................................................... 2,202 Other stockholders’ equity (729)Less: Treasury stock, common, 126 shares at cost….. (2,380) Tota l stockholders’ equity……………………………..$ 371Avon paid a higher price to acquire treasury stock than the price Avon received when it issued its stock. This explains why Treasury Stock has a greater balance than the sum of Common Stock plus Paid-in Capital in Excess of Par.(10-15 min.) E 9-6JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Jan. 19 Cash (10,000 ⨯$5)…………………………50,000Common Stock (10,000 ⨯$1)………...10,000Paid-in Capital in Excess of Par…….40,000To issue common stock.Oct. 22 Treasury Stock — Common (900 ⨯ $7)... 6,300Cash……………………………………...6,300 To purchase treasury stock.Dec. 11 Cash (800 ⨯$12)…………………………...9,600Treasury Stock — Common (800 ⨯ $7)5,600Paid-in Capital from TreasuryStock Transactions………………..4,000 To sell treasury stock.Overall effect on stockholders’ equity($50,000 –$6,300 + $9,600)……………………………. $53,300(10 min.) E 9-7JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDITMillions b. Cash (6 million ⨯$15.50) (93)Common Stock (6 million ⨯$1.50) (9)Capital in Excess of Par Value (84)c. Treasury Stock (14)Cash (14)d. Retained Earnings (30)Dividends Payable (30)Dividends Payable (30)Cash (30)or one entry only:Retained Earnings (30)Cash (30)(10 min.) E 9-8DollarsinMillions Stockholders’ Equity:Common stock, $1.50 par value,1,835 million shares issued ($2,744 + $9)...........$ 2,753 Capital in excess of par value ($10,076 + $84)........ 10,160 Retained earnings ($261 + $440 –$30) (671)Treasury stock, 1 million shares at cost (14)Total stockholders’ equity…………………………..$13,570(20-30 min.) E 9-9 Req. 1Conversion of preferred stock into common stockRetirement of preferred stockReq. 2Issuance of common stock:a. To preferred stockholders who converted their preferredstock into common stockb. For cash or other assetsc. Stock dividendReq. 3(Millionsof sharesof stock)Dec. 31, 20X4 Common shares is sued (408)Less: Treasury stock, number of shares (29)379 Common sharesoutstanding……………………...(continued) E 9-9 Req. 4 (All amounts in millions)December 31, Purchases20X4 20X3 During 20X4 Cost of treasu ry stock……………….$1,235 –$215 = $1,020 Treasury stock, number of shares…29 –9 = 20 Average price per share paid fortreasury stock purchased during 20X4. $ 51 This price falls near the high end of the range during 20X4 (low of $38.25; high of $53.13).Req. 5Retained Earnings (Millions)Dividends Dec. 31, 20X3 Bal. 5,006 during 20X4 406 Net income 20X4 1,680Dec. 31, 20X4 Bal. 6,280(15 min.) E 9-10PREFERRED COMMON TOTAL 20X4 Total divi dend…………….$100,000 Preferred dividendsin arrears:20X2: $60,000 ⨯ .06 = $ 3,60020X3: $60,000 ⨯ .06 = 3,600Current year —20X4: $60,000 ⨯ .06 = 3,600Total to preferred………...$10,800Remainder to common….$89,20020X5 Total dividend…………….$100,000 Preferred dividends:Current year —20X5: $60,000 ⨯ .06 = $ 3,600Remainder to common….$96,400(15-20 min.) E 9-11 Req. 1 (All amounts in millions, except par value per share and market value per share.)JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDITMillions Apr. 15 Retained Earnings (500 ⨯ .10 ⨯ $51.50) ..... 2,575 Common Stock (500 ⨯ .10 ⨯$0.10) (5)Paid-in Capital in Excess ofPar — Common ................................. 2,570To distribute a common stock dividend.Req. 2Stockholders’ equity Millions Common stock, $0.10 par, 2,000 shares authorized, 550 issued ($50 + $5)………………………………. $ 55 Paid-in capital in excess of par — common($962 + $2,570)………………………………………. 3,532 Retained earnings ($7,122 –$2,575)………………... 4,547 Other……………………………………………………… (1,643) Total stockholders’ equity………………………... $6,491(continued) E 9-11 Req. 3The stock dividend did not change total stockholders’ equity because the company gave its stockholders no assets. The company merely transferred $2,575 million from Retained Earnings to Common Stock ($5 million) and Paid-in Capital in Excess of Par ($2,570 million).Req. 4EMS’s maximum cash dividend is limited to $3,000 million, the balance of its cash account.(10-15 min.) E 9-12a. No effect.b. No effect.c. Decrease stockholders’ equity by $8,500 (2,000 ⨯ $4.25).d. Increase stockholders’ equity by $3,000 (600 ⨯ $5).Note: Some students may think that the increase is $450 [600 ⨯($5.00 –$4.25)], but that is incorrect. To seethis, examine the entry to record sale of the treasurystock:Cash (600 ⨯$5)…………………………………..3,000Treasury Stock (600 ⨯$4.25)……………….2,550 Paid-in Capital from Treasury StockTransactions (or Additional Paid-in Capital) 450Observe that the sale of the treasury stock brought in $3,000. Also, the two credits to stockholders’ equity t otal $3,000, not $450.e. No effect.(10-15 min.) E 9-13Stockholders’ equity:Millions Common stock, $0.025 par, 1 billion shares(500 million ⨯ 2) authorized,880 million shares (440 million ⨯2) issued...... $ 22 Additional paid-in capital. (318)Retained earnings…………………………………….. 2,393 Other…………………………………………………….. (1,149) Total stockholders’ equity………………………. $1,584(10-15 min.) E 9-14 Req. 1Common:Total stockholders’ equity………………………….$92,000 Less: Preferred equity —redemption value……. (5,900) Total common equity………………………………..$86,100 Book value per share ($86,100 / 10,500 shares).. $ 8.20 Req. 2Common:Total stockh olders’ equity………………………….$92,000 Less: Preferred equity [$5,900 + ($4,800 ⨯ .06 ⨯3)]… (6,764) Total common equity………………………………..$85,236 Book value per share ($85,236 / 10,500 shares)…….. $ 8.12 Req. 3Frost’s stock is no t necessarily a good buy. Investment decisions should be based on more than one ratio.(10-15 min.) E 9-15 Rate of Net income +return= Interest expense=$2,662 + $219=$2,881= .136on assets Average total assets ($21,695 + $20,757) / 2 $21,226Net incomeRate of return – Preferredon common= dividends=$2,662 – $0=$2,662= .328stockholders' Average common ($8,648* + $7,604**) / 2 $8,126 equity stockholders’equity*$ 43 + $11,519 – $2,914 = $8,648**$388 + $16,510 – $9,294 = $7,604These profitability measures suggest strength because (1) Elsimate’s 32.8% return on stockholders’ equity is very good and (2) it exceeds return on assets by a wide margin.(10-15 min.) E 9-16 Net income +Return= Interest expense=$1,882 + $1,437=$3,319= .062on assets Average total assets ($55,798* + $52,071**) / 2 $53,935 *$32,320 + $23,478 = $55,798**$38,023 + $14,048 = $52,071Net income –Return= Preferred dividends=$1,882 – $0=$1,882= .100on equity Average commonequity($23,478 + $14,048) / 2 $18,763These rates of return are low —below the targets of most companies — but not terribly weak. The company is profitable, and return on equity exceeds return on assets. But both return measures could stand to be improved.(10 min.) E 9-17Cash flows from financing activities:Payment of long-term debt.............................$(17,055) Proceeds from issuance of common stock....... 8,425 Borrowings................................................... 6,582 Dividends paid. (225)(20-25 min.) E 9-18JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Cash (50,000* ⨯ $5) ..................................... 250,000Common Stock ...................................... 50,000Additional Paid-in Capital ..................... 200,000Issued stock.Treasury Stock (800 ⨯$4)……………...3,200Cash…………………………………….3,200 Purchased treasury stock.Cash………………………………………..1,800Treasury Stock ($3,200 –$2,000)….1,200Additional Paid-in Capital (or Paid-inCapital from Treasury Stock Transactions)($200,600 –$200,000) (600)Resold treasury stock.Revenues………………………………….171,000Expenses………………………………115,000Retained Earnings…………………...56,000 Closed net income to Retained Earnings.Retained Earnings ($56,000 – $38,000) 18,000Cash…………………………………….18,000 Decleared and paid dividends._____*$50,000 ) $1 par value per share = 50,000 shares issued.(15 min.) E 9-19Preferred stock:Gemini retired preferred stock of $82 million ($686 – $604).Common stock and Additional paid-in capital:Gemini issued 3 million shares of commonstock for $107 million, computed as follows: Millions Common stock ($894 –$891)……………………………..$ 3Additional paid-in capital ($1,572 –$1,468) (104)Total received for issuance of common stock………...$107Retained earnings: Millions Beginning balance……………………………………………... $19,108 Add: Net income…………………………………………….3,604 Less: Dividends……………………………………………… (2,051*) Ending balance………………………………………………….$20,661*$19,108 + $3,604 – $20,661 = $2,051Treasury stock:Gemini purchased treasury stock for $200 million ($2,843 – $2,643).(15 min.) E 9-20 AdditionalAmounts in Millions CommonStockPaid-inCapitalRetainedEarningsTreasuryStock TotalBalance, Dec. 31, 20X5… $ 81 $13 $40 $61 Issuance of stock………. 22 22 4 S tock dividend………….. 13 25(3)4—Purchase of treasurystock…………………..$(2) (2) Net income……………….26 26 Cash dividends………….