Financial Accounting, 9th Edition Solution Manual

Chapter 2 Transaction Analysis Short Exercises (5 min.) S 2-1 Hooper’s payment was not an expense. Hooper acquired an asset, Equipment, because the computer is an economic resource of the business. (5 min.) S 2-2 a. $13,400 ($11,000 + $2,400 + $5,500 − $5,500) b. $ 2,400 (5-10 min.) S 2-3 Bal. Cash 27,000 2,200 25,700 3,500 (5 min.) S 2-4 Increased total assets: April 1 April 1 April 3 Chapter 2 (Cash) (Medical supplies) (Cash, Accounts Receivable) Transaction Analysis 2-1 (5-10 min.) S 2-5 a. Purchase of asset for cash Sale of asset for cash Collection of an account receivable Payment of dividends to owners Expense transaction Pay a liability Return an asset purchased on account Issuance of stock Revenue transaction Purchase of asset on account Borrow money b. c. d. e. (Answers may vary.) (10 min.) S 2-6 DATE Mar. 2-2 Journal ACCOUNT TITLES AND EXPLANATION DEBIT 15 Cash…………………………………… Note Payable……………………… Borrowed money from the bank. 31,000 22 Accounts Receivable………………. Service Revenue…………………. Performed service on account. 8,900 28 Cash…………………………………… Accounts Receivable……………. Received cash on account. 5,600 29 Utilities Expense……………………. Accounts Payable……………….. Received utility bill. 900 31 Salary Expense……………………… Cash………………………………… Paid salary expense. 2,600 Financial Accounting 8/e Solutions Manual CREDIT 31,000 8,900 5,600 900 2,600 (10-15 min.) S 2-7 Req. 1 DATE Journal ACCOUNT TITLES AND EXPLANATION DEBIT Supplies……………………………….. Accounts Payable………………… Purchased supplies on account. 1,700 Accounts Payable…………………… Cash………………………………… Paid cash on account. 425 CREDIT 1,700 425 Req. 2 Accounts Payable 425 Bal. 1,700 1,275 Req. 3 The business owes $1,275, as shown in the Accounts Payable account. Chapter 2 Transaction Analysis 2-3 (10-15 min.) S 2-8 Req. 1 Journal ACCOUNT TITLES AND EXPLANATION DATE DEBIT Accounts Receivable ………………………. Service Revenue………………….. Performed service on account. 4,700 Cash ………………………………………………. Accounts Receivable ………………. Received cash on account. 3,000 CREDIT 4,700 3,000 Req. 2 Cash Accounts Receivable 3,000 Bal. 2-4 3,000 4,700 Bal. 1,700 Financial Accounting 8/e Solutions Manual Service Revenue 3,000 4,700 Bal. 4,700 (10 min.) S 2-9 Old Harbor Trial Balance December 31, 2012 ACCOUNT DEBIT CREDIT Millions Cash……………………….…… $ 4 Other assets………………….. 10 Accounts payable…………… $ 3 Other liabilities………………. 1 Stockholders’ equity……….. 5 Revenues……………………… 19 Expenses……………………… 14 ___ Total……………………….…… $28 $28 Old Harbor’s net income: $5 million ($19 − $14) (10 min.) S 2-10 1. Total assets = $91,000 ($4,500 + $18,000 + $2,500 + $21,000 + $45,000) 2. Total liabilities = $47,000 ($25,000 + $22,000) 3. Net income = $18,000 ($53,600 − $25,000 − $9,000 − $1,600) Chapter 2 Transaction Analysis 2-5 (10 min.) S 2-11 1. Total debits = $ 86,100 ($126,600 + $4,500 − $45,000) Total credits = $126,600 Difference $ 40,500 ($126,600 − $86,100); = $40,500 / 9 = $4,500 (an integer), which suggests either a transposition or a slide. 2. Total debits = $189,600 ($126,600 + $81,000 − $18,000) Total credits = $126,600 Difference $ 63,000 ($189,600 − $126,600); = $63,000 / 9 = $7,000 (an integer), which suggests either a transposition or a slide. 