List of Check Figures and Solution Hints to accompany Phillips/Libby/Libby: Fundamentals of Financial Accounting, 4e
CHAPTER 1
Mini-Exercises
1-1 / (5) IFRS = International Financial Reporting Standards1-2 / (2) F, (8) G
1-3 / (2) I, (9) E
1-4 / (7) L, BS
1-5 / (3) A, BS
1-6 / (8) SE, BS
1-7 / (10) A, BS
1-8 / (3) R, I/S
1-9 / (4) A
1-10 / (5) (I)
1-11 / (4) (F)
1-12 / Retained earnings 12/31/13=$50,000
1-13 / (c) $75,(f) $59,(i) $63
1-14 / (c) $80, (f) $60, (i) $700
1-15 / (a) $(300), (b) $70, (c) $3,900
1-16 / (3) Total assets=$15,463, (4) Financed primarily by liabilities (liabilities exceed stockholders’ equity)
Exercises
1-1 / (c) $3,500 + $1,300 – $500 = $4,3001-2 / (d) $3,200 + $15,700 – $7,200 - $5,300 = $6,400
1-3 / (1) Total liabilities=$368,133 (2) Stockholders’ equity=$640,764
1-4 / (1) Total assets = $122,400, (4) 14,550
1-5 / (f) Dividends, SE
1-6 / (1) Total expenses=$458,173
1-7 / Total expenses = $130,825
1-8 / Net income=$28,000 (C) Stockholders’ equity=$78,000
1-9 / Net Income is $522 (in millions).
1-10 / (1) $18,000
1-11 / (3) F
1-12 / (4) (O)
Coached Problems
1-1 / (1) Net income = $21,950,(3) Total assets = $115,500
1-2 / (3) Stockholders’ equity=$84,030
1-3 / (1) Net income=$63,098 (3) Total assets=$1,702,524
1-4 / (1) Creditors (2) Approximately equal amounts
Group Problems
A1-1 / (1) Net income = $23,450, (3) Total assets = $113,850A1-2 / (1) Profitable since NI = $23,450
A1-3 / (1) Net income=$51 (3) Total assets=$1.282 (4) Cash used in financing activities=$(122)
A1-4 / (1) Creditors (4) Approximately equal amounts
B1-1 / (1) Net income = $25,150, (3) Total assets = $118,400
B1-2 / (4) Cash increase of $13,900
B1-3 / (1) Net income=$80,000 (3) Total assets=$925,000 (4) Cash used in financing activities=$(126,000)
B1-4 / (1) Increase $5,000, SCF
Skills Development Cases
1-1 / 3 C1-2 / (2) Lowe’s revenue of$48,815 (million) was lower than the $67,997 (million) reported by Home Depot
1-3 / Solutions vary depending on company and/or accounting period selected
1-4 / (1) Separate entity concept
1-5 / (1) An independent audit is an absolute must
1-6 / (1) Based on historical cost, Ashley’s net worth = $1,550. Based on market value, Ashley’s net worth = $2,150
1-7 / Net income = $51, Total assets = $3,754
Continuing Case
CC1 / No change from 3eCHAPTER 2
Mini-Exercises
2-1 / Stockholders’ equity: debits decrease, credits increase2-2 / Assets: increased with debits, decreased with credits
2-3 / (2) C
2-4 / (4) NCA, (11) SE
2-5 / (2) CL, credit, (7) SE credit
2-6 / (1) CL, credit, (6) NCA, debit
2-7 / (2) No, (6) Yes
2-8 / (1)Yes, (3) No, lacks exchange
2-9 / (b) Cash (+A) +$4,630, Contributed Capital (+SE) +$4,630
2-10 / (b) dr Cash (+A) $4,630 cr Contributed Capital (+SE) $4,630
2-11 / (a) Debit (left side) Cash account for $3,940, Credit (right side) Notes Payable account for $3,940
2-12 / Ending balance in cash account=$8,070 debit, Total current assets=$9,070
2-13 / (a) dr. Cash (+A) $70,000 cr. Contributed capital (+SE) $70,000
2-14 / Total assets=$104,000
2-15 / (d) dr. Accounts payable (-L) $1,500 cr. Cash (-A) $1,500
2-16 / Total assets=$5,500
2-17 / (c) dr. Cash (+A) $400 cr. Accounts receivable (-A) $400
2-18 / Total assets=$71,000
2-19 / (e) dr. Equipment (+A) $2,200 cr. Cash (-A) $1,000 cr. Notes Payable (+L) $1,200
2-20 / Total assets -$5,800
2-21 / Yes, Current ratio 1.44
2-22 / (1) Total current liabilities=$139,448, Total assets=$705,010 (3) Current ratio 1.73
