highered.mheducation.comhighered.mheducation.com/.../Check_Figure_PLL5e_Final.docx · Web viewTotal debits = $6,200, Total credits = $6,200 M4-14 Net income = $4,910 M4-15 Ending

List of Check Figures and Solution Hints to accompany Phillips/Libby/Libby: Fundamentals of Financial Accounting, 5e

CHAPTER 1Mini-Exercises

M1-1 (5) IFRS = International Financial Reporting Standards

M1-2 (2) F, (8) GM1-3 (2) C, (8) GM1-4 (6) B/S, SEM1-5 (3) B/S, AM1-6 (8) SE, B/SM1-7 (10) A, B/SM1-8 (3) R, I/SM1-9 (4) AM1-10 (5) (I)M1-11 (4) (F)M1-12 Retained earnings 12/31/14 = $25,000M1-13 (c) $256, (f) $99, (i) $85M1-14 (c) $80, (f) $60, (i) $700M1-15 (a) $(300), (b) $20, (c) $3,700M1-16 (3) Total Assets = $18,600, (4) Financed

primarily by liabilities (liabilities exceed stockholders’ equity)

ExercisesE1-1 (c) $3,500 + $1,300 – $500 = $4,300E1-2 (d) $3,200 + $15,700 – $7,200 - $5,300 = $6,400E1-3 (1) Total Liabilities = $403,500 (2) Total

Stockholders’ Equity = $858,600E1-4 (1) Total Assets = $122,400; (4) $14,550E1-5 (f) Dividends, SEE1-6 (1) Total Expenses = $706,900E1-7 Total Expenses = $130,825E1-8 (A) Net Income = $28,000; (C) Stockholders’

Equity = $78,000E1-9 Net Income is $40,500E1-10 (2) Net Income = $6,000E1-11 (3) FE1-12 (4) (O)

Coached ProblemsCP1-1 (1) Net Income = $21,950;

(3) Total Assets = $115,500CP1-2 (3) Stockholders’ Equity = $84,030CP1-3 (1) Net Income = $34,800; (3) Total Assets =

$2,253,800CP1-4 (1) Stockholders; (2) Greater amount of Retained

Earnings

Group ProblemsPA1-1 (1) Net income = $23,450; (3) Total assets =

$113,850PA1-2 (1) Mainly financed by stockholders’ equityPA1-3 (1) Net Income = $23,100 (3) Total Assets =

$286,500 (4) Cash used in financing activities = $(2,500)

PA1-4 (1) Relies more on stockholders (4) Primarily from its current year earnings

PB1-1 (1) Net Income = $25,150; (3) Total Assets = $118,400

PB1-2 (3) Company was profitable PB1-3 (1) Net Income = $80,000 (3) Total Assets =

$925,000 (4) Cash used in financing activities = $(126,000)

PB1-4 (1) Increase cash balance by $5,000, SCF

Skills Development CasesS1-1 (1)S1-2 (2) Lowe’s revenue of $53,417 (million) was

lower than the $78,812 (million) reported by Home Depot

S1-3 The solutions to this case will depend on the company and/or accounting period selected for analysis.

S1-4 (1) Separate entity conceptS1-5 (1) An independent audit is an absolute mustS1-6 (1) Based on historical cost, Ashley’s Net Worth

= $1,550. Based on fair value, Ashley’s Net Worth = $2,150

S1-7 Total Assets = $3,754; Net income = $51

Continuing CaseCC-1 (1) Net income = $2,400; (3) Total assets =

$73,930


M2-1 Stockholders’ Equity: Debits Decreases, Credits Increases

M2-2 Assets: Increases with Debits, Decreased with Credits

M2-3 (2) CM2-4 (4) NCA, (11) SEM2-5 (2) CL, credit, (7) SE, creditM2-6 (1) CL, credit, (6) NCA, debitM2-7 (2) No, (6) YesM2-8 (1)Yes, (3) No, lacks exchangeM2-9 (b) Cash (+A) +$4,630, Common Stock

(+SE) +$4,630M2-10 (b) dr. Cash (+A) $4,630 cr. Common Stock

(+SE) $4,630M2-11 (a) Debit (left side) Cash account for $3,940;

Credit (right side) Notes Payable account for


$3,940M2-12 Ending balance in cash account = $8,070

debit, Total current assets = $9,070M2-13 (a) dr. Cash (+A) $70,000 cr. Common Stock

(+SE) $70,000M2-14 Total Assets = $104,000M2-15 (d) dr. Accounts Payable (-L) $1,500 cr. Cash

(-A) $1,500M2-16 Total Assets = $5,500M2-17 (c) dr. Cash (+A) $400 cr. Accounts

Receivable (-A) $400M2-18 Total Assets = $71,000M2-19 (e) dr. Equipment (+A) $2,200 cr. Cash (-A)

$1,000 cr. Note Payable (+L) $1,200M2-20 Total Assets = -$5,800M2-21 Yes, Current ratio 1.5M2-22 (1) Total current liabilities = $1,000 million,

Total assets = $14,900 million (3) Current ratio 10.5

M2-23 Current ratio = 2.0M2-24 (c) Increase to 2.33M2-25 (b) Increase to 2.11

ExercisesE2-1 (1) E, (10) DE2-2 (2) Applying cost principle; $21,000 and

$50,000 for truck and land respectively are recorded as assets.

E2-3 (4) CA debit, (10) CL creditE2-4 (a) Cash (+A) $10,000, Common Stock (+SE)

$10,000E2-5 (1) (c) No effectE2-6 (b) dr. Cash (+A) $7,000 cr. Note Payable (+L)

$7,000E2-7 (1) (a) dr. Equipment (+A) $216 cr. Cash (-A)

$211 cr. Note Payable (long-term) (+L) $5.0E2-8 (1) Ending cash balance = $57,000 debit, (2)

Liabilities = $9,000E2-9 (1) 2 Borrowed $50,000 cash and signed a Note

Payable (2) Cash (Ending) = $62,000 (3) Liabilities

E2-10 (1) (b) Equipment (+A) +$30,000, Cash (-A) -$10,000, Note payable (+L) +$20,000 (2) (b) dr. Equipment (+A) $30,000 cr. Cash (-A) $10,000 cr. Note Payable (short-term) (+L) $20,000 (3) Ending Assets = $257,000

E2-11 (3) Total Current Assets = $70,000

E2-12 (1) (e) Not a transaction (3) Cash balance End. = $36,000 (4) Total Assets = $70,000

E2-13 (c) Used cash to purchase supplies costing $1,500

E2-14 (1) 4.36 at 9/30/13, 4.45 at 12/31/12 (3) Current Ratio 4.49

E2-15 (3) Total Assets = $47,900 (4) Complying

Coached Problems

CP2-1 (2) Total Cash = $30,000 (4) (c) $126,000 - $86,000 = $40,000 (5) Liabilities

CP2-2 (1) (b) Cash (+A) $30,000, Notes Payable (+L) $30,000, (2) (b) dr. Cash (+A) $30,000 cr. Notes Payable (+L) $30,000,(3) Total Cash = $105,000 debit, Total Notes Payable = $147,000 credit(5)Total assets = $669,000

CP2-3 (3) Ending cash balance = $84,000 dr.(5) Total Assets = $432,000

Group A & B ProblemsPA2-1 (1) Ending Cash = $10,000, Ending Notes

Payable = $147,000 (3) (c) $747,000 - $347,000 = $400,000

PA2-2 (1) (e) Supplies (+A) $30,000, Accounts payable (+L) $30,000 (2) (b) dr. Cash (+A) $100,000 cr. Note Payable (long-term) (+L) $100,000 (3) Ending cash = $254,000 (4) Total Assets = $1,091,000 (6) Stockholders’ equity

PA2-3 (1) (e) No effect (2) (c) dr. Equipment (+A) $170 cr. Cash (-A) $80 cr. Note payable (+L) $90 (3) Ending cash $26 debit (4) Event (e) is not a transaction (5) Total Assets = $757 (6) Liabilities

PB2-1 1) Ending Cash = $87,000, Ending Notes Payable = $218,000; (3) (b) $1,780,000 + $218,000 = $1,998,000; (4) Liabilities

PB2-2 (1) (d) Equipment (+A) $90,000, Cash (-A) $(90,000), (2) (c) dr. Buildings (+A) $166,000 cr. Cash (-A) $66,000 cr. Notes Payable (long-term) (+L) $100,000, (3) Ending Cash = $594,000 debit, (5) Total Assets = $2,041,000

PB2-3 (1) (e) No effect (2) (c) dr. Equipment (+A) $13,500 cr. Cash (-A) $4,000 cr. Note Payable (+L) $9,500 (3) Ending cash = $6,760 million debit (5) Total Assets = $30,230 million (6) Liabilities

Skills Development CasesS2-1 (3) BS2-2 (1) Lowe’s Total Assets = $32,732 million (3)

Reported inventories represent their original cost. Cost principle (4) Liabilities. Lowe’s stockholders have less risk

S2-4 (1) Assets = $15,000S2-5 (3) ConservatismS2-6 Inclusion of the owner’s personal residence as a

business asset makes business riskier.S2-7 Ending Cash = $19,300 debit, Ending Property

and Equipment = $58,800 debit

Continuing CaseCC2-1 (1) (b) dr. Land (+A) $9,000 cr. Cash (-A) $2,000

cr. Notes Payable (long-term) (+L) $7,000, (2) Ending Cash = $59,650 debit, (3) Total Assets = $87,650, (4) Current ratio = 93.3



M3-1 Cash income = $6,400, Accrual income = $9,200

M3-2 (b) $250M3-3 (c) $5,475M3-4 (b) dr. Accounts receivable (+A) $250 (c) cr.

