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CHAPTER 2
THE BASICS OF RECORD KEEPING AND
FINANCIAL STATEMENT PREPARATION
Questions, Exercises, and Problems: Answers and Solutions
2.1See the text or the glossary at the end of the book.
2.2Accounting is governed by the balance sheet equation, which shows the equality of assets with liabilities plus shareholders’ equity:
Assets = Liabilities + Shareholders’ Equity.
To maintain this equality, it is necessary to report every event and transaction in a dual manner. If a transaction results in an increase in the left hand side (Assets), dual transactions recording requires that one of the following must occur, to maintain the balance sheet equation: decrease another asset; increase a liability; increase shareholders equity. Similarly, if a transaction results in an increase in a Liability account, then one of the following must occur, to maintain the balance sheet equation: decrease another liability; decrease shareholders equity; increase an asset.
2.3A T-account is used to record the effects of events and transactions that affect a specific asset, liability, shareholders’ equity, revenue or expense account. It captures both the increases and decreases in that specific account, without reference to the effects on other accounts. It also shows the beginning and ending balances of balance sheet accounts. A journal entry shows all the accounts affected by a single event or transaction; each debit and each credit in a journal entry will affect a specific T-account. Journal entries provide a record of transactions, and T-accounts summarize the effects of transactions on specific accounts.
2.4Temporary accounts are for recording revenues and expenses. These accounts are temporary in the sense that once they have served their purpose of accumulating specific revenue and expense items for an accounting period, they are closed, so that they begin the following accounting period with a zero balance, ready for the revenue and expense entries of the new period. While it would be possible to record both revenues and expenses directly in the Retained Earnings account, doing so would suppress information about the components of net income. The temporary revenue and expense accounts accumulate the information that is displayed
2.4 continued.
in the line items or rows on the income statement. This display provides information about the sources and amounts of revenues and the nature and amounts of expenses that net to earnings for the period.
2.5The distinction is based on time. Current assets are expected to be converted to cash within a year, for example, Accounts Receivable. Noncurrent assets are expected to be converted to cash over longer periods.
2.6The balance sheet and the income statement are linked (that is, they articulate) through the shareholders’ equity account, Retained Earnings. Retained Earnings measures the cumulative excess of net income over dividends for the life of a firm; all undistributed earnings are aggregated in Retained Earnings. The following equation describes the articulation of the Retained Earnings:
Retained Earnings (beginning) + Net Income – Dividends = Retained Earnings (end).
2.7The purpose of the income statement is to show the user of the financial statements the components of net income, that is, the causes of net income. A user of financial statements can calculate net income by analyzing the change in retained earnings, but this analysis does not reveal the specific factors that combine to produce the net income number.
2.8An adjusting entry is used to record the effects of an event or transaction that was not previously recorded. Many adjusting entries result from the effects of the passage of time, for example, interest accrues on amounts owed over time. The accrual of interest at the end of an accounting period is an example of an adjusting entry. A correcting entry is a special case of an adjusting entry. A correcting entry is used to record properly the effects of an event or transaction that was improperly recorded during the accounting period.
2.9Contra accounts provide disaggregated information concerning the net amount of an asset, liability, or shareholders' equity item. For example, the account, Property, Plant and Equipment net of Accumulated Depreciation, does not indicate separately the acquisition cost of fixed assets and the portion of that acquisition cost written off as depreciation since acquisition. If the firm used a contra account, it would have such information. The alternative to using contra accounts is to debit or credit directly the principal account involved (for example, Property, Plant and Equipment). This alternative procedure, however, does not permit computation of disaggregated information about the net balance in the account. Note that the use of contra accounts does not affect the total of assets, liabilities, shareholders' equity, revenues, or expenses, but only the balances in various accounts that comprise the totals for these items.
2.10The key difference is in the presentation of Cash from Operations. The direct method displays (lists) cash receipts and disbursements from operating activities. The indirect method begins with net income and adjusts that amount for noncash items. Both methods arrive at the same amount for Cash from Operations. The display of Cash from Investing and Cash from Financing does not differ between the direct method and the indirect method.
