wild - financial and managerial accounting - 5e, solutions manual and test bank 0078025605
Solutions for Financial and Managerial Accounting: Information for Decisions, 5/E by John J. Wild, Ken W. Shaw, Barbara Chiappetta
http://www.mediafire.com/view/eoqjogf37xt2z7f/SMChap002.doc
Test Bank for Financial and Managerial Accounting: Information for Decisions, 5/E by John J. Wild, Ken W. Shaw, Barbara Chiappetta
http://www.mediafire.com/view/7qe46jxblkd7qfo/ch5.docx
Product Details:
Book Name : Financial and Managerial Accounting: Information for Decisions, 5/E
Authors : John J. Wild, Ken W. Shaw, Barbara Chiappetta
Edition : 5th E
ISBN 10: 0078025605
ISBN 13: 978-0078025600
Items available : Solutions/Test Bank
Financial and Managerial Accounting: Information for Decisions, 5/E by John J. Wild, Ken W. Shaw, Barbara Chiappetta“. This is the complete Solutions for this book.(Test Bank for this book is also available).
Chapter 2
Analyzing and
Recording Transactions
QUESTIONS
1. a. Common
asset accounts: cash, accounts receivable, notes receivable, prepaid expenses
(rent, insurance, etc.), office supplies, store supplies, equipment, building,
and land.
b. Common
liability accounts: accounts payable, notes payable, and unearned revenue,
wages payable, and taxes payable.
c. Common
equity accounts: common stock and dividends.
2. A
note payable is formal promise, usually denoted by signing a promissory note to
pay a future amount. A note payable can be short-term or long-term, depending
on when it is due. An account payable also references an amount owed to an
entity. An account payable can be oral or implied, and often arises from the
purchase of inventory, supplies, or services.
An account payable is usually short-term.
3. There
are several steps in processing transactions: (1) Identify and analyze the
transaction or event, including the source document(s), (2) apply double-entry
accounting, (3) record the transaction or event in a journal, and (4) post the
journal entry to the ledger. These steps
would be followed by preparation of a trial balance and then with the reporting
of financial statements.
4. A
general journal can be used to record any business transaction or event.
5. Debited
accounts are commonly recorded first. The credited accounts are commonly
indented.
6. A
transaction is first recorded in a journal to create a complete record of the
transaction in one place. (The journal
is often referred to as the book of original entry.) This process reduces the likelihood of errors
in ledger accounts.
7. Expense
accounts have debit balances because they are decreases to equity (and equity
has a normal credit balance).
8. The
recordkeeper prepares a trial balance to summarize the contents of the ledger
and to verify the equality of total debits and total credits. The trial balance also serves as a helpful
internal document for preparing financial statements and other reports.
9. The
error should be corrected with a separate (subsequent) correcting entry. The
entry’s explanation should describe why the correction is necessary.
10. The four financial statements are: income
statement, balance sheet, statement of retained earnings, and statement of cash
flows.
11. The balance sheet provides information that
helps users understand a company’s financial position at a point in time. Accordingly, it is often called the statement
of financial position. The balance sheet
lists the types and dollar amounts of assets, liabilities, and equity of the
business.
12. The income statement lists the types and
amounts of revenues and expenses, and reports whether the business earned a net
income (also called profit or earnings) or a net loss.
13. An income statement user must know what time
period is covered to judge whether the company’s performance is
satisfactory. For example, a statement
user would not be able to assess whether the amounts of revenue and net income
are satisfactory without knowing whether they were earned over a week, a month,
a quarter, or a year.
14. (a) Assets are probable future economic
benefits obtained or controlled by a specific entity as a result of past
transactions or events. (b) Liabilities are probable future sacrifices of
economic benefits arising from present obligations of a particular entity to
transfer assets or provide services to other entities in the future as a result
of past transactions or events. (c)
Equity is the residual interest in the assets of an entity that remains after
deducting its liabilities. (d) Net
assets refer to equity.
15. The balance sheet is sometimes referred to as
the statement of financial position.