2-23 / Current ratio 2.0
2-24 / (c) Increase to 2.33
2-25 / (b) Increase to2.11
Exercises
2-1 / No change from 3e2-2 / (1) E, (10) D
2-3 / (4) CA debit, (10) CL credit
2-4 / (a) Cash (+A) $10,000, Contributed Capital (+SE) $10,000
2-5 / (1) (c) No effect
2-6 / (b) dr Cash (+A) $7,000 cr Notes Payable (+L) $7,000
2-7 / (1) (a) dr Equipment (+A) $216.3 cr Cash (-A) $211.3 cr Notes Payable (+L) $5.0
2-8 / (1) Ending cash balance = $57,000 debit, (2) Liabilities = $9,000
2-9 / (1) 2 Received $50,000 cash and signed a note payable (2) Cash=$62,000 (3) Liabilities
2-10 / (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. Notes payable (+L) $20,000 (3) $257,000
2-11 / (3) Total current assets=$70,000
2-12 / (1) (e) Not a transaction (3) Cash balance=$36,000 (4) Total assets=$70,000
2-13 / (c) Used cash to purchase supplies costing $1,500
2-14 / (1) 7.28 at 3/31/11, 5.48 at 12/31/10 (3) Current ratio 10.6
2-15 / (3) Total assets=$47,900 (4) Complying
Coached Problems
2-1 / (2) Total cash=$30,000 (4) (c) $126,000-$86,000=$40,000 (5) Liabilities2-2 / (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
(4) Total assets = $679,000
2-3 / (3) Ending cash balance=$84,000 (5) Total assets=$432,000
Group Problems
A2-1 / (1) Ending cash=$10,000, ending notes payable=$147,000 (3) (c) $747,000-$347,000=$400,000A2-2 / (1) (e) Supplies (+A) $30,000, Accounts payable (+L) $30,000 (2) (b) dr. Cash (+A) $100,000 cr. Notes Payable (+L) $100,000 (3) Ending cash=$254,000 (4) Total assets=$1,091,000 (5) Stockholders’ equity
A2-3 / (1) (e) No effect (2) (c) dr. Property, plant and equipment (+A) $11 cr. Cash (-A) $2 cr. Long-term debt (+L) $9 (3) Ending cash $70 debit (4) Event e is not a transaction (5) Total assets=$628 (6) Liabilities
B2-1 / 1) Ending Cash = $87,000, Ending Notes Payable = $218,000, (3) (b) $1,780,000 + $218,000 = $1,998,000, (4) Liabilities
B2-2 / (1) (d) Equipment (+A) $90,000, Cash (-A) $90,000, (2) (c) dr Factory Building (+A) $166,000 cr Cash (-A) $66,000 cr Notes Payable (+L) $100,000, (3) Ending Cash = $594,000 debit, (4) Total assets = $2,041,000
B2-3 / (1) (e) No effect (2) (c) dr. Property, plant and equipment (+A) $20,700 cr. Cash (-A) $11,200 cr. Long-term debt (+L) $9,500 (3) Ending cash=$1,153,900 (5) Total assets=$6,400,000 (6) Stockholders’ equity
Skills Development Cases
2-1 / (3) D2-2 / (1) Lowe’s total assets=$33,699 million (3) Reported inventories represent their original cost. Cost principle (4) Stockholders’ equity. Lowe’s stockholders have less risk
2-3 / Solutions vary depending on company and/or accounting period selected
2-4 / (1) Total Assets = $15,000
2-5 / (3) Conservatism
2-6 / Inclusion of the owner’s personal residence as a business asset
2-7 / Ending Cash = $19,300 debit, Ending Property and Equipment = $58,800 debit
Continuing Case
CC2 / (1) (b) dr Land (+A) $9,000 cr Cash (-A) $2,000 cr Notes Payable (+L) $7,000, (2) Ending Cash = $59,650 debit, (3) Total Assets = $87,650, (4) 93.3CHAPTER 3
Mini-Exercises
3-1 / Cash income = $6,400, accrual income = $9,2003-2 / (b) $250
3-3 / (g) $5,475
3-4 / (b) dr. Accounts receivable (+A) $250 (c) cr. Unearned revenue (+L) $1,500
3-6 / (b) Assets +$250, Liabilities = NE, SE (Service revenue) +$250
3-7 / (e) Assets -$1,500, Liabilities = NE, SE (Repairs and maintenance expense -$1,500
3-8 / Net income = $2,775
3-9 / (e) $125
3-10 / (h) $800
