CHAPTER 1FINANCIAL ACCOUNTING ANDITS ECONOMIC CONTEXTISSUES FOR DISCUSSIONID1–1Security analysts and stockholders: These users would use financial statements to try to estimate the future earnings and cash flow potential of the company, which would be used to project a value for the company’s stock.Bank loan officers: These users would use the financial statements to determine the ability of a company to repay loans to the bank.A company’s customers and suppliers: These users would use financial statements todetermine whether to extend credit to the company (suppliers) or whether to rely upon the company to be a supplier (customers). Both suppliers and customers would also use the financial statements to monitor the company’s profit margins.Public utilities: This group would use the financial statements to determine the company’s growth rate and how that might impact upon the company’s utility needs. Also, they would evaluate the company’s ability to pay its bills.Labor unions: These groups would use the financial statements to monitor the profitability of the company to help determine the amount of pay raises and benefits that it will negotiate for from the company.A company’s managers: The company’s managers will use the financial statements to assessthe overall financial health of the company. This could impact the managers in a number of ways: raises, promotion opportunities, performance of other departments, etc.ID1–2The board of directors serves various functions for a company. One is to represent and protect the interests of the stockholders who are not on the board. Another is to provide oversight and input to management. The managers are involved in running the business on a day-to-day basis whereas the board is more focused on the bigger, long-term picture. A weak board may not ask probing questions of management but instead may take everything at face value and believe anything that management says to them. A healthy management team would want a strong board that delivers valuable input. A management team that wants a weak board of directors may be trying to hide something (management fraud).Auditors are concerned with management fraud because, if there is a problem, in many cases the auditors will be sued by the stockholders on the basis that the auditors should have detected the fraud.ID1–3The function of the audit committee is to provide a channel whereby the auditors report their findings and concerns, if any, to the board of directors. Typically there are outside members of the board that are on the audit committee so that if the auditors have concerns about management’s financial statements or activities, then the auditors have a way to speak directly to the board of directors.The auditors are in a sensitive position because the financial statements and activities that they are auditing are prepared by the same people who hire and pay the auditors. Therefore, they may be reluctant to jeopardize their relationship with the company by being too negative.ID1–4Since Pepsi’s profits increased by a greater percentage than sales increased, it must mean that expenses as a percentage of sales dropped. Pepsi was able to improve its profitability per dollar of sales.The growth in equity was larger than the growth in assets, indicating that Pepsi reduced its liabilities. The financing activities verify that Pepsi used a significant amount of cash, partially to reduce debt. In addition to the reduction in liabilities, the strong cash flow from operations was used to purchase additional assets for the company.ID1–5Creditors would impose these types of restrictions on Continental Airlines so that the creditors would be protected for their loans. These types of restrictions are fairly common and act as a trip wire to warn the creditors that business may not be going well. The cash restriction would force Continental to have enough cash to pay the interest on the debt, the minimum stockholders’ equity makes sure that there are assets to act as collateral for the loans, and the restriction of dividends insures that management doesn’t distribute cash or assets out to the stockholders and not leave assets in the company to satisfy the creditors.These restrictions act as trip wires in that as soon as a restriction is violated the creditors can call the debt and force the company to pay back the loans. What is more typical is for the loans to be restructured. This usually means higher interest rates and fees to do the restructuring. These all put the creditors in a better position to protect their loans.ID1–6Companies would usually engage in this type of behavior to try to improve their stock price. By showing higher revenues or lower expenses investors are more likely to reward the company with a higher stock price. Companies that have negative cash flow are under a lot of pressure to maintain a high stock price since selling stock is the only way to fund the business. This type of incentive can lead to questionable behavior.The ethical implications are significant because if investors lose faith in the financial statements that are reported this would severely impact the stock market. A strong driver to a robust economy is access to capital (stock markets). If this source is reduced because investors don’t believe the numbers that are reported, a very bad impact on the overall economy would result.ID1–7This is the normal statement that an auditor would make about a company whose books it had audited and found no significant problems. This would be part of what is called a “non-qualified opinion”. If there was a particular item that the auditors did not agree with they would issue a “qualified opinion” – they would agree with everything except the qualified item that would be identified.