16. Debit balance accounts on the Polaris balance
sheet include: Cash and cash equivalents; Trade receivables, net; Inventories,
net; Prepaid expenses and other; Income taxes receivable; Deferred tax assets;
Land, buildings and improvements; Equipment and tooling; Property and
equipment, net; Investments in finance affiliate; Investments in other
affiliates; Goodwill and other intangible assets, net.
Credit balance accounts on the Polaris
balance sheet include: Accumulated depreciation; Current portion of long-term
borrowings under credit agreement; Current portion of capital lease
obligations; Accounts payable; Accrued expenses (including compensation,
warranties, sales promotions and incentives, dealer holdback and other); Income
taxes payable; Deferred income taxes; Capital lease obligations; Long-term
debt; Preferred stock; Common stock; Additional paid-in capital; Retained
earnings; Accumulated other comprehensive income, net.
17. The
asset account with receivable in its
account title is: Accounts receivable, less allowances. The liabilities with payable in the account title are: Accounts payable and Income taxes
payable.
18. KTM’s revenue account is titled “Net sales.”
19.
Piaggio calls the asset referring to its merchandise available for sale:
“Inventories.”
Quick
Studies
Quick
Study 2-1 (10 minutes)
The
likely source documents include:
a. Sales ticket
d. Telephone bill
e. Invoice from supplier
i. Bank statement
Quick Study 2-2 (5
minutes)
a. B Balance sheet
b. E Statement of retained earnings
c. I Income statement
d. B Balance sheet
e. B Balance sheet
f. I Income statement
g. B Balance sheet
h. B Balance sheet
i. B Balance sheet
Quick
Study 2-3 (10 minutes)
|
a.
|
Debit
|
d.
|
Debit
|
g.
|
Credit
|
|
b.
|
Debit
|
e.
|
Debit
|
h.
|
Debit
|
|
c.
|
Credit
|
f.
|
Debit
|
i.
|
Credit
|
Quick Study 2-4 (10
minutes)
|
a.
|
Debit
|
e.
|
Debit
|
i.
|
Credit
|
|
b.
|
Debit
|
f.
|
Credit
|
j.
|
Debit
|
|
c.
|
Credit
|
g.
|
Credit
|
k.
|
Debit
|
|
d.
|
Credit
|
h.
|
Debit
|
l.
|
Credit
|
Quick Study 2-5 (10
minutes)
|
a.
|
Debit
|
e.
|
Debit
|
i.
|
Credit
|
|
b.
|
Credit
|
f.
|
Credit
|
j.
|
Debit
|
|
c.
|
Debit
|
g.
|
Credit
|
|
|
|
d.
|
Credit
|
h.
|
Credit
|
|
|
Quick Study 2-6 (15
minutes)
May 15 Cash.......................................................................... 70,000
Equipment ............................................................... 30,000
Common Stock................................................ 100,000
Owner invests cash and equipment for stock.
21 Office
Supplies......................................................... 280
Accounts Payable............................................ 280
Purchased office supplies on credit.
25 Cash.......................................................................... 7,800
Landscaping Services
Revenue.................... 7,800
Received cash for landscaping services.
30 Cash.......................................................................... 1,000
Unearned Landscaping
Services Revenue... 1,000
Received cash in advance for landscaping
services.
Quick Study 2-7 (10
minutes)
The correct answer is a.
Explanation: If
a $2,250 debit to Utilities Expense is incorrectly posted as a credit, the
effect is to understate the Utilities Expense debit balance by $4,500. This causes the Debit column total on the
trial balance to be $4,500 less than the Credit column total.
Quick
Study 2-8 (10 minutes)
|
a.
|
I
|
e.
|
B
|
i.
|
E
|
|
b.
|
B
|
f.
|
B
|
j.
|
B
|
|
c.
|
B
|
g.
|
B
|
k.
|
I
|
|
d.
|
I
|
h.
|
I
|
l.
|
I
|
Quick
Study 2-9 (10 minutes)
a. Accounting under
IFRS follows the same debit and credit system as under US GAAP.
b. The same four
basic financial statements are prepared under IFRS and US GAAP: income statement,
balance sheet, statement of changes in equity, and statement of cash flows.