3-11 / (d) dr Cash (+A) $2,250 cr Unearned revenue (+L) $2,250
3-12 / (g) dr Accounts payable (-L) $1,750 cr Cash (-A) $1,750
3-13 / (a) dr. Cash (+A) $25,000 cr. Contributed capital (+SE) $25,000
3-14 / (e) dr Accounts receivable (+A) $180 cr Service revenue (+R, +SE) $180
3-15 / (e) dr Supplies (+A) $2,500 cr Donations revenue (+R, +SE) $2,500
3-16 / (b) dr Accounts receivable (+A) $2,000 cr Repair/service revenue (+R, +SE) $2,000
3-17 / (a) Assets +$15,000, Liabilities = NE, SE (Lesson revenue) +$15,000
3-18 / (h) Assets = NE, Liabilities +$800, SE (Utilities expense) - $800
3-19 / Net income = $9,575
3-20 / Net income=$31,120, Total assets=$155,350
3-21 / Net income=$2,571
Exercises
3-1 / (3) C3-2 / (2) A
3-3 / (d) $100,000 (=1,000 installations x $100 per installation)
3-4 / (c) $1,000
3-5 / (c) $3,000
3-6 / (a) No expense in January when paid. Expense (and liability) recorded in December. In January, decrease liability, decrease cash
3-7 / (b) Assets = +$5,000, Liabilities = +$5,000, SE = NE
3-8 / (d) Assets increase and decrease $18,600. Liabilities = NE, SE = NE
3-9 / (a) dr Cash (+A), $80,000 cr Notes payable (+L) $80,000
3-10 / (b) dr Equipment (+A) $20,000 cr Cash (-A) $20,000
3-11 / 2/4 dr. Cash (+A) $800 cr. Unearned revenue (+L) $800
3-12 / (2) (c) dr. Cash (+A) $14,500 cr. Service revenue (+R, +SE) $14,500
3-13 / Total debits = $89,150, Total credits = $89,150
3-14 / OTT (c) dr. Accounts payable (-L) $500 cr. Cash (-A) $500, NN (c) dr. Cash (+A) $500 cr. Accounts receivable (-A) $500
3-15 / (1) Accounts receivable increases with sales to customers on account and decreases with cash collections from customers (2) (b) $42 credit
3-16 / (f) Assets = NE, Liabilities (Accounts payable) +$1,250, SE (+Utilities expense) -$1,250
3-17 / (e) dr Supplies (+A) +$1,000 cr Accounts payable (+L) $1,000
3-18 / Ending Cash balance = $45,500 debit
3-19 / Total debits =$81,950
3-20 / (1) (g) Paid $3,000 of the accounts payable balance, (2) Net income = $2,540, Total assets = $15,800
3-21 / (f) Utilities expense E + Debit, Utilities (or Accounts) payable L + Credit
Coached Problems
3-1 / (h) Debit: 13, Credit: 33-2 / 5/31 dr. Prepaid insurance (+A) $2,400 cr. Cash (-A) $2,400
3-3 / (1) and (2) Ending Cash balance = $13,910 debit
(3) Total debits = $27,800, Total credits = $27,800
3-4 / (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 paid in September and supplies used in September
Group Problems
A3-1 / (d) Debit: 11, Credit: 5A3-2 / 4/8 dr Advertising expense (+E, -SE) $400 cr cash (-A) $400
A3-3 / (1) and (2) Ending cash balance=$134,560, (3) Total debits and credits=$304,000
A3-4 / (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 wages earned but not paid in September and supplies used in September
B3-1 / (d) Debit: 3, Credit: 11
B3-2 / c) dr Equipment (+A) $82,000 cr Long-term notes payable (+L) $82,000
B3-3 / (1) and (2) Ending Cash balance = $23,500
(3) Total debits = $68,100, Total credits = $68,100
B3-4 / (2) 12/17 dr. Cash (+A) $200 cr. Unearned Revenue (+L) $200 (3) Preliminary net income $1,500 (4) Adjustments will be required to record supplies used in September and income taxes
Skills Development Cases
3-1 / (1) C3-2 / (1) Decrease of $1,595 million or 3.4% (2) Cost of sales which represents the cost of merchandise sold to customers. Increase of $906 million or 2.9%
3-3 / Solutions vary depending on company and/or accounting period selected