“In our opinion”, it is their opinion and not a fact, “fairly, in all material respects”, means that the auditors can not say that every single number is exactly accurate to the penny but that the numbers are generally about right. This reflects the concept of materiality. The auditors believe that all material items have been presented accurately. “in conformity with generally accepted accounting principles”, this means that the financial statements have been compiled in a way that meets all of the accounting principles that are called GAAP.ID1–8Corporate governance describes the relationship among the stakeholders of a company, mainly : the shareholders, the Board of Directors, management and the company’s auditors.Corporate governance mechanisms encourage management and the Board of Directors to act in the best interest of the shareholders and to provide the shareholders with accurate and timely financial information. The Sarbanes-Oxley Act was passed to upgrade the financial transparency of corporate operations, requiring increased financial disclosures and management responsibilities for the intergrity of the financial statements. Improved information provided to shareholders and other providers of capital will strenghten the confidence in the financial system, ultimately benefitting both providers and users of capital.ID1–9Management is charged with the responsibility to benefit the shareholders’ investment in the company. Choosing investments that will boost the short-term results of the company in lieu of long-term gains does not meet this requirement. While satisfying the needs of Wall Street analysts for short-term results, a management decision to forego larger long-term returns violates the relationship between the owners of the company and the management of the company. Many observers feel that short-term profit pressures from analysts have caused management to ignore its responsibility to work for the long-term benefit of the shareholder.ID1–10While the NYSE is reacting to potential rules changes based on marketing considerations, the SEC is reacting based on a desire to improve the quality of financial information that companies disclose. The SEC has a very strong argument in that the US equity markets are the largest and most liquid markets in the world. All other countries would love to have a financial market like the ones that exist in the US.One of the possible reasons that other countries don’t want to adopt the same accounting rules as exist in the US is that their companies may not compare well with US companies that have been operating under the stricter rules. To lower the accounting standards may have the impact of influencing the US capital markets to look more like capital markets in other countries, which would not be good for the US economy.ID1–11Many experts agree that one of the driving forces recently in economic growth has been the globalization of the economy, with countries across the world doing more and more business with each other. This globalization is threatened when the companies cannot agree on a uniform set of guidelines covering a business practice as important as financial reporting. The flow of capital is dependent on transparent and accurate financial information. If countries cannot agree on accounting standards, the ability of those companies to do business in each other’s markets, and the ability of capital to move from one country to another, will be limited.ID1–12Management accounting is the accounting system that generates information that is used exclusively by the managers of the company. Financial accounting refers to the financial statements that are prepared and distributed outside of the company. So in many cases management accounting information is the operational information used by the managers of the company. This can be very proprietary to the company and so is not made public.Management accounting numbers are not subject to audit and therefore are prepared in whatever form is helpful to the manager.Financial accounting information is audited and therefore has to follow GAAP. Its primary purpose is to be used by people outside of the company.ID1-13a. Home Depot is a large retailing company, focusing on hardware sales to consumers andcontractors. It is a retailer because it does not manufacture the goods that it sells. It buys products from vendors and offers those products for sale in its stores.b. The firm of KPMG audits the financial statements of Home Depot. The audit report consists of4 paragraphs. The first paragraph states what years and financial statements were auditedand therefore being commented upon by this audit report. The second paragraph explains what an audit is intended to do and how the company has gone about doing this audit. The third paragraph states the auditors’ opinion regarding the financial statements that have been audited. The final paragraph indicates a change in accounting methods by the company.c. Net income in 2003 was $4,304,000,000, for 2002 net income was $3,664,000,000 and for2001 net income was $3,044,000,000.d. 2003 2002Current liabilities $9,554 27.7% $8,035 26.8%Long-term liabilities 2,476 7.2% 2,174 7.2%Total assets $34,437 $30,011From 2002 to 2003 Home Depot increased its current liabilities by $1.5 billion and increased its long-term liabilities by $300 million. As a percentage of total assets, however, long-term liabilities remained constant. The ratio of current liabilities to total assets increased by nearly a percentage point. This shows that the increase in total assets (over $4 billion) was generated by the increase in current liabilities and net income.e. Cash from operating activities was $6,545,000,000 in 2003, in 2002 it was $4,802,000,000 andin 2001 was $5,963,000,000.f. Home Depot is considered to be one of the best-managed companies in the US. The companyis extremely profitable (see c above), growing and well-capitalized. This financial condition is reflected in the company’s cash balance of over $2.8 billion and shareholders’ equity of over $22 billion.。