Although some variations from these titles exist within both systems, the four
basic statements are present.
c. Accounting
reports under both IFRS and US GAAP are likely different depending on the
extent of accounting controls and enforcement. For example, the absence of
controls and enforcement increase the possibility of fraudulent transactions
and misleading financial statements. Without controls and enforcement, all accounting
systems run the risk of abuse and manipulation.
Exercises
Exercise
2-1 (10 minutes)
1 a. Analyze each transaction from source
documents.
4 b. Prepare and analyze the trial balance.
2 c. Record relevant transactions in a journal.
3 d. Post
journal information to ledger accounts.
Exercise
2-2 (10 minutes)
|
a.
|
3
|
d.
|
5
|
|
b.
|
4
|
e.
|
2
|
|
c.
|
1
|
|
|
Exercise
2-3 (5 minutes)
|
a.
|
2
|
b.
|
1
|
Exercise
2-4 (15 minutes)
|
|
|
Type of
|
Normal
|
Increase
|
|
|
Account
|
Account
|
Balance
|
(Dr. or Cr.)
|
|
a.
|
Cash...........................................
|
asset
|
debit
|
debit
|
|
b.
|
Legal Expense..........................
|
expense
|
debit
|
debit
|
|
c.
|
Prepaid Insurance.....................
|
asset
|
debit
|
debit
|
|
d.
|
Land........................................... ...................................................
|
asset
|
debit
|
debit
|
|
e.
|
Accounts
Receivable................
|
asset
|
debit
|
debit
|
|
f.
|
Dividends..................................
|
equity
|
debit
|
debit
|
|
g.
|
License Fee
Revenue...............
|
revenue
|
credit
|
credit
|
|
h.
|
Unearned Revenue...................
|
liability
|
credit
|
credit
|
|
i.
|
Fees Earned..............................
|
revenue
|
credit
|
credit
|
|
j.
|
Equipment.................................
|
asset
|
debit
|
debit
|
|
k.
|
Notes Payable...........................
|
liability
|
credit
|
credit
|
|
l.
|
Common Stock.........................
|
equity
|
credit
|
credit
|
Exercise 2-5 (15 minutes)
|
a.
|
Beginning
accounts payable (credit).........................
|
$152,000
|
|
|
Purchases on
account in October (credits)...............
|
281,000
|
|
|
Payments on
accounts in October (debits)................
|
( ?)
|
|
|
Ending accounts
payable (credit)..............................
|
$132,500
|
|
|
|
|
|
|
Payments on
accounts in October (debits)................
|
$300,500
|
|
|
|
|
|
b.
|
Beginning accounts
receivable (debit).......................
|
$102,500
|
|
|
Sales on account
in October (debits)........................
|
?
|
|
|
Collections on
account in October (credits)..............
|
(102,890)
|
|
|
Ending accounts
receivable (debit)............................
|
$
89,000
|
|
|
|
|
|
|
Sales on account
in October (debits)........................
|
$ 89,390
|
|
|
|
|
|
c.
|
Beginning cash
balance (debit)..................................
|
$ ?
|
|
|
Cash received in
October (debits).............................
|
102,500
|
|
|
Cash disbursed in
October (credits)..........................
|
(103,150)
|
|
|
Ending cash
balance (debit)......................................
|
$
18,600
|
|
|
|
|
|
|
Beginning cash
balance (debit)..................................
|
$ 19,250
|
Exercise 2-6 (15 minutes)
Of the items listed, the following effects
should be included:
a. $28,000
increase in a liability account.
b. $10,000
increase in the Cash account.
e. $62,000
increase in a revenue account.
Explanation: This transaction created
$62,000 in revenue, which is the value of the service provided. Payment is
received in the form of a $10,000 increase in cash, an $80,000 increase in
computer equipment, and a $28,000 increase in its liabilities. The net value received by the company is
$62,000.
