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PA2-3 (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 = $79 debit, (4) Event (e) is not a transaction since it lacks an exchange, (5) Total assets = $771
balance = $23,500(3) Total debits = $68,100, Total credits = $68,100
Skill Development Cases3-1 (1) Revenues decreased by
$6,061,000,000 which is a decrease of 7.8% ((-6,061 / 77,349) x 100) from the previous year
3-2 (2) Cost of sales = $31,729,000,000, which is an increase over the previous year of $173,000,000, or 0.5% ((173 / 31,556) x 100)
S3-3 Solutions vary depending on company and/or accounting period selected
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 = $136,000, Total credits = $136,000
S3-7 Ending Cash balance = $9,555 debit, Total debits on unadjusted trial balance = $11,350
Continuing CaseCC3 May 4, no transaction,
May 19, dr cash (+A) $1,900 cr Unearned revenue (+L) $1,900
M4-10 (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
M4-11 Total debits = $6,200, Total credits = $6,200
M4-12 Net income = $4,910M4-13 Ending Retained earnings
balance = $5,610M4-14 Total assets = $17,930M4-15 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
M4-16 Ending balance in the Supplies account after adjustment = $1,300 debit
M4-17 Ending balance in the Accumulated depreciation
E4-11 (1) Income tax payable is increased with a credit for accrual of additional income taxes payable and decreased with a debit for cash paid on accrued income taxes payable
E4-12 Correct amounts: net income = $4,620, Total assets = $82,000, Total liabilities = $57,380
CP4-4 (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
CP4-5 (1) Cash ending balance = $43 debit, (2)(j) No entry required as no revenue was earned in 2009, (3) Total debits = $279, (4) (p) dr Income tax expense (+E –SE) $8 cr Income tax payable (+L) $8, (5) Total debits = $306, (6) Net income = $28, Ending retained earnings = $19, Total assets = $145, (7)(1) Credit Retained earnings (+SE) $28, (8) Total debits = $157, (9) primarily by stockholders
PB4-4 (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
PB4-5 (1) Ending Cash balance = $28 debit, (2) (f) dr Small tools (+A) $3 cr Cash (-A) $3, (3) Total debits = $126, (4) (l) dr Operating expenses (+E –SE) $8 cr Supplies (-A) $8, (5) Total debits = $136,(6) Net income = $12, Ending
Retained earnings = $6, Total assets = $71, (7) (2) dr Retained Earnings (-SE) $10 cr Dividends declared (-D) $10, (8) Total debits = $73, (9) Primarily financed by creditors (liabilities)
Skill Development CasesS4-1 (1) $18,000,000S4-2 (1) Home Depot has
$1,000,000,000 in Advertising expense while Lowe’s had $789,000,000
S4-3 Solutions vary depending on company and/or accounting period selected
S4-4 (3) 1999 (Q3) debit Bonus expense (+E –SE) for $7.6 M, 1999 (Q4) credit Bonus expense (-E +SE) for $7.6 M, 2000 (Q1) debit Bonus expense (+E, -SE) $7.6M
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
S4-6 (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
S4-7 Total debits = $267,301, Net income = $11,138, Ending Retained earnings = $38,709, Total assets = $96,786
Continuing CaseCC4 (1) (a) Deferral, (2) (f) dr Cash
CP5-3 (2) Best Buy is more efficient in using its assets to generate sales since its asset turnover is higher than GameStop’s
CP5-4 (1) On the balance sheet, long-term assets are listed before current assets and stockholders’ equity is listed before liabilities(3) 2008 profit margin = 7.9%
Group ProblemsPA5-1 (a) Assets = -$7, Liabilities = -
$7, SE = NEPA5-2 (a) Debt-to-assets = “-”,
Turnover = “+”, Margin = NEPA5-3 (1) Dillard’s relies more on
debt as suggested by its higher debt-to-assets ratio
PA5-4 (1) On the balance sheet, long-term assets are listed before current assets and stockholders’ equity is listed before liabilities,(4) 2010 Asset turnover = 3.83
PB5-3 (3) McDonald’s better controls its expenses as suggested by its higher net profit margin
PB5-4 (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 =
10.0%
Skill Development CasesS5-1 (1) 2/1/09 Debt-to-assets =
S5-2 (2) Asset turnover = 1.52S5-3 Solutions vary depending on