会计学原理Financial-Accounting-by-Rob ert-Libby第八版-第三章-答案Chapter 3Operating Decisions andthe Accounting SystemANSWERS TO QUESTIONS1. A typical business operating cycle for a manufacturer would be as follows:inventory is purchased, cash is paid to suppliers, the product is manufactured and sold on credit, and the cash is collected from the customer.2. The time period assumption means that the financial condition andperformance of a business can be reported periodically, usually every month, quarter, or year, even though the life of the business is much longer.3. Net Income = Revenues + Gains - Expenses - Losses.Each element is defined as follows:Revenues -- increases in assets or settlements of liabilities from ongoing operations.Gains -- increases in assets or settlements of liabilities from peripheral transactions.Expenses -- decreases in assets or increases in liabilities from ongoingoperations.Losses -- decreases in assets or increases in liabilities from peripheraltransactions.4. Both revenues and gains are inflows of net assets. However, revenuesoccur in the normal course of operations, whereas gains occur from transactions peripheral to the central activities of the company. An example is selling land at a price above cost (at a gain) for companies not in the business of selling land.Both expenses and losses are outflows of net assets. However, expenses occur in the normal course of operations, whereas losses occur from transactions peripheral to the central activities of the company. An example is a loss suffered from fire damage.5. Accrual accounting requires recording revenues when earned andrecording expenses when incurred, regardless of the timing of cash receipts or payments. Cash basis accounting is recording revenues when cash is received and expenses when cash is paid.Financial Accounting, 8/e 3-2 © 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Financial Accounting, 8/e3-3© 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.6. The four criteria that must be met for revenue to be recognized under theaccrual basis of accounting are (1) delivery has occurred or services have been rendered, (2) there is persuasive evidence of an arrangement for customer payment, (3) the price is fixed or determinable, and (4) collection is reasonably assured.7. The expense matching principle requires that expenses be recorded whenincurred in earning revenue. For example, the cost of inventory sold during a period is recorded in the same period as the sale, not when the goods are produced and held for sale.8. Net income equals revenues minus expenses. Thus revenues increase netincome and expenses decrease net income. Because net income increases stockholders’ equity, revenues increase stockholders’ equity and expenses decrease it.9. Reve nues increase stockholders’ equity and expenses decreasestockholders’ equity. To increase stockholders’ equity, an account must be credited; to decrease stockholders’ equity, an account must be debited. Thus revenues are recorded as credits and expenses as debits. 10.11.12.13. Total net profit margin ratio is calculated as Net Income Net Sales (orOperating Revenues). The net profit margin ratio measures how much of every sales dollar is profit. An increasing ratio suggests that the company is managing its sales and expenses effectively.ANSWERS TO MULTIPLE CHOICE1. c2. a3. b4. b5. c6. c7. d8. b9. a10. bFinancial Accounting, 8/e 3-4 © 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Authors' Recommended Solution Time(Time in minutes)* Due to the nature of this project, it is very difficult to estimate the amount of time students will need to complete the assignment. As with any open-ended project, it is possible for students to devote a large amount of time to these assignments. While students often benefit from the extra effort, we find that some become frustrated by the perceived difficulty of the task. You can reduce student frustration and anxiety by making your expectations clear. For example, when our goal is to sharpen research skills, we devote class time discussing research strategies. When we want the students to focus on a real accounting issue, we offer suggestions about possible companies or industries.Financial Accounting, 8/e 3-5 © 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Financial Accounting, 8/e 3-6© 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.MINI-EXERCISESM3–1.TERMG (1) LossesC (2) Expense matching principle F (3) RevenuesE (4) Time period assumption B(5) Operating cycleM3–2.Cash Basis Income StatementAccrual Basis Income StatementRevenues: Cash sales Customer deposits$8,000 5,000 Revenues: Sales to customers$18,000 Expenses:Inventory purchases Wages paid 1,000 900 Expenses: Cost of sales Wages expense Utilities expense 9,000 900 300Net Income$11,100Net Income $7,800Revenue Account Affected Amount of Revenue Earned in JulyM3–4.Expense Account Affected Amount of Expense Incurred in JulyFinancial Accounting, 8/e 3-7 © 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.a. Cash (+A) ............................................................................ 15,000Games Revenue (+R, +SE) .......................................... 15,000 b. Cash (+A) ............................................................................ 3,000Accounts Receivable (+A) ................................................ 5,000 Sales Revenue (+R, +SE) ............................................. 8,000 c. Cash (+A) ............................................................................ 4,000Accounts Receivable (-A) ........................................... 4,000 d. Cash (+A) ............................................................................ 2,500Unearned Revenue (+L) ............................................... 2,500 M3–6.e. Cost of Goods Sold (+E, -SE)........................................... 6,800Inventory (-A) ............................................................... 6,800 f. Accounts Payable (–L) (800)Cash (-A) (800)g. Wages Expense (+E, -SE) ................................................. 3,500Cash (-A) ...................................................................... 3,500 h. Insurance Expense (+E, -SE) . (500)Prepaid Expenses (+A) ...................................................... 1,00 Cash (-A) ...................................................................... 