Service Revenue (+R,+SE) $250M3-5 (c) dr. Salaries and wages Expense $5,475, cr.

Cash $5,475M3-6 (b) Assets +$250, Liabilities = NE, SE

(Service revenue) (+R) +$250M3-7 (a) Assets -$1,500, Liabilities = NE, SE

(Repairs and maintenance expense (+E) -$1,500

M3-8 Net income = $2,775M3-9 (e) $125M3-10 (c) $800M3-11 (d) dr. Cash (+A) $2,250 cr. Unearned

revenue (+L) $2,250M3-12 (b) dr. Accounts payable (-L) $1,750 cr. Cash

(-A) $1,750M3-13 (a) dr. Cash (+A) $25,000 cr. Common Stock

(+SE) $25,000M3-14 (e) dr. Accounts receivable (+A) $180 cr.

Service revenue (+R, +SE) $180M3-15 (e) dr. Supplies (+A) $2,500 cr. Donation

revenue (+R, +SE) $2,500M3-16 (b) dr. Accounts receivable (+A) $2,000 cr.

Service Revenue (+R, +SE) $2,000M3-17 (a) Assets +$15,000, Liabilities = NE, SE

(Service revenue) (+R) +$15,000M3-18 (h) Assets = NE, Liabilities = +$800, SE

(Utilities expense) (+E) - $800M3-19 Net Income = $9,575M3-20 Net Income = $31,120, Total assets =

$155,350M3-21 Net Income = $530

ExercisesE3-1 (3) CE3-2 (2) AE3-3 (d) $100,000 (=1,000 installations x $100 per

installation)E3-4 (c) $4,000,000E3-5 (c) $3,000E3-6 (a) Expense (and liability) recorded in

December.E3-7 (b) Assets = +$5,000, Liabilities = +$5,000, SE

= NEE3-8 (d) Assets increase and decrease $18,600.

Liabilities = NE, SE = NEE3-9 (a) dr. Cash (+A) $80,000 cr. Notes payable

(short-term) (+L) $80,000E3-10 (b) dr. Equipment (+A) $20,000 cr. Cash (-A)

$20,000

E3-11 2/4 dr. Cash (+A) $800 cr. Unearned Revenue (+L) $800

E3-12 (2) (c) dr. Cash (+A) $14,500 cr. Service Revenue (+R, +SE) $14,500

E3-13 Total Debits on unadjusted trial balance = $89,150, Total Credits on unadjusted trial balance = $89,150

E3-14 OTT (c) dr. Accounts Payable $500 cr. Cash $500, NN (c) dr. Cash $500 cr. Accounts Receivable $500

E3-15 (1) Accounts receivable increases with sales to customers on account and decreases with cash collections from customers (2) Prepaid Rent $42 credit

E3-16 (f) Assets = NE, Liabilities (Accounts payable) +$1,250, SE (+Utilities expense) -$1,250

E3-17 (e) dr. Supplies (+A) +$1,000 cr. Accounts payable (+L) $1,000

E3-18 Ending Cash balance = $45,500 debitE3-19 Total Debits on unadjusted trial balance =

$81,950E3-20 (1) (g) Paid $3,000 of the accounts payable

balance, (2) Net income = $2,540, Total assets = $15,800

E3-21 (f) Utilities expense E + Debit, Utilities payable L + Credit

Coached ProblemsCP3-1 (h) Debit: 12, Credit: 3CP3-2 5/31 dr. Prepaid insurance (+A) $2,400 cr. Cash

(-A) $2,400CP3-3 (2) Ending Cash balance = $13,910 debit

(3) Total Debits on unadjusted trial balance = $27,800, Total Credits on unadjusted trial balance = $27,800

CP3-4 (2) 9/13 dr. Supplies (+A) $200 cr. Accounts payable (+L) $200 (3) Preliminary net income of $9,410 indicates LTC is profitable (4) Adjustments will be required to record wages earned but not yet recorded in September and supplies used in September

Group ProblemsPA3-1 (d) Debit: 11, Credit: 5PA3-2 4/8 dr. Advertising Expense (+E, -SE) $400

cr. Cash (-A) $400PA3-3 (2) Ending cash balance = $124,400, (3) Total

Debits and Credits = $304,000PA3-4 (2) 9/22 dr. Cash (+A) $6,000 dr. Accounts

receivable (+A) $2,000 cr. Service revenue (+R, +SE) $8,000 (3) Preliminary net income $2,000 (4) Adjustments will be required to record salaries and wages earned but not yet recorded in September and supplies used in September

PB3-1 (d) Debit: 3, Credit: 12PB3-2 c) dr. Equipment (+A) $82,000 cr. Notes

Payable (long-term) (+L) $82,000


PB3-3 (2) Ending Cash balance = $23,500(3) Total Debits on unadjusted trial balance = $68,100, Total Credits on unadjusted trial balance = $68,100

PB3-4 (2) 12/17 dr. Cash (+A) $200 cr. Unearned Revenue (+L) $200 (3)Adjustments will be required to record cost of supplies used in December and income taxes

Comprehensive Problem

C3-1 (2) (1) dr. Cash (+A) $50,000, cr. Accounts Receivable (-A) $50,000 (3) Ending cash balance = $1,431,500 (5) Net Income $1,650 (8) Net Profit Margin = 0.4%

Skills Development CasesS3-1 (1) CS3-2 (1) Lowe’s sales revenue increased by $2,896

million or 5.7% (2) Lowe’s Cost of sales which represents the cost of merchandise sold to customers increased by $1,747 million or 5.3%

S3-4 (3) Current year net income will be higher than it should be since some expenses were avoided by recording them as assets. The following year’s net income will be lower when those assets are expensed

S3-5 You should not comply with Mr. Lynch’s request since to act in ways that benefit management to the detriment of stockholders is inappropriate and could be considered fraud

S3-6 (1)(d) Purchased land for $18,000; $14,000 was paid in cash and a note was signed for the remainder(2) Total Debits on unadjusted trial balance = $136,000, Total Credits on unadjusted trial balance = $136,000

S3-7 Ending Cash balance = $9,555 debit, Total Debits on unadjusted trial balance = $11,350

Continuing CaseCC-3 May 4, No transaction,

May 19, dr. Cash (+A) $1,900 cr. Unearned Revenue (+L) $1,900


M4-1 (4) B,FM4-2 (3) B,FM4-3 (5) BM4-4 (2) dr. Interest receivable (+A) $250; cr.

Interest revenue (+R +SE) $250M4-5 (a) Assets=NE, Liabilities (Unearned rent

revenue -$800, SE (Rent revenue) +$800M4-6 (b) dr. Insurance expense (+E, -SE) $50; cr.

Prepaid insurance (-A) $50M4-7 (c) Assets (Interest receivable) +$100,

Liabilities = NE, SE(Interest revenue (+R)) +$100

M4-8 (c) dr. Interest receivable (+A) $100; cr. Interest revenue (+R +SE) $100 ($100 = 1/12 x $1,200)

M4-9 (b) Sept 30 dr. Cash (+A) $16,000 cr. Unearned revenue (+L) $16,000 Oct 31 AJE dr. Unearned revenue (-L) $8,000 cr. Service revenue (+R, +SE) $8,000

M4-10 (a) Dec 31 dr. Cash (+A) $12,000; cr. Unearned revenue (+L) $12,000, Jan 31 AJE dr. Unearned revenue (-L) $1,000; cr. Service revenue (+R +SE) $1,000

M4-11 (b) dr. Service revenue (-R,-SE) $1,000; cr. Unearned revenue (+L) $1,000

M4-12 Unearned revenue BS,CL, Cr.M4-13 Total debits = $6,200, Total credits = $6,200M4-14 Net income = $4,910M4-15 Ending Retained earnings balance = $5,610M4-16 Total assets = $17,930M4-17 After closing, all revenue, expense, and

dividends declared account balances should be zero. Retained earnings should have been credited for $4,910 which reflects the net income in the first closing entry. In the second closing entry, Retained earnings should have been debited for $300 which reflects the dividends declared.

M4-18 Ending balance in the Supplies Expense account after adjustment = $1,300 debit

M4-19 Ending balance in the Accumulated depreciation account after adjustment = $6,000 credit

M4-20 Ending balance in the Prepaid insurance account after adjustment=$5,400 debit

M4-21 Ending balance in the Unearned Revenue account after adjustment=$2,500 credit

M4-22 Ending balance in the Salaries and Wages Expense account after adjustment = $21,200 debit

M4-23 Ending balance in the Interest payable account after adjustment = $500 credit

M4-24 Ending balance in the Amortization Expense account after adjustment = $5,000 debit

M4-25 Total debits = $73,700, Cash = $5,000M4-26 (e) CJE: 12/31/16 dr. Retained Earnings (-SE)

$10,000; cr. Insurance Expense (-E) $10,000

ExercisesE4-1 (1) Total Debits = $3,297,390E4-2 (3) Ending balance of Retained Earnings,

5/31/2013 = $17,310E4-3 (c) Sept 1 No journal entry,


Sept 30 dr. Accounts Receivable (+A) $2,000; cr. Rent Revenue (+R +SE) $2,000

E4-4 (2) Both transactions are accrualsE4-5 (b) October 31: dr. Interest Receivable (+A)

$3,000 cr. Interest Revenue (+R +SE) $3,000E4-6 (1) Insurance expense on the income statement =

$3,600 ((12/24) x $7,200)E4-7 (b) dr. Supplies expense (+E –SE) $5,000 cr.