(17) (17) Balance, Dec. 31, 20X6… $11 $17 $46 $(2) $72 Computations (not required):18,000,000 ⨯ $1 par = $8,000,00022,000,000 ⨯ $1 par = $2,000,0002,000,000 ⨯ ($2 – $1) = $2,000,0003(8,000,000 + 2,000,000) ⨯ .10 ⨯ $1 par = $1,000,0004(8,000,000 + 2,000,000) ⨯ .10 ⨯ $3 market value = $3,000,0005$3,000,000 market value – $1,000,000 par value = $2,000,000Practice Quiz1. b2. a3. d4. c ($313,000 + $280,285 + $12,160 + $89,000= $694,445)5. a ($694,445 + $71,890 – $5,000 = $761,335)6. b {($119,600 – $8,900) / [($681,425 + $766,335) ) 2] =.153}7. a8. c 20,000 ⨯ $100 ⨯ .08 = $160,0009. b ($350,000 – $160,000) / 20,000 = $9.5010. a11. b12. d13. e14. b15. d16. b17. d [($44,000 + $4,000) ) X = .125; X = $384,000]18. b19. a20. d21. b22. dProblemsGroup A(20-30 min.) P 9-1A 1. One important reason businesses organize as corporationsis the limited personal liability of stockholders for the obligations of the corporation. In a business organized as a proprietorship or a partnership, the owners are personally liable for the debts of the business. Another advantage of the corporation is its continuous life and the ease of transferring ownership from one stockholder to another. This feature allows the business to raise more money from more people than with a partnership and enables the corporation to grow larger than a partnership or a proprietorship.These advantages outweigh the disadvantage of paying additional income tax.2. Preferred stock is similar to common stock in that thecorporation is not obligated to pay the preferred or the common stockholders for their stocks. Preferred stock is similar to debt in that preferred stock specifies an annual dividend rate and debt specifies an annual interest rate. Both interest on debt and preferred dividends must be paid before paying dividends on common stock.(continued) P 9-1A 3. A gain on the sale of treasury stock is not profit to bereported on the income statement because the company is trading its stock back and forth with its stockholders. These transactions create paid-in capital from the stockholders, not profits from the sale of goods and services to customers.The two categories of ―gains‖ are different.4. Most stockholders prefer to receive cash dividends becausecash is an asset. By contrast, stock dividends transfer no cash or other assets of the corporation to the stockholders.In most cases the market price per share of common stock decreases after a stock dividend and leaves the stockholder with stock of the same overall market value as before the dividend.(30-45 min.) P 9-2A Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Feb. 2 Organization Cost………………………………...1,800 Common Stock (300 ⨯$5)…………………...1,500Paid-in Capital in Excess ofStated Value —Common (300)Issued stock to promoter for assisting withissuance of stock.2 Cash (21,000 ⨯$6)………………………………..126,000Common Stock (21,000 ⨯$5)……………….105,000Paid-in Capital in Excess ofStated Value —Common………………..21,000Issued common stock to the incorporators.10 Patent……………………………………………….40,000Preferred Stock (400 ⨯$100)………………..40,000Issued preferred stock to acquire a patent.16 Cash…………………………………………………12,000Common Stock (2,000 ⨯$5)…………………10,000Paid-in Capital in Excess ofStated Value —Common………………..2,000Issued common stock for cash.(continued) P 9-2A Req. 2GH, Inc.Balance Sheet (partial)February 28, 20XXStockholders’ equity:Preferred stock, 6%, $100 par, 10,000 shares authorized, 400 shares issued………………………………………..$ 40,000 Common stock, no-par with $5 stated value, 100,000shared autho rized, 23,300 shares issued*………….. 116,500 Paid-in capital in excess of stated value —common… 23,300** Retained earnings…………………………………………… 119,000 Total stockholders’ equity……………………………...$298,800_____*300 + 9,000 + 12,000 + 2,000 = 23,300 shares**$300 + $21,000 + $2,000 = $23,300(10-15 min.) P 9-3AEli Jackson CompanyBalance Sheet (partial)December 31, 20X4Stockholders’ equity:Preferred stock, 5%, $100 par, 5,000 shares authorized,1,000 shares issued……………………………………...$100,000 Paid-in capital in excess of par, preferred………………5,000 Common stock, no-par, 500,000 shares authorized,100,000 shares issued…………………………………..519,000 Retained earnings…………………………………………… 131,000 Total stock holders’ equity……………………………...$755,000_____Computations:Preferred stock: 1,000 ⨯ $100 = $100,000Paid-in capital in excess of par, preferred:1,000 ⨯ ($105 – $100) = $5,000Common stock: Balance given as $519,000Retained earnings: $61,000 + $80,000 – ($100,000 ⨯ 0.05 ⨯ 2) = $131,000(30-40 min.) P 9-4A MEMORANDUMTO: Guilford Board of DirectorsFROM: Student NameRE: Proposal to fight off hostile takeover of the companyThe company should buy back enough of its stock (as treasury stock) that the outside investment group would find it difficult to obtain 51% of the outstanding stock. We should also announce to the stockholders that Guilford stands ready to match the offer made by the outside investment group. That is, the company would be willing to pay the stockholders as much as the outsiders would pay.Unfortunately, purchase of the treasury stock would decrease company assets and stockholders’ equity. It would leave liabilities unchanged.Student responses may vary.(20-30 min.) P 9-5A Common stock [(500,000 + 400,000) ⨯$1 + $35,000]….. $ 935,000 Additional paid-in capital —From issuance of stock:500,000 ⨯ ($5.00 –$1.00)……………..$2,000,000400,000 ⨯ ($8.50 –$1.00)…………….. 3,000,000 From sale of treasury stock[40,000 ⨯ ($8 –$7)]…………………….40,000 From stock dividend…………………….. 185,000 5,225,000 Retained earnings ($1,020,000 – $640,000 – $220,000). 160,000 Treasury stock [(60,000 – 40,000) ⨯$7]…………………. (140,000) Total stockholders’ equity………………………………….$ 6,180,000Total assets………………………………………………..$13,100,000 –Total liabilities…………………………………………….. (6,920,000) = Total stockholders’ equity………………………………$ 6,180,000(15-25 min.) P 9-6A Req. 1Bethlehem has $5.00 cumulative convertible preferred stock, $2.50 cumulative convertible preferred stock, and common stock outstanding.Req. 2Bethlehem issued the preferred stock at stated value and the common stock at a premium. This can be determined by dividing the balance of the three stock accounts by the number of shares issued, as follows:$5.00 preferred: $125,000,000 / 2,500,000 shares = $50 stated value.$2.50 preferred: $100,000,000 / 4,000,000 shares = $25 stated value.Common: $621,000,000 / 48,308,516 shares = $12.85, which is more than $8 par.We see that Bethlehem issued only its common stock at a price above par.Req. 3Bethlehem would have to pay preferred dividends in arrears before paying dividends to common stockholders because the preferred stock is cumulative.(continued) P 9-6A Req. 4Bethlehem must pay preferred dividends of $22,500,000 each year to avoid having preferred dividends in arrears._____Computations:$5.00 Preferred: 2,500,000 shares ⨯ $5.00 = $12,500,000 $2.50 Preferred: 4,000,000 shares ⨯ $2.50 = 10,000,000 Total preferred dividends………………………….$22,500,000 Req. 5JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Retained Earnings………………………..61,000,000Dividends Payable, $5.00 Preferred(2,500,000 shares ⨯ $5.00 ⨯2)…...25,000,000Dividends Payable, $2.50 Preferred(4,000,000 ⨯ $2.50 ⨯2)…………….20,000,000Dividends Payable, Common($61,000,000 – $25,000,000 –$20,000,000) ……………………….16,000,000。

Chapter 5Short-Term Investments and Receivables Check Points(5 min.) CP 5-1 1. Trading investments are reported at their current marketvalue.2. A trading investment is always a current asset because theinvestor intends to sell the trading investment in the very near future — days, weeks, or only a few months. A current asset is to be sold within one year or within the company’s operating cycle if longer than a year.(10 min.) CP 5-2 BALANCE SHEETCurrent assets:Short-term trading investments, at market value.. $74,000 INCOME STATEMENTOther revenue and gains (losses):Unrealized loss on investment……………………...$ (6,000)(10 min.) CP 5-3 1. Paid $100,0002. Unrealized Loss on Investment ($100,000 – $98,000)…2,000Short-Term Investment……………………………….. 2,000 Adjusted investment to market value.BALANCE SHEETCurrent assets:Short-term trading investment, at market value……….$98,000 INCOME STATEMENTOther revenue (loss):Unrealized loss on investment……………………………$ (2,000)(5 min.) CP 5-4 Jennings, the accountant, should not handle the company’s cash. With cash-handling duties, the accountant can steal cash and hide the theft by writing off a customer’s acc ount receivable as uncollectible.(5 min.) CP 5-5 1. Uncollectible-Account Expense ($900,000 ⨯.01)…..9,000Allowance for Uncollectible Accounts……………9,000 2. Balance sheetAccounts receivable…………………………………$90,000Less Allowance fo r uncollectible accounts…….. (9,000)Accounts receivable, net……………………………$81,000(5-10 min.) CP 5-6 1. Accounts Receivable…………………………………. 800,000Sales Revenue………………………………………800,000 2. Cash………………………………………………………780,000Accou nts Receivable………………………………780,000 3. Allowance for Uncollectible Accounts…………….. 