3. Total debits = $108,600 ($126,600 − $18,000) Total credits = $144,600 ($126,600 + $18,000) Difference $ 36,000 ($144,600 − $108,600) = $36,000 / 2 = $18,000 (original amount of accounts receivable). (10 min.) S 2-12 I 1. Debit D 2. Expense G 3. Net income E 4. Ledger F 5. Posting B 6. Normal balance H 7. Payable C 8. Journal A 9. Receivable J 10. Owners’ equity 2-6 Financial Accounting 8/e Solutions Manual (5 min.) S 2-13 Cash 100,000 Computer Equipment 60,000 Accounts Payable Common Stock 60,000 100,000 Total debits = $160,000 ($100,000 + $60,000) Total credits = $160,000 ($100,000 + $60,000) Chapter 2 Transaction Analysis 2-7 Exercises (10-15 min.) E 2-14A TO: Home Office FROM: Store Manager During the first week, I used the store’s beginning cash to purchase equipment and supplies. I signed a note payable to buy land and a building. After all these transactions, the store’s balance sheet appears as follows: Casual Wear San Francisco Store Balance Sheet Date ASSETS Cash LIABILITIES $ 25,000* Note payable* Supplies 15,000 Equipment 58,000 Land 94,000 Common stock Building 122,000 Total liabilities and Total assets $314,000 $216,000 STOCKHOLDERS’ EQUITY 98,000 stockholders’ equity $314,000 *$94,000 + $122,000 = $216,000 Cash 98,000 58,000 15,000 25,000 2-8 Financial Accounting 8/e Solutions Manual (10-15 min.) E 2-15A a. No effect on total assets. Increase in cash offsets the decrease in accounts receivable. b. No effect (a personal transaction) c. No effect on total assets. Increase in cash offsets the decrease in land. d. Increased assets (cash) e. No effect on total assets. Increase in land offsets the decrease in cash. f. Increased assets (cash) g. Decreased assets (cash) h. Increased assets (equipment) i. Increased assets (merchandise inventory) j. Decreased assets (cash) Chapter 2 Transaction Analysis 2-9 (10-20 min.) E 2-16A Req. 1 Analysis of Transactions ASSETS Date Cash Aug. 6 Accounts Medical + Receivable + Supplies + STOCKHOLDERS’ EQUITY Note Common Payable + Stock + Retained Earnings 39,000 Type of Stockholders’ Equity Transaction Issued stock 29,000 12 1,700 1,700 Not a transaction of the business. 15-31 3,800 15-31 (1,300) (1,300) Salary expense (700) (700) Rent expense (500) (500) Utilities expense Bal. 31 700 31 12,000 31 (800) 23,200 3,800 7,600 (700) 12,000 (800) 3,800 1,000 57,000 2-10 Accounts Land = Payable + + 39,000 9 (29,000) 15 LIABILITIES = Financial Accounting 8/e Solutions Manual 29,000 900 = 12,000 39,000 57,000 5,100 Service revenue (continued) E 2-16A Req. 2 a. $57,000 b. $3,800 c. $12,900 ($900 + $12,000) d. $44,100 ($57,000 − $12,900, or $39,000 + $5,100) e. $5,100 (Revenue, $7,600 minus expenses,$2,500 equals net income, $5,100.) Chapter 2 Transaction Analysis 2-11 (10-15 min.) E 2-17A DATE Aug. 6 9 12 15 Journal ACCOUNT TITLES AND EXPLANATION DEBIT Cash…………………………………………… 39,000 Common Stock……………………………. Issued stock to owner. 39,000 Land …………………………………………………… 29,000 Cash ………………………………………….. . Purchased land. 29,000 Medical Supplies ………………………………… 1,700 Accounts Payable ……………………….. Purchased supplies on account. 1,700 Not a transaction of the business. 15-31 Cash …………………………………………………… 3,800 Accounts Receivable ………………………….. 3,800 Service Revenue …………………………. Performed service for cash and on account. 15-31 Salary Expense …………………………………… 1,300 Rent Expense ……………………………………… 700 Utilities Expense …………………………………. 500 Cash …………………………………………… Paid expenses. 31 31 31 2-12 CREDIT 7,600 2,500 Cash …………………………………………………… 700 Medical Supplies …………………………. Sold supplies. 700 Cash …………………………………………………… 12,000 Note Payable ………………………………. Borrowed money. 12,000 Accounts Payable ………………………………. 800 Cash …………………………………………… Paid on account. 800 Financial Accounting 8/e Solutions Manual (10-20 min.) E 2-18A DATE Journal ACCOUNT TITLES AND EXPLANATION DEBIT Apr. 1 Cash ……………………………………………… Common Stock ……………………….. Issued common stock to owner. 19,800 2 Office Supplies ………………………………. Accounts Payable……………………. Purchased office supplies on account. 