1,500 i. Repairs Expense (+E, -SE) .. (700)Cash (-A) (700)j. Utilities Expense (+E, -SE) (900)Accounts Payable (+L) (900)Financial Accounting, 8/e 3-8 © 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Transaction (c) results in an increase in an asset (cash) and a decrease in an asset (accounts receivable). Therefore, there is no net effect on assets.M3–8.Transaction (h) results in an increase in an asset (prepaid expenses) and a decrease in an asset (cash). Therefore, the net effect on assets is 500.Financial Accounting, 8/e 3-9 © 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Craig’s Bowling, Inc.Income StatementFor the Month of July 2014Revenues:Games revenue $15,000Sales revenue 8,000Total revenues 23,000Expenses:Cost of goods sold 6,800Utilities expense 900Wages expense 3,500Insurance expense 500Repairs expense 700Total expenses 12,400Net income $ 10,600M3–10.Financial Accounting, 8/e 3-10 © 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.M3–11.These results suggest that Jen’s Jewelry Company earned approximately $0.31 for every dollar of revenue in 2015, and over time, the ratio has improved. Jen’s has become more effective at managing sales and expenses.As additional analysis:Between 2013 to 2014 and 2014 to 2015, sales have increased at a lower percentage than net income. This suggests that the company has been more effective at controlling expenses than generating revenues.EXERCISESE3–1.TERMK (1) ExpensesE (2) GainsG (3) Revenue realization principleI (4) Cash basis accountingM (5) Unearned revenueC (6) Operating cycleD (7) Accrual basis accountingF (8) Prepaid expensesJ (9) Revenues - Expenses = Net IncomeL (10) Ending Retained Earnings =Beginning Retained Earnings + Net Income - Dividends DeclaredE3–2.Req. 1Cash Basis Income StatementAccrual Basis Income StatementRevenues:Cash sales Customer deposits $500,00070,000Revenues:Sales tocustomers$750,000Expenses:Inventory purchases Wages paidUtilities paid90,000180,30017,200Expenses:Cost of salesWages expenseUtilities expense485,000184,00019,130Net Income $282,500 Net Income $61,870Req. 2Accrual basis financial statements provide more useful information to external users. Financial statements created under cash basis accounting normally postpone (e.g., $250,000 credit sales) or accelerate (e.g., $70,000 customer deposits) recognition of revenues and expenses long before or after goods andservices are produced and delivered (until cash is received or paid). They also do not necessarily reflect all assets or liabilities of a company on a particular date.Activity Revenue AccountAmount of RevenueActivity Expense AccountAmount of ExpenseE3–5.Transaction (k) results in an increase in an asset (cash) and a decrease in an asset (accounts receivable). Therefore, there is no net effect on assets.* A loss affects net income negatively, as do expenses.E3–6.Transaction (f) results in an increase in an asset (property, plant, and equipment) and a decrease in an asset (cash). Therefore, there is no net effect on assets.E3–7.(in thousands)a. Plant and equipment (+A) (636)Cash ( A) (636)Debits equal credits. Assets increase and decrease by the same amount.b. Cash (+A) (181)Short-term notes payable (+L) (181)Debits equal credits. Assets and liabilities increase by the same amount.c. Cash (+A) ..........................................................................Accounts receivable (+A) ................................................ 10,765 28,558Service revenue (+R, +SE) ........................................ 39,323 Debits equal credits. Revenue increases retained earnings (part of stockholders' equity). Stockholders' equity and assets increase by the same amount.E3–7. (continued)d. Accounts payable (-L) ..................................................... 32,074Cash (-A) ................................................................... 32,074 Debits equal credits. Assets and liabilities decrease by the same amount.e. Inventory (+A) ................................................................... 32,305Accounts payable (+L) .............................................. 32,305 Debits equal credits. Assets and liabilities increase by the same amount.f. Wages expense (+E, -SE) ............................................... 3,500Cash (-A) ................................................................... 3,500 Debits equal credits. Expenses decrease retained earnings (part ofstockholders' equity). Stockholders' equity and assets decrease by thesame amount.g. Cash (+A) .......................................................................... 39,043Accounts receivable (-A) ....................................... 39,043 Debits equal credits. Assets increase and decrease by the same amount.h. Fuel expense (+E, -SE) (750)Cash (-A) (750)Debits equal credits. Expenses decrease retained earnings (part ofstockholders' equity). Stockholders' equity and assets decrease by thesame amount.i. Retained earnings (-SE) (597)Cash (-A) (597)Debits equal credits. Assets and stock holders’ equity decrease by thesame amount.j. Utilities expense (+E, -SE) (68)Cash (-A) ................................................................... Accounts payable (+L) .............................................. 55 13Debits equal credits. Expenses decrease retained earnings (part of stockholders' equity). Together, stockholders' equity and liabilities decrease by the same amount as assets.E3–8.Req. 1a.Cash (+A) ................................................................... 2,300,000Short-term note payable (+L) ........................ 2,300,000 Debits equal credits. Assets and liabilities increase by the same amount.b.Equipment (+A) ......................................................... 98,000Cash (-A) ........................................................ 98,000 Debits equal credits. Assets increase and decrease by the same amount.c.Merchandise inventory (+A) .................................... 35,000Accounts payable (+L) .................................. 35,000 Debits equal credits. Assets and liabilities increase by the same amount.d.Repairs (or maintenance) expense (+E, -SE) ......... 62,000Cash (-A) ........................................................ 