5,000Accounts Receivable……………………………….5,000 4. Uncollectible-Account Expense ($800,000 ⨯.01)… 8,000Allowance for Uncollectible Accounts………….8,000(10 min.) CP 5-7 1.Accounts ReceivableBeg. bal. 90,000Net credit sales 800,000 Collections 780,000Write-offs 5,000 End. bal. 105,000Amount customersowe the company2.Allowance for Uncollectible AccountsBeg. bal. 9,000 Write-offs 5,000 Uncollectible-account expense 8,000End. bal. 12,000Amount Spitzerexpects not tocollect3. and4.BALANCE SHEET:Accounts receivable, net($105,000 –$12,000)…………………………$93,000Amount Spitzerexpects tocollect INCOME STATEMENT:Sales revenue…………………………………...$800,000Uncollectible-account expense………………8,000(5-10 min.) CP 5-8 (a) Accounts Receivable………………………..700,000Sales Revenue…………………………….700,000 (b) Cash…………………………………………….720,000Accounts Receivable…………………….720,000 (c) Allowance for Uncollectible Accounts…..6,000Accounts Receivable…………………….6,000 (d) Uncollectible-Account Expe nse…………..7,000Allowance for Uncollectible Accounts.. 7,000 Allowance for Uncollectible AccountsBeg. bal. 8,000 Write-offs 6,000 Uncollectible –account expense X = 7,000End. bal. 9,000(10 min.) CP 5-9 1. and 2.Accounts ReceivableBeg. bal. 100,000Net credit sales 700,000 Collections 720,000Write-offs 6,000 End. bal. 74,000Allowance for Uncollectible AccountsBeg. bal. 8,000 Write-offs 6,000 Uncollectible –account expense 7,000End. bal. 9,0003.BALANCE SHEETAccounts receivable…………………………….$74,000Less Allowance for uncollectible accounts… (9,000)Accounts receivable, net……………………….$65,000(5-10 min.) CP 5-10 a. May 19 Note Receivable —R. Kroll……..100,000Cash………………………………100,000 b. Nov. 19 Cash…………………………………103,000Note Receivable —R. Kroll…..100,000Interest Revenue($100,000 ⨯ .06 ⨯6/12)………3,000(10 min.) CP 5-11 1. Interest for:20X7 ($200,000 ⨯ .09 ⨯8/12)……………….$12,00020X8 ($200,000 ⨯.09)……………………….18,00020X9 ($200,000 ⨯ .09 ⨯4/12)……………….6,0002. Tradewinds Bank has a note receivable and interest revenue.Mike Toby has a note payable and interest expense.3. Payoff at November 30, 20X7:Principal………………………………………….$200,000Interest ($200,000 ⨯ .09 ⨯7/12)………………. 10,500Total……………………………………………….$210,500(10 min.) CP 5-1220X5a. Aug. 31 Note Receivable —L. Holland……………1,000Cash………………………………….…….1,000 To lend money.20X6b. June 30 Interest Receivable ($1,000 ⨯ .09 ⨯ 10/12).75Interest Revenue (75)To accrue interest revenue.20X6c. Aug. 31 Cash ($1,000 + $90)………………………...1,090Interest Receivable (75)Interest Revenue ($1,000 ⨯ .09 ⨯ 2/12). 15Note Receivable…………………………1,000 To collect on note receivable.(5-10 min.) CP 5-13 a. BALANCE SHEETJune 30, 20X6Current assets:Note receivable…………………………………… $1,000Interest receivable (75)b. INCOME STATEMENTYear ended June 30, 20X6Revenues:Interest revenue……………………………….….$ 75 c. BALANCE SHEETJune 30, 20X7Nothing to report because the note wascollected on August 31, 20X6.d. INCOME STATEMENTYear ended June 30, 20X7Revenues:Interest revenue……………………………….….$ 15(10 min.) CP 5-14 Req. 120X6Cash + Short-term investments $4,000 + $15,000Acid-test ratio =+ Net current receivables=+ $73,000 Total current liabilities $101,000= .91The company’s acid-test ratio compares favorably to the industry average of .90.Req. 2One day’s sales= $743,000 = $2,036365Days’ sales in average accounts receivableAverage net=accounts receivable=($73,000 + $68,000) / 2 One day’s sales$2,036= 35 daysThe company’s days’-sales-in-receivables ratio (35) is okay relative to the 30-day period of the credit terms.(10-15 min.) CP 5-15Income Statement Balance SheetDebit Credit Debit Credit 1. Classifications Balance Balance Balance BalanceService revenue (X)Other assets (X)Property, plant, andequipment (X)Cost of services sold.. XCash (X)Notes payable (X)Unearned revenues (X)Allowance fordoubtful accounts (X)Other expenses (X)Accounts receivable (X)Accounts payable (X)Millions 2. Service revenue………………………………………$23,613Cost of services sold……………………………….. (11,620) Other expenses………………………………………. (12,569) Net income (net loss)………………………………..$ (576)3. Current ratio = $239 + $4,417 – $389= 1.48 $607 + $2,285Exercises(10-15 min.) E 5-1 1. This is a trading investment because Exxonintends to sell the stock within a short time.2. Dec. 20 Short-Term Investment (10,000 ⨯$60)….600,000Cash……………………………………….600,000 Purchased investment.Dec. 31 Short-Term Investment[(10,000 ⨯ $63) –$600,000]………………..30,000Unrealized Gain on Investment………30,000 Adjusted investment to market value.3. BALANCE SHEETCurrent assets:Short-term trading investment, at market value……….$630,000 INCOME STATEMENTOther revenue and gains:Unrealized gain on investment……………………………$ 30,000(10-20 min.) E 5-2 INCOME STATEMENTOther revenue and (expense):Dividend revenue………………………………………$ 500 Unrealized gain on investment ($101,000 – $98,000).3,000 BALANCE SHEETCurrent assets:Short-term investments, at market value………….$101,000(15-30 min.) E 5-3 Req. 1Cash Short-TermInvestmentDividendRevenue110,000 67,000 67,000 2,000 1,700* 1,700* 65,00072,000Unrealized Gain (Loss) On InvestmentGain on Sale Of Investment2,000 7,000 _____*2,000 shares $.85 = $1,700Req. 2December 31 BALANCE SHEET 20X3 20X4 Current assets:Short-term investments…………………… $65,000 $ —Year Ended INCOME STATEMENT 20X3 20X4 Other revenue and expense:Dividend revenue…………………………… $ 1,700 $ —Unrealized (loss) on investment………….(2,000) —Gain on sale of investment………………..— 7,000(5-10 min.) E 5-4 MEMORANDUMDATE:TO: Bob O’ReillyFROM: Student NameRE: Essential element of internal control over collection from customersSeparation of duties is the essential element in a system to ensure that cash received by mail from customers is properly handled and accounted for. It is very important to separate cash-handling duties from accounting duties. Otherwise, an employee can steal a cash receipt from a customer and cover the theft by writing off the customer account as uncollectible.Student responses may vary.(15-20 min.) E 5-5JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X8Dec. 31Year-end entry:Doubtful-Account Expense($600,000 .01)………………………...6,000Allowance for Doubtful Accounts. 6,000 BALANCE SHEETCurrent assets:Accounts receivable, net of allowancefor doubtful accounts of $6,9001…………... $84,1002 _____ _____1$900 + $6,000 = $6,900 2$91,000 – $6,900 = $84,100(15 min.) E 5-6 Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Oct. Accounts Receivable……………………...100,000Sales Revenue…………………………..100,000 Oct. Cash…………………………………………..94,000Accounts Receivable…………………...94,000 Oct. Allowance for Uncollectible Accounts…1,700Accounts Receivable…………………...1,700 Oct. Uncollectible-Account Expense($100,000 .02)……………………………..2,000Allowance for Uncollectible Accounts 2,000 Req. 2Accounts ReceivableAllowance for Uncollectible Accounts28,000 94,000 1,600100,000 1,700 1,700 2,00032,300 1,900 Net accounts receivable = $30,400 ($32,300 – $1,900)The store expects to collect an amount approximating the net receivable.Req. 3BALANCE SHEETCurrent assets:Accounts receivable, net of allowance foruncollectible accounts of $1,900…………………$30,400(10-15 min.) E 5-7 Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Oct. Uncollectible-Account Expense…..1,700Accounts Receivable……………..1,700Req. 2Net accounts receivable is $32,300, the balance in Accounts Receivable, computed as follows:Accounts ReceivableBeg. bal. 28,000Cr. sales 100,000 Collections 94,000Write-offs 1,700End. bal. 32,300The store does not expect to collect the full $32,300 because some credit customers are likely not to pay their accounts.(15-30 min.) E 5-8 Req. 1The credit balance at December 31 in Allowance for Doubtful Accounts should be $13,400.($106,000 ⨯ .005) + ($78,000 ⨯ .015) + ($70,000 ⨯ .06) + ($15,000 ⨯.50) = $13,400. The current balance is $7,400. Thus, the balance of the allowance account is too low.Req. 2JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Doubtful-Account Expense……………..6,000Allowance for Doubtful Accounts….6,000 Allowance for Doubtful Accounts7,4006,00013,400Req. 3BALANCE SHEETCurrent assets:Cash.................................................. $ XX Short-term investments (XX)Accounts receivable, net of allowancefor doubtful accounts of $13,400……..255,600* _____*Another way to report accounts receivable isAccounts receivable……………………….$269,000Less All owance for doubtful accounts… (13,400) 255,600(15-20 min.) E 5-9 Req. 12% is reasonable because for each year’s sales and for the entire three-year period, the ratio of total write-offs to sales is very close to 2%.(Dollars in thousands) 20X4 20X5 20X6 TotalWrite offs= $139 $138 $144 $421Sales $6,800 $7,000 $7,100 $20,900= .0204 = .0197 = .0203 = .0201Req. 2Thousands20X6 Accounts Receivable……………………7,100Sales Revenue………………………...7,100 Recorded sales on account.20X6 Bad-Debt Expense ($7,100 .02) (142)Allowance for Bad Debts (142)Recorded expense for the year.20X6 Allowance for Bad Debts (144)Accounts Receivable (144)Wrote off uncollectible receivables.