Exercise 2-7 (25 minutes)
Aug. 1 Cash................................................................... 6,500
Photography Equipment.................................. 33,500
Common Stock........................................... 40,000
Owner
investment in business for stock.
2 Prepaid Insurance............................................. 2,100
Cash............................................................ 2,100
Acquired 2 years of
insurance coverage.
5 Office Supplies.................................................. 880
Cash............................................................ 880
Purchased office supplies.
20 Cash................................................................... 3,331
Photography Fees Earned......................... 3,331
Collected photography fees.
31 Utilities Expense............................................... 675
Cash............................................................ 675
Paid for August utilities.
Exercise
2-8 (30 minutes)
|
Cash
|
|
Photography Equipment
|
||||||||
|
Aug. 1
|
6,500
|
|
Aug.
2
|
2,100
|
|
Aug. 1
|
33,500
|
|
|
|
|
20
|
3,331
|
|
5
|
880
|
|
|
|
|
|
|
|
|
|
|
31
|
675
|
|
Common Stock
|
||||
|
Balance
|
6,176
|
|
|
|
|
|
|
Aug. 1
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office Supplies
|
|
Photography Fees
Earned
|
||||||||
|
Aug.
5
|
880
|
|
|
|
|
|
|
Aug.
20
|
3,331
|
|
|
|
|
|
|
|
||||||
|
Prepaid Insurance
|
|
Utilities Expense
|
||||||||
|
Aug.
2
|
2,100
|
|
|
|
|
Aug.
31
|
675
|
|
|
|
|
Pose-for-pics
|
||
|
Trial Balance
|
||
|
August 31
|
||
|
|
Debit
|
Credit
|
|
Cash.............................................
|
$ 6,176
|
|
|
Office
supplies............................
|
880
|
|
|
Prepaid
insurance.......................
|
2,100
|
|
|
Photography
equipment.............
|
33,500
|
|
|
Common
stock............................
|
|
$40,000
|
|
Photography
fees earned...........
|
|
3,331
|
|
Utilities
expense..........................
|
675
|
______
|
|
Totals...........................................
|
$43,331
|
$43,331
|
Exercise
2-9 (30 minutes)
a. Cash........................................................................... 100,750
Common Stock.................................................. 100,750
Owner invested in the business for
stock.
b. Office Supplies.......................................................... 1,250
Cash.................................................................... 1,250
Purchased supplies with cash.
c. Office Equipment....................................................... 10,050
Accounts Payable.............................................. 10,050
Purchased office equipment on credit.
d. Cash........................................................................... 15,500
Fees Earned....................................................... 15,500
Received cash from customer for services.
e. Accounts Payable...................................................... 10,050
Cash.................................................................... 10,050
Made payment toward account payable.
f. Accounts Receivable................................................ 2,700
Fees Earned....................................................... 2,700
Billed customer for services provided.
g. Rent Expense............................................................ 1,225
Cash.................................................................... 1,225
Paid for this period’s rental charge.
h. Cash........................................................................... 1,125
Accounts Receivable......................................... 1,125
Received cash toward an account receivable.
i. Dividends................................................................... 10,000
Cash.................................................................... 10,000
Paid cash dividends.