2.11(Fresh Foods Group; dual effects on balance sheet equation.) (Amounts in Millions)
Shareholders'
TransactionAssets=Liabilities+Equity
(1)+$678+$678
(2)–$45–$45
(3)–$633–$633
2.12(Cement Plus; dual effects on balance sheet equation.) (Amounts in Millions)
Shareholders'
TransactionAssets=Liabilities+Equity
(1)+$14,300
–$2,300+$12,000
(2)+$3,000
–$3,000
(3)–$6,500+$6,500
(4)–$12,000+$12,000
2.13(Braskem S.A.; analyzing changes in accounts receivable.) (Amounts in Millions)
Accounts Receivable, Beginning of 2007...... R$ 1,594.9
Plus Sales on Account during 2007...... 12,134.5
Less Cash Collections during 2007...... (?)
Accounts Receivable, End of 2007...... R$ 1,497.0
Cash collections during 2007 total R$12,232.4 million.
2.14(Boeing Company; analyzing changes in inventory.) (Amounts in Millions)
Inventory, Beginning of 2007...... $ 8,105
Plus Purchases or Production of Inventory during 2007...... ?
Less Cost of Goods Sold for 2007...... (45,375)
Inventory, End of 2007...... $ 9,563
Purchases or production of inventory during 2007 total $46,883 million.
2.15(Ericsson; analyzing changes in inventory and accounts payable.) (Amounts in Millions)
Inventory, Beginning of 2007...... SEK 21,470
Plus Purchases of Inventory during 2007...... ?
Less Cost of Goods Sold for 2007...... (114,059)
Inventory, End of 2007...... SEK 22,475
Purchases during 2007 total SEK115,064 million.
Accounts Payable, Beginning of 2007...... SEK 18,183
Plus Purchases of Inventory on Account during 2007 from
above...... 115,064
Less Cash Payments to Suppliers during 2007...... (?)
Accounts Payable, End of 2007...... SEK 17,427
Cash payments to suppliers during 2007 total SEK115,820 million.
2.16(Kajima Corporation; analyzing changes in income taxes payable.) (Amounts in Millions of Yen)
Income Taxes Payable, Beginning of 2007...... ¥ 3,736
Plus Income Tax Expense for 2007 (.43 X ¥73,051)...... 31,412
Less Income Taxes Paid during 2007...... (?)
Income Taxes Payable, End of 2007...... ¥ 14,310
Income taxes paid during 2007 total ¥20,838 million.
2.17(Eaton Corporation; analyzing changes in retained earnings.) (Amounts in Millions)
Retained Earnings, Beginning of 2007...... $ 2,796
Plus Net Income for 2007...... ?
Less Dividends Declared and Paid during 2007...... (251)
Retained Earnings, End of 2007...... $ 3,257
Net Income for 2007 totals $712 million.
2.18(Bayer Group; relations between financial statements.) (Amounts in Millions)
a.$5,868 + $32,385 – $5,830 = a; a = $32,423.
b.$109 + b – $763 = $56; b = $710.
c.$14,723 – c + $2,155 = $12,911; c = $3,967.
d.$6,782 + $4,711 – d = $10,749; d = $744.
2.19(Beyond Petroleum; relations between financial statements.) (Amounts in Millions)
a.a + $288,951 – $289,623 = $38,020; a = $38,692.
b.$2,635 + $10,442 – b = $3,282; b = $9,795.
c.$42,236 + $15,162 + c = $43,152; c = $14,246.
d.$88,453 + $21,169 – $8,106 = d; d = $101,516.
2.20(Fujitsu Limited; journal entries for inventories and accounts payable.) (Amounts in Millions of Yen)
Merchandise Inventories...... 1,456,412
Accounts Payable...... 1,456,412
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+1,456,412 / +1,456,412
Cost of Goods Sold (¥408,710 + ¥1,456,412 –
¥412,387)...... 1,452,735
Merchandise Inventories...... 1,452,735
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–1,452,735 / –1,452,735 / IncSt RE
Accounts Payable (¥757,006 + $1,456,412 –
¥824,825)...... 1,388,593
Cash...... 1,388,593
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–1,388,593 / –1,388,593
2.21(Monana Company; journal entries for insurance.) (Amounts in Millions)
April 30, 2008
Insurance Expense...... 12
Prepaid Insurance...... 12
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–12 / –12 / IncSt RE
Adjusting entry required for prepaid insurance consumed during April, 2008.