(10-15 min.) E 5-10JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Nov. 1 Note Receivable —Al Sperry………… 40,000Cash…………………………………….40,000 Dec. 3 Note Receivable —Acura, Inc……….. 5,000Ser vice Revenue……………………..5,00016 Note Receivable —Vanguard Co……. 2,000Accounts Receivable — Vanguard Co. 2,00031 Interest Receivable…………………….. 656*Interest Revenue (656)_____($40,000 ⨯ .09 ⨯ 2/12) + ($5,000 ⨯ .12 ⨯ 28/365) + ($2,000 ⨯ .12 ⨯ 15/365**) = $645 $600 $46 $10**Fraction can also be stated as .5/12Harrison earned interest revenue of $656 this year.(15 min.) E 5-1120X8 20X9 BALANCE SHEETCurrent assets:Note receivable…………………………….…$100,000 $ —Interest receivable ($100,000 ⨯ .08 ⨯ 9/12). 6,000 —INCOME STATEMENTInterest revenue…………………………………6,000 2,000* _____*$100,000 ⨯ .08 ⨯ 3/12 = $2,000(10 min.) E 5-12 1. Stockton Bank has interest receivable and interest revenue.California Company has interest payable and interestexpense.Interest for one month ($100,000 ⨯ .06 ⨯1/12)……… $5002. Stockton Bank: Assets = Liabilities + Equity Affected By0 Interest revenueCalifornia Company: 0 Interest expense3. True4. The net amount of receivables —the amount the companyexpects to collect —is more interesting because the company will probably collect this amount in cash.5. Accounts receiva ble…………………….$XXXLess Allowance for uncollectibles (X)Accounts receivable, net……………….$ XXBALANCE SHEETCurrent assets:CashShort-term investmentsAccounts receivable, net6. False. The direct write-off method overstates assets becauseit fails to show the amount of the receivables the company expects to collect.(10-15 min.) E 5-13 Amounts in millions of dollarsShort-term Net current(a) Acid-test= Cash + investments + receivablesratio Total current liabilities= $137 + $30 + $37 $40 + $158= $204 $198= 1.03An acid-test ratio of 1.03 is normal.(b) One Sales andday's= service revenue=$415= $1.137sales 365 365 Days’ sales Average netin average= accounts receivable=($37 + $42) / 2receivables One day’s sales$1.137= 35 days35 days’ sales in average receivables is okay relative to credit terms of net 30 days.(10-15 min.) E 5-14 Req. 1Average collection period: Millions of dollarsOne day’s sales= $256,329= $702.3 365Days’ sales in average receivables= ($1,254 + $1,569) / 2= 2 days(average collection period) $702.3Req. 2Wal-Mart’s collection period is short because Wal-Mart sells for cash and on credit cards and bank cards. Receivables are very low.(15-20 min.) E 5-15 Actualwithout BankCards Expected with Bank CardsSales revenue ……………………...$400,000 $440,000* Cos t of goods sold……………….$210,000 $231,000** Uncollectible-account expense…6,000 —Bank-card discount expense……4,800*** Other expenses…………………… 68,000 66,000**** Total expenses……………………. 284,000 301,800 Ne t income………………………….$116,000 $138,200 Decision: Accept bank cards because of the expected increase in net income._____*$400,000 ⨯ 1.10 = $440,000**$210,000 ⨯ 1.10 = $231,000***$440,000 – $200,000 = $240,000 ⨯ .02 = $4,800The switch to bank cards should produce bankcard discount expense on only the portion of sales that are made on bank cards.****$68,000 – $2,000 = $66,000(15-20 min.) E 5-16 Analysis of T-accounts is helpful, as follows (in millions):AllowancesBeg. bal. 68(a) Write-offs 351 Expense 354End. bal. 71(b) Total revenue = $35,400 ($354 .01)Trade ReceivablesBeg. bal. ($2,269 + $68) 2,337Total revenue 35,400 Write-offs 351Collections 34,729 (c) End. bal. ($2,586 + $71) 2,657(10-15 min.) E 5-17ReceivablesBeg. bal. 80,000Sales on account 950,000 Collections must be X = $940,000 Maximum acceptable bal. 90,000Collections= $940,000=$940,000= .91Beg. bal. + Sales on account $80,000 + $950,000 $1,030,000Therefore, the percentage discount that Columbia should be willing to absorb is 9% (100% – 91%).Practice Quiz1. c2. d3. c4. b [($150,000 ⨯ .02) + ($60,000 ⨯ .08) + ($10,000 ⨯ .20) –$3,200 = $6,600]5. $210,200 ($220,000 – $9,800)6. a ($1,000,000 ⨯ .03 = $30,000)7. b ($2,000 + $30,000 = $32,000)8. $7,000 ($2,000 + $30,000 – $25,000 = $7,000)9. c ($6,000 ⨯ .07 ⨯ 5/12 = $175)10. d11. b ($6,000 ⨯ .07 ⨯ 8/12 = $280)12. d13. Cash………………………….Note Receivable………...Interest Receivable……..Interest Revenue………..6,2806,00017510514. d15. a [($90,000 + $110,000) / 2] ) ($730,000 / 365 days) =50 d ays16. aProblemsGroup A(20-30 min.) P 5-1A Reqs. 1 and 2Cash Short-Term Investment 400,000 25,500* 25,500*900** 5,500+31,000Dividend Revenue Unrealized Gain (Loss) on Investment900** 5,500+ _____*2,000 ⨯ $12.75 = $25,500**2,000 ⨯ $.45 = $900+$31,000 – $25,500 = $5,500(continued) P 5-1A Req. 2JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X4Dec. 2 Short-Term Investment………………..25,500Cash (2,000 ⨯$12.75)………………..25,500 Purchased investment.21 Cash (2,000 ⨯$0.45) (900)Dividend Revenue (900)Received cash dividend.31 Short-Term Investment($31,000 –$25,500)……………………..5,500Unrealized Gain (Loss) on Investment 5,500 Adjusted investment to market value.Req. 3BALANCE SHEETCurrent assets:Short-term investment, at market value………$31,000 Req. 4INCOME STATEMENTOther revenue and gain:Dividend revenue…………………………………… $ 900 Unrealized gain on investment…………………… 5,500(continued) P 5-1A Req. 5JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X5Jan. 9 Cash……………………………………….29,000Loss on Sale of Investment…………..2,000Short-Term Investment……………..31,000 Sold investment at a loss.(10-15 min.) P 5-2A MEMORANDUMDATE: _________________TO: Company EmployeesFROM: Akbar Kuwaja, PresidentRE: Procedures to ensure that all cash receipts are deposited in the bank and that each day’s total cashreceipts are posted to accounts receivable.1. Someone other than the accountant opens the mail. Thisperson separates customer checks from the accompanying remittance slips.2. An employee with no access to the accounting recordsdeposits the cash in the bank immediately.3. The remittance slips go to the accountant, who uses them forposting credits to the customer accounts. The accountant adds up the total of the credits for the day.4. A third person, such as the manager or the president,compares the amount of the bank deposit to the total of the customer credits posted by the accountant. This gives some assurance that the day’s cash receipts went into the bank and that the same amount was posted to customer accounts.5. Someone other than the accountant should prepare the bankreconciliation.Student responses may vary.(15-20 min.) P 5-3A(All amounts in millions)Reqs. 1, 3, and 4Accounts Receivable Allowance for Uncollectibles 443 7,316 587,703 269* 269* 308561 97 These balances agree with the actual AOL amounts._____*Must solve for write offs, $269, through the Allowanceaccount.Req. 2JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDITa. Accounts Receivable……………….7,703Service Revenue………………….7,703b. Cash……………………………………7,316Accounts Receivable…………….7,316c. Uncollectible-Account Expense (308)Allowance for Uncollectibles($7,703 .04) (308)d. Allowance for Uncollectibles……...269*Accounts Receivable…………….269*(continued) P 5-3A Req. 5Customers owed AOL $561.AOL expected to collect $464 ($561 – $97).Req. 6INCOME STATEMENTService revenue……………………….$7,703Uncollectible-account expense (308)(25-35 min.) P 5-4A Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Nov. 22 Allowance for Doubtful Accounts………4,100Accounts Receivable — Monet Corp.. 1,300Accounts Receivable — Blocker, Inc.. 2,100Accounts Receivable — M Street Plaza 700 Dec. 31 Doubtful-Account Expense………………7,800Allowance for Doubtful Accounts……7,800* _____*Computation:Required credit balance in Allowance for Doubtful Accounts based on aging of AccountsReceivable ($160,000 ⨯ .005) + ($80,000 ⨯ .01) +($34,000 ⨯ .05) + ($15,000 ⨯.50)……………………..$10,800 Credit balance in Allowance for Doubtful Accounts before the December 31 entry — (see theT-acccount in the answer to Req. 2;$7,100 –$4,100)……………………………………….. 3,000 Credit entry needed to produce the required credit balance in Allowance for Doubtful Accounts…….$ 7,800(continued) P 5-4A Req. 2Allowance for Doubtful AccountsNov. 22 Write-offs 4,100 Sept. 30 Balance 7,100Dec. 31 Adjusting 7,800Dec. 31 Balance 10,800Req. 3Dodge Ram Auto SupplyComparative Balance SheetDecember 31, 20X8 and December 31, 20X720X8 20X7 Accounts receivable………………………$289,000 $271,000 Less: Allowance for doubtful accounts. (10,800) (8,700) Accounts receivable, net…………………$278,200 $262,300(20-25 min.) P 5-5A Req. 1Cash ($18,000 –$8,000)……………………..$ 10,000 Short-term trading investments,at market value…………………………….22,000 Accounts receivable…………………………$49,000 Less: Allowance for uncollectibles……. (4,000) 45,000 Inventory……………………………………….54,000 Prepaid expenses……………………………. 5,000 Total current assets……………………….$136,000 Total current liabilities……………………$145,000 Req. 2As reported CorrectedCurrent= $202,000= 1.39$136,000= 0.94ratio $145,000 $145,000 ($18,000 + $34,000Acid-test= + $49,000 + $42,000)= 0.99$10,000 + $22,000 + $45,000= 0.53ratio $145,000 $145,000(continued) P 5-5A Req. 3Net income, as reported…………………..