company and/or accounting period selected
S5-4 (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
S5-5 (1) The debt-to-assets ratio and the asset turnover ratios would decrease while the net profit margin would increase
charge a modest fee to approve, track, and collect accounts thereby reducing the company’s costs and speeding up cash collections
M8-3 (c) Net accounts receivable = $745,000
M8-4 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 Bad debts expense (+E –SE) $14,000 cr Allowance for Doubtful Accounts (+xA –A) $14,000
M8-6 (b) Assets (Allowance for doubtful accounts) -$10,000, Liabilities = NE, SE (Bad debt expense) = -$10,000
M8-7 Bad debt expense = $1,250M8-8 Required adjustment =
E9-6 (1) (a) Straight-line book value after Year 4 = $4,000,(b) Units-of-production book value after year 4 = $3,000,(c) Double-declining-balance book value after year 3 = $2,000
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 Straight-line depreciation is preferred because it results in higher net income, particularly in the early years of an asset’s life
E9-9 Depreciation expense per year = $2,000
E9-10 Impairment loss = $3,200E9-11 (1) (b) Loss on sale =
$2,000,(4) (c) Entry should include a credit to Gain on disposal for $3,000
E9-12 (2)Trademark is not amortized due to indefinite life, (3) Amortization expense = $15,376
PB9-4 2010 Building depreciation = $7,500, Delivery van depreciation = $3,200, and
Franchise rights amortization = $1,000
Comprehensive ProblemC9-1 (1) (g) Depreciation
expense = $6,000, (i) Bad debt expense = $150, (2) Net income = $350, Total assets = $92,850
Skill Development CasesS9-1 (2) Accumulated
depreciation = $10,243M which is 28.1% of the total cost of property and equipment
S9-2 (2) Accumulated depreciation is 27.8% of the total cost of property reported, (5) Fixed asset turnover = 2.19 times
S9-3 Solutions vary depending on company and/or accounting period selected
S9-4 (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 CaseCC9 (1) (a) Book value at end of
Year 4 = $1,400, (b) Book value at end of Year 4 = $1,460, (c) Book value at end of Year 4 = $648, (2) Straight line method = loss of $200, Units-of-production method = gain of $100, double declining-balance method = gain of $1,020, (3) Income before taxes = $3,100 (straight line), $3,280 (units-of-production), and $4,500 (double declining-balance)
PA10-4 (1) (c) Carrying value of bonds payable for Case B at 97 = $194,000
PA10-5 The fair value is the price at which the bonds sell today
PA10-6 Contingent liabilities are to be recorded only when they are probable and the amount can be reasonably estimated
PA10-7 (5) January 1, 2011: dr Bonds Payable (-L) $600,000 cr Discount on bonds payable (-xL +L) $5,350 crCash (-A) $588,000 cr Gain on bond retirement (+R +SE) $6,650
PA10-8 (5) January 1, 2011: dr Bonds Payable (-L) $600,000 dr Loss on bond retirement (+E -SE) $11,767 Cash (-A) $606,000 cr Discount on bonds payable (-xL +L) $5,767
PA10-9 (5) January 1, 2011: dr Bonds Payable (-L) $594,233 dr Loss on bond retirement (+E -SE) $11,767 Cash (-A) $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 (+A) $8,000 cr Unearned rent revenue (+L) $8,000, (3) Total current liabilities = $98,000,(4) January 3 effect = decreased, Numerator = No change, Denominator = Increased
PB10-3 (1) Payroll tax expense (+E -SE) = $22,000
PB10-4 (1) (c) The carrying value of Case C at 102 = $510,000
PB10-5 (2) Loss would be reported on the income statement between operating income and income before income taxes
PB10-6 (5) January 1, 2011: dr Bonds Payable (-L) $100,000 dr Premium on bonds payable (-L) $690 dr Loss on bond retirement (+E -SE) $1,310 cr Cash (-A) $102,000
PB10-7 (5) January 1, 2011: dr Bonds Payable (-L) $100,000 dr Premium on bonds payable (-L) $718 dr Loss on bond retirement (+E -SE) $282 cr Cash (-A) $101,000
PB10-8 (5) January 1, 2011: dr Bonds Payable (-L) $100,718 dr Loss on bond retirement (+E -SE) $282 cr Cash (-A) $101,000
Skill Development CasesS10-1 (1) 2009 Quick ratio = 0.13S10-2 (2) Lowes' times interest earned
ratio = 13.52S10-3 Solutions vary depending on
company and/or accounting period selected