Supplies (-A) $5,000E4-8 (c) dr. Unearned Revenue (-L) $2,200; cr. Rent

Revenue (+R,+SE) $2,200E4-9 (c) Assets = NE, Liabilities (Unearned revenue) -

$2,200, Stockholders’ equity (Rent revenue) +$2,200

E4-10 (1) Salaries and Wages payable increase with a credit for accrual of salaries and wages expense for the period that are unpaid and decrease with a debit when the salaries and wages are paid (2) (b) debit $19,800 for wages paid

E4-11 Income statement, Depreciation expense $30,000E4-12 (e) debit $1,000 (A) credit $1,000 (M)E4-13 Corrected net income = $4,620, Correct Total

assets = $82,000E4-14 (1) (c) dr. Depreciation expense (+E –SE)

$23,000 cr. Accumulated dep. – Equip. (+xA –A) $23,000

E4-15 (2) (d) dr. Income tax expense (+E,-SE) $390 cr. Income tax payable (+L) $390 (3) Adj. trial bal., Total debits = $89,290

E4-16 (1) (b) dr. Depreciation expense (+E –SE) $4 cr. Accumulated depreciation (+xA –A) $4(2) Adj. trial bal., Total debits = $189

E4-17 Net income = $19, Ending Retained earnings = $23, Total assets = $124

E4-18 The closing entry should close revenue and expense account balances to Retained earnings (Retained earnings will get credited for $19)

E4-19 (f) (1) Billed customers for advertising services, (2) Assets (Accounts receivable) +$10,000, Liabilities = NE, SE (Service revenue) + $10,000

Coached ProblemsCP4-1 (1) Retained earnings = $99,900, Total debits =

$582,400,(2) Debit revenue accounts, credit expense accounts, credit Retained Earnings for $15,900,(3) Total credits = $272,700

CP4-2 (1)(g) Assets = NE, Liabilities (Income tax payable) = +$9,000, SE (Income tax expense) = -$9,000, (2) (b) dr. Unearned revenue (-L) $3,200 cr. Rent revenue (+R +SE) $3,200

CP4-3 (g) Assets = NE, Liabilities (Income tax payable) +$9,000, SE (Income tax expense) -$9,000

CP4-4 (1) Net income = $13,000, (3) (d) dr. Interest expense (+E –SE) $100; cr. Interest payable (+L) $100, (4) Net income = $10,710

Group Problems

PA4-1 (1) Total debits = $10,400,(2) debit revenue accounts, credit expense accounts, credit Retained earnings $300, (3) Total debits = $4,400

PA4-2 (1) (a) dr. Insurance expense (+E,-SE) $150; cr. Prepaid insurance (-A) $150 (2) Without adjusting entries, Net income would be overstated by $5,950

PA4-3 (e) Assets = -$2,750, Liabilities = NE, SE (Depreciation expense) = -$2,750, (g) Assets = NE, Liabilities = +$9,000, SE (Income tax expense = -$9,000 ($30,000 x .30)

PA4-4 (1) Net income = $9,700 (2) Salaries and Wages payable on the balance sheet; Salaries and Wages expense on the income statement, (3) (d)dr. Salaries and Wages expense (+E,-SE) $150; cr. Salaries and Wages payable (+L) $150, (4) Net income = $,1470

PB4-1 (1) Total debits = $3,510, (2) debit revenue account, credit expense account, credit retained earnings $30, (3) Total debits = $1,500

PB4-2 (1) (a) Assets (Accounts Receivable) = +$2,000, Liabilities = NE, SE (Service revenue) +$2,000, (2) (a) dr. Accounts receivable (+A) $2,000; cr. Service revenue (+R +SE) $2,000

PB4-3 (c) Assets = NE, Liabilities = +900, SE (Salaries and Wages expense) -$900

PB4-4 (1) Net income = $6,600, (2) (2) Unearned revenue on the balance sheet should be decreased while Service revenue on the income statement should be increased, (3) (b) dr. Unearned revenue (-L) $500 cr. Service revenue (+R +SE) $500, (4) Net income = $4,760

Comprehensive ProblemsC4-1 (1) 1/31 dr. Income tax expense (+E, -SE) $525;

cr. Income tax payable (+L) $525, (3) Total debits = $30,735, Net income = $2,975, Total Assets = $23,610

C4-2 (2) 9. dr. Salaries and Wages Expense (+E, -SE) $85; cr. Cash (-A) $85, (3) Total debits $295, (5) Total Credits = $327, (6) Net income = $23, Total Assets = $168, (9) Current ratio 2.23

C4-3 (2) (4) dr. Software (+A) $3, cr. Cash (-A) $3, (3) Total debits $108 (5) Total credits $121, (6) Net income = $5, Total Assets = $64, (9) Current ratio 0.86

C4-4 (2) (5) dr. Supplies (+A) $10, cr. Accounts payable (+L) $10, (3) Total debits $122 (5) Total credits $135, (6) Net income = $9, Total Assets = $71, (8) Total debits = $79

C4-5 (1) (h) dr. Interest Expense (+E, –SE) $40, cr. Interest Payable (+L) $40, (2) Net income = $ 945, (3) Total assets = $ 13,560

C4-6 (1) (5) dr. Cash (+A) $6,000, cr. Common Stock (+SE) $6,000, (2) Total Debits = $70,200, (4) Total credits = $74,250, (5) Net income = $11,875, Total assets = $65,525


Skills Development CasesS4-1 (2) DS4-2 (1) Home Depot had $865 million in Advertising

expense while Lowe’s had $811 millionS4-3 Solutions vary depending on company and/or

accounting period selectedS4-4 (1) Large adjustments are not necessarily

improper but are suspicious, especially when they have a large impact on net income (2) To capitalize an expense is to record it as an asset rather than an expense (3) 1999 (Q4) dr. Bonus payable (-L) $7.6 million cr. Bonus expense (-E,+SE) $7.6 million

S4-5 The change in estimated depreciation expense will increase net income this year but since some depreciation will now extend into next year, net income will be reduced then

S4-6 (1)(b) dr. Insurance expense (+E –SE) $2,000 cr. Prepaid insurance (-A) $2,000, (2) Corrected net income = $10,950, Corrected total assets = $67,800, (3) (a) Decrease net income by $27,050

S4-7 Total debits = $267,301, Net income = $11,138, Ending Retained earnings = $38,709, Total assets = $96,786

Continuing CaseCC4-1 (1) (a) Deferral, (2) (f) dr. Cash (+A) $90 cr.

Unearned revenue (+L) $90, (3) (d) dr. Insurance expense (+E –SE) $1,750 cr. Prepaid insurance (-A) $1,750 (7/12 x $3,000)


M5-1 (3) CM5-2 (5) EM5-3 (3) Restrict accessM5-4 (4) B – Segregate duties M5-5 (b) Segregate duties - The accounting

department should not have access to and responsibility for recording cash receipts

M5-6 (1) C

M5-7 (c) Restrict access – Any employee who enters the lunch room could prepare unauthorized checks by accessing the check-signing machine and checks

M5-8 Reconciling Item (d) Interest earned of $5, Bank statement NE, Company’s Books +

M5-9 (d) dr. Cash $5, cr. Interest revenue $5M5-10 May 4 Check #3 $70M5-11 The May 31 bank reconciliation should

include a deposit in transit of $150 made on May 30

M5-12 Company's Books = Up-to-date cash balance = $250

M5-13 (2) dr. Accounts receivable $50, cr. Cash $50M5-14 (4) YesM5-15 (B) dr. Supplies $40, cr. Cash $40M5-16 Cr. Cash 82

ExercisesE5-1 (1) The control principle is segregation of duties

and the objective is to prevent or detect unauthorized activities involving the company’s assets.

E5-2 (a) You didn’t ensure that adequate records (of donations) were maintained, and (b) the failure to issue receipts makes it difficult to know whether you used the company’s (donated) assets in an authorized manner.

E5-3 (1) a. Establish responsibilityE5-4 (1) d. Independently verifyE5-5 (1) Company’s books up-to-date cash balance

$6,370, (4) Cash $6,670E5-6 (1) Company’s books up-to-date cash balance

$2,680, (4) Cash $3,080E5-7 Total current asset = $2,695E5-8 (1) Total Cash and Cash Equivalent = $30, (2)

Total assets = $380E5-9 (1) Jan. 1 dr. Petty Cash $100, cr. Cash 100, (2)

No Journal entry recordedE5-10 (1) Jan. 1 dr. Petty Cash $200, cr. Cash 200, (2)

No Journal entry recorded

Coached ProblemsCP5-1 (1) (a) Strength, (d) Weakness, (2) (d) The

journal entry should be prepared after ensuring the cash register receipt total equals the total on the cash count sheet and the bank’s stamped deposit slip.