62,000 Debits equal credits. Expenses decrease retained earnings (part ofstockholders' equity). Stockholders' equity and assets decrease by thesame amount.e.Cash (+A) ................................................................... 390,000Unearned pass revenue (+L) ......................... 390,000 Debits equal credits. Since the season passes are sold before Vail Resorts provides service, revenue is deferred until it is earned. Assets andliabilities increase by the same amount.f.Two transactions occur:(1) Accounts receivable (+A) (800)Ski shop sales revenue (+R, +SE) (800)Debits equal credits. Revenue increases retained earnings (a part ofstockholders' equity). Stockholders' equity and assets increase by thesame amount.(2) Cost of goods sold (+E, -SE) (500)Merchandise inventory (-A) (500)Debits equal credits. Expenses decrease retained earnings (a part ofstockholders' equity). Stockholders' equity and assets decrease by thesame amount.E3–8. (continued)g.Cash (+A) ................................................................... 320,000Lift revenue (+R, +SE) .................................... 320,000 Debits equal credits. Revenue increases retained earnings (a part ofstockholders' equity). Stockholders' equity and assets increase by thesame amount.h.Cash (+A) ................................................................... 3,500Unearned rent revenue (+L) .......................... 3,500 Debits equal credits. Since the rent is received before the townhouse isused, revenue is deferred until it is earned. Assets and liabilities increase by the same amount.i. Accounts payable (-L) ............................................. 17,500Cash (-A) ........................................................ 17,500 Debits equal credits. Assets and liabilities decrease by the same amount. j.Cash (+A) . (400)Accounts receivable (-A) (400)Debits equal credits. Assets increase and decrease by the same amount. k.Wages expense (+E, -SE) ........................................ 245,000Cash (-A) ........................................................ 245,000 Debits equal credits. Expenses decrease retained earnings (a part ofstockholders' equity). Stockholders' equity and assets decrease by thesame amount.Req. 22/1 Rent expense (+E, -SE) (275)Cash (-A) (275)2/2 Fuel expense (+E, -SE) (490)Accounts payable (+L) (490)2/4 Cash (+A) (820)Unearned revenue (+L) (820)2/7 Cash (+A) (910)Transport revenue (+R, +SE) (910)2/10 Advertising expense (+E, -SE) (175)Cash (-A) (175)2/14 Wages payable (-L) ......................................................... 2,300Cash (-A) ......................................................... 2,3002/18 Cash (+A) ..........................................................................Accounts receivable (+A) ................................................ 1,600 2,200Transport revenue (+R, +SE) ......................... 3,800 2/25 Parts supplies (+A) .......................................................... 2,550Accounts payable (+L) ................................... 2,550 2/27 Retained earnings (-SE) .. (200)Dividends payable (+L) (200)Req. 1 and 2Accounts Unearned Fee NoteAdditional Paid-inRebuilding Fees RentItem (f) is not a transaction; there has been no exchange.E3–10. (continued)Req. 3Net income using the accrual basis of accounting:Revenues $19,850 ($19,000 + $850)– Expenses 16,900 ($16,500 + $400)Net Income $ 2,950Assets = Liabilities + Stockholders’ Equity$12,090 $ 7,700 $ 1,70024,800 4,440 7,8202,460 48,500 9,36010,420 2,950 netincome7,40025,300$82,470 $60,640 $21,830Req. 4Net income using the cash basis of accounting:Cash receipts $27,650 (transactions a through d)–Cash disbursements 19,760 (transactions g, i, and k)Net Income $ 7,890Cash basis net income ($7,890) is higher than accrual basis net income ($2,950) because of the differences in the timing of recording revenues versus receipts and expenses versus disbursements between the two methods. The $7,800 higher amount in cash receipts over revenues includes cash received prior to being earned (from (b), $600) and cash received after being earned (in (d), $7,200). The $2,860 higher amount in cash disbursements over expenses includes cash paid after being incurred in the prior period (in (g), $2,300), plus cash paid for supplies to be used and expensed in the future (in (k), $960), less an expense incurred in January to be paid in February (in (e), $400).STACEY’S PIANO REBUILDING COMPANYIncome Statement (unadjusted)For the Month Ended January 31, 2014 Operating Revenues:Rebuilding fees revenue $ 19,000 Total operating revenues 19,000 Operating Expenses:Wages expense 16,500 Utilities expense 400 Total operating expenses 16,900 Operating Income 2,100 Other Item:Rent revenue 850 Net Income $ 2,950Req. 1 and 2Common Additional RetainedFood Sales Revenue Catering Sales RevenueE3–14.Req. 1TRAVELING GOURMET, INC.Income Statement (unadjusted)For the Month Ended March 31, 2014 Revenues:Food sales revenueCatering sales revenueTotal revenues Expenses:Supplies expenseUtilities expenseWages expenseFuel expenseTotal costs and expenses $ 11,9004,20016,10010,8304206,28036317,893Net Loss $ (1,793) Req. 2Transaction O, I, or F Activity (or No Effect) on Statement ofDirection and AmountReq. 3The company generated a small loss of 1,793 during its first month of operations, before making any adjusting entries. The adjusting entries for use of the building and equipment and interest expense on the borrowing will increase the loss. Cash flows from operating activities were also negative at $2,973 (= + 11,900 + 2,600 –10,830 –363 –6,280) . So far the company does not appear to be successful, but it is only in its first month of operating a retail store. If sales can be increased without inflating fixed costs (particularly salaries expense), the company may soon turn a profit. It is not unusual for small businesses to report a loss or have negative cash flows from operations as they start up operations.E3–15.Req. 1Transaction Brief Explanationa Issued 10,000 shares of common stock to shareholders for $82,000cash.b Purchased store fixtures for $15,400 cash.c Purchased $24,800 of inventory, paying $6,200 cash and thebalance on account.d Sold $14,000 of goods or