3-4 / (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
3-5 / 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
3-6 / (1)(d) Purchased land for $18,000; $14,000 was paid in cash and a note was signed for the remainder
(2) Total debits = $136,000, Total credits = $136,000
3-7 / Ending Cash balance = $9,555 debit, Total debits on unadjusted trial balance = $11,350
Continuing Case
CC3 / May 4, no transaction,May 19, dr cash (+A) $1,900 cr Unearned revenue (+L) $1,900
CHAPTER 4
Mini-Exercises
4-1 / (4) B,F4-2 / (3) B,F
4-3 / (5) B
4-4 / (2) dr Interest receivable (+A) $250 cr Interest revenue (+R +SE) $250
4-5 / (a) Assets=NE, Liabilities (Unearned rent revenue -$800, SE (Rent revenue) +$800
4-6 / (b) dr. Insurance expense (+E, -SE) $50 cr. Prepaid insurance (-A) $50
4-7 / (c) Assets (Interest receivable) +$100, Liabilities = NE, SE(Interest revenue) +$100
4-8 / (c) dr Interest receivable (+A) $100 cr Interest revenue (+R +SE) $100 ($100 = 1/12 x $1,200)
4-9 / (b) Sept 30 dr. Cash (+A) $16,000 cr. Unearned revenue (+L) $16,000 Oct 31 AJE dr. Unearned revenue (-L) $8,000 cr. Admissions revenue (+R, +SE) $8,000
4-10 / (a) Dec 30 dr Cash (+A) $12,000 cr Unearned revenue (+L) $12,000, Jan 31 AJE dr Unearned revenue (-L) $1,000 cr Subscriptions revenue (+R +SE) $1,000
4-11 / (b) dr. Service revenue (-R,-SE) $1,000 cr. Unearned revenue (+L) $1,000
4-12 / Unearned revenue BS,CL, cr.
4-13 / Total debits = $6,200, Total credits = $6,200
4-14 / Net income = $4,910
4-15 / Ending Retained earnings balance = $5,610
4-16 / Total assets = $17,930
4-17 / 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
4-18 / Ending balance in the Supplies account after adjustment = $1,300 debit
4-19 / Ending balance in the Accumulated depreciation account after adjustment = $6,000 credit
4-20 / Ending balance in the Prepaid insurance account after adjustment=$5,400 debit
4-21
4-22 / Ending balance in the Wages expense account after adjustment = $21,200 debit
4-23 / Ending balance in the Interest payable account after adjustment = $500 credit
4-24 / Ending balance in the Dividends declared account after adjustment = $200 debit
4-25 / Total debits= $73,700, Cash= $5,000
4-26 / (e) CJE: 12/31/10 dr Retained earnings (-SE) $10,000 cr Insurance expense (-E) $10,000
Exercises
4-1 / (1) Total debits = $3,288,9904-2 / (2) Five balance sheet accounts may need adjustment. One example is Accounts receivable which corresponds to Sales revenue on the income statement
4-3 / (c) Sept 1 No journal entry,
Sept 30 dr Accounts receivable (+A) $2,000 cr Rent revenue (+R +SE) $2,000
4-4 / (2) Both transactions are accruals
4-5 / (b) 12/31/09 dr Interest receivable (+A) $3,000 cr Interest revenue (+R +SE) $3,000
4-6 / (1) Insurance expense on the income statement = $3,600 ((12/24) x $7,200)
4-7 / (b) dr Shipping supplies expense (+E –SE) $5,000 cr Shipping supplies (-A) $5,000
4-8 / (c) dr. Unearned revenue (-L) $2,200 cr. Rent revenue (+R,+SE) $2,200
4-9 / (c) Assets=NE, Liabilities (Unearned revenue) -$2,200, Stockholders’ equity (Rent revenue) +$2,200
4-10 / (1)Wages payable increase with a credit for accrual of wages for the period that are unpaid and decrease with a debit when the wages are paid (2) (b) debit $19,800 for wages paid
4-11 / Income statement, Depreciation expense $30,000
4-12 / (e) debit $1,000 (A) credit $1,000 (K)
4-13 / Corrected net income=$4,620, Total assets= $82,000
4-14 / Renumber E4-13 from 3e