$65,000 –Unrealized loss on trading investments($34,000 –$22,000)……………………... (12,000) –Correction for conversion to theallowance method —Uncollectible-account expenseshould be ($400,000 .03)……….…$12,000Uncollectible-account expense bythe direct write-off method………… 7,000 (5,000) Net income, corrected…………………….$48,000 Req. 4KPMG’s suggestions make Bzensky look much less successful, decreasing the current ratio, the acid-test ratio, and net income.(20-30 min.) P 5-6A Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X4Nov. 30 Note Receivable —Kelly Moore Paint Co…..60,000Sales Revenue………………………………..60,000Dec. 31 Interest Receivable ($60,000 ⨯ .10 ⨯ 1/12) (500)Interest Revenue (500)20X5Feb. 18 Note Receivable —Altex Co…………………..5,000Accounts Receivable —Altex Co…………5,000Feb. 20 Cash………………………………………………..4,600Financing Expense (400)Note Receivable —Altex Co……………….5,000Feb. 28 Cash………………………………………………..61,500Note Receivable — Kelly Moore Paint Co.. 60,000Interest Receivable (500)Interest Revenue ($60,000 ⨯ .10 ⨯2/12)…..1,000(continued) P 5-6AJournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X5Nov. 11 Note Receivable — Consolidated, Inc... 50,000Cash……………………………………...50,000Dec. 31 Interest Receivable (616)Interest Revenue ($50,000 ⨯ .09 ⨯ 50/365) 616Req. 2December 31 BALANCE SHEET 20X5 20X4 Current assets:Note receivable…………………………$50,000 $60,000 Interest receivable……………………...616 500(30-40 min.) P 5-7AReq. 1Dollar amounts in millions20X6 20X5a. Current = Total current assets = $766 = 1.42$695 = 1.56ratio Total current liabilities$540$446Cash + Short-term investmentsb. Acid-testratio=+ Net current receivables = $27+$93+$206 $26+$101+$154Total current liabilities$540$446 = .60 = .63c. One day’s sales=Net sales = $2,671 = $7.32 $2,505 = $6.86365365365Days’ sales in average receivables= Average net receivables= ($206+$154)/2 ($154+$127)/2One day’s sales$7.32$6.86= 25 days= 20 days(continued) P 5-7A Req. 2MEMORANDUMDATE: _________________TO: Top management of Crain’s Stationery Company FROM: Student NameRE: Changes in ratio values from 20X5 to 20X6The current ratio deteriorated from 1.56 to 1.42. The acid-test ratio dropped from .63 to .60, and days’ sales in receivables rose to 25 days.All three ratio values deteriorated during the current year. This is an unfavorable trend because it indicates that the company may find it more difficult to collect its receivables and pay its bills.Student responses may vary.ProblemsGroup B(20-30 min.) P 5-1B Reqs. 1 and 2Cash Short-Term Investment 400,000 46,250* 46,250* 9,250+1,600** 37,000Dividend Revenue Unrealized Gain (Loss) on Investment1,600** 9,250+ _____*5,000 ⨯ $9.25 = $46,250**5,000 ⨯ $.32 = $1,600+$46,250 – (5,000 ⨯ $7.40) = $9,250(continued) P 5-1B Req. 2JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X8Nov. 3 Short-Term Investment…………………46,250Cash (5,000 ⨯$9.25)………………….46,250 Purchased investment.14 Cash (5,000 ⨯$0.32)……………………..1,600Dividend Revenue…………………….1,600 Received cash dividend.Dec. 31 Unrealized Gain (Loss) on Investment. 9,250Short-Term Investment[$46,250 – (5,000 ⨯$7.40)].…………..9,250 Adjusted investment to market value.Req. 3BALANCE SHEETCurrent assets:Short-term investment, at market value(5,000 ⨯$7.40)……………………………………..$37,000 Req. 4INCOME STATEMENTOther revenue and (loss):Dividend revenue…………………………………… $ 1,600 Unrealized (loss) on investment…………………. (9,250)(continued) P 5-1B Req. 5JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X9Jan. 6 Cash……………………………………….39,000Short-Term Investment……………..37,000Gain on Sale of Investment………..2,000 Sold investment at a gain.(10-15 min.) P 5-2B MEMORANDUMDATE: _________________TO: Management of Tony the Tiger, Inc.FROM: Student NameRE: Evaluation of internal control over cash receipts from customersBy opening the mail, the accountant has direct access to cash. This creates an internal control weakness because the accountant also posts credits to customer accounts. She can steal a cash receipt from a customer and write off the customer account as uncollectible. The theft is hard to detect because the customer’s account gets zeroed out, and the company does not pursue collection.To correct this internal control weakness, the accountant should be denied access to cash. Someone else in the organization should open the mail and separate cash receipts from the accompanying remittance slips. The cash should be deposited in the bank immediately, and only the remittance slips should go to the accountant.Student responses may vary.(15-20 min.) P 5-3B(All amounts in millions)Reqs. 1, 3, and 4Accounts Receivable Allowance for Uncollectibles 1,635 9,343 659,489 88* 88* 951,693 72 These balances agree with the actual Nike amounts._____*Must solve for write-offs, $88, through the Allowance account.Req. 2JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDITa. Accounts Receivable………………9,489Sales Revenue……………………9,489b. Cash…………………………………..9,343Accounts Receivable……………9,343c. Uncollectible-Account Expense (95)Allowance for Uncollectibles($9,489 .01) (95)d. Allowance for Uncollectibles……..88*Accounts Receivable……………88*(continued) P 5-3B Req. 5Customers owed Nike $1,693.Nike expected to collect $1,621 ($1,693 – $72).Req. 6INCOME STATEMENTSales revenue………………………….$9,489Uncollectible-account expense (95)(25-35 min.) P 5-4B Req. 1JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Nov. 18 Allowance for Doubtful Accounts………1,100Accounts Receivable —Bliss Co (700)Accounts Receivable — Micro Data (400)Dec. 31 Doubtful-Account Expense……………...1,600Allowance for Doubtful Accounts…... 1,600* _____*Computation:Required credit balance in Allowance for Doubtful Accounts based on aging of AccountsReceivable ($100,000 ⨯ .001) + ($40,000 ⨯ .005) +($14,000 ⨯ .05) + ($9,000 ⨯.30)………………………$3,700 Credit balance in Allowance for Doubtful Accounts before the December 31 adjusting entry — (seethe T-acccount in the answer to Req. 2;$3,200 –$1,100)……………………………………….. 2,100 Credit entry needed to produce the required credit balance in Allowance for Doubtful Accounts…….$1,600。

西方财务会计课后答案(第七章)Accounting PrinciplesASSIGNMENT CLASSIFICATION TABLEBrief A BStudy Objectives1.Explain the meaning of Questions1, 2Exercises1, 2Exercises Problems Problemsgenerally acceptedaccounting principles andidentify the key items ofthe conceptualframework.2. Describe the basic 3 3objectives of financialreporting.3. Discuss the qualitative 3, 4, 5 4, 5, 6characteristics ofaccounting informationand elements of financialstatements.4. Identify the basic 6 7 1, 2, 3 1A, 2A, 3A 1B, 2B, 3Bassumptions used byaccountants.5. Identify the basic princi- 7, 8, 9, 10, 7 1, 2, 3, 4 1A, 2A, 3A 1B, 2B, 3Bples of accounting. 126. Identify the two con- 11 7, 8 1, 2, 3 3A 3Bstraints in accounting.7. Understand and analyze 13, 14, 15, 9, 10, 11 5, 6, 7, 8, 4A, 5A 4B, 5Bclassified financialstatements.16 98. Explain the accounting 17, 18 10principles used in inter-national operations.7-1ASSIGNMENT CHARACTERISTICS TABLEProblem Difficulty TimeNumber1A DescriptionAnalyze transactions to identify accounting principle orLevelModerateAllotted (min.)2030 assumption violated, and prepare correct entries.2A Determine the appropriateness of journal entries in Moderate 2030 terms of generally accepted accounting principles orassumptions.3A Identify accounting assumptions, principles, and Moderate 2030 constraints.4A Prepare a classified balance sheet and analyze financial Moderate 3545 position.5A Prepare a multiple-step income statement and analyze Moderate 3545 profitability.1B Analyze transactions to identify accounting principle or Moderate 2030 assumption violated, and prepare correct entries.2B Determine the appropriateness of journal entries in Moderate 2030 terms of generally accepted accounting principles orassumptions.3B Identify accounting assumptions, principles, and Moderate 2030 constraints.4B Prepare a classified balance sheet and analyze Moderate 3545 financial position.5B Prepare a multiple-step income statement and analyze Moderate 3545 profitability.7-2C o r r e l a t i o n C h a r t b e t w e e n B l o o m ’s T a x o n o m y , S t u d y O b j e c t i v e s a n d E n d -o f -C h a p t e r E x e r c i s e s a n d P r o b l e m sK n o w l e d g e Q 7-1 Q 7-2 B E 7-2 B E 7-1 C o m p r e h e n s i o n A p p l i c a t i o n A n a l y s i s S y n t h e s i sE v a l u a t i o nS t u d y O b j e c t i v e1. E x p l a i n t h e m e a n i n g o f g e n e r - a l l y a c c e p t e d a c c o u n t i n g p r i n c i p l e s a n d i d e n t i f y t h e k e y i t e m s o f t h e c o n c e p t u a l f r a m e w o r k .Q 7-3 B E 7-3B E 7-4 B E 7-5 B E 7-6 B E 7-7 Q 7-6 E 7-1 E 7-3 Q 7-7 Q 7-8 Q 7-9 Q 7-10 Q 7-12 E 7-1 E 7-3Q 7-14 Q 7-15P 7-3A P 7-3BB E 7-8 Q 7-16 B E 7-9 B E 