services to customers, receiving $9,820cash and the balance on account. The cost of the goods sold was$7,000.e Used $1,480 of utilities during the month, not yet paid.f Paid $1,300 in wages to employees.g Paid $2,480 in cash for rent, $620 related to the current month and$1,860 related to future months.h Received $3,960 cash from customers, $1,450 related to currentsales and $2,510 related to goods or services to be provided in thefuture.Req. 2Kate’s Kite CompanyIncome StatementFor the Month Ended April 30, 2014Sales Revenue Expenses:Cost of salesWages expenseRent expenseUtilities expenseTotal expenses $ 15,4507,0001,3006201,48010,400Net Income $ 5,050Kate’s Kite CompanyBalance SheetAt April 30, 2014Assets Liabilities and Shareholders’ Equity Current Assets: Current Liabilities:Cash $70,400 Accounts payable $20,080 Accounts receivable 4,180 Unearned revenue 2,510 Inventory 17,800 Total current liabilities 22,590 Prepaid expenses 1,860 Shareholders’ Equity:Total current assets 94,240 Common stock 10,000 Store fixtures 15,400 Additional paid-in capital 72,000Retained earnings 5,050Total shareholders’equity87,050Total Assets $109,640 Total Liabilities &Shareholders’ Equity$109,640E3–16.Req. 1Assets = Liabilities + Stockholders’ Equity $ 3,200 $ 2,400 $ 800 8,000 5,600 4,0006,400 1,600 3,200 $17,600 $9,600 $ 8,000Req. 2Accounts Long-TermAccounts Unearned Long-TermAdditionalConsulting Fee InvestmentRent ExpenseE3–16. (continued)Req. 3Revenues $58,400 ($58,000 from sales + $400 on investments)– Expenses 56,400 ($36,000 + $12,000 + $800 + $7,600)Net Income $ 2,000Assets = Liabilities + Stockholders’ Equity$ 1,120 $ 1,600 $ 80012,400 7,200 4,0006,400 1,600 2,7202,000 net income $19,920 $10,400 $ 9,520 Req. 4Net Profit Margin = Net Income = $2,000 = 0.0345Ratio Sales (Operating) Revenues $58,000* or 3.45% * The $400 of investment income is not an operating revenue and is not included in the computation.The increasing trend in the net profit margin ratio (from 2.5% in 2013 to 2.9% in 2014 and then to 3.45% in 2015) suggests that the company is managing its sales and expenses more effectively over time.E3–17.Req. 1Accounts receivable increases with customer sales on account and decreases with cash payments received from customers.Prepaid expenses increase with cash payments of expenses related to future periods and decrease as these expenses are incurred over time.Unearned subscriptions increase with cash payments received from customers for goods or services to be provided in the future and decreases when those goods or services are provided.Req. 2Trade Accounts ReceivablePrepaidExpensesUnearnedSubscriptionsComputations:Beginning + “+”-“-”= EndingTrade accounts receivable 717 + 5,240 -??==6935,264Prepaid expenses 95 + 203 -??==107191Unearned subscriptions 224 + 2,690 -??==2312,683E3–18.ITEM LOCATION1. Description of a company’sprimary business(es). Letter to shareholders;Management’s Discussion and Analysis; Summary of significant accounting policies note2. Income taxes paid. Notes; Statement of cash flows3. Accounts receivable. Balance sheet4. Cash flow from operatingactivities.Statement of cash flows5. Description of a company’srevenue recognition policy. Summary of significant accounting policies note6. The inventory sold during theyear.Income statement (Cost of Goods Sold)7. The data needed to compute thenet profit margin ratio.Income statementPROBLEMSP3-1.Transactions Debit Credita. Example: Purchased equipment for use in the business;5 1, 8paid one-third cash and signed a note payable for thebalance.b. Paid cash for salaries and wages earned by employees thisperiod.15 1 c. Paid cash on accounts payable for expensesincurred last period.7 1d. Purchased supplies to be used later; paid cash. 3 1e. Performed services this period on credit. 2 14f. Collected cash on accounts receivable for servicesperformed last period. 1 2g. Issued stock to new investors. 1 11, 12h. Paid operating expenses incurred this period.15 1i. Incurred operating expenses this period to be paidnext period.15 7 j. Purchased a patent (an intangible asset); paid cash. 6 1 k. Collected cash for services performed this period. 1 14 l. Used some of the supplies on hand for operations.15 3 m. Paid three-fourths of the income tax expense for the year;the balance will be paid next year.16 1, 10 n. Made a payment on the equipment note in (a); the paymentwas part principal and part interest expense.8, 17 1 o. On the last day of the current period, paid cash for aninsurance policy covering the next two years. 4 1a. Cash (+A) ........................................................................... 40,000Common stock (+SE) (20)Additional paid-in capital (+SE) ................................ 39,980 b. Cash (+A) ........................................................................... 60,000Note payable (long-term) (+L) ..................................... 60,000 c. Rent expense (+E, -SE) .................................................... 1,500Prepaid rent (+A) ............................................................... 1,500 Cash (-A) ...................................................................... 3,000 d. Prepaid insurance (+A) ..................................................... 2,400Cash (-A) ..................................................................... 2,400 e. Furniture and fixtures (or Equipment) (+A) ..................... 15,000Accounts payable (+L) ............................................... 12,000Cash (-A) ..................................................................... 3,000 f. Inventory (+A) .................................................................... 2,800Cash (-A) ..................................................................... 2,800 g. Advertising expense (+E, -SE) .. (350)Cash (-A) (350)h. Cash (+A) (850)Accounts receivable (+A) (850)Sales revenue (+R, +SE) ............................................ 1,700 Cost of goods sold (+E, -SE) . (900)Inventory (-A) (900)i. Accounts payable (-L) ...................................................... 12,000Cash (-A) ..................................................................... 12,000 j. Cash (+A) (210)Accounts receivable (-A) (210)。