CP5-2 (1) Company’s books up-to-date cash balance $2,680, (4) Cash $6,875

CP5-3 (1) Company’s books up-to-date cash balance $20,290, (6) Cash $20,390

CP5-4 (1) (d) No Journal entry, (2) Cash and Cash Equivalents = $1,900

Group Problems


PA5-1 (1) (a) Weakness, (b) Strength, (2) Supplies should be safeguarded

PA5-2 (1) Company’s books up-to-date cash balance $19,180, (4) Cash $19,230

PA5-3 (1) Company’s books up-to-date cash balance $95,070, (6) Cash $95,370

PA5-4 (1) (i) dr. Supplies $125, dr. Office expenses $30, cr. Cash $155, (2) Cash and Cash Equivalents $1,250

PB5-1 (1) (d)Weakness (e) StrengthPB5-2 (1) Company’s books up-to-date cash balance

$37,240, (4) Cash $37,290PB5-3 (3) Company’s books up-to-date cash balance

$122,930, (6) Cash $123,130PB5-4 (1) (h) dr. Supplies $35, dr. Petty cash $100, cr.

Cash $135, (2) Cash and Cash Equivalents $1,900

Comprehensive ProblemsC5-1 (1) 1/31 dr. Cash $3,000; cr. Unearned revenues

$3,000 (3)Up-to-date cash balance $5,300, (6) Total debits $49,365, (7) Net income $2,940, Total assets = $37,100, (9) Net profit margin = 32.65%

Skills Development CasesS5-1 (1) DS5-2 (1) Lowe’s reported less Cash and Cash

Equivalents than The Home Depot.S5-3 Solutions vary depending on company and/or

accounting period selectedS5-4 (1) The article refers to asset misappropriation.

(4) The parties most directly affected by inventory theft in this case are Famous Footwear’s (1) managers, (2) employees, (3) investors, (4) creditors, and (5) honest customers

S5-5 (2) As an accounting assistant, your primary responsibility is to provide reliable information on which decisions can be based. Honesty should be more important than loyalty.

S5-6 (1) Total approx. amount stolen = $4,820

Continuing CasesCC5-1 (1) Oct 13 No journal entry, (2) Up-to-date cash

balance $5,480, (3) (f) dr. Accounts payable $270, cr. Cash $270, (4) Cash and cash

equivalents at Dec 31 $5,600 CC5-2 (1) b


M6-1 (3) RMM6-2 Shrinkage $2,000M6-3 (a) These items are not reported as The Knot’s

inventory because Emerald Bridal still owns the goods.

M6-4 Purchases for the third quarter totaled $1.3 billion.

M6-5 Inventory Cost $22,014M6-6 (1) (C) dr. Accounts payable $1,200, cr.

Inventory $1,200 M6-7 (a) Ending inventory $17,400, (b) Gross Profit

$15,000M6-8 Goss profit $940M6-9 Time of sale: dr. CGS $2,000, cr. Inventory

$2,000M6-10 If American Eagle were to ship as FOB

shipping point, then American Eagle would record its revenues earlier

M6-11 (b) dr. Cash $686, dr. Sales discounts $14, cr. Accounts receivable $700

M6-12 (b) Revised CGS $105,000, (d) Revised Gross Profit $45,000

M6-13 Net Income = $5,452M6-14 Gross profit percentage = 40.0%M6-15 Ziehart Pharmaceuticals; Gross profit

percentage = 67.4%; Candy Electronics Corp. Gross profit percentage = 27.2%

M6-16 2012 & 2011 Gross profit percentage = 66.2% & 66.1% respectively

M6-17 Gross profit percentage = 30.30%M6-18 Gross profit = $105,000, COGS = $195,000,

Ending inventory $85,000

ExercisesE6-1 Inventory, Financial statement: B/S, Type: MCE6-2 CGS = $1.6 Billion, Purchases = $3 billion E6-3 (b) CGS = $850, Shrinkages = 0 (D) Purchases =

600$, Shrinkage = $10E6-4 Shrinkage = $0.2 billion E6-5 (C) Purchases $400 E6-6 (C) Sales revenue = $600E6-7 Purchase discount = $24E6-8 Feb 28 dr. Inventory $350, cr. Accounts Payable

$350E6-9 Purchase discount $60E6-10 June 6 dr. Inventory $1,000, cr. Accounts


payable $1,000 E6-11 (3) FOB shipping pointE6-12 Sales discount $2E6-13 Jan 14 dr. Cash $98, dr. Sales discounts $2, cr.

Accounts receivable $100 E6-14 Net sales = $8,850E6-15 July 23 dr. Cash $4,850, dr. Sales discounts

$150, cr. Accounts receivable $5,000 E6-16 Sales Returns and Allowances -$600, Sales

Discounts -$162E6-17 Dec. 30 dr. Cash $4,000, cr. Accounts receivable

4,000. E6-18 Sales Returns & Allow. July 20 + $150E6-19 (4) Gross profit percentage = 36.2%E6-20 Case C, Sales Revenue $6,195, Gross Profit

$520E6-21 (1) Net Income = $33,200, (2) Gross profit

percentage = 40.0%, (3) Increase in gross profitE6-22 (1) Net income = $80 Million, (2) Gross profit %

= 38.4%E6-23 (b) CGS = $1,875

Coached ProblemsCP6-1 (1) (a)+230,000, (2) (a) dr. Inventory $230,000,

cr. Accounts payable $230,000CP6-2 ((1) c. Net sales -$4,500, Gross profit $ -4,500,

(3) (b) dr. Sales Returns and Allowances $5,000, cr. Accounts Receivable $5,000

CP6-3 Gross profit = $131,130, (2) Gross profit percentage = 45.0%, (4) Gross profit percentage = 43.8%

CP6-4 (1) Gross profit = $69,000, (2) Net income = $22,400

CP6-5 (2) Perpetual inventory system Jan 31 dr. CGS $100, cr. Inventory $100

Group ProblemsPA6-1 (1) (a) +$550,000, (c) -$10,800PA6-2 (1) (c) Sales Discounts = +$10,800 PA6-3 (1) Net sales = $60,340, (2) Gross profit

percentage = 45.0%, (4) Gross profit percentage = 42.7%

PA6-4 (2) Net income = $35,000, (3) Gross profit percentage = 30.9%

PA6-5 (2) Perpetual inventory system: Jan 31 dr. CGS $5, cr. Inventory $5, (3) (b) When using a perpetual inventory system in requirement 2, shrinkage can be determined to be $5.

PB6-1 (1) (a) +$125,000, (c) -$2,440PB6-2 (1) (c) Sales Discounts = +$2,440PB6-3 Gross profit = $275,550, (2) Gross profit

percentage = 55.0%, (4) Gross profit percentage = 53.7%

PB6-4 (1) Net income = $79,000, (3) Gross profit percentage = 35.9%

PB6-5 (2) Perpetual inventory system: Jan 31 dr. CGS $200, cr. Inventory $200, (3) (b) When

using a perpetual inventory system in requirement 2, shrinkage can be determined to be $200.

Comprehensive ProblemsC6-1 (2) Net income = $100, (3) Gross profit

percentage = 25%

Skills Development CasesS6-1 (2) AS6-2 (2) Lowe’s current year GP % = 34.6%, The

Home Depot’s current year GP % = 34.8%, The Lowe’s appears to have lower mark-ups

S6-3 Solutions vary depending on company and/or accounting period selected

S6-4 (2) Net income $10,000, GP % = 50%S6-5 (1) 2015 Net Sales = $390,000, (2) (2) Sales

returns and allowances have grown dramatically in the most recent year

S6-6 (1) Net income = 35,100, (3) GP % = 28.22%

Continuing CasesCC6-1 (2) Gross profit = $614, Company earns 36.5

cents of gross profit per dollar of salesCC6-2 (2) 2011 Gross profit = $58,225, 2011 GPP =

72.2%


M7-1 Raw materials = manufacturing M7-2 The sale (and Abercrombie & Fitch purchase)

should be recorded when the goods are leaving the seller’s shipping department.

M7-3 (a) Sales Revenue = I/SM7-4 (b) (2) LIFOM7-5 (b) Rising costs = LIFOM7-6 FIFO CGS = $1,150M7-7 (c) Weighted average CGS = $418,500M7-8 (b) Ending inventory = $7,050M7-9 Total inventory = $2,700M7-10 Entry should reduce inventory by

$1,700,000,000M7-11 (a) +M7-12 (c) Gross profit percentage M7-13 (b) EI = $200M7-14 (b) Total Goods Sold = $422,000M7-15 Perpetual FIFO Ending Inventory = $7,950M7-16 2015 CGS = Overstated by $10,000M7-17 2016 CGS = Overstated by $100,000M7-18 2012 Gross profit is understated by $10,000


M7-19 2012 Gross profit id overstated by $100,000

ExercisesE7-1 (a) NO E7-2 (d) Inventory -3,000, CGS = NE E7-3 (B) dr. Supplies = $5,000, cr. Inventory = $5,000E7-4 (1) (a) CGS = $402, (c) CGS = $432.40E7-5 (1) Goods available for sale = $65,800, (3)

Weighted average CGS = $22,560E7-6 (1) Units available for sale = 2000 units, (3)

LIFO CGS = $11,400, (4) FIFO operating income = $6,900

E7-7 (1) Goods available for sale = $164,500, (3) FIFO CGS = $105,000, (5) Operating income Case A = $9,000, Case B = ($4,000), Case C = $1,200

E7-8 (1) FIFO CGS = $152,800, Weighted average CGS = $153,340

E7-9 (1) Ending inventory Case A = $1,950, Case B = $1,800, Case C = $1,800, Case D = $1,950

E7-10 (1) Total LCM valuation=$10,400E7-11 (2) Write-down = $325E7-12 (1) dr. Cost of goods sold) $18M cr. Inventory

$18ME7-13 (1) 2012 Inventory Turnover Ratio = 7.1E7-14 (1) FIFO CGS = $2,050, (2) LIFO Inventory