7-10 B E 7-11 E 7-5E 7-10E 7-6 E 7-7 E 7-8 E 7-9 E 7-1 E 7-3 P 7-3A P 7-3BQ 7-8 E 7-4 E 7-2 P 7-1A P 7-2A P 7-1BE 7-2Q 7-13 E 7-8 P 7-4A P 7-5A P 7-4B P 7-5B Q 7-13 P 7-4A P 7-5A P 7-4B P 7-3A P 7-3B E 7-2 P 7-1A P 7-2AP 7-1B P 7-2BP 7-2BQ 7-3 Q 7-4 Q 7-52. D e s c r i b e t h e b a s i c o b j e c t i v e s o f f i n a n c i a l r e p o r t i n g .3. D i s c u s s t h e q u a l i t a t i v e c h a r a c t e r i s t i c s o f a c c o u n t i n g i n f o r m a t i o n a n d e l e m e n t s o f f i n a n c i a l s t a t e m e n t s .4. I d e n t i f y t h e b a s i c a s s u m p t i o n s u s e d b y a c c o u n t a n t s .B E 7-7 5. I d e n t i f y t h e b a s i c p r i n c i p l e s o f a c c o u n t i n g .Q 7-11 B E 7-7Q 7-18 Q 7-176. I d e n t i f y t h e t w o c o n s t r a i n t s i n a c c o u n t i n g .7. U n d e r s t a n d a n d a n a l y z e c l a s s i f i e d f i n a n c i a l s t a t e m e n t s .P 7-5B8. E x p l a i n t h e a c c o u n t i n g p r i n c i p l e s u s e d i n i n t e r n a t i o n a l o p e r a t i o n s .B r o a d e n i n g Y o u r P e r s p e c t i v eC o m m u n i c a t i o n G r o u pD e c i s i o n I n t e r p r e t i n g F i n a n c i a l R e p o r t i n g F i n a n c i a l C a s e C o m m u n i c a t i o n S t a t e m e n t s C o m p . A n a l y s i s R e s e a r c h C a s e A G l o b a l F o c u s G r o u p D e c i s i o n I n t e r p r e t i n g F i n a n c i a l C a s e S t a t e m e n t s C o o k i e C h r o n i c l eE x p l o r i n g t h e W e b E t h i c s C a s eG r o u p D e c i s i o n C a s e C o m p . A n a l y s i s R e s e a r c h C a s e A G l o b a l F o c u s C o o k i e C h r o n i c l eBLOOM'S TAXONOMY TABLE7-3ANSWERS TO QUESTIONS1. (a)(b) Generally accepted accounting principles (GAAP) are a set of standards and rules, having substantial authoritative support, that are recognized as a general guide for financial reporting.The bodies that provide authoritative support for GAAP are the Financial Accounting Stan- dards Board (FASB) and the Securities and Exchange Commission (SEC).2.3.4.5.6.7.8.9. The FASB’s conceptual framework consists of the following:(1) Objectives of Financial Reporting.(2) Qualitative Characteristics of Accounting Information.(3) Elements of Financial Statements.(4) Operating Guidelines (Assumptions, Principles, and Constraints).(a) According to the FASB in its development of the conceptual framework, the objectives offinancial reporting are to provide information that: (1) is useful to those making investment and credit decisions, (2) is helpful in assessing future cash flows, and (3) identifies the eco- nomic resources (assets), the claims to those resources (liabilities), and the changes inthose resources and claims.(b) The qualitative characteristics are: (1) relevance, (2) reliability, (3) comparability, and (4)consistency.Curtis is correct. Consistency means using the same accounting principles and accounting meth- ods from period to period within a company. Without consistency in the application of accounting principles, it is difficult to determine whether a company is better off, worse off, or the same from period to period.Comparability results when different companies use the same accounting principles. Consistency means using the same accounting principles and methods from year to year within the same company.The going concern assumption is necessary because otherwise depreciation and amortization policies would not be justifiable and appropriate. Also, the current-noncurrent classification of assets and liabilities would lose much of its significance. Labeling anything as fixed or long-term would be difficult to justify. In addition, the going concern assumption lends credibility to the cost principle.Revenue should be recognized in the accounting period in which it is earned. The sales basis involves an exchange transaction between the seller and buyer and the sales price provides an objective measure of the amount of revenue realized.Expired costs generate revenues only in the current period and therefore are expensed immedi- ately. Unexpired costs will generate revenues in current and future periods and are recorded as assets.(a) The accountant discloses information about an entity’s financial position, operations, andcash flows in the financial statements, or in the notes that accompany the statements. (b) The trade-offs involved with disclosure balance the costs of preparing additional informationand the benefits from using it.7-4Questions Chapter 7 (Continued)10.11.12.13.14.15.16.17.18. Cost is used because it is both relevant and reliable. Cost is relevant because it represents the price paid, the assets sacrificed, or the commitment made at the date of acquisition. Cost is reliable because it is objectively measurable, factual, and verifiable. It is the result of an exchange transaction. As a result, cost is the basis used in preparing financial statements.The two constraints are materiality and conservatism. The materiality constraint means that an item may be so small that failure to follow generally accepted accounting principles will not influ- ence the decision of a reasonably prudent investor or creditor. The conservatism constraint means that when in doubt, the accountant chooses the accounting method that is least likely to overstate assets and net income.Recording Osterhaus’ additional investment of $5,000 as revenues is inappropriate. An invest- ment in a corporation increases the common stock account, not revenues.Three relationships that are helpful in assessing profitability are: (1) the profit margin percentage (or return on sales), (2) return on assets, and (3) return on common stockholders’ equity. More than one profitability relationship is useful in that the relationships help in different types of analy- sis. Return on sales, for example, measures the percentage of each sales dollar that is included in net income, whereas return on assets measures the contribution of each dollar of assets in generating income. The former, then, helps analyze profits in terms of revenues alone; the latter helps analyze profits in terms of the asset base in generating sales and profits. If the return on assets is lower than warranted, the company may not be using its assets effectively; if return on sales is lower than warranted, the company may not be controlling costs effectively.Natasha Company’s working capital (a) is $60,000 – $20,000 = $40,000, and its current ratio (b) is $60,000 ÷ $20,000 = 3:1.Whenever current assets are less than current liabilities, working capital is negative and the cur- rent ratio will be less than 1:1. (Whenever current assets are greater than current liabilities, working capital is positive and the current ratio is greater than 1:1.)A debt to total assets ratio of 62% is fairly substantial. But more is involved in a credit decision than just one financial statement relationship. Extension of additional credit will depend on Bozeman’s overall liquidity (current ratio) and profitability (ability to generate revenue and cash) over the life of the loan. Similarly, Boz eman’s credit history is important—its patterns of loan repayment in the past. No one analytical relationship can provide sufficient information to deter- mine granting of additional credit.There is little uniformity in accounting standards from country to country, although some efforts have been made in this area by the International Accounting Standards Committee.The International Accounting Standards Committee establishes international accounting stan- dards, although they are by no means universally applied.7-5SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 7-1(a) True.(b) False.(c) True.BRIEF EXERCISE 7-2(a) No.(b) Yes.(c) Yes.BRIEF EXERCISE 7-3(a) No.(b) Yes.(c) Yes.BRIEF EXERCISE 7-4(a)(b)(c)(d)(e) Predictive value. Feedback value. Consistency.Faithful representation. Verifiable.BRIEF EXERCISE 7-5(a) Relevant.(b) Reliability.(c) Consistency.7-6BRIEF EXERCISE 7-6(a)(b)(c)(d) 1.2.3.4.BRIEF EXERCISE 7-7(a)(b)(c)(d) 2.3.1.4.BRIEF EXERCISE 7-8(a)(b)(c)(d) Conservatism. Conservatism. Materiality. Materiality.BRIEF EXERCISE 7-9Current Assets Current LiabilitiesCashAccounts receivable Total $ 110,6001,674,400$1,785,000Accounts payableIncome taxes payableOther current liabilitiesTotal$ 584,60025,900608,500$1,219,000(a) Current ratio = Current assets ÷ Current liabilities= $1,785,000 ÷ $1,219,000= 1.46:1(b) Working capital = Current assets – Current liabilities= $1,785,000 – $1,219,000= $566,0007-7BRIEF EXERCISE 7-10Gross profitIncome from operations Other revenues and gains Income before income taxes Net incomeBRIEF EXERCISE 7-11 $907,000667,000 = Operating expenses (a) 240,00036,000276,00096,600 = Income tax expense (b) $179,400Earnings per share = Net income ÷ common shares outstanding= $179,400 ÷ 46,000= $3.907-8SOLUTIONS TO EXERCISES EXERCISE 7-11.2.3.4.5.6.7.8. Revenue recognition principle. Full disclosure principle. Matching principle.Going concern assumption. No violation.Time period assumption.Cost principle.Economic entity assumption.EXERCISE 7-2(a) This is a violation of the cost principle. The inventory was written up toits market value when it should have remained at cost. Thus, no jour- nal entry should have been made.