2.21 continued.
May 30, 2008
Insurance Expense...... 12
Prepaid Insurance...... 12
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–12 / –12 / IncSt RE
Adjusting entry required for prepaid insurance consumed during May, 2008.
June 1, 2008
Prepaid Insurance...... 156
Cash...... 156
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+156
–156
To record payment of insurance for next 12 months.
June 30, 2008
Insurance Expense...... 13
Prepaid Insurance...... 13
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–13 / –13 / IncSt RE
Adjusting entry required for prepaid insurance consumed during June, 2008 ($13 = $156/12 months).
July 31, 2008
Insurance Expense...... 13
Prepaid Insurance...... 13
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–13 / –13 / IncSt RE
Adjusting entry required for prepaid insurance consumed during July, 2008.
2.22(ABB Group; journal entries for prepaid rent.) (Amounts in Millions)
a.Journal Entries for January, 2007:
January 31, 2007
Rent Expense...... 247
Prepaid Rent...... 247
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–247 / –247 / IncSt RE
To record the adjusting entry for the consumption of the prepaid portion of rent expense for the month of January.
January 31, 2007
Prepaid Rent...... 3,200
Cash...... 3,200
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+3,200
–3,200
To record the prepayment of rent for the next 12 months.
b.Journal Entry in December, 2007:
December 31, 2007
Rent Expense...... 2,933
Prepaid Rent...... 2,933
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–2,933 / –2,933 / IncSt RE
To record the adjusting entry for the consumption of the prepaid portion of rent expense for the months of February through December.
Amount of Prepaid Rent consumed = [($3,200/12 months) X 11 months] = $2,933 million.
2.23(Sappi Limited; journal entries for borrowing.) (Amounts in Millions)
a.Sappi repaid liabilities in fiscal 2007, in the amount of $1,634 + $1,200 – $1,828 = $1,006 million. To record the repayment, Sappi made the following journal entry:
Date of Repayment, Fiscal 2007
Noncurrent Financial Liabilities...... 1,006
Cash...... 1,006
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–1,006 / –1,006
b.Journal Entries:
Fiscal Year 2007:
March 31, 2007
Cash...... 1,200
Bank Loan Payable...... 1,200
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+1,200 / +1,200
To record the loan from the local bank.
September 30, 2007
Interest Expense [= $1,200 Million X .075 X
(180/360)]...... 45
Interest Payable...... 45
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+45 / –45 / IncSt RE
Adjusting entry to record interest expense earned but not yet paid at the end of fiscal year 2007.
2.23 b. continued.
Fiscal Year 2008:
March 31, 2008
Interest Payable...... 45
Interest Expense...... 45
Cash...... 90
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–90 / –45 / –45 / IncSt RE
To record payment of interest for the first year.
September 30, 2008
Interest Expense [= $1,200 Million X .075 X
(180/360)]...... 45
Interest Payable...... 45
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+45 / –45 / IncSt RE
Adjusting entry to record interest expense earned but not yet paid at the end of fiscal year 2008.
Fiscal Year 2009:
March 31, 2009
Interest Payable...... 45
Interest Expense...... 45
Cash...... 90
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–90 / –45 / –45 / IncSt RE
To record payment of interest for the second year.
March 31, 2009
Bank Loan Payable...... 1,200
Cash...... 1,200
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–1,200 / –1,200
To record repayment of the principal.
2.24(Toyota Motor Company; journal entries related to the income statement.) (Amounts in Millions)
2007
Accounts Receivable...... 22,670
Revenues...... 22,670
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+22,670 / +22,670 / IncSt RE
To record product sales on account.