Exercise
2-9 (concluded)
|
Cash
|
|
Accounts Payable
|
||||||||||||
|
(a)
|
100,750
|
|
(b)
|
1,250
|
|
(e)
|
10,050
|
(c)
|
10,050
|
|||||
|
(d)
|
15,500
|
|
(e)
|
10,050
|
|
|
|
Balance
|
0
|
|||||
|
(h)
|
1,125
|
|
(g)
|
1,225
|
|
|
|
|
|
|||||
|
|
|
|
(i)
|
10,000
|
|
|
|
|
|
|||||
|
Balance
|
94,850
|
|
|
|
|
Common Stock
|
||||||||
|
|
|
|
|
|
|
|
|
(a)
|
100,750
|
|||||
|
|
|
|
|
|
|
|
|
Balance
|
100,750
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts
Receivable
|
|
Dividends
|
||||||||||||
|
(f)
|
2,700
|
|
(h)
|
1,125
|
|
(i)
|
10,000
|
|
|
|||||
|
Balance
|
1,575
|
|
|
|
|
Balance
|
10,000
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Office Supplies
|
|
Fees Earned
|
||||||||||||
|
(b)
|
1,250
|
|
|
|
|
|
|
(d)
|
15,500
|
|||||
|
Balance
|
1,250
|
|
|
|
|
|
|
(f)
|
2,700
|
|||||
|
|
|
|
|
|
|
|
|
Balance
|
18,200
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Office Equipment
|
|
Rent Expense
|
||||||||||||
|
(c)
|
10,050
|
|
|
|
|
(g)
|
1,225
|
|
|
|||||
|
Balance
|
10,050
|
|
|
|
|
Balance
|
1,225
|
|
|
|||||
Exercise 2-10 (15 minutes)
|
SPADE COMPANY
|
||
|
Trial Balance
|
||
|
May 31, 2013
|
||
|
|
Debit
|
Credit
|
|
Cash..........................................
|
$
94,850
|
|
|
Accounts receivable..................
|
1,575
|
|
|
Office supplies..........................
|
1,250
|
|
|
Office equipment.......................
|
10,050
|
|
|
Accounts payable......................
|
$ 0
|
|
|
Common stock..........................
|
100,750
|
|
|
Dividends......................................
|
10,000
|
|
|
Fees earned...............................
|
18,200
|
|
|
Rent expense..............................
|
1,225
|
________
|
|
Totals.........................................
|
$118,950
|
$118,950
|
Exercise
2-11 (20 minutes)
Transactions
that created revenues:
b. Accounts Receivable.......................................... 2,300
Services Revenue......................................... 2,300
Provided services on credit.
c. Cash..................................................................... 875
Services Revenue......................................... 875
Provided services for cash.
[Note: Revenues are inflows of assets (or
decreases in liabilities) received in exchange for goods or services provided
to customers.]
Transactions that did not create revenues
along with the reasons are:
a. This transaction brought in cash, but this
is an owner investment.
d. This transaction brought in cash, but it
created a liability because the services have not yet been provided to the
client.
e. This transaction changed the form of the
asset from accounts receivable to cash.
Total assets were not increased (revenue was recognized when the
receivable was originally recorded).
f. This transaction brought in cash and
increased assets, but it also increased a liability by the same amount (no
goods or services were provided to generate revenue).
Exercise
2-12 (20 minutes)
Transactions
that created expenses:
b. Salaries Expense......................................... 1,233
Cash....................................................... 1,233
Paid salary of receptionist.
d. Utilities Expense.......................................... 870
Cash....................................................... 870
Paid utilities for the office.
[Note: Expenses are
outflows or using up of assets (or the creation of liabilities) that occur in
the process of providing goods or services to customers.]
Transactions a, c,
and e are not expenses for the following reasons:
a. This
transaction decreased assets in settlement of a previously existing liability,
and equity did not change. Cash payment
does not mean the same as using up of assets (expense is recorded when the
supplies are used).
c. This
transaction involves the purchase of an asset.
The form of the company’s assets changed, but total assets did not
change, and the equity did not decrease.
e. This transaction is a distribution of cash to
the owner. Even though equity decreased,
the decrease did not occur in the process of providing goods or services to
customers.