(b) This is also a violation of the cost principle because the equipmentwas recorded at its estimated market value and not its exchange value.The correct journal entry is:Equipment..............................................................................Cash ................................................................................ 41,00041,000(c) This is a violation of the economic entity assumption. The accountingfor the transaction treats Mark Nabke and Vicki Prowitz Company as one entity when they are two separate entities. No journal entry should have been made since Nabke should have used personal assets topurchase the truck. If cash assets of the company were used, the debit entry could be to Accounts Receivable—M. Nabke.(d) This is a question of matching and materiality. The pencil sharpenercould be depreciated to match the expense with revenue since thepencil sharpener has an estimated useful life of 5 years. However, the pencil sharpener should not be depreciated because the cost of it is not material. Since the cost of the sharpener is not material, it should7-9EXERCISE 7-2 (Continued)be expensed immediately. The correct journal entry at the time of pur- chase is:Miscellaneous Expense .....................................................................Cash................................................................................................. EXERCISE 7-3 5050(a)(b)(c)(d)(e)(f)(g)(h) 2.1.7.3.9.4.6.5.Going concern assumption.Economic entity assumption.Full disclosure principle.Monetary unit assumption.Materiality.Time period assumption.Matching principle.Cost principle.EXERCISE 7-41.2.3.4. $9,000. The full amount of the policy should be recognized as revenue because the term expired within the current year.$30,000 ÷ 12 = $2,500; $2,500 X 4 = $10,000. By applying the revenue recognition principle, one can determine that 4 months of the lease re- ceipts should be recognized as revenue in 2006, while the remainder is revenue in 2007.$14,000. Ownership of the merchandise transfers at December 31 be- cause the terms are FOB shipping point. Thus, a sale has occurred and revenue should be recognized.$0. No revenue should be recognized until the sale of the inventory has occurred.7-10EXERCISE 7-5Net sales........................................................................Cost of goods sold.....................................................Gross profit ..................................................................Operating expensesSelling expenses................................................ $ 98,600 $696,000 409,200 286,800Administrative expenses ................................ 116,000 214,600 Income from operations...........................................Other revenues and gains ....................................... 17,50072,200Other expenses and losses .................................... Income before income taxes .................................. Income tax expense (at 30%).................................. Net income.................................................................... Earnings per share (10,000 shares)......................EXERCISE 7-6 (34,700) (17,200)55,00016,500$ 38,500$3.85(a)RevenuesWILKINSON CORPORATIONIncome StatementFor the Year Ended December 31, 2006Net sales ......................................................Gain on the sale of equipment .............Interest revenue ........................................Total revenues .................................. ExpensesCost of goods sold...................................Selling and administrativeexpenses.................................................Interest expense........................................Total expenses ................................. Income before income taxes ......................... Income tax expense.......................................... Net income........................................................... Earnings per share............................................7-11 $1,499,900340,75090,000$2,156,90080,000300,0002,536,9001,930,650606,250150,000$ 456,250$12.85EXERCISE 7-6 (Continued)(b) (1) Gross profit = Net sales – Cost of goods sold$2,156,900 – $1,499,900 = $657,000.(2) Income from operations = Gross profit – Selling and admin. exp.$657,000 – $340,750 = $316,250.(3) Net income is the same, regardless of format: $456,250.(c) Profit margin percentage (return on sales) = Net income ÷ Net sales= $456,250 ÷ $2,156,900= 21.15%EXERCISE 7-7(a)Relationship Debt to total assetsReturn on salesReturn on assetsIntelCorp.19.7%18.7%12.0%Johnson& Johnson44.3%17.2%14.9%Motorola,Inc.60.5%3.3%2.8%Return on commonstockholders’ equity14.9% 26.8% 7.0% (b) All three companies are manufacturers and distributors of products,each being a leader in its product industry—Intel as a manufacturer of high-tech computer chips and processors; Johnson & Johnson as amanufacturer of health care products; and Motorola as a manufacturer of electronics and communication products. Intel and Johnson &Johnson are the dominate players in their industries and enjoy com-petitive advantages and operating efficiencies that earn above average returns on sales, assets, and equity; both had very profitable perform- ances in 2003. Motorola in 2003 was still recovering (staging a turn-around) from several years of operating losses and a change in man-agement as well as a bursting of the high-tech industry bubble in1999–2003—therefore its low return on sales, assets, and equity.7-12EXERCISE 7-8(a)Relationship Debt to total assetsReturn on salesReturn on assetsReturn on equity SouthernCompany72.5%13.1%4.2%15.3%Toys 〝R〞Us, Inc.58.7%2.0%2.2%5.4%IntelCorp.19.7%18.7%12.0%14.9%(b) Much of the differences in the three companys’ ratios are due to theindustry differences—Southern Company is a large electric utility with steady, consistent but moderate sales and income from a heavyinvestment in plant and equipment. Southern Company can shoulder a large amount of debt (72.5% of total assets) because of its largeamount of assets, semi monopolistic business, and its steady income and cash flow.While Toys 〝R〞Us Inc. is a leading toy retailer, it is in a highly com- petitive industry with low returns and low margins.Intel is in the high-tech industry which can be cyclical, therefore more modestly, debt encumbered, but, because of Intel’s research and de- velopment, plants on micro chips and processors, and efficient opera- tions, it is highly competitive and profitable; thus, its high return onsales, assets, and equity.EXERCISE 7-9Working capital = Current assets – Current liabilities= $800,000Current assets = $800,000 + Current liabilitiesCurrent ratio =Current assetsCurrent liabilities= 2.6:12.6 = $800,000 + Current liabilitiesCurrent liabilities2.6 X Current liabilities2.6 X Current liabilities – Current liabilities1.6 X Current liabilitiesCurrent liabilities7-13 =====$800,000 + Current liabilities $800,000$800,000$800,000 ÷ 1.6$500,000EXERCISE 7-9 (Continued)Current assets = $800,000 + Current liabilities= $800,000 + $500,000= $1,300,000Long-term assets = 0.5 Total assets= Current assetsTotal assets = 2 X Current assets= 2 X $1,300,000= $2,600,000Total liabilities = 60% X Total assets= 0.6 X $2,600,000= $1,560,000Long-term liabilities = Total liabilities – Current liabilities= $1,560,000 – $500,000= $1,060,000Stockholders’ equity = Total assets – Total liabilities= $2,600,000 – $1,560,000= $1,040,000ARUBA CORPORATIONBalance SheetDecember 31, 2006Assets Liabilities and Current assets $1,300,000 Stockholders’ EquityLong-term assets Total assets1,300,000$2,600,000Current liabilitiesLong-term liabilitiesTotal liabilitiesStockholders’ equity$ 500,0001,060,0001,560,0001,040,000Total liabilities& stockholders’7-14equity $2,600,000EXERCISE 7-10(a)Current assetsBATTEN LTD.Partial Balance Sheet (in U.S. format)December 31, 2003(in thousands)AssetsCash ........................................................................................... $ 62,000Short-term investments.......................................................Accounts receivable .............................................................Inventories ...............................................................................Total current assets .....................................................Property, plant, and equipment .................................................Total assets ............................................................................. (b) Stockholders’ equi ty = 〝Total net assets〞= $1,096,0007-1553,000121,000300,000536,000900,000 $1,436,000SOLUTIONS TO PROBLEMSPROBLEM 7-1A1.2. Going concern assumption. Liquidation value is not appropriate be-cause it assumes that the enterprise will not continue. No entry is nec- essary. Only when liquidation appears imminent is the going concern assumption inapplicable.Matching principle. The purchase of equipment should not be ex-pensed immediately. Only costs which have no future benefit are rec- ognized immediately as expenses. Reporting a lower net income is nota legitimate reason for expensing a piece of equipment. Therefore, the following entry is necessary in 2006:Depreciation Expense ($36,000 ÷ 6 years) .................Accumulated Depreciation—Equipment............6,0006,0003. Matching principle. Plant assets should be expensed in a rational andsystematic manner. Deferring depreciation is not rational and system- atic. Therefore, the following entry is necessary in 2006:Depreciation Expense .......................................................Accumulated Depreciation ..................................... 