S10-4 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) Quick ratio = 1.21S10-7 The formula for cell D12:
Chapter 11Mini-ExercisesM11-1 (4) EM11-2 One right: Stockholders
may vote in stockholders’ meeting
M11-3 33,000 additional shares may be issued
M11-4 Credit Additional Paid-in Capital (+SE) $7,400,000
M11-5 Debit Cash (+A) $7,500,000
M11-6 It is advisable to invest in the common stock
M11-7 (3) Total assets = decreased by $900,000, Total liabilities = no change, Total stockholders’ equity = decreased by $900,000, net income = no change
M11-8 Dividend amount to be paid = $85,000
M11-9 June 14: dr Debit Dividends payable (+L) $200,000 cr Cash (-A) $200,000
M11-10 (1) Stock Dividend: No change in total assets
M11-11 (4) No change in total stockholders’ equity
M11-12 Credit Common stock (+SE) $100,000
M11-13 Total to preferred stockholders $400,000
M11-14 EPS = $2.00M11-15 (e) Assets(Cash) +
$60,000, Liabilities = NE, SE (Common stock) = +$60,000
M11-16 (c) EPS = NE (because preferred stock is excluded from the denominator and preferred dividends are excluded from the numerator), ROE = NE
M11-17 2009 P/E ratio = 25M11-18 (b) Capital, end of year =
$27,000
ExercisesE11-1 Treasury Stock at end of
2008 = 85 million (81+5-1)
E11-2 (2) (a) Credit Additional paid-in capital (+SE) $96,000, (3) Total contributed capital = $166,000
E11-3 Additional paid-in capital, common = $181,000
E11-15 Dividends in arrears indicates some financial difficulty
E11-16 Effect of cash dividend (preferred): Assets – No effect on declaration date. On payment date, assets are decreased by the amount of the dividend
E11-17 Stock dividend effect on common – no effect on assets through December 31, 2010 or on February 15, 2011
E11-18 (1) Total contributed capital = $705,000, Total stockholders' equity = $781,000
E11-19 (1) Stockholders equity decreases $60,000,000, (3) Dividends are not paid on treasury stock
E11-20 (1) EPS = $0.10, ROE = 5.0%
E11-21 (1) Jan 15: Assets (Cash) + $50,000, Liabilities = NE, SE (Common stock) +$5,000 (Additional paid-in capital, common stock) + $45,000
E11-22 (1) Case A: Credit Proprietor A, Capital (+OE) $20,000, Case B: Debit Individual revenue accounts (-R) $150,000, Case C: Credit Retained earnings (+SE) $20,000,(2) Case A: A, Capital, December 31, 2010 = $62,000, Case B: Partners’ Equity for B on December 31, 2010 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 = $875,000
CP11-4 (2) Assets: Cash Dividend – Case C: $66,000 decrease, Stock dividends: No assets were disbursed
CP11-5 (1) ROE Aaron = 12.6%
Group ProblemsPA11-1 (3) Total contributed
capital = $37,800,000,Total stockholders’ equity = $36,979,000
PA11-2 (1) March 5, 2010: Credit Dividends payable (+L) $1,000,000
PA11-3 (3) EPS on net income = $3.43
PA11-4 Case A Preferred dividend = $16,800
PA11-5 (2) BusinessWorld P/E ratio = 17.0
PB11-1 (3) Total contributed capital = $4,600,000, Total stockholders’ equity = $4,538,000
PB11-2 (1) May 31, 2009: Debit Retained earnings (-SE) $19,000
PB11-3 (2) Additional paid-in capital = $14,250,000
PB11-4 (1) Case A: Common dividend = $8,800; Case C: Common dividend = $21,400
Skill Development CasesS11-1 (1) Shares outstanding =
1,707,000,000S11-2 (3) Lowe's net earnings
declined throughout the three-year period
S11-3 Solutions vary depending on company and/or accounting period selected
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 CaseCC11 (2) Common stockholders
would prefer issuance of additional preferred shares to avoid diluting ownership and voting rights in the company (4)
(a) ROE = "+"
Chapter 12Mini-ExercisesM12-1 (3) EM12-2 (5) OM12-3 (2) +M12-4 Case A: Cash provided by
operating activities = $140,000
M12-5
M12-6
Case A: Net cash provided by operating activities = $1,400Net cash provided by (used in) investing activities = $(50)
M12-7 Net cash provided by financing activities = $1,200
M12-8 Net cash provided by investing activities $250
M12-9 (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 Capital acquisition ratio for 2008-2010 = 1.2
M12-12 Quality of income ratio = 75%
M12-13 (5) OM12-14 Case A: Cash collected from