Cost of Goods Sold...... 18,356
Inventories...... 18,356
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–18,356 / –18,356 / IncSt RE
To record the cost of sales.
Cash...... 22,670
Accounts Receivable...... 22,670
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–22,670
+22,670
To record the cash collected on sales made on account.
2.25(Teva Pharmaceutical; journal entries related to the income statement.) (Amounts in Millions)
2007
Accounts Receivable...... 9,408
Revenues...... 9,408
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+9,408 / +9,408 / IncSt RE
To record product sales on account.
2.25 continued.
Cost of Goods Sold...... 6,531
Inventories...... 6,531
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–6,531 / –6,531 / IncSt RE
To record the cost of sales.
Cash...... 2,650
Accounts Receivable...... 2,650
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–2,650
+2,650
To record the cash collected on sales made on account.
2.26(Bostick Enterprises; journal entries to correct recording error.) (Amounts in Millions)
Entry Made:
Equipment Expense...... 120,000
Cash...... 120,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–120,000 / –120,000 / IncSt RE
Correct Entries:
Equipment...... 120,000
Cash...... 120,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–120,000
+120,000
Depreciation Expense ($120,000/10)...... 12,000
Accumulated Depreciation...... 12,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–12,000 / –12,000 / IncSt RE
2.26 continued.
Correcting Entry:
Equipment...... 120,000
Depreciation Expense...... 12,000
Equipment Expense...... 120,000
Accumulated Depreciation...... 12,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+120,000 / +120,000 / IncSt RE
–12,000 / –12,000 / IncSt RE
2.27(Bullseye Corporation; dual effects of transactions on balance sheet equation and journal entries.) (Amounts in Millions)
a.TransactionShareholders'
NumberAssets=Liabilities +Equity
(1)+$ 960 + $ 960
Subtotal$ 960= $ 960
(2)+ 1,500 +$1,500
Subtotal$ 2,460= $1,500 + $ 960
(3)+ 3,200
+ 930
– 4,130
Subtotal$ 2,460= $1,500 + $ 960
(4)+ 860=+ 860
Subtotal$ 3,320= $2,360 + $ 960
(5)– 1,500 –1,500
Subtotal$ 1,820= $860 + $ 960
(6)– 430– 860+ 430
Total$ 1,390= -0- + $ 1,390
b.(1)Cash...... 960.0
Common Stock...... 1.7
Additional Paid-in Capital...... 958.3
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+960.0 / +1.7 / ContriCap
+958.3 / ContriCap
Issue 20 million shares of $0.0833 par value common stock for $960 million.
2.27 b. continued.
(2)Merchandise Inventory...... 1,500
Accounts Payable...... 1,500
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+1,500 / +1,500
Purchase $1,500 million of inventory on account.
(3)Building...... 3,200
Land...... 930
Cash...... 4,130
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+3,200
+930
–4,130
Acquires building costing $3,200 million and land costing $930 million, and pays in cash.
(4)Building Fixtures...... 860
Accounts Payable...... 860
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+860 / –860
Acquires building fixtures costing $860 million on account.
(5)Accounts Payable...... 1,500
Cash...... 1,500
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–1,500 / –1,500
Pays suppliers in Transaction (2).
2.27 b. continued.
(6)Accounts Payable...... 860.0
Cash...... 430.0
Common Stock...... 0.7
Additional Paid-in Capital...... 429.3
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–430.0 / –860.0 / +0.7 / ContriCap
+429.3 / ContriCap
Pays suppliers of fixtures cash of $430 million in shares of common stock. Bullseye Corporation shares are trading at $50 per share, so it gave the supplier 8.6 million shares of common stock (= $430 million/$50 per share).