Turnover Ratio = 4.41E7-15 Perpetual FIFO, CGS = $20,400E7-16 Perpetual LIFO, CGS = $10,800E7-17 (3) Second Quarter, CGS beginning Inventory =

$4,400

Coached ProblemsCP7-1 (1)(c) Cost of goods sold = $12,400CP7-2 (1) Net income = $27,300CP7-3 Inventory turnover = 5.4 times per year in 2013CP7-4 LIFO Perpetual Cost of goods sold = $12,900CP7-5 (1) Quarter 2 Cost of goods sold= $32,000

Group ProblemsPA7-1 (1) (d) Cost of goods sold = $198,340PA7-2 (2) Net income decreased $5,600PA7-3 Inventory turnover = 6.5 times per year in

2013PA7-4 Cost of goods sold = $229,300PA7-5 (1) 2013 CGS = $1,680,000 PB7-1 (1)(c) Cost of goods sold = $1,130PB7-2 (2) Net income decreased by $9,450PB7-3 (1) Days to sell = 43.5 in 2012 PB7-4 CGS = $950PB7-5 Q2 Cost of goods sold = $2,520

Comprehensive Problems7-1 (4) Current ratio FIFO 2.06, Weighted average

1.72, LIFO 1.507-2 (4) Net income=$1,841, Total assets= $13,1707-3 2015 (1) GPP = 3.8%, 2014 GPP = 10.0%, 2013

GPP = 15.9%, (3) 2015 Inventory turnover ratio = 8.3, 2014 Inventory turnover ratio = 11.3

Skills Development CasesS7-1 (3) AS7-2 (3) Lowe’s inventory turn over 3.9 times and

Days to sell 93.6S7-3 Solutions vary depending on company and/or

accounting period selectedS7-4 Look for seven pieces of evidence: related to

management action, related to the company’s books, and related to inventory levels

S7-5 (1) Cost of goods sold LIFO = $147,500, (3) FIFO Gross profit = $52,500

S7-6 (2) Ending inventory = $330,000S7-7 (1) Total LCM = $6,505, (2) LCM adjustment =

$560

Continuing CasesCC7-1 (2) CGS FIFO = $753, (3) Inventory turnover

ratio = 7.3 timesCC7-2 (1) B, (5) D


M8-1 Nutty should extend credit because that would increase its operating income.

M8-2 Yes, Pastis Productions should extend credit.M8-3 (c) Net accounts receivable = $745,000M8-4 Make two entries: one to reinstate the account

(Credit Allowance for doubtful accounts for $500) and one entry to collect the account (Credit Accounts receivable for $500)

M8-5 (b) dr. Allowance for Doubtful Accounts $7,000; cr. Accounts Receivable $7,000

M8-6 (b) Assets (Allowance for doubtful accounts) (+xA) -$8,000, Liabilities NE, SE (Bad debt expense)(-E) -$8,000

M8-7 Bad debt expense = $2,500M8-8 Required adjustment = $2,750 cr.M8-9 (a) dr. Bad debts expense $2,500 cr.

Allowance for doubtful accounts $2,500M8-10 (a) Interest earned = $5,000M8-11 (b) June 30 Interest revenue = $700 cr.M8-12 (c) April 30 Interest revenue = $160 cr.M8-13 Total current assets = $4,040M8-14 (b) Receivable Turnover ratio = “-”, Days to

collect = “+”


M8-15 Factoring fee = $15,000 and reported as “Other” expense

M8-16 (a) Accounts receivable = $800,000 (b) Debit Bad debt expense for $10,000

ExercisesE8-1 (b) Debit Allowance for doubtful accounts

$1,000E8-2 (a) Assets (Allowance for doubtful accounts) = -

$9,750, Liabilities = NE, SE (Bad debt expense) = -$9,750

E8-3 (3) 2% rate is too low given the Allowance account began 2015 with a $600 balance but $1,500 was written off during the year

E8-4 (a) dr. Allowance for doubtful accounts $300 cr. Accounts receivable $300

E8-5 (a) Assets (Allowance for doubtful accounts = +$300, Accounts receivable = -$300), Liabilities = NE, SE = NE

E8-6 (2) Desired balance = $165,000E8-7 (3) Adjustment = $2,300 creditE8-8 (3) Desired balance in the allowance account =

$11,100 creditE8-9 (2) (d) Net receivables = -$500, Net sales NE,

Income from operations = -$500E8-10 (b) Dec. 31, 2014 entry should have a credit to

Interest revenue of $3,500E8-11 Dec. 31 dr. Cash $4,000 cr. Interest receivable

$2,000 cr. Interest revenue $2,000E8-12 April 30, 2015 entry should contain a credit to

interest revenue of $3,000E8-13 (2) Receivables turnover ratio = 4.6 timesE8-14 (d) Bad debt expense = $3E8-15 (b) Net credit sales = NE, Average net accounts

receivable = “-”, Receivables turnover = “+”E8-16 (1) Days to collect = 40.1 daysE8-17 (2) 2016 Net income = $1,000

Coached ProblemsCP8-1 (3) Entry should include a credit to Allowance

for doubtful accounts for $1,017,050CP8-2 (3) Net receivables is not affected when accounts

are written offCP8-3 Dec. 31, 2015 dr. Interest receivable $1,667 cr.

Interest revenue $1,667CP8-4 (1) (j) Desired ending balance in the Allowance

account = $8,390 credit, thus requiring a $2,390 credit as part of the adjusting entry

CP8-5 Hasbro 2012 Receivables turnover = 4.0, Days to collect = 91.3 days

Group ProblemsPA8-1 (3) dr. Bad debt expense $100 cr. Allowance

for doubtful accounts $100PA8-2 (3) Write-offs = $4,900 PA8-3 (2)Dec 31, 2015 dr. Interest receivable

$2,000 cr. Interest revenue $2,000PA8-4 (1) (j) Adjustment needed to the allowance

account = $478 creditPA8-5 (1) Coca-Cola 2012 Receivable turnover =

9.9 Days to collect = 36.9 daysPB8-1 (4) Debit Allowance for doubtful accounts

$15PB8-2 (1) Ending balance in the Allowance for

doubtful accounts = $110 creditPB8-3 (2) May 31, 2016 entry should have a credit

to Interest receivable of $2,000PB8-4 (1) (j) Desired ending balance in Allowance

for doubtful accounts=$12,650 creditPB8-5 (2) J.M. Smucker was quicker than H.J. Heinz

Comprehensive ProblemC8-1 (2) Estimated Uncollectible ($) $1,600 (3) Income

from Operations = $12,400C8-2 (4) 2015 Receivables Turnover Ratio = 7.9C8-3 (2) Total debits = $47,987, (3) Net Income =

$1,754, Total Assets = $28,999

Skills Development CasesS8-1 (2) DS8-2 (1) No; since Lowe’s sold its receivables to

GECR, it did not report any receivablesS8-3 Solutions vary depending on company and/or

accounting period selectedS8-4 (3) Net accounts receivable = $700,000S8-5 (3) Net income = $13,110S8-6 (c) Receivables turnover ratio = 7.8 timesS8-7 (2) dr. Bad debt expense $10,060 cr. Allowance

for doubtful accounts $10,060

Continuing CaseCC8-1 (2)Desired balance in the allowance account =

$315 cr. (4) receivable turnover = 9.8 times


M9-1 (8) E, DM9-2 (6) EM9-3 (7) CM9-4 Book value at the end of the third year =

$130,000M9-5 Book value at the end of the third year =

$94,000M9-6 Book value at the end of the third year =

$50,000


M9-7 (b) Year 1 depreciation = $17,200M9-8 (a) The gain on sale is $268 millionM9-9 (a) dr. Accumulated depreciation- Equip.

$4,800 cr. Equipment $4,800M9-10 Gain on sale of store fixtures=$400M9-11 Expense in the current yearM9-12 Market value of Taste-T’s assets less

liabilities on the date of the offer = $5,600,000

M9-13 Fixed asset turnover ratio = 0.5M9-14 Entry should contain a debit to Timber

inventory of $60,000M9-15 Book value at end of fifth year = $25,800,

New depreciation expense = $2,850 per year

ExercisesE9-1 (1) Total Property, plant and equipment = $240E9-2 (3) Acquisition cost = $76,600E9-3 (2) Acquisition Cost = $42,750, (4) Book value

at end of year 2 = $35,150E9-4 (1) Assets (Accumulated Depreciation) = -

$10,000, Liabilities = NE, SE (Depreciation expense) -$10,000

E9-5 (1) Credit Accumulated Depreciation $10,000E9-6 (1) (a) Straight-line book value after Year 4 =

$6,000, (b) Units-of-production book value after Year 4 = $4,000 (c) Double-declining-balance book value after year 3 = $4,752

E9-7 (a) Straight-line book value after Year 2 = $10,000(b) Units-of-production book value after year 2 = $6,855(c) Double-declining-balance book value after year 2 = $3,000

E9-8 Depreciation expense per year = $2,000E9-9 (1) (b) Loss on sale = $2,000,

(4) (c) Entry should include a credit to Gain on disposal for $3,000

E9-10 Google Inc. is the company that amortizes its intangible assets over the longest periods.