4-15 / (2) dr. Income tax expense (+E,-SE) $390 cr. Income tax payable (+L) $390 (3) Total debits=$89,290
4-16 / (1) (b) dr Depreciation expense (+E –SE) $4 cr Accumulated depreciation (+xA –A) $4
(2) Total debits = $189
4-17 / Net income = $19, Ending Retained earnings = $23, Total assets = $124
4-18 / The closing entry should close revenue and expense account balances to Retained earnings (Retained earnings will get credited for $19)
4-19 / (f) (1) Billed customers for advertising services, (2) Assets (Accounts receivable) +$10,000, Liabilities = NE, SE (Advertising revenue) + $10,000
Coached Problems
4-1 / (1) Retained earnings = $80,226, Total debits = $540,627,(2) Debit revenue accounts, credit expense accounts, credit Retained Earnings for $21,709,
(3) Total credits = $228,938
4-2 / (1)(g) Assets = NE, Liabilities (Property tax payable) = +$400, SE (Property tax expense) = -$400, (2) (b) dr Unearned rent revenue (-L) $3,200 cr Rent revenue (+R +SE) $3,200
4-3 / (g) Assets = NE, Liabilities (Property tax payable) +$400, SE (Property tax expense) $-400
4-4 / (1) Net income = $13,000, (3) Interest payable +100 (interest owed on note payable), (4) dr Interest expense (+E –SE) $100 cr Interest payable (+L) $100, (5) Net income = $10,710
Group Problems
A4-1 / (1) Total debits = $9,779,(2) debit revenue accounts, credit expense accounts, credit Retained earnings $494, (3) Total debits = $3,812
A4-2 / (1) (a) dr. Insurance expense (+E,-SE) $150 cr. Prepaid insurance (-A) $150 (2) Without adjusting entries, Net income would be overstated by $7,985
A4-3 / (f) Assets = -$2,750, Liabilities = NE, SE (Depreciation expense) = -$2,750, (h) Assets = NE, Liabilities = +$9,435, SE (Income tax expense = -$9,435 ($31,450 x .30)
A4-4 / (1) Net income=$9,700 (2) Wages payable on the balance sheet and Wages expense on the income statement, (3) Credit Wages payable for $150, (4) (c) dr. Wages expense (+E,-SE) $150 cr. Wages payable (+L) $150, (5) Net income= $1470
B4-1 / (1) Total debits=$4,675, (2) debit revenue account, credit expense account, credit retained earnings $254, (3) Total debits= $2,571
B4-2 / (1) (a) Assets = +$2,000, Liabilities = NE, SE (Service revenue) +$2,000, (2) (a) dr Accounts receivable (+A) $2,000 cr Service revenue (+R +SE) $2,000
B4-3 / (c) Assets = NE, Liabilities = +900, SE (Wages expense) -$900
B4-4 / (1) Net income = $6,600, (2) Unearned revenue on the balance sheet should be decreased while Lesson revenue on the income statement should be increased, (3) Note payable = No adjustment required, (4) (b) dr Unearned revenue (-L) $500 cr Lesson revenue (+R +SE) $500, (5) Net income = $4,760
Skills Development Cases
4-1 / (2) D4-2 / (1) Home Depot had $864 million in Advertisingwhile Lowe’s had $790 million
4-3 / Solutions vary depending on company and/or accounting period selected
4-4 / (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
4-5 / 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
4-6 / (1)(b) dr Insurance expense (+E –SE) $2,000 cr Prepaid insurance (-A) $2,000, (2) Corrected net income = $10,950, Corrected assets = $67,800, (3) (a) Decrease net income by $27,050
4-7 / Total debits = $267,301, Net income = $11,138, Ending Retained earnings = $38,709, Total assets = $96,786
Continuing Case
CC4 / (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)CHAPTER 5
Mini-Exercises
5-1 / (3) B5-2 / (5) B
5-3 / Annual Report = 3
5-4 / Net income = $5,250