Exercise
2-13 (15 minutes)
HELP TODAY
Income Statement
For Month Ended
August 31
Revenues
Consulting fees earned......................... $ 27,000
Expenses
Rent expense......................................... $ 9,550
Salaries expense................................... 5,600
Telephone expense............................... 860
Miscellaneous expenses....................... 520
Total expenses...................................... 16,530
Net income.................................................. $ 10,470
Exercise
2-14 (15 minutes)
HELP TODAY
Statement of Retained
Earnings
For Month Ended
August 31
Retained earnings, July 31......................... $ 0
Add: Net income (from Exercise 2-13)...... 10,470
10,470
Less: Dividends......................................... 6,000
Retained earnings, August 31................... $ 4,470
Exercise 2-15 (15 minutes)
HELP
TODAY
Balance
Sheet
August
31
Assets Liabilities
Cash.............................. $ 25,360 Accounts payable................ ....................... $
10,500
Accounts receivable..... 22,360
Office supplies.............. 5,250 Equity
Office equipment.......... 20,000 Common stock.....................
102,000
Land............................... 44,000 Retained earnings*............... 4,470
Total
assets.................. $116,970 Total liabilities & equity........ ........................ $116,970
* Amount
from Exercise 2-14.
Exercise
2-16 (20 minutes)
|
Calculation
of change in equity for part
a through part d
|
||||||
|
|
Assets
|
-
|
Liabilities
|
=
|
Equity
|
|
|
Beginning of the
year......
|
$ 60,000
|
-
|
$20,000
|
=
|
$40,000
|
|
|
End of the year................
|
105,000
|
-
|
36,000
|
=
|
69,000
|
|
|
Net increase in
equity......
|
|
|
|
|
$29,000
|
|
|
a. Net income..........................................................
|
$
?
|
||
|
Plus owner investments....................................
|
0
|
||
|
Less dividends ..................................................
|
(0)
|
||
|
Change in equity.................................................
|
$29,000
|
||
|
Net Income = $29,000
|
|||
Since there were no additional
investments or dividends, the net income for the year equals the net increase
in equity.
|
b. Net income..........................................................
|
$
?
|
||
|
Plus owner investments....................................
|
0
|
||
|
Less dividends ($1,250/mo. x 12 mo.)..............
|
(15,000)
|
||
|
Change in equity.................................................
|
$29,000
|
||
|
Net Income = $44,000
|
|||
The dividends were added back because they
reduced equity without reducing net income.
|
c. Net income.........................................................
|
$
?
|
||
|
Plus owner investment.....................................
|
55,000
|
||
|
Less dividends...................................................
|
(0)
|
||
|
Change in equity................................................
|
$29,000
|
||
|
Net Loss = $26,000
|
|||
The investment was deducted because it
increased equity without creating net income.
|
d. Net income........................................................
|
$
?
|
||
|
Plus owner investment....................................
|
35,000
|
||
|
Less dividends ($1,250/mo. X 12 mo.)............
|
(15,000)
|
||
|
Change in equity...............................................
|
$29,000
|
||
|
Net Income = $9,000
|
|||
The dividends were added back because
they reduced equity without reducing net income and the investments were
deducted because they increased equity without creating net income.
Exercise 2-17 (15 minutes)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
 Answers |
$(28,000)
|
|
$42,000
|
|
$73,000
|
|
$(45,000)
|
|
|
|
|
|
|
|
|
|
|
Computations:
|
|
|
|
|
|
|
|
|
Equity, Dec. 31, 2012........................
|
$ 0
|
|
$ 0
|
|
$ 0
|
|
$ 0
|
|
Owner's investments...........
|
110,000
|
|
42,000
|
|
87,000
|
|
210,000
|
|
Dividends...............
|
(28,000)
|
|
(47,000)
|
|
(10,000)
|
|
(55,000)
|
|
Net income (loss)..
|
22,000
|
|
90,000
|
|
(4,000)
|
|
(45,000)
|
|
Equity, Dec. 31, 2013........................
|
$104,000
|
|
$85,000
|
|
$73,000
|
|
$110,000
|
Exercise 2-18 (25
minutes)
a. Belle created a new business and invested
$6,000 cash, $7,600 of equipment, and $12,000 in automobiles, all in exchange
for stock.
b. Paid $4,800 cash in advance for insurance
coverage.
c. Paid $900 cash for office supplies.
d. Purchased $300 of office supplies and $9,700
of equipment on credit.
e. Received $4,500 cash for delivery services
provided.
f. Paid $1,600 cash towards accounts payable.
g. Paid $820 cash for gas and oil expenses.