E9-11 Google; Amortization Expense = $96,800E9-12 (2) Trademark is not amortized due to indefinite

life (3) Amortization expense = $12,620E9-13 (C) Loss on disposal = $9E9-14 2011 Fixed asset turnover ratio = 17.3 timesE9-15 (1) Depreciation expense Year 2 for, Straight-

line = $12,000, Units-of-production = $18,000, and Double-declining balance = $15,600

E9-16 Book value of oil reserves at the end of year 1 = $2,400,000

E9-17 (1) New Depreciable cost = $84,000

Coached ProblemsCP9-1 (1) Machine A total cost = $9,300, (2) Machine

C double-declining-balance depreciation = $3,600

CP9-2 (2) Machine B’s loss on disposal = $6,500

CP9-3 (2) Vehicle partial year depreciation = $4,000, Equipment partial year depreciation = $400, Building partial year depreciation = $1,750

Group ProblemsPA9-1 Total cost of machine C = $25,400, (2)

Machine B depreciation = $10,000PA9-2 (1) Machine A’s gain on disposal = $600PA9-3 (2) Equipment partial year depreciation =

$27,000, Licensing rights partial year amortization = $150

PA9-4 Dec. 31 2015 Accumulated Building depreciation = $20,000, Equipment depreciation = $4,500, and Accumulated amortization = $2,000

PB9-1 (1) Total cost of Machine B = $10,900, (2) Machine C depreciation = $5,300

PB9-2 (1) Machine A’s gain on disposal = $1,500PB9-3 (2) Equipment partial year depreciation =

$400, Franchise rights partial year amortization = $190

PB9-4 2015 Building depreciation= $3,200 and Franchise rights amortization= $1,500

Comprehensive ProblemC9-1 (3) Depreciation expense = $586 Bad debt

expense = $120, Net income = $4,861, Total assets = $109,294

Skills Development CasesS9-1 (2) CS9-2 (2) Fixed asset turnover for Lowe’s Companies

= 2.52 timesS9-3 Solutions vary depending on company and/or

accounting period selectedS9-4 (1) Q1 Year 1 with the entries: Property &

equipment, net = $38,614; Sales revenues = $8,825; Operating expenses = $7,628; Operating income = $1,197(2) Fixed asset turnover ratio in Q2 Year 1 = 0.24

S9-5 (1) Straight-line depreciation expense = $7,000; Book value = $28,000, Units of production depreciation = $4,000, Double declining-balance book value = $17,500

S9-6 The two companies’ financial results differ in terms of depreciation expense and other gains (losses). Provide possible explanations for these two differences

S9-7 Straight line method: Depreciation formula for Year 1 in cell D8 is =($C$3-$C$4)/$C$5, Formula for Year 7 EOY-AD in cell E14 is =SUM($D$8:D14), Double declining-balance method: Depreciation formula for Year 1 in cell D8 is =IF((C8+(($C$3 – C8)*2/$C$5))>$C$3-$C$4,F7-$C$4,($C$3-C8)*2/$C$5), Formula for Year 7 EOY-AD in cell E14 is =C14+D14

Continuing Case s


CC9-1 (3) Straight Line; Income from Operations $2,700, Units-of-production; Income from Operations = $6,100, Double declining balance; Income from Operations = $4,580

CC9-2 (2) A, (4) D


M10-1 (b) After the first show: Should have credit to Service revenue $37,500

M10-2 To record the expense: dr. Cost of goods sold $6,000 cr. Inventory $6,000

M10-3 Net pay = $40,375M10-4 Credit FICA payable $2,625M10-5 Current portion of long-term debt as of

December 31, 2015 = $2,000M10-6 Debit Interest expense $15,000M10-7 Long-term debt = $800,000M10-8 The bonds are selling at a premium since the

bond quote is more than 100M10-9 The Bonds payable, net would be shown as

$485,000 (the face amount of $500,000 less the discount on bonds payable of $15,000)

M10-10 The Bonds payable would be shown as $510,000 (the face amount of $500,000 plus the bond premium of $10,000)

M10-11 (b) December 31, 2013 debit Interest expense $125,000

M10-12 2014 liability must be disclosed because a liability is likely but cannot be recorded because the amount is still not estimable

M10-13 Numerator for debt to asset ratio: $110,000 = $40,000 + $70,000, Income tax expense for the Times interest earned ratio = $1,960

M10-14 (a) Increases to 0.76M10-15 (a) Debit Discount on bonds payable $20,000M10-16 (a) Debit Discount on bonds payable $59,000M10-17 Debit Interest expense $5,700

ExercisesE10-1 (1) (b) Assets = NE, Liabilities (Interest payable)

= +$80,000, SE (Interest expense) = - $80,000E10-2 (1) Nov. 1, 2015 dr. Cash $6,000,000 cr. Note

payable $6,000,000E10-3 (2) Credit Withheld income taxes payable

$37,000E10-4 (1) (b) Procedure 2 Total labor cost = $850E10-5 (2) Cash paid = $41,600E10-6 (2) (b) dr. Unearned revenue $204,000,000 cr.

Subscription revenue $204,000,000E10-7 (3) Debit interest expense $50,000E10-8 (3) Debit Loss on bond retirement $2,000E10-9 (1) Bond payable (a) B/S (b) +$250,000 (c) 0E10-10 (1) Debt ratio for 2013 = 0.78, Times interest

earned ratio for 2013 = 5.92E10-11 (1) Credit Premium on bonds payable $50,328E10-12 (1) Debit Cash $300,328E10-13 (2) Debit Interest expense $24,026E10-14 (2) Credit Discount on Bonds Payable (-xL)

$1,284E10-15 (2) Debit Interest expense $16,845E10-16 (3) Yr. 9 End (B) Interest expense $17,837

Coached ProblemsCP10-1 (1) Dec. 20: Assets (Cash) = +$100; Assets

(Accounts receivable) = -$100, Liabilities = NE,SE = NE

CP10-2 (3) Total current liabilities = $49,400CP10-3 (1) Debit Payroll tax expense = $11,300, (2) (a)

Credit Unearned rent revenue $3,600CP10-4 (1) (b) Case B at 96 Unamortized discount =

$8,000CP10-5 The answer is (a).CP10-6 (2) Credit Premium on bonds payable $24,000CP10-7 (2) Credit Premium on bonds payable $24,000CP10-8 (2) Credit Bonds payable-net $624,000CP10-9 (1) End of year 2015 balance = $6,076CP10-10 (1) End of year 2017 balance = $6,028

Group ProblemsPA10-1 (1) April 30 Assets (Cash) +$600,000,

Liabilities (Note payable) +$600,000, SE= NE

PA10-2 (1) April 30 dr. Cash $600,000 cr. Note payable $600,000 (3) Total current liabilities = $672,000

PA10-3 (2) (a) Credit unearned revenue $6,000PA10-4 (1) (c) Carrying value Case B At 98 =

$196,000PA10-5 Contingent liabilities are to be recorded only

when they are probable and the amount can be reasonably estimated

PA10-6 (5) January 1, 2017 dr. Bonds payable $600,000 cr. Discount on bonds payable (-xL) $5,350 cr. Cash $588,000 cr. Gain on bond retirement $6,650

PA10-7 (5) January 1, 2017 dr. Bonds payable $600,000 dr. Loss on bond retirement $11,767 cr. Cash $606,000 cr. Discount on bonds payable (-xL) $5,767

PA10-8 (5) January 1, 2017 dr. Bonds payable $594,233 dr. Loss on bond retirement $11,767 cr. Cash $606,000

PB10-1 (1) January 3: Assets (Inventory) +$24,000, Liabilities (Accounts payable) = +$24,000, SE = NE(2) January 3 effect decreased

PB10-2 (1) August 1: dr. Cash $8,000 cr. Unearned revenue $8,000, (3) Total current liabilities = $98,000,(4) January 3 effect = Increased, Numerator = Increased, Denominator =


IncreasedPB10-3 (1) Debit to Payroll tax expense = $22,000PB10-4 (1) (c) The carrying value of Case C at 102 =

$510,000PB10-5 (2) Loss would be reported on the income

statement between operating income and income before income tax expense

PB10-6 (5) January 1, 2017 dr. Bonds payable $100,000 dr. Premium on bonds payable $690 dr. Loss on bond retirement $1,310 cr. Cash $102,000

PB10-7 (5) January 1,2017 dr. Bonds payable $100,000 dr. Premium on bonds payable $718 dr. Loss on bond retirement $282 cr. Cash $101,000

PB10-8 (5) January 1. 2017 dr. Bonds payable net $100,718 dr. Loss on bond retirement $282 cr. Cash $101,000

Comprehensive ProblemC10-1 (1) Interest expense = $108,000, (3) (c) Units-

of-production 2016 Fixed Asset Turnover Ratio = 1.00

Skills Development CasesS10-1 (2) CS10-2 (2) Lowe’s times interest earned ratio = 8.72S10-3 Solutions vary depending on company and/or

accounting period selectedS10-4 Most people conclude that the use of the call option

is ethical but that corporations have an obligation to provide understandable information to investors

S10-5 The manager has been hired to protect the interests of the investors. Therefore, the manager must place investors first regardless of his or her own personal social conscience

S10-6 (1) Debt-to-assets ratio = 0.83S10-7 The formula for cell D12: =$G$11/$D$8S10-8 The formula for cell B12:

=If(A12<$C$8,ROUND(G11*$C$7*12/12,0),F11+C12)

S10-9 The formula for cell C11: =If(A11<$D$8,ROUND(B11*$D$7*12/12,0),D10+$D$4-F10)

Continuing CasesCC10-1 Dec. 31, 2014 dr. Interest expense $750 cr.