200 4 Land ……………………………………………… Cash ………………………………………. Paid cash for land. 14,300 6 Cash ……………………………………………… Service Revenue ……………………… Performed services for cash. 2,600 9 Accounts Payable ………………………….. Cash ………………………………………. Paid cash on account. 100 17 Accounts Receivable ……………………… Service Revenue… ………………….. Performed service on account. 1,900 23 Cash ……………………………………………… Accounts Receivable ………………. Received cash on account. 100 30 Salary Expense………………………………. Rent Expense ………………………………… Cash ………………………………………. Paid cash expenses. 1,900 1,300 Chapter 2 Transaction Analysis CREDIT 19,800 200 14,300 2,600 100 1,900 100 3,200 2-13 (20-30 min.) E 2-19A Req. 1 Cash Apr. 1 Accounts Receivable 19,800 Apr. 4 14,300 6 2,600 9 100 23 100 30 3,200 Bal. Apr. 17 1,900 Apr. 23 Bal. 1,800 4,900 Office Supplies Land Apr. 2 200 Apr. Bal. 200 Bal. 4 Accounts Payable Apr. 9 100 Apr. 2 Bal. 14,300 14,300 Common Stock 200 Apr. 1 19,800 100 Bal. 19,800 Service Revenue Salary Expense Apr. 6 2,600 Apr. 30 1,900 17 1,900 Bal. 1,900 Bal. 4.500 Rent Expense Apr. 30 1.300 Bal. 1,300 2-14 100 Financial Accounting 8/e Solutions Manual (continued) E 2-19A Req. 2 Doherty Tree Cellular, Inc. Trial Balance April 30, 2012 ACCOUNT DEBIT Cash…………………………… $ 4,900 Accounts receivable……….. 1,800 Office supplies……………… 200 Land…………………………… 14,300 CREDIT Accounts payable………….. $ Common stock……………… 19,800 Service revenue…………….. 4,500 Salary expense……………… 1,900 Rent expense………………… 1,300 Total…………………………… $24,400 100 $24,400 Req. 3 Total assets ($4,900 + $1,800 + 200 + $14,300)…. $21,200 Total liabilities…………………………………………. (100) Total stockholders’ equity ($19,800 + $1,300)…… 21,100 Chapter 2 Transaction Analysis 2-15 (10-15 min.) E 2-20A Journal DATE 1. 2. 3. 4. 5. 6. 7. ACCOUNT TITLES AND EXPLANATION Cash ……………………………………………… Common Stock ……………………….. Issued common stock. DEBIT 9,800 9,800 Cash ……………………………………………… 7,000 Note Payable ………………………….. Borrowed money; signed note payable. Land ……………………………………………… Cash ………………………………………. Note Payable ………………………….. Purchased land by paying cash and signing a note payable. 32,000 Supplies………………………………………… Accounts Payable …………………… Purchased supplies on account. 400 Cash ……………………………………………… Supplies …………………………………. Sold supplies for cash. 110 Equipment …………………………………….. Cash ………………………………………. Paid cash for equipment. 5,300 Accounts Payable ………………………….. Cash ………………………………………. Paid cash on account. 150 Financial Accounting 8/e Solutions Manual 7,000 4,000 28,000 400 110 5,300 Cash balance = $7,460 ($9,800 + $7,000 − $4,000 + $110 − $5,300 − $150) Company owes $35,250 ($7,000 + $28,000 + $400 − $150) 2-16 CREDIT 150 (10-20 min.) E 2-21A Req. 1 Deluxe Patio Service, Inc. Trial Balance June 30, 2012 ACCOUNT DEBIT CREDIT Cash ………………………………………. $ 9,300 Accounts receivable ……………….. 15,300 Land ………………………………………. 29,200 Accounts payable …………………… $ 4,800 Note payable…………………………… 11,500 Common stock ……………………….. 8,800 Retained earnings …………………… 21,600 Dividends ……………………………….. 5,500 Service revenue ……………………… 22,500 Salary expense ……………………….. 7,800 Utilities expense …………………….. 1,800 Delivery expense ……………………. 300 Total ………………………………………. $69,200 $69,200 Req. 2 Deluxe Patio Service, Inc. Income Statement For the Month Ended June 30, 2012 Service revenue ……………………… $22,500 Salary expense… ……………………. $7,800 Utilities expense …………………….. 1,800 Delivery expense ……………………. 300 Total expenses ……………………….. 9,900 Net income……………………………… $12,600 Chapter 2 Transaction Analysis 2-17 (15-25 min.) E 2-22A Garvey, Inc. Trial Balance September 30, 2012 ACCOUNT DEBIT Cash……………………………………. Accounts receivable …………….. $ 4,400* 12,600* Inventory …………………………….. 17,300 Supplies ……………………………… 400 Land ……………………………………. 51,000 CREDIT Accounts payable ………………… $12,900* Common stock…………………….. 