1Accounting会计is an information system.it measuresdata into reports,and communicates results to people2Financial accounting财务会计(外部)the branch of accounting that provides information to people outside the firmManagement accounting管理会计(内部)the branch of decision makers of a business,such as top executives. 3流动资产包括current assetsCash and Cash equivalents现金及其等价物short-term investments短期投资Inventories存货Accounts (notes) receivable应收账款(票据)prepaid expenses and other current assets预付账款(其他流动资产)4The account账户the record of the changes that have occurred in a particular asset liability,or stockholders’ equity during a period.5Assets资产(cash,accouts receivable,notesexpense,land buildings,equipment furniture fixtures)Liabilites负债(notes payable,accounts payable,accrued liabilities<payable不计,salary payable计算>)6Accounting adjustments fall into three basic catrgories 会计账项调整三类型of the p eriod,an adjustment is needed to decrease the Supplies account for the supplies used up)②depreciation(the accounting adjustment records Depreciation Expense,which decreases the book value of the asset over its life)③accruals(the adjustment debits a receiva ble and credits a revenue)7Items for reconciliation银行往来账科目①items bank(1Deposits in transit 2outstanding checks)②Items recorded by the bank but not yet recorded by the company.we may learn of these items form the bank statement(1bank collections 2electronic funds transfers 3service charge and the cost of printed checks 4interest revenue earned on checking account 5nonsufficient funds checks)③errors by the company or the bank8Treasury stock库存股a corporations own stock that it10Available-for-sale invesments可供出售投资all investments not classified as held-to-maturity or trading securities.可供出售投资的成本Available-for-sale invesments are accounted for at market value because the company expects to sell the stock at its market price.cost is used only as the initial amount for recording the investments.these investments are reported on the balance sheet as current market value.11股票股利与现金股利不同Receipt of a stock dividend is different from receipt of a cash dvidend.for a stock dividend,the investor records no dividend revenue.instead,the investor makes a memorandum entry in the accounting records to denote the new number of shares of stock held as an investment.because the number of shares of stock held has increased,the investor’s cost per share of the stock decreases.12equity method权益法the method used to account for investments in which the investor has 20-50% of the investee’s voting stock and can significantly influence the decisions of the investee.14Held-to-maturity investments持有至到期投资bonds 15amortized cost method摊销成本法16hedging套期保值to protect oneself from losingby engaging in acounterbalancing transaction17comprehensive income全面收益a company change intotal stockholder’s equity from all sources other thanfrom the owners of the business.内容①unrealizedgains(losses)on available-for-saleinvestments②foreign-currency translation adjustments18 Investing activities投资活动: Activities that increaseor available to thebusiness, a section of the statement of cash flows,Investing activities are important but they are less criticalthat operating activitiesFinancing activities筹资活动: Activities that obtain frominvestors and creditors the cash needed to launch andsustain the business, a section of the statement of cashflows, they are the least important of the threecategories of cash flows, and that’s why they come lastOperating activities经营活动: Activities that createa section of the statement of cash flows, Operatingactivities affect the income statement, Operatingactivities are the most important of the three categoriesbecause they reflect the heart of the organization, asuccessful business must generate most of its cashfrom day-to-day operation19Accounting foundation principles会计基本原则Thetheaccounting principle that ensures that accountingrecords and statements are based on the most reliabledata available) ;The cost principle;Thegoing-concept;The stable-monetary-unit concept.20Trial balance试算平衡表 a list of all the ledger21Accrual accounting权责发生制accounting thatevent as itoccurs,regardless of whether the transaction affectedcash.Cash-basis accounting收付实现制accountingthat records only transactions in which cash is receivedor paid.区别In accrual accounting,an accountantrecords the impact of a business transaction as itoccurs.when the business perfotms a service,makes asale,or incurs an expense,the accountant records thetransaction even if it receives or pays no cash.Incash-basis revenues,and cash payments are handledas accounting,the accountant records a transactiononly when it receives or pays cash22Internal control内部控制organizational plan andrelated measures adopted by an entity tosafeguard.assets,encourage adherence to compannypolicies,promote operational efficiency,and ensureaccurate and reliable accounting records目的①safeguard assets②encourage adherence tocomp any policies③promote operationalefficiency④ensure accurate and reliable accountingrecords23 LIFO（后进先出法）FIFO（先进先出法）cost ofgoods sold is highest because it is based on the mostrecent costs，gross profit is lowest .FIFO cost of goodssold is lowest because it is based on the oldestcosts,gross profit is highest .②when inventory cost are decreasing .FIFO cost ofgoods sold is highest , LIFO cost of goods sold islowest24depreciation折旧is not a process of valuation,doesnot mean setting aside cash to replace assets as theywear out三种方法①straight-line②units-of-production③double-declining-balance-an accelerated depreciation method.Comparing depreciation methods对比the DDB methodys ①Residualvalue is ignored initially ;first-years depreciation iscomputed on the asset’s full cost ②Depreciationexpense in the final year is the “Pula” amount neededto reduce the asset’s book value to the residualamount.