Exercise
2-19 (30 minutes)
a. Cash........................................................................... 6,000
Equipment.................................................................. 7,600
Automobiles............................................................... 12,000
Common Stock.................................................. 25,600
Owner investment in exchange for
stock.
b. Prepaid
Insurance..................................................... 4,800
Cash.................................................................... 4,800
Purchased
insurance coverage.
c. Office
Supplies.......................................................... 900
Cash.................................................................... 900
Purchased
supplies with cash.
d. Office
Supplies.......................................................... 300
Equipment.................................................................. 9,700
Accounts
Payable.............................................. 10,000
Purchased
supplies and equipment on credit.
e. Cash........................................................................... 4,500
Delivery
Services Revenue............................... 4,500
Received
cash from customer for services provided.
f. Accounts
Payable...................................................... 1,600
Cash.................................................................... 1,600
Made
payment on payables.
g. Gas and Oil Expense................................................. 820
Cash.................................................................... 820
Paid for gas and oil.
Exercise 2-20 (20 minutes)
|
Description |
(1)
Difference between Debit and Credit Columns |
(2)
Column with the Larger Total
|
(3)
Identify account(s) incorrectly stated
|
(4)
Amount that account(s) is overstated or understated
|
|
|
a.
|
$3,600 debit to Rent Expense is posted as a $1,340
debit.
|
$2,260
|
Credit
|
Rent Expense
|
Rent Expense is understated by $2,260
|
|
b.
|
$6,500 credit to Cash is posted twice as two credits to
Cash.
|
$6,500
|
Credit
|
Cash
|
Cash is understated by $6,500
|
|
c.
|
$10,900 debit to the Dividends account is debited to Common
Stock
|
$0
|
––
|
Common Stock
Dividends
|
Common Stock is understated by $10,900
Dividends is understated by $10,900
|
|
d.
|
$2,050 debit to Prepaid Insurance is posted as a debit
to Insurance Expense.
|
$0
|
––
|
Prepaid Insurance
Insurance Expense
|
Prepaid Insurance is understated by $2,050
Insurance
Expense is overstated by $2,050
|
|
e.
|
$38,000 debit to Machinery is posted as a debit to
Accounts Payable.
|
$0
|
––
|
Machinery
Accounts Payable
|
Machinery is understated by $38,000
Accounts Payable is understated by $38,000
|
|
f.
|
$5,850 credit to Services Revenue is posted as a $585
credit.
|
$5,265
|
Debit
|
Services Revenue
|
Services Revenue is understated by $5,265
|
|
g.
|
$1,390 debit to Store Supplies is not posted.
|
$1,390
|
Credit
|
Store Supplies
|
Store Supplies is understated by $1,390
|
Exercise 2-21 (15 minutes)
a. The debit column is correctly stated because
the erroneous debit (to Accounts Payable) is deducted from an account with a
(larger assumed) credit balance.
b. The credit column is understated by $37,900
because Accounts Payable was debited — it should have been credited.
c. The Automobiles account balance is correctly
stated.
d. The Accounts Payable account balance is
understated by $37,900. It should have
been increased (credited) by $18,950 but the posting error decreased (debited)
it by $18,950.
e. The credit column is $37,900 less than the
debit column, or $162,100 in total ($200,000 - $37,900).