Interest payable $750CC10-2 (1) B


M11-1 (4) EM11-2 150 shares currently issuedM11-3 80,000 additional shares may be issuedM11-4 Credit Additional paid-in capital, Common

stock $49,000M11-5 Asset Debit Cash $50,000, Liability = NE,

SE = Common stock = +$50,000M11-6 Purchase of 20,000 shares of treasury stock

(3) Total assets = decreased by $900,000, Total liabilities = no change, Total stockholders’ equity = decreased by $900,000, net income = no change

M11-7 Dividend amount to be paid = $170,000M11-8 June 14 dr. Dividends payable $250,000 cr.

Cash $250,000M11-9 (1) Stock Dividend: No change in total assetsM11-10 (4) No change in total stockholders’ equityM11-11 Total to Preferred Stockholders = $400,000M11-12 Past year, Total dividends = No dividendsM11-13 EPS = $2.00 M11-14 This year, market price per share = $255 M11-15 (c) Retained Earnings = $7,000M11-16 dr. Retained earnings = $200,000, cr.

Common stock = $200,000

ExercisesE11-1 (b) Treasury stock at end of year 2013 = 114

million (106+24-16)E11-2 (2) (a) Credit Additional paid-in capital,

common stock $114,000, (3) Total contributed capital = $166,000

E11-3 Additional paid-in capital, common = $617,000E11-4 Additional paid-in capital, preferred stock =

$300,000E11-5 (1) Retained earnings = $38,000E11-6 (1) (a) dr. Cash $800,000 cr. Common stock,

no-par $800,000, (2) Total stockholders' equity = $1,236,000

E11-7 (2) Number of preferred shares outstanding: 4,200

E11-8 (2)Feb. 1 dr. Treasury stock $8,000 cr. Cash $8,000

E11-9 (1) (b) Assets = "NE", Liabilities = "+", SE = "-"E11-10 (1) (b) Total Preferred shares cumulative:

$14,400 total, $2.40 per shareE11-11 (1) (a) Debit Dividends $100,000 (2) Ending

Retained earnings = $600,000E11-12 (1) Additional paid-in capital after stock

dividend = $36,000, (2) Large stock dividends are recorded at par value

E11-13 Feb. 18, 2014: Credit Dividends payable $77,500,000

E11-14 Total Stockholders’ equity= $360,000 in all cases


E11-15 (b) March 15, dr. Dividends payable = $40,000, cr. Cash = $40,000

E11-16 (1) Ending Retained earnings = $96,000, (3) ROE = 6.8%

E11-17 (1) EPS = $0.10 per share, (2) ROE = 5.6%E11-18 (1) Total contributed capital = $705,000, Total

stockholders' equity = $781,000E11-19 (2) EPS = $0.125 (up from $0.10)E11-20 (1) Case A: Credit Proprietor A, Capital

$20,000, Case B: Debit Individual revenue accounts $150,000, Case C: Credit Retained earnings $20,000,(2) Case A: A, Capital, December 31 = $62,000, Case B: Partners’ Equity for B is $39,000, Case C: Retained earnings = $85,000

Coached ProblemsCP11-1 (3) Total Stockholders’ Equity = $746,200CP11-2 (1) 100% stock dividend was result in moving

$600 from Retained earnings to common stock, thus leaving total stockholders' equity unchanged

CP11-3 (2) additional paid-in capital= $4,200,000CP11-4 Case A, preferred shares, Per share = $0.80CP11-5 (1) ROE Aaron= 10.6%

Group ProblemsPA11-1 (3) Total contributed capital = $5,500,000,

Total Stockholders’ equity = $5,650,000PA11-2 (1) March 5 Credit Dividends payable

$100,000PA11-3 (3) EPS on net income = $7.40PA11-4 Case A Preferred dividend = $16,800PA11-5 (2) BusinessWorld P/E ratio = 17.0PB11-1 (3) Total contributed capital = $4,600,000,

Total stockholders’ equity = $4,538,000PB11-2 (1) May 31 Debit Dividends payable,

Preferred $302,500PB11-3 (2) Additional paid-in capital = $6,750,000PB11-4 (1) Case A: Common dividend = $8,800;

Case C: Common dividend = $21,400PB11-5 (2) Sound Jonx PE ratio = 17.0

Comprehensive ProblemC11-1 (1) 1/15 Assets(Cash) = +$50,000, Liabilities =

NE, SE(Common stock) +$5,000, (Additional paid-in capital-common +$45,000, (2) August 15: dr. Cash $4,600 dr. Additional paid-in capital-Treasury stock $2,000 cr. Treasury stock $6,600, (4) Retained earnings = $125,400

C11-2 (2) Adjusted trail balance, total debits = $176,593, (3) Net income = $8,777, B/S Total assets = $136,007, (9) Retained Earnings = $3,075

Skills Development CasesS11-1 (3) AS11-2 (3) Lowe’s net earnings increased consistently

throughout the three-year period.


S11-4 (4) Yes, this would be a concern because it suggests that management might be acting opportunistically - buying when the stock price is low and selling when the price is high

S11-5 Whether you believe that employees are more important than investors or vice versa, ultimately, most people agree that a balanced perspective is warranted, for short-term returns and long-term payoffs

S11-6 Every investor must consider his or her own financial requirements, stage of life, and acceptable level of risk. For most retired people living on a fixed income, option 2 is the most appropriate choice

S11-7 Responses will vary depending on the company selected and depending on how "surprising" the information in the earnings or dividend announcement is to the investor

Continuing CasesCC11-1 (2) Common stockholders would prefer issuance

of additional preferred shares to avoid diluting ownership and voting rights in the company (4) (a) ROE = "-"

CC11-2 (1) C, (2) C


M12-1 (3) EM12-2 (5) OM12-3 (2) +M12-4 Case A: Net cash provided by operating

activities = $310,000M12-5 Case A: Net cash provided by operating

activities = $2,250M12-6 Net cash provided by (used in) investing

activities = $250M12-7 Net cash provided by financing activities =

$1,600M12-8 Net cash provided by investing activities =

$550M12-9 (1) NoM12-10

Company reports a net cash outflow for both years even though they borrowed significant amounts and issued stock. There is very little cash available for the coming year's operations. Thus, they appear to be in big trouble

M12-11

(5) O

M12-12

Case A: Cash collected from customers = $66,000, Net cash provided by operating activities = $25,500


M12-13

Case B: Cash payments to suppliers = ($11,980), net cash provided by operating activities = $3,820

ExercisesE12-1 (1) FE12-2 (4) Net cash provided by operating activities =

$110E12-3 (2) The $225 increase in cash should be reported

as net cash from operating activitiesE12-4 (4) Net cash provided by operating activities =

$120E12-5 (5) When converting net income to cash flow

here is how to handle changes in current account balances: subtract increases in noncash current assets and decreases in noncash current liabilities, add back decreases in noncash current assets and add increases in current liabilities

E12-6 (1) Net cash flow from operating activities = $210

E12-7 (2) Net cash provided by operating activities = $195, Net cash used in investing activities = $(60), net cash provided by financing activities = $70

E12-8 Net cash provided by operating activities = $14,750

E12-9 (1) Net cash provided by operating activities = $33,050

E12-10 (1) Net cash flow provided by operating activities = $22,492

E12-11 (a) Accounts receivable decreased during the period

E12-12 (a) Accounts receivable increased during the period

E12-13 (1) Net cash used for investing activities $16,000E12-14 (1) Aztec Cost of goods sold = $175, (2) Aztec

Total cash paid = $200, (4) Aztec Inventory increase = $25, Aztec Accounts payable increase = $0

E12-15 Net cash provided by financing activities = $1,105

E12-16 Net cash provided by (used in) investing activities = $(2,330)

E12-17 (2) Disney generated nearly two times the financing required to purchase parks, resorts and equipment

E12-18 (13) Both direct and indirect methodsE12-19 (1) Net cash provided by operating activities =

$33,050E12-20 (1) Net cash provided by operating activities =

$22,492E12-21 Book value = $32 millionE12-22 Cash received from the sale = $1,700E12-23 (1) Net cash flow provided by operating activity

= $13,700, Net cash flow used in investing activities = $9,000, Net cash flow used in financing activities = $6,000, (2) Cash balance Year ending = $19,200

E12-24 Net cash provided by operating activities = $13,700,net cash provided by (used in) investing activities = $(9,000), net cash provided by (used in) financing activities = $(6,000)

Coached ProblemsCP12-1 (2) Activity = "O", Cash flow = "-"CP12-2 Total adjustments = $206CP12-3 (1) Statement of Cash Flows: Net cash provided

by operating activities = $28,800CP12-4 (1) Statement of Cash Flows: Net cash provided

by operating activities = $4,500CP12-5 Net cash provided by operating activities = $226CP12-6 (1) Net cash flows from operating activities =

$4,500CP12-7 (1) Cash flows from financing activities =

$2,000

Group ProblemsPA12-1 (1) Activity = "I", Cash Flow = "-"PA12-2 Net cash provided by operating activities =

$8,803PA12-3 (1) Statement of Cash Flows: Net cash

provided by operating activities = $16,000PA12-4 (1) Statement of Cash Flows: Net cash

provided by operating activities = $1,600PA12-5 Net cash provided by operating activities =

$8,803PA12-6 (1) Net cash provided by (used in) investing

activities = $(500)PA12-7 (1) Net cash provided by operating activities

= $2,400PB12-1 (1) Activity = "O", Cash Flow = "+"PB12-2 Net cash provided by operating activities =

$26,000PB12-3 (1) Statement of Cash Flows: Net cash

provided by operating activities = $58,000PB12-4 (1) Net cash provided by financing activities

= $200PB12-5 Net cash provided by operating activities =

$26,000PB12-6 (1) Net cash provided by (used in) operating

activities = $(1,000)

Skills Development CasesS12-1 (1) BS12-2 (1) Lowe's used the indirect method to report

cash flows from operating activitiesS12-3 Solutions vary depending on company and/or

accounting period selectedS12-4 (2) Since transaction recorded as a regular sale,

the company will report the cash as a cash flow from operating activities. Had the transaction been recorded as a loan, the cash received would have been reported as a financing activity

S12-5 If cash is spent on long-lived assets, it is


typically classified as an investing activity. If cash is spent on expenses, it is typically classified as an operating activity

S12-6 The new controller's idea will not work.S12-7 Net cash flow provided by (used in) operating

activities = $(4,000)S12-8 Net cash flow provided by (used in) operating

activities = $(4,000)S12-9 If all four of the above events had taken place,

net cash flow from operating activities would increase by $14,000.