customers = $71,000, Net cash provided by operating activities = $30,000
M12-15 Case B: Cash payments to suppliers= $(12,040), Net cash provided by operating activities = $3,760
ExercisesE12-1 (1) FE12-2 (4) Net cash provided by
operating activities = $100E12-3 (2) The $200 increase in
cash should be reported as net cash outflow from operating activities
E12-4 (4) Net cash provided by operating activities = $100
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 increases in current liabilities
E12-6 Net cash flow from operating activities = $170
E12-7 (2) Net cash provided by operating activities = $170, Net cash used in investing activities = $(60), Net cash provided by financing activities = $60
E12-8 Net cash provided by operating activities = $15,500
E12-9 (1) Net cash provided by operating activities = $32,300
E12-10 Net cash flow provided by operating activities = $22,492
E12-11 Accounts receivable increased during the period
E12-12 Unearned revenue increased during the period
E12-13 Net cash used for investing activities $(16,000)
E12-14 (2) Quality of income ratio = 1.4
E12-15 (1) Aztec Cost of goods sold = $175, (2) Aztec Total cash paid = $200, (4) Aztec Inventory increase = $25, Aztec Accounts payable increase = $0
E12-16 Net cash provided by financing activities = $1,105
E12-17 Net cash provided by investing activities $7,074
E12-18 (1) Capital acquisitions ratio = 0.81
E12-19 (2) The average capital acquisitions ratio is 282%. This means that Disney generated nearly three times the financing required to purchase parks, resorts, and other property
E12-20 2008 Quality of income ratio
= 1.2E12-21 (13) Both direct and indirect
methodsE12-22 Net cash provided by
operating activities = $32,300
E12-23 Net cash provided by operating activities = $22,492
E12-24 Book value = $2,000E12-25 Cash received from the sale
= $1,000E12-26 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)
PB12-3 Net cash provided by operating activities = $48,000
PB12-4 (1) Net cash provided by financing activities = $200
PB12-5 Net cash provided by operating activities = $25,980
PB12-6 (1) Net cash used in operating activities = $(1,000)
Skill Development CasesS12-1 (2) Income taxes paid in
cash = $1,265 millionS12-2 (1) Lowe's used the indirect
method to report cash flows from operating activities
S12-3 Solutions vary depending on company and/or accounting period selected
S12-4 (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 (2) If cash is spent on long-lived assets, it is typically classified as an investing activity. If cash is spent on expenses, it is classified as an operating activity
S12-6 The idea will not work. If depreciation expense is increased, net income will decrease by exactly the same amount
S12-7 Net cash flow used in operating activities = $(4,000)
S12-8 The amount of Net cash flow from operating activities is not affected by the method (direct or indirect) in which it is computed
S12-9 (2) Net cash flows from operating activities would decrease by $2,000
Continuing CaseCC12 (1) Net cash provided by
operating activities = $3,269, (2) Capital acquisitions ratio = 0.43
PB13-1 (2) 2010 appears to have been a successful year for Tiger Audio. The percentage increase in sales (20%) was greater than that for cost of goods sold (15%) and operating expenses (17.4%). The combined result of these changes was a significant increase in net income (37.2%)
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
Skill Development CasesS13-1 Return on Equity = 12.7% in
2008, Inventory turnover ratio = 4.22 in 2008
S13-2 (1) Lumber Liquidators does not control its non-product costs as well as Lowe’s
S13-3 Solutions vary depending on company and/or accounting period selected
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 = 2.26
S13-6 (2) It is impossible to determine which company
PAD-2 (2) Case A: (b) no entry, (c) Credit Investment income (+R +SE) $6,000, (d) Debit Unrealized loss on investments (-SE) $20,000, (3) Case B: Income Statement, Equity in Investee Earnings, $120,000
Check Figures prepared by:
Dr. J. Lowell Mooney, CPA, CMA, CFM
Professor of AccountingGeorgia Southern UniversityStatesboro, GA 30460