2.28(Inheritance Brands; dual effects of transactions on balance sheet equation and journal entries.) (Amounts in Millions)
a.TransactionShareholders'
NumberAssets=Liabilities +Equity
(1)+$ 550 + $ 550
Subtotal$ 550= $ 550
– 400
(2)+ 1,150 +$750
Subtotal$ 1,300= $750 + $ 550
(3)– 30
+ 30
Subtotal$ 1,300= $750 + $ 550
(4)+ 400=+ 400
Subtotal$ 1,700= $1,150 + $ 550
(5)– 400– 400
Total$ 1,300= $750 + $ 550
b.(1)Cash...... 550.0
Common Stock...... 31.25
Additional Paid-in Capital...... 518.75
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+550.0 / +31.25 / ContriCap
+518.75 / ContriCap
Issue 10 million shares of $3.125 par-value common stock for $55 per share.
2.28 b. continued.
(2)Land...... 250
Building...... 900
Cash...... 400
Notes Payable...... 750
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+250 / +750
+900
–400
Gives $400 million in cash and promises to pay the remainder in 2009 for land costing $250 million and a building costing $900 million.
(3)Prepaid Insurance...... 30
Cash...... 30
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+30
–30
Pays $30 million in advance to insurance company for coverage beginning next month.
(4)Merchandise Inventory...... 400
Accounts Payable...... 400
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+400 / +400
Purchases merchandise costing $400 million on account.
(5)Accounts Payable...... 400
Cash...... 400
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–400 / –400
Pays cash to suppliers for merchandise on account.
2.29(Callen Incorporated; preparing a balance sheet and an income statement.) (Amounts in Thousands of Euros)
a.CALLEN, INCORPORATED
Balance Sheet
Jan. 31,Jan. 31,
20082007
Assets
Cash...... 30,536 2,559
Merchandise Inventory...... 114,249 151,894
Other Current Assets...... 109,992 134,916
Total Current Assets...... 254,777 289,369
Property, Plant and Equipment (Net)...... 98,130 149,990
Other Noncurrent Assets...... 56,459 88,955
Total Assets...... 409,366 528,314
Liabilities and Shareholders' Equity
Accounts Payable...... 16,402 14,063
Notes Payable to Banks...... 15,241 43,598
Other Current Liabilities...... 84,334 109,335
Total Current Liabilities...... 115,977 166,996
Long-Term Debt...... 31,566 38,315
Other Noncurrent Liabilities...... 19,859 27,947
Total Liabilities...... 167,402 233,258
Common Stock...... 72,325 72,325
Retained Earnings...... 169,639 222,731
Total Shareholders' Equity...... 241,964 295,056
Total Liabilities and Shareholders'
Equity...... 409,366 528,314
b.CALLEN, INCORPORATED
Income Statement
For the Year Ended:Dec. 31, 2008
Sales...... 695,623
Cost of Goods Sold...... (382,349)
Selling Expenses...... (72,453)
Administrative Expenses...... (141,183)
Interest Expense...... (2,744)
Income Taxes...... (24,324)
Net Income...... 72,570
c.Retained Earnings, December 31, 2007...... 222,731
Plus Net Income for 2008...... 72,570
Less Dividends Declared during 2008 (Plug)...... (125,662)
Retained Earnings, December 31, 2008...... 169,639
2.30(ChemAsia Limited; preparing a balance sheet and an income statement.) (Amounts in Millions)
a.ChemAsia, Limited
Income Statement
For the Year Ended December 31, 2008
Revenues:
Net Operating Revenues...... $ 835,037
Interest and Other Revenues...... 3,098
Total Revenues...... $ 838,135
Less Expenses:
Cost of Sales...... $ (487,112)
Selling Expenses...... (41,345)
General and Administrative Expenses...... (49,324)
Other Operating Expenses...... (64,600)
Interest Expense...... (2,869)
Income Taxes...... (49,331)
Total Expenses...... $ (694,581)
Net Income...... $ 143,554
b.ChemAsia, Limited
Comparative Balance Sheet
Dec 31,Dec. 31,
20082007
Assets
Noncurrent Assets:
Intangible Assets...... $ 20,022 $ 16,127
Oil and Gas Properties...... 326,328 270,496
Property, Plant and Equipment—Net...... 247,803 231,590
Other Noncurrent Assets...... 163,711 132,214
Total Noncurrent Assets...... $ 757,864 $ 650,427
Current Assets:
Inventories...... $ 88,467 $ 76,038
Other Current Assets...... 20,367 13,457
Advances to Suppliers...... 20,386 12,664
Accounts Receivable...... 18,419 8,488
Cash...... 88,589 54,070
Total Current Assets...... $ 236,228 $ 164,717
Total Assets...... $ 994,092 $ 815,144
2.30 b. continued.