5-5 / Ending Retained earnings balance = $48,000
5-6 / (c) Assets = NE, Liabilities = +$1,000, SE (Advertising expense) = -$1,000
5-7 / (b) Debt-to-assets = “+”, Turnover = “-“, Margin = NE
5-8 / (b) Assets = +$4,000, Liabilities = +$4,000, SE = NE
5-9 / (c) Debt-to-assets = “+”, Turnover = “+”, Margin = “-”
5-10 / (e) 80 from 12/31/12 balance sheet
5-11 / 2013 Contributed capital= $480, Retained earnings= $180
5-12 / Prior year margin = 9.4%, Current year margin = 10.0%
5-13 / Prior year Debt-to-assets = 20.0%, Current year = 16.7%
5-14 / Asset turnover = 0.737
5-15 / (a) Asset turnover= 1.18 for Columbia and 1.41 for Levi Strauss
Exercises
5-1 / (5) D5-2 / (2) F
5-3 / (6) A,F
5-4 / (1) D
5-5 / (8) C
5-6 / (1) Comparability
5-7 / 2010 Net profit margin= 4.6%
5-8 / (1) 2010 Asset turnover= 1.94, 2010 net profit margin= 4.6%
5-9 / (a) Assets -$10, Liabilities -$10, Stockholders’ equity NE
5-10 / (a) Debt to assets -, Asset turnover +, Net profit margin NE
5-11 / (6) SSE
Coached Problems
5-1 / (a) Assets +$6,325, Liabilities NE, Stockholders’ equity (Marketing revenue) +$6,3255-2 / (a) Debt-to-assets = “-”, Turnover = CD, Margin = “+”
5-3 / (2) Best Buy is more efficient in using its assets to generate sales since its asset turnover is higher than GameStop’s
5-4 / (1) On the balance sheet, long-term assets are listed before current assets and stockholders’ equity is listed before liabilities (3) 2010 net profit margin= 7.9%
Group Problems
A5-1 / (a) Assets -$80,000, Liabilities -$80,000. Stockholders’ equity NEA5-2 / (a) Debt-to-assets = “-”, Turnover = “+”, Margin = NE
A5-3 / (1) Dillard’s relies more on debt as suggested by its higher debt-to-assets ratio
A5-4 / (1) On the balance sheet, long-term assets are listed before current assets and stockholders’ equity is listed before liabilities (4) 2013 Asset turnover=3.83
B5-1 / (d) Assets +$450,000, Liabilities NE, Stockholders’ equity (Admissions revenue) +$450,000
B5-2 / (b) Debt-to-assets = “+”, Turnover = “+”, Margin = NE
B5-3 / (3) McDonald’s better controls its expenses as suggested by its higher net profit margin
B5-4 / (1) On the balance sheet, long-term assets are listed before current assets and stockholders’ equity is listed before liabilities (3) 2013 net profit margin= 10.0%
Skills Development Cases
5-1 / (1) D5-2 / Lowe’s Asset turnover= 1.46
5-3 / Solutions vary depending on company and/or accounting period selected
5-4 / (1) 1998 Q3 Debt-to-assets = 59.6%, (2) 1998 Q3 Debt-to-assets = 60.4%, (6) Auditors brought the fraud to the attention of the directors, which was the appropriate level
5-5 / (1) The debt-to-assets ratio and the asset turnover ratios would decrease while the net profit margin would increase
5-6 / (1) Asset turnover = 1.32
5-7 / (3) Debt-to-assets ratio Hershey’s= 78%, Tootsie Roll=22%, Rocky Mountain=24%
Continuing Case
CC5 / (1) (b) Assets=+$320, Liabilities=+$320, SE= NE, Revenues=NE, Expenses= NE, Net income= NE (2) (b) Debt-to assets=”+”, Turnover= “-“, Margin= NECHAPTER 6
Mini-Exercises
6-1 / (4) RM6-2 / (3) D
6-3 / (4) Document procedures
6-4 / (5) A
6-5 / (d) Establish responsibility so it will be possible to trace errors
6-6 / (1) C
6-7 / (a) Segregate duties – warehouse manager could divert goods
6-8 / (b) “-” on Company books
6-9 / (b) dr Office expenses (+E –SE) $15 cr Cash (-A) $15
6-10 / Shrinkage= $2,000
6-11 / (d) 30.0%
6-12 / Gross profit= $940