Continuing CasesCC12-1 (1) Net cash provided by operating activities=

$3,269CC12-2 Correct option is b. $78,400


M13-1 Horizontal analysis: Percentage change in net income = 37.9%

M13-2 Vertical analysis: 2013 net income = 21% of sales

M13-3 The two most significant changes, in terms of dollar amounts, are revenues and cost of goods sold

M13-4 The vertical analyses include comparisons of net income to net sales and gross profit to net sales

M13-5 CGS = $67,200M13-6 GPP = 40.0%M13-7 ROE = 16%M13-8 The inventory turnover ratio is calculated as

cost of goods sold divided by average inventory.

M13-9 Current Liabilities = $6,480,000M13-10 Market price per share = $55M13-11 (a) Net profit marginM13-12 (a) GoodM13-13 In most circumstances when costs are falling,

a change from FIFO to LIFO will cause inventory to increase and cost of goods sold to decrease

M13-14 (1) (a) Straight-line yields lower depreciation, (b) No effect

ExercisesE13-1 Total revenues decreased $11 billion from 2012

to 2013E13-2 (1) Gross profit percentage 2013 = 35.0%, (2)

Net profit margin 2013 = 9.5% E13-3 (2) 2013 net income as a percentage of sales =

2.5%

E13-4 (2) 2013 net profit margin = 2.5%E13-5 (2) 2013 times interest earned = 8.0E13-6 (6) = JE13-7 (1) Accounts receivable turnover = 6.0E13-8 Inventory turnover: Cintas turned its inventory

over (i.e., bought and sold) 10.2 times during the year

E13-9 (1) Inventory turnover ratio = 6.2E13-10 (1) Gross profit percentage of 28.5% means 28.5

cents of gross profit was generated for each dollar of sales

E13-11 Current ratio after transaction 1 = 1.67E13-12 (1) Current assets = Increase, Current liabilities

= no change, Current ratio = IncreaseE13-13 Current ratio after transaction 3 = 1.63E13-14 Current ratio after transaction 4 = 1.81E13-15 (1) LIFO higher inventory higher current

ratio Company B

Coached ProblemsCP13-1 (1) Sales revenue increased by $15,000, a 9.1%

increaseCP13-2 (1) 2013 Gross profit percentage = 38.9% (8)

2013 P/E ratio= 18.0CP13-3 (1) (c) 11%CP13-4 (1) (b) 21%CP13-5 (3) Kohl’s appears only more solvent with debts

providing 33% of its assets compared to 34% for Macy’s

CP13-6 (1) (5) Armstrong EPS = $3.00, Blair EPS = $4.50

CP13-7 Consider liquidity, level of debt, and growth opportunity

Group ProblemsPA13-1 (1) Change in cash = $31,500, a

82.9% increasePA13-2 (1) Current year Gross profit percentage =

52.7% (6) Debt-to-assets ratio current year = 0.40

PA13-3 (3) Simultech’s assets are financed more by liabilities (60%) than by equity (40%)

PA13-4 (1) (e) 4%PA13-5 (2) Pepsi appears more liquidPA13-6 (7) Receivables turnover: Royale = 15.69

Cavalier = 18.67PA13-7 Company A appears to be a better choicePB13-1 (2) Sales increased by $37,000, retained

earnings increased by 60%PB13-2 (1) Current year Gross profit percentage =

42.5%PB13-3 (1) (c) 33%PB13-4 (1) (f) 2%PB13-5 (4) Analyses suggest Hasbro and Mattel are

fairly evenly matched with respect to profitability, liquidity, and solvency


PB13-6 (1) (1) Net profit margin: Thor = 10.0%, Gunnar = 12.5%

PB13-7 Company A’s ratios suggest that it has a high level of debt, low level of liquidity and a low price/earnings ratio

Skills Development CasesS13-1 D: Inventory Turnover Ratio = 4.72S13-2 Lowe’s controls operating expenses other than

cost of goods sold better than Lumber Liquidators.


S13-4 Inaccurate audit reports (either failing to report problems that exist or reporting problems that don’t exist) have negative consequences for parties internal and external to the firm

S13-5 Current ratio after the transaction = 2.26S13-6 (2) It is impossible to determine which

company will report the higher ratios without knowledge of the average life of the company’s depreciable assets

S13-7 (2) The formula to calculate the percent of total assets represented by Cash is found in Cell E9: =D9/$D$15*100

Continuing CaseCC13-1 (1) 2016 return on equity = 21.70%,2016 Fixed

Asset turnover = 1.06 (2) 2016 Current ratio = 1.37 (3) 2016 times interest earned = 11

APPENDIX CMini-Exercises

MC-1 $231,595MC-2 $92,169

MC-3 $487,138MC-4 It is much better to save $15,000 for 20 yearsMC-5 PV = $231,597MC-6 $92,168.51MC-7 $487,137MC-8 $859,125MC-9 $231,597MC-10 $92,169MC-11 $487,137MC-12 It is much better to save $15,000 for 20 years

ExercisesEC-1 (1) $15,562EC-2 (1) $58,802EC-3 (3) 2017 = $163EC-4 (2) $1,311EC-5 $108,237EC-6 (2) Total bond proceeds = $2,140,473

Coached ProblemsCPC-1 Option 1 = $8,513,560CPC-2 (4) Interest = $4,762, (5) Notes payable (long-

term) $100,000CPC-3 (3) Interest = $1,604, (4) Interest = $1,100CPC-4 (c) Annual Coupon Payment by the Face Value =

5.5%

Group ProblemsPAC-1 Option 2 = $589,089PAC-2 (6) dr. Notes payable $20,000, cr. Cash =

$20,000PAC-3 (4) Interest = $1,429PAC-4 (c) Annual Coupon Payment by the Face Value

= 6%PBC-1 Option 3 = $55,306PBC-2 (5) dr. Notes payable $100,000, cr. Cash

$100,000PBC-3 (5) Interest = $1,132PBC-4 (c) Annual Coupon Payment by the Face Value

= 7%

APPENDIX DMini-Exercises

MD-1 January 2: dr. Investments $100,000 cr. Cash $100,000

MD-2 January 2: Assets +/- $100,000MD-3 December 15 dr. Cash $16,000 cr. Dividend

revenue $16,000MD-4 July 2: Assets +/- $224,000MD-5 July 2: dr. Available for sale Securities

$224,000, cr. Cash $224,000MD-6 December 31: Assets +8,000, Stockholders’

equity +8,000


MD-7 June 23: dr. Cash $19,800 cr. Trading securities $17,400 cr. Gain on sale of investments $2,400

ExercisesED-1 (1) Equity method since the company owns

35% of the total shares outstanding of Nueces Corporation

ED-2 Dec. 31, 2016 dr. Available for sale securities $70,000 cr. Net unrealized gains/losses $70,000

ED-3 Dec. 31, 2016 dr. Trading securities $70,000 cr. Net unrealized gains/losses $70,000

ED-4 (1) Non-current assets-Available-for-sale securities 2016 = $310,000, Stockholders’ equity- Net Unrealized gains = $110,000

ED-5 Dec. 31, 2016 dr. Net unrealized losses/gains $25,000 cr. Available for sale securities $25,000

ED-6 Dec. 31, 2016 Debit Net unrealized losses/gains $15,000

ED-7 (2) Current assets on balance sheet: Trading securities $210,000 in 2016

Coached ProblemsCPD-1 (1) Dec. 31, 2014 credit Net unrealized

losses/gains $7,000 (2) Dec. 31, 2014 credit Net unrealized losses/gains $7,000 (3) Dec. 31, 2016 credit Equity in affiliate earnings $15,000

CPD-2 (1) Case A: The fair value method must be used because it only owns 12% of the total outstanding shares of Bart Company

Group ProblemsPAD-1 (1) Dec. 31, 2014 credit Net unrealized

losses/gains $3,000 (2) Dec. 31, 2014 debit Trading securities $3,000 (3) Dec. 31 2014 Debit investment in affiliate $15,000

PAD-2 (2) Case A: (b) No entry (c) credit Dividend revenue $6,000 (d) debit Net unrealized losses/gains $20,000 (3) Case B income statement-Equity in affiliate earnings, $120,000

Documents

highered.mheducation.comhighered.mheducation.com/.../Check_Figure_PLL5e_Final.docx · Web viewTotal debits = $6,200, Total credits = $6,200 M4-14 Net income = $4,910 M4-15 Ending