18,00018,0004.5. Cost principle. Appreciation in value does not justify a gain until theland is sold. Appreciation does not involve an exchange transaction.No entry is necessary.Cost principle. Recording the transaction at its estimated market value would not be proper because estimated market value in this case doesnot represent an exchange price. The purchase should be recorded at cost, not at a market price that someone believes the equipment is worth. The correct entry is:Equipment .............................................................................Cash................................................................................7-1635,00035,000PROBLEM 7-2A1.2.3.4.5. The proper amount of depreciation expense is based on the cost ofthe asset and is not adjusted for changing price levels. Depreciation is not so much a matter of valuation as it is a means of cost allocation. Assets are not depreciated on the basis of a decline in their fair market value, but are depreciated on the basis of systematic charges of expired costs against revenues. (Note: It might be called to the stu- dents’ attention that the FASB does encourage supplemental disclo- sure of price-level information.)The cost principle indicates that assets and liabilities are to be accounted for on the basis of cost. If we were to select sales value, for example, we would have an extremely difficult time in attempting to establish a sales value for the given item without selling it. It should further be noted that the revenue recognition principle provides the answer to when revenue (gain) should be recognized. Revenue should be recognized when it is earned. In this situation, an earnings process has definitely not taken place.This entry violates the economic entity assumption. This assumption in accounting indicates that economic activity can be identified with a particular unit of accountability. In this situation, the company erred by charging this cost to the wrong economic entity.It appears from the information that the sale should be recorded in the next year instead of the current year. Regardless of whether the terms are FOB shipping point or FOB destination, the point is that the inven- tory is to be sold in the next year. Therefore, the revenue recognition principle is violated. It should be noted that if the company is employ- ing a perpetual inventory system in dollars and quantities, a debit to Cost of Goods Sold and a credit to Inventory are also necessary in the next year.A gain should not be recognized until the inventory is sold. Account- ants follow the cost approach and write-ups of assets are not permit- ted. It should also be noted that the revenue recognition principle indi- cates that revenue (gain) should not be recognized until it is earned.7-17PROBLEM 7-3A(a)(b)(c)(d)(e)(f)(g) 2. Going concern assumption.3. Monetary unit assumption.9. Materiality.7. Matching principle.1. Economic entity assumption.4. Time period assumption.6. Revenue recognition principle.(h) 10. Conservatism.(i) 5. Full disclosure principle.7-18PROBLEM 7-4A (a) QUAD CITIES TOURS INC.Balance SheetOctober 31, 2006Assets Current assetsCashInvestment in Iowa Trading Post, Inc.Accounts receivableInventoriesSuppliesPrepaid expenses ($17,000 + $9,000)Total current assetsProperty, plant, and equipmentLandBuildings$660,000 $653,000$ 36,000140,00015,000485,00012,00026,000714,000Less: Accum. deprec. Equipment 144,000840,000516,000Less: Accum. deprec.Total assets 715,000 125,000 1,294,000$2,008,000Liabilities and Stockholders’ Equity Current liabilitiesNotes payableAccounts payableInterest payableIncome taxes payableTotal current liabilitiesBonds payable 600,000 $ 164,000170,00030,00056,250420,250Mortgage payableTotal liabilitiesStockholders’ equityCommon stockRetained earningsTotal liabilities and stockholders’ equity7-19 247,750300,000440,000847,7501,268,000740,000$2,008,000PROBLEM 7-4A (Continued)(b) Current ratio: $714,000$420,250= 1.70:1Debt to total assets: $1,268,000$2,008,000= 63.1%Working capital: $714,000 – $420,250 = $293,750(c) Debt already represents a substantial portion of Quad Cities’ balancesheet. The current ratio is fairly solid, and working capital is signifi-cantly positive (it is enough to cover the outstanding long-term mort-gage, for example). The balance sheet does not provide any informa-tion about Quad Cities’ profitability and long-term prospects for gener- ating cash. Without information that would help you determine QuadCities’ cash-generating ability at least over the life of the requested loan, you would be unlikely to approve the request for added borrowings.That is, you need more information, especially about the income-generating ability of the company.7-20。

2－161、借：预付房租 4 500贷：现金 4 5002、借：现金 5 000贷：应收账款—莱尔 5 0003、借：现金 10 200贷：营业收入 10 2004、借：法律费 1 900贷：现金 1 9005、借：（在用）物料用品 2 500贷：现金 2 5006、借：薪金费 2 000贷：现金 2 0007、借：水电费 1 300贷：现金 1 3008、借：应收账款—加里 7 200贷：营业收入 7 2009、借：现金 9 000贷：预收营业收入 9 00010、借：应付账款—艾美 3 000贷：现金 3 00011、借：薪金费 2 000贷：现金 2 00012、借：应付账款—哈奇 1 400贷：现金 1 40013、借：现金 3 000贷：应收账款—加里 3 00014、借：留存收益 4 000贷：现金 4 0003－7 12月31日调整分录：（1）借：工薪费 950贷：应付（计）薪金 950（4 750/5）（2）借：物料用品费 13 100贷：物料用品 13 100（1 800＋15 600－4 300）（3）借：预收营业收入 27 000贷：营业收入 27 000（36 000×3/4）（4）借：折旧费 11 860贷：累计折旧 11 860（5 500＋6 360）（5）借：保险费 2 200贷：预付保险费 22 000（600＋2 400/12×8）3－111、编制会计分录（1）借：房租费 500贷：现金 500（2）借：现金 900贷：应收账款 900（3）借：应付账款 3 000贷：现金 3 000（4）借：应收账款 1 400贷：营业收入 1 400（5）借：现金 3 800贷：营业收入 3 800（6）借：在用物料 450贷：应付账款 450（7）借：应付账款 1 085贷：现金 1 085（8）借：现金 1 100贷：应收账款 1 100（9）借：运输费 200贷：现金 200（10）借：薪金费 640贷：现金 640（11）借：现金 2 600贷：预收营业收入 2 600（12）借：预付保险费 1 800贷：现金 1 8002、开设账户并过账现金应收账款预付保险费初 5 000（1） 500 初 2 000（2） 900 初 400（2） 900（3） 3 000 （4） 1 400（8） 1 100 （12） 1 800 （5） 3 800（7） 1 085 余 1 400 余 2 200 ③400 （8） 1 100（9） 200 ⑤ 380 余额 1 800（11） 2 600（10） 640 余额 1 780（12） 1 800余额 6 175在用物料设备累计折旧初 500 初 39 000 初 7 150（6） 450 余额 39 000 ②650余 950 ①500 余额 7 800余额 450应付账款应付薪金预收营业收入（3） 3 000 初 4 085 ⑥ 96 （11） 2 600（7） 1 085（6） 450 余额 96 ④ 2 080余额 450 余额 520股本留存收益初 35 000 初 665余额 35 000 结③4 674余额 5 339营业收入房租费运输费（4） 1 400 （1） 500 结② 500 （9） 200 结② 200 （5） 3 800余 5 200④ 2 080⑤ 380结① 7 600 余额 7 660薪金费物料用品费折旧费（10） 640 ① 500 结② 500 ② 650 结② 650⑥ 96余额 736 结② 736保险费收益汇总③ 400 结② 400 结②2 986 结①7 660结③4 6743、调整前试算表（见工作底稿）4、1月31日调整分录：①借：物料用品费 500贷：在用物料 500（950－450）②借：折旧费 650贷：累计折旧 650（39 000/5×12）③借：保险费 400贷：预付保险费 400④借：预收营业收入 2 080贷：营业收入 2 080（2 600×80%）⑤借：应收账款 380贷：营业收入 380⑥借：薪金费 96贷：应付薪金 96（640/4/5×3）5、调整后试算表（见工作底稿）6、家具维修店收益表1月份单位：美元收入营业收入 7 660减：费用房租费 500运输费 200薪金费 736保险费 400物料用品费 500折旧费 650费用合计 2 986净收益 4 674家具维修店资产负债表17、将调整分录过账（见2） 8、结账分录： 结①借：营业收入 7 660贷：收益汇总 7 660 结②借：收益汇总2 986贷：房租费 500运输费 200 薪金费 736 保险费 400 物料用品费 500 折旧费 650结③借：收益汇总 4 674贷：留存收益 4 6749、结账后试算表结账后试算表 年12月31日 4－11迪勒公司（销售）：（1）借：应收账款 2 600 贷：销售收入 2 600借：应收账款 50 贷：现金 50 （2）不处理（3）借：销售退回及折让 100 贷：应收账款 100 （4）不处理（5）借：现金 2 500销售折扣 50 （2 500×2％） 贷：应收账款 2 550 赛赫公司（购货）：（1）借：购货 2 600 购货运费 50贷：应付账款 2 650 （2）不处理（3）借：应付账款 100贷：购货退回及折让 100 （4）借：应付账款 2 550 贷：购货折扣 50 现金 2 5002．编制分录，调整现金帐户余额（4）登记银行服务费 借：杂项费用 12贷：现金 12 （5）开票据借款 借：现金 3 000贷：应付票据 3 000 （6）冲销原收款分录借：应收帐款 890贷：现金 880 销售折扣 10 （7）冲销多记修理费 借：现金 855贷：修理费 855（950－95）5－8（1）借：坏账准备 600贷：应收账款——伦特 600（2）坏账准备余额＝70000×1％＋8000×4％＋3000×10％＋1500×30％＝$1 770 （3）应计提坏账准备＝1 770＋（600－500）＝$1 870借：坏账费用 1 870贷：坏账准备 1 870（4）应收账款 $82 500减：坏账准备 1 770应收账款净额 $80 7305－9（1）借：应收账款 4 700 000贷：服务收入 4 700 000（2）借：现金 4 455 000贷：应收账款 4 455 000（3）借：坏账准备 171 000贷：应收账款 171 000（4）借：坏账费用 188 000贷：坏账准备 188 000应收账款坏账准备期初 226 000 （2） 4 455 000 （3） 171 000 期初 34 000（1） 4 700 000（3） 171 000 （4） 188 000期末 300 000 期末 51 00020**年12月31日资产负债表应收账款 $300 000减：坏账准备 51 000应收账款净值 $249 00020**年收益表列示服务收入$4 700 000以及坏账费用$188 000。