6-13 / At collection dr Cash (+A) $2,940 dr Sales discounts (+xR –SE) $60 cr Accounts receivable (-A) $3,000
6-14 / Destination. FOB shipping point would recognize revenue earlier
6-15 / (b) dr Cash (+A) $686 dr Sales discounts (+xR –SE) $14 cr Accounts receivable (-A) $700 ($14 = $700 x .02)
6-16 / Net income = $5,452
6-17 / Gross profit percentage = 40.0%
6-18 / Ziehart’s Gross profit percentage = 67.4%
6-19 / 2009 Income from operations=€670,000
6-20 / 2008 Gross profit percentage= 47.4%, 2009 Gross profit percentage= 52.2%
Exercises
6-1 / (1) Segregation of duties to prevent or detect unauthorized activities6-2 / Give receipts to all donors and have volunteers work in pairs
6-3 / (1) (b) Document procedures (2) Lack of segregation of duties
6-4 / (1) (b) Segregate duties, document procedures,
(2) (1) Step = Request that goods or services be ordered, Documentation = Purchase requisition, Performed by = Sales manager
6-5 / (1) Up-to-date cash balance = $6,370
6-6 / (1) Up-to-date cash balance = $2,680, (2) Entries needed for EFT, Service charge, and NSF check
6-7 / (A) Ending inventory = $500, Shrinkage = $80
6-8 / Shrinkage = $301
6-9 / Net sales = $228
6-10 / Feb. 28 dr Accounts receivable (+A) $50 cr Sales revenue (+R +SE) $50, dr Cost of goods sold (+E –SE) $30 cr Inventory (-A) $30
6-11 / Net sales = $8,850
6-12 / July 12 dr Cash (+A) $1,000 cr Sales revenue (+R +SE) $1,000, dr Cost of goods sold (+E –SE) $600 cr Inventory (-A) $600
6-13 / Sales discount = $162
6-14 / Dec 6 dr Cash (+A) $5,238 dr Sales discounts (+xR –SE) $162 cr Accounts receivable (-A) $5,400
6-15 / July 12: Gross profit = +$140
6-16 / (2) dr Cash (+A) $784 dr Sales discounts (+xR –SE) $16 cr Accounts receivable (-A) $800
6-17 / (A) Net sales = $7,850, Gross profit = $2,100
6-18 / (1) Gross profit = $110,000, net income = $33,200
6-19 / (2) Gross profit= $494, gross profit percentage= 39.6%
6-20 / 1) 2005: % sales discounts and returns = 6.5%, (2) 2005: Gross profit percentage = 57.2%
Coached Problems
6-1 / (1) (a) Strength, (2) (d) entry should be made after ensuring the register receipt total equals the total on the count sheet and deposit slip6-2 / (3) Up-to-date cash balance = $5,875
6-3 / (1) Deposit in transit of $5,000,
(3) Up-to-date cash balance = $20,290
6-4 / (1) Gross profit = $69,000, (2) Net income = $22,400
6-5 / (1) Gross profit = $131,130, (4) Gross profit will increase by $3,000 but the gross profit percentage will decrease to 43.8%
6-6 / (1) (a) Sales = +$230,000, Returns & Allowances = NE, Discounts = NE, Net sales = +$230,000, CGS = +$175,000, Gross profit = +$55,000
Group Problems
A6-1 / (1) (a) Weakness: document procedures, (2) (e) Supplies should be safeguarded by locking the rear door, for exampleA6-2 / (1) Up to date cash balance=$19,180 (4) cash= $19,230
A6-3 / (2) Outstanding checks= $4,650 (3) Up to date cash balance= $95,070
A6-4 / (2) Net income = $35,000, (3) Gross profit percentage = 30.9%
A6-5 / (1) Net sales $60,340, (3) (d) dr Cash (+A) $4,900 dr Sales Discounts (+xR –SE) $100 cr Accounts receivable (-A) $5,000
A6-6 / (1) (b) Sales revenues = NE, Returns & Allowances = +$10,000, Discounts = NE, Net sales = -$10,000, CGS = NE, Gross profit = -$10,000
B6-1 / (1) (d) Weakness: no documentation
B6-2 / (1) Up-to-date cash balance = $37,240, (4) Cash = $37,290
B6-3 / (1) Deposit in transit = $21,000, Up-to-date cash balance = $122,930