47,300* Sales revenue ……………………… 33,900 Salary expense ……………………. 3,700 Insurance expense ………………. 2,000* Rent expense ………………………. 1,200 Utilities expense ………………….. __1,500* _______ Total ……………………………………. $94,100 $94,100 _____ *Computations: Cash: $4,300 + $100 = $4,400 Accounts Receivable: $12,700 − $100 = $12,600 Accounts Payable: $11,500 + $1,000 − $100 + $500 = $12,900 Common Stock: $47,100 + $200 = $47,300 Insurance Expense: $0 + $2,000 = $2,000 Utilities Expense: $1,000 + $500 = $1,500 2-18 Financial Accounting 8/e Solutions Manual (5-15 min.) E 2-23A Cash (a) Bal. Accounts Receivable 12,500 (b) 1,100 (f) 8,000 (d) 1,600 Bal. 8,000 (e) 500 (g) 2,200 7,100 Office Supplies Office Furniture (c) 900 (a) 9,400 Bal. 900 Bal. 9,400 Accounts Payable (e) Common Stock 500 (c) 900 (a) 21,900 Bal. 400 Bal. 21,900 Dividends Service Revenue (g) 2,200 (f) 8,000 Bal. 2,200 Bal. 8,000 Salary Expense Rent Expense (d) 1,600 (b) 1,100 Bal. 1,600 Bal. 1,100 Chapter 2 Transaction Analysis 2-19 (10-20 min.) E 2-24A Req. 1 Lynn Dover, Attorney Trial Balance May 31, 2012 ACCOUNT DEBIT Cash…………………………… $ 7,100 Accounts receivable……….. 8,000 Office supplies……………… 900 Office furniture……………… 9,400 CREDIT Accounts payable………….. $ Common stock……………… 21,900 Dividends…………………….. 400 2,200 Service revenue…………….. 8,000 Salary expense……………… 1,600 Rent expense……………….. 1,100 Total…………………………… $30,300 $30,300 Req. 2 The business performed well during May. The result of operations was net income of $5,300, as shown by the income statement accounts: Service revenue…………………. $ 8,000 Salary expense……….. $1,600 Rent expense…………. 1,100 Total expenses…………… (2,700) Net income……………………….. $ 5,300 2-20 Financial Accounting 8/e Solutions Manual (10-15 min.) E 2-25B TO: Home Office FROM: Store Manager During the first week, I used the store’s beginning cash to purchase equipment and supplies. I signed a note payable to buy land and a building. After all these transactions, the store’s balance sheet appears as follows: M. Crue San FranciscoStore Balance Sheet Date ASSETS Cash LIABILITIES $ 35,000* Note payable* Supplies 14,000 Equipment 55,000 Land 95,000 Common stock Building 125,000 Total liabilities and Total assets $324,000 $220,000 STOCKHOLDERS’ EQUITY stockholders’ equity 104,000 $324,000 $324,000 _____ ($91,000 + $120,000) = $211,000 Cash 104,000 55,000 14,000 35,000 Chapter 2 Transaction Analysis 2-21 (10-15 min.) E 2-26B a. Increased assets (cash) b. No effect on total assets. Increase in equipment offsets the decrease in cash. c. Decreased assets (cash) d. No effect (a personal transaction) e. Increased assets (land) f. Increased assets (cash) g. No effect on total assets. Increase in notes receivable offsets the decrease in land. h. Increased assets (accounts receivable) i. Increased assets (supplies) j. Decreased assets (cash) 2-22 Financial Accounting 8/e Solutions Manual (10-20 min.) E 2-27B Req. 1 Analysis of Transactions = LIABILITIES + ASSETS Accounts Medical + Receivable + Supplies + Date Cash July 6 41,000 STOCKHOLDERS’ EQUITY Note Common Payable + Stock + Retained Earnings 41,000 9 (27,000) Type of Stockholders’ Equity Transaction Issued stock 27,000 12 15 Accounts Land = Payable + 2,100 2,100 Not a transaction of the business. 15-31 4,050 15-31 (1,500) (1,500) Salary expense (1,100) (1,100) Rent expense (1,200) (1,200) Utilities expense Bal. 31 800 31 19,000 31 (1,500) 32,550 4,050 8,100 Service revenue (800) 19,000 (1,500) 4,050 1,300 27,000 600 64,900 Chapter 2 19,000 41,000 64,900 Transaction Analysis 2-23 4,300 (continued)E2-27B Req. 2 a. $64,900 b. $4,050 c. $19,600 ($600 + $19,000) d. $45,300 ($64,900 − $19,600, or $41,000 + $4,300) e. $4,300 (Revenue, $8,100 minus expenses,$3,800, equals net income, $4,300.) 