Exercise
2-22 (15 minutes)
|
a.
|
Co.
|
Liabilities
|
/
|
Assets
|
=
|
Debt
Ratio
|
|
Net
Income
|
/
|
Average
Assets
|
=
|
ROA
|
|||
|
|
1
|
$11,765
|
|
$ 90,500
|
|
0.13
|
|
$20,000
|
|
$100,000
|
|
0.200
|
|||
|
|
2
|
46,720
|
|
64,000
|
|
0.73
|
|
3,800
|
|
40,000
|
|
0.095
|
|||
|
|
3
|
26,650
|
|
32,500
|
|
0.82
|
|
650
|
|
50,000
|
|
0.013
|
|||
|
|
4
|
55,860
|
|
147,000
|
|
0.38
|
|
21,000
|
|
200,000
|
|
0.105
|
|||
|
|
5
|
31,280
|
|
92,000
|
|
0.34
|
|
7,520
|
|
40,000
|
|
0.188
|
|||
|
|
6
|
52,250
|
|
104,500
|
|
0.50
|
|
12,000
|
|
80,000
|
|
0.150
|
|||
b. Company 3 relies most heavily on creditor
(non-owner) financing with 82% of its assets financed by liabilities.
c. Company 1 relies least on creditor (non-owner) financing at only
13%. This implies that 87% of the assets
are financed by equity (owners).
d. The companies with the highest debt ratios
indicate the greatest risk. The two
companies with the highest debt ratios are 2 and 3.
e. Company 1 yields the highest return on assets
at 20%; followed by Company 5 at 18.8%.
f. As an investor, one prefers high returns at
low risk. Company 1 is the preferred
investment since it yields the lowest risk (debt ratio is 13%) and highest
return on assets (20%).
Exercise
2-23 (10 minutes)
BMW
Balance Sheet (in
Euro millions)
December 31, 2011
Assets Equity
and liabilities
Noncurrent assets........ €
9,826 Total
equity........................... €
8,222
Current assets.............. 17,682 Noncurrent
liabilities............ 7,767
Current
liabilities 11,519
Total assets.................. €27,508 Total equity and liabilities.... .......................... €27,508
Problem sET A
Problem 2-1A (90 minutes)
Part
1
a. Cash.......................................................... 101 100,000
Office Equipment...................................... 163 5,000
Drafting Equipment.................................. 164 60,000
Common Stock................................. 307 165,000
Owner invested cash and
equipment for stock.
b. Land.......................................................... 172 49,000
Cash.................................................. 101 6,300
Notes Payable................................... 250 42,700
Purchased land with cash
and notes payable.
c. Building..................................................... 170 55,000
Cash.................................................. 101 55,000
Purchased building.
d. Prepaid Insurance.................................... 108 3,000
Cash.................................................. 101 3,000
Purchased 18-month
insurance policy.
e. Cash.......................................................... 101 6,200
Engineering Fees Earned................. 402 6,200
Collected cash for
completed work.
f. Drafting Equipment.................................. 164 20,000
Cash.................................................. 101 9,500
Notes Payable................................... 250 10,500
Purchased equipment with
cash and notes payable.
g. Accounts Receivable............................... 106 14,000
Engineering Fees Earned................. 402 14,000
Completed services for
client.
h. Office Equipment...................................... 163 1,150
Accounts Payable............................. 201 1,150
Purchased equipment on credit.
Problem
2-1A (Part 1 Continued)
i.
Accounts Receivable............................... 106 22,000
Engineering Fees Earned................. 402 22,000
Billed client for completed
work.
j. Equipment Rental Expense..................... 602 1,333
Accounts Payable............................. 201 1,333
Incurred equipment rental
expense.
k. Cash.......................................................... 101 7,000
Accounts Receivable....................... 106 7,000
Collected
cash on account.
l. Wages Expense....................................... 601 1,200
Cash.................................................. 101 1,200
Paid
assistant’s wages.
m. Accounts Payable.................................... 201 1,150
Cash.................................................. 101 1,150
Paid amount
due on account.
n. Repairs Expense...................................... 604 925
Cash.................................................. 101 925
Paid for repair of
equipment.
o. Dividends.................................................. 319 9,480
Cash.................................................. 101 9,480
Paid
cash dividends.
p. Wages Expense....................................... 601 1,200
Cash.................................................. 101 1,200
Paid
assistant’s wages.
q. Advertising Expense................................ 603 2,500
Cash.................................................. 101 2,500
Paid for advertising
expense.
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