B6-4 / (1) Net income = $79,000, (3) Gross profit percentage = 35.9%
B6-5 / (1) Net sales= $501,000, Gross profit=+$275,000 (4) Gross profit percentage will decrease to 53.7%
B6-6 / (1) (c) Sales revenues = NE, Returns & Allowances = NE, Discounts = +$2,440, Net sales = -$2,440, CGS = NE, Gross profit = -$2,440
Skills Development Cases
6-1 / (2) A6-2 / (2) Lowe’s current year= 35.1%, The Home Depot’s current year= 34.3%, The Home Depot appears to have lower mark-ups
6-3 / Solutions vary depending on company and/or accounting period selected
6-4 / (3) If periodic system used, Famous Footwear would not be able to quantify the amount of shrinkage
6-5 / (1) Net Sales = $90,000, (2) Selling Expenses = $40,000
6-6 / (1) (a) $50 x 12 months = $600, (d) Amount stolen = $4,820
6-7 / (1) Gross profit = $97,500, (2) Net income = $35,100, (3) Gross profit percentage = 28.22%
Continuing Case
CC6 / Gross profit=$614, Company earns 36.5 cents of gross profit per dollar of salesCHAPTER 7
Mini-Exercises
7-1 / (b) Winston owns the inventory7-2 / Raw materials = manufacturing
7-3 / Purchases= $3,965
7-4 / (b) (2) LIFO
7-5 / (b) Rising costs = LIFO
7-6 / FIFO CGS= $1,150
7-7 / (c) Weighted average CGS=$418,500
7-8 / (b) Ending inventory = $7,050
7-9 / Total inventory=$2,700
7-10 / Entry should reduce inventory by $485,000,000
7-11 / Inventory cost = $22,014
7-12 / (d) Entry should include a credit to Cash of $21,364
7-13 / (b) Gross profit = $15,000
7-14 / (c) NE
7-15 / Inventory turnover = 3.1 times
7-16 / Perpetual FIFO ending inventory= $350,000
7-17 / Perpetual LIFO CGS= $4,650
7-18 / 2012 Gross profit is understated by $10,000
7-19 / 2012 Gross profit id overstated by $100,000
Exercises
7-1 / (3) PC Mall’s balance sheet7-2 / (D) Total available = $900
7-3 / (B) CGS = $750
7-4 / Purchases= $8,900
7-5 / (1) Cost of goods available=$65,800, (3) Weighted average CGS= $22,560
7-6 / (1) Units available for sale=2000 units, (3) LIFO CGS=$11,400, (4) FIFO operating income= $6,900
7-7 / (1) Goods available = $164,500, (3) FIFO CGS = $105,000, (5) Operating income Case A = $9,000, Case B = ($4,000), Case C = $1,200
7-8 / (1) FIFO CGS = $152,800, Weighted average CGS = $153,340
7-9 / (1) Ending inventory Case A = $1,950, Case B = $1,800, Case C = $1,800, Case D = $1,950
7-10 / (1) LCM valuation=$10,400
7-11 / (2) Write-down = $325
7-12 / (1) dr Cost of goods sold (+E –SE) $18M cr Inventory (-A) $18M
7-13 / Cost of inventory = $2,426
7-14 / Jan. 14 dr Accounts payable (-L) $1,200 cr Inventory (-A) $24 cr Cash (-A) $1,176
7-15 / Cost of inventory=$3,940
7-16 / June 3 dr. Inventory(+A) $4,100 cr. Accounts payable (+L) $4,100
7-17 / Inventory turnover = 6.8 times in 2008, Days to sell = 53.7 days in 2008
7-18 / (1) FIFO CGS = $2,050, (2) LIFO inventory turnover = 4.41
7-19 / Perpetual LIFO ending inventory= $44,200
7-20 / Perpetual FIFO Cost of goods sold= $9,600
7-21 / (3) Second quarter Operating income = $4,600
7-22 / (a) No year-end adjustment needed, (b) Cost of goods sold = $1,875
Coached Problems
7-1 / (1)(c) Cost of goods sold = $12,4007-2 / (1) Net income = $27,300
7-3 / (1) (c) -$4,500, (2) entry should include a credit to Cash for $220,500
7-4 / Inventory turnover= 6.6 times in 2011
7-5 / (2) Cost of goods sold= $12,900
7-6 / (1) Corrected 2011 Gross profit= $17,000 since the increase in ending inventory in 2010 causes cost of goods sold to be understated in 2011
7-7 / Ending inventory= $12,200
Group Problems