Liabilities and Shareholders' Equity
Noncurrent Liabilities:
Long-Term Debt...... $ 35,305 $ 30,401
Other Noncurrent Liabilities...... 42,062 36,683
Total Noncurrent Liabilities...... $ 77,367 $ 67,084
Current Liabilities:
Advances from Customers...... $ 12,433 $ 11,590
Other Current Liabilities...... 84,761 90,939
Accounts Payable to Suppliers...... 104,460 77,936
Total Current Liabilities...... $ 201,654 $ 180,465
Shareholders' Equity:
Common Stock...... $ 444,527 $ 354,340
Retained Earnings...... 270,544 213,255
Total Shareholders' Equity...... $ 715,071 $ 567,595
Total Liabilities and Shareholders'
Equity...... $ 994,092 $ 815,144
c.Retained Earnings, December 31, 2007...... $ 213,255
Plus Net Income for Year Ending December 31, 2008...... 143,554
Subtract Dividends for Year Ending December 31, 2008
(Plug)...... (86,265)
Retained Earnings, December 31, 2008...... $ 270,544
2.31(LBJ Group; miscellaneous transactions and adjusting entries.) (Amounts in Millions)
a.(1)Inventories...... 180,000
Notes Payable...... 180,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+180,000 / +180,000
(2)Interest Expense [= $180,000 X .08 X
(60/360)]...... 2,400
Interest Payable...... 2,400
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+2,400 / –2,400 / IncSt RE
2.31 continued.
b.(1)Cash...... 842,000
Advances from Customers...... 842,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+842,000 / +842,000
c.(1)Equipment...... 1,400,000
Cash...... 1,400,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+1,400,000
–1,400,000
(2)Depreciation Expense [= 3/12 X ($1,400,000
– $160,000)/10]...... 31,000
Accumulated Depreciation...... 31,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–31,000 / –31,000 / IncSt RE
d.(1)Accounts Receivable...... 565,000
Revenues...... 565,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+565,000 / +565,000 / IncSt RE
(2)Cost of Goods Sold...... 422,000
Accumulated Depreciation...... 422,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–422,000 / –422,000 / IncSt RE
2.31 continued.
e.(1)Prepaid Insurance...... 360,000
Cash...... 360,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+360,000
–360,000
(2)Insurance Expense [= (4/12) X $360,000]...... 120,000
Prepaid Insurance...... 120,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–120,000 / –120,000 / IncSt RE
f.(1)Cash...... 1,040,000
Common Stock Par Value...... 40,000
Additional Paid-in Capital...... 1,000,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+1,040,000 / +40,000 / ContriCap
+1,000,000 / ContriCap
(2)Accounts Payable...... 1,040,000
Cash...... 1,040,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–1,040,000 / –1,040,000
2.32(Platinum Fields Limited; miscellaneous transactions and adjusting entries.) (Amounts in Millions)
a.(1)Cash...... 57,000
Rental Fees Received in Advance...... 57,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+57,000 / +57,000
2.32 a. continued.
(2)Rental Fees Received in Advance...... 19,000
Rent Revenue [= (4/12) X R57,000]...... 19,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–19,000 / +19,000 / IncSt RE
b.(1)Salary Expense...... 42,000
Cash...... 42,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)–42,000 / –42,000 / IncSt RE
(2)Salary Expense [= (1/2) X R42,000]...... 21,000
Salaries Payable...... 21,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+21,000 / –21,000 / IncSt RE
c.(1)Prepaid Insurance...... 960,000
Cash...... 960,000
Assets
/ = / Liabilities / + / Shareholders' Equity / (Class.)+960,000
–960,000
(2)Insurance Expense [= (8/24) X R960,000]...... 320,000