预付费用，应计费用的定义及区别：Prepaid expense预付费用：A category of miscellancousfuture.Accrued expense应计费用:An expense incrurred(区别):a prepaid expense is an expense paid in advanceprepayment will be used up in the nearfuture.Therefore prepaid expenses are assets,becausethey provide a future benfit for the owner.The ternaccrued expense refers to a liability that arises from anexpense that has not yet been paid.25 Gross profit percentage毛利率=gross profit毛利/net－cost ofgoods sold)／net sales revenue =1－(cost of goodssold／net sales revenue)26Beginning inventory存货+purchase s购买=goodsavailable可供出售存货－cost of goods sold销售成本=Ending inventory27 net sales revenue销售收入净额=sales revenue销售收入－sales discounts销售折扣－sales returns andallowances销售和津贴28 interest expense利息费用=the preceding bond市场利率29prepaid rent预付租金Dr:prepaid rent Cr:cashDr:rent expense租金Cr:prepaid rent预付租金Supplies物料Cr:CashDr: Supplies expense物料费Cr: SuppliesAccrued revenues应计费用Dr:accounts receivable应收账款Cr:service revenue服务收入30writing off uncollectible acounts注销坏账Cr:accounts receivable 应收账款31Record the purchase stock as follows股票购买记录Dr:Treasury stock库藏股Cr:cashSale出售Dr:cashCr:treasury stockpaid-in capital from treasury stocktransactions实收资本形成库藏股业务32Three relevant dates for dividends are as follow与股利发放相关的三个日期①decl aration date june19股利宣布日6.19Dr：retained earnings留存收益Cr:dividends payable应付股利②date of record July1登记日7.1③payment date July10支付日Dr:dividends payable应付股利Cr:cash33 权益法下①to purchase equity-method investment权益投资Cr:cash②To record investment revenue记录投资收益Dr:long-term investmentCr:equity-method investment revenue权益投资收益③To receive cash dividend on equity-method investment收到权益投资的现金股利Dr:cashCr: long-term investmentsold 20% of investment出售20%的投资loss on sale of investment出售投资损失Cr: long-term investment34Taxble income所得税记录当年所得税Dr:income tax expense所得税费用Cr:income tax payable应交所得税deferred tax liability递延所得税负债（is usuallylong-term）35①折价债券发行Discount on bonds payableCr: Bonds payable②付息Discount on bonds payableCr: Cash③计息Discount on bonds payableCr: Interest payable36①溢价债券发行Cr: Bonds payablePremium on Bonds payable②付息Premium on bonds payableCr: Cash37提折旧Cr: Accumulated depreciation38预收服务收入Dr: Unearned service revenueCr: Service revenue39应计广告费用Cr: Account payable40应计利息收入Dr: Interest receivableCr: Interest revenue例题1.Issued 10000shares of＄1 par common stock at ＄5 per shareDr: cash 50000Cr: common stock 10000Paid-in capital in excess of par 400002.Purchased 900shares of treasury stock at＄7 par shareCr: cash 63003.Sold 800shares of treasury stock at＄12 par share Dr: cash 9600Cr: treasury stock 5600Paid-in capital from treasury stock transaction 40004.What is the net effect on stockholders’ equity?①common stock increased by 10000②Paid-in capital in excess of par 40000③Paid-in capital from treasury stock transaction 4000Less: treasury stock 700④Net effect=10000+40000+4000-700=53300The beginning balance sheet of Charter Investments Bankers,Ltd.included the following: investment)…$657000期初长期股权余额Charter completed the following investment transactions during the year发生的投资业务:Feb.16 Purchased 5000 shares of BCM Software common stock as a long-term available-for-sale investment,paying $9.25 per share.(购买股票作为长期股权投资,每股$)May.14 Received cash dividend of $0.82 per share on the BCM investment(收到现金股利).Oct.15 Received cash dividend of $29000 from an affiliated company(从子公司收到现金股利).Dec.31 Received annual reports from affiliated companies(收到子公司的年度报表).Their total net income for the year was $620000.Of this amount，Charter’s proportionis 25%(母公司占子公司25%股权) The market values of Charter’s investments are BCM(BCM股票市价),$45100;affiliated companies(子公司市价),$947000.Required:1.Record the transations in the journal of 2.Post entries to the Long-Term Investments in Affiliates T-account and determine its balance at December 31(计算母公司对子公司长投的本年余额)①Feb.16Dr: Long-Term Investments (5,000*$9.25) 46250 Cr: Cash 46250May14 Dr: Cash (5,000 $.82) 4100Cr: Dividend Revenue 4100Oct.15 Dr: Cash 29,000Cr:Long-Term Investments in Affiliates 29,000 Dec.31 Dr: Long-Term Investments in Affiliates ($620,000 .25%) 155,000Cr:quity-Method Investment Revenue 155,000Dr: Unrealized Loss on Investment 1,150Cr: Allowance to Adjust Investment to Market ($46,250 –$45,100) 1,150②Balance=657000-29000+155000=783000 应计利息Accrued interest应收账款accounts receivable应收股利Dividend receivable应收利息Interest receivable应收票据Note receivable应收账款Account receivable其他应收款Other notes receivable物资supplies存货inventory预付租赁prepaid rent预付保险prepaid insurance短期投资short-term investments土地land家具furniture子公司投资investments in subsidiaries长期股权投资investments in stock持有至到期投资investments in bonds开办费organization cost特许权franchises专利patents融资租赁leaseholds商誉goodwill其他应收款other receivables到期应付债券current portion of bonds payable应付票据Notes payable应付工资salary/wages payable应付工资税payroll taxes payable应付职工福利费employee benefits payable应付债券Bonds payable租赁负债lease liability应付利息Interest payable应付账款Account payable预收账款Deposit received应付股利Dividends payable累计折旧Accumulated depreciation坏账准备allowance for uncollectible accounts实收资本paid-in capital资本公积Capital reserve股本溢价paid-in capital in excess of par减值准备Depreciation reserves固定资产减值准备Fixed assets depreciation reserves固定资产清理Liquidation of fixed assets待摊费用deferred and prepaid expenses应交税金Tax payable应交所得税income tax payable应交营业税Business tax payable应交消费税Consumption tax payable应交资源税Resources tax payable预提费用Drawing expense in advance债券面值Face value, Par value债券溢价Premium on bonds债券折价Discount on bonds存货跌价准备Inventory falling price reserves长期投资Long-term investment长期股权投资Long-term investment on stocks股票投资Investment on stocks递延税款Deferral taxes盈余公积Surplus reserves留存收益retained earnings股利dividends本年利润Current year profits利润分配Profit distribution少数股东权益minority interest普通股common stock普通股转增资本Common Stock dividends change to assets优先股preferred stuck股本溢价capital in excess of par未分配利润Undistributed profit利息收入interest revenue股权投资收入equity-method investment revenue销售固定资产收入gain on sale of land主营业务收入Sales revenue销售收入sales revenue销售成本cost of goods sold主营业务成本Cost of good sales营业外支出extraordinary losses管理费用General and administrative expenses佣金支出commission expense财务费用Financial expenses利息费用interest expense投资收益Investment income杂费miscellaneous expense租赁费用rent expense保险费用insurance expense物资费用supplies expense工资费用salary expense所得税费用income tax expense财产税费用property tax expense工资税支出payroll tax expense坏账损失uncollectible account expense摊销费用amortization expense折旧费用depreciation expense资产减值损失loss on sale of land非常收益/损失extraordinary gains/losses。