2-24 Financial Accounting 8/e Solutions Manual (10-15 min.) E 2-28B Journal DATE Mar. 6 9 12 15 ACCOUNT TITLES AND EXPLANATION DEBIT Cash……………………………………………… Common Stock ……………………… Issued stock to owner. 41,000 Land …………………………………………….. Cash ……………………………………… Purchased land. 27,000 Medical Supplies …………………………… Accounts Payable ………………….. Purchased supplies on account. 2,100 41,000 27,000 2,100 Not a transaction of the business. 15-31 Cash ……………………………………………… 4,050 Accounts Receivable……………………… 4,050 Service Revenue ……………………. Performed service for cash and on account. 15-31 Salary Expense ……………………………… Rent Expense ………………………………… Utilities Expense ……………………………. Cash ……………………………………… Paid expenses. 31 31 31 CREDIT 1,500 1,100 1,200 3,800 Cash …………………………………………….. Medical Supplies……………………. Sold supplies. 800 Cash …………………………………………….. Note Payable …………………………. Borrowed money. 19,000 Accounts Payable ………………………….. Cash ……………………………………… Paid on account. 1,500 Chapter 2 Transaction Analysis 8,100 800 19,000 1,500 2-25 (10-20 min.) E 2-29B DATE Sept. 2-26 Journal ACCOUNT TITLES AND EXPLANATION DEBIT 1 Cash ……………………………………………… Common Stock ………………………. Issued common stock to owner. 19,900 2 Office Supplies ………………………………. Accounts Payable ………………….. Purchased office supplies on account. 400 4 Land ……………………………………………… Cash ……………………………………… Paid cash for land. 14,000 6 Cash ……………………………………………… Service Revenue ……………………. Performed services for cash. 2,900 9 Accounts Payable ………………………….. Cash ……………………………………… Paid cash on account. 300 17 Accounts Receivable ……………………… Service Revenue ……………………. Performed service on account. 1,200 23 Cash ……………………………………………… Accounts Receivable ……………… Received cash on account. 100 30 Salary Expense ……………………………… Rent Expense ………………………………… Cash ……………………………………… Paid cash expenses. 1,200 800 Financial Accounting 8/e Solutions Manual CREDIT 19,900 400 14,000 2,900 300 1,200 100 2,000 (20-30 min.) E 2-30B Req. 1 Cash Sept. 1 Accounts Receivable 19,900 Sept. 4 14,600 6 2,900 9 300 23 100 30 2,000 Bal. Sept.17 1,200 Sept. 23 Bal. 1,100 100 6,600 Office Supplies Land Sept. 2 400 Sept. 4 14,000 Bal. 400 Bal. 14,000 Accounts Payable Sept. 9 Common Stock 300 Sept. 2 400 Sept. 1 19,900 Bal. 100 Bal. 19,900 Service Revenue Salary Expense Sept. 6 2,900 Sept.30 1,200 17 1,200 Bal. 1,200 Bal. 4,100 Rent Expense Sept. 30 800 Bal. 800 Chapter 2 Transaction Analysis 2-27 (continued) E 2-30B Req. 2 DoubleTree Cellular, Inc. Trial Balance September 30, 2012 ACCOUNT DEBIT Cash…………………………… $ 6,600 Accounts receivable……….. 1,100 Office supplies……………… 400 Land…………………………… 14,000 CREDIT Accounts payable………….. $ Common stock……………… 19,900 Service revenue…………….. 4,100 Salary expense……………… 1,200 Rent expense………………… 800 Total…………………………… $24,100 100 $24,100 Req. 3 Total assets ($6,600 + $1,100 + 400 + $14,000)….. $22,100 Total liabilities…………………………………………. (100) Total stockholders’ equity ($19,900 + $2,100)…… $22,000 2-28 Financial Accounting 8/e Solutions Manual (10-15 min.) E 2-31B Journal DATE 1. 2. 3. 4. 5. 6. 7. ACCOUNT TITLES AND EXPLANATION DEBIT Cash ……………………………………………… Common Stock………………………. Issued common stock. 10,100 Cash ……………………………………………… Note Payable …………………………. Borrowed money; signed note payable. 7,300 Land ……………………………………………… Cash ……………………………………… Note Payable …………………………. Purchased land by paying cash and signing a note payable. 35,000 Supplies ………………………………………… Accounts Payable ………………….. Purchased supplies on account. 800 Cash… ………………………………………….. Supplies ………………………………… Sold supplies for cash. 130 Equipment …………………………………….. Cash ……………………………………… Paid cash for equipment. 5,700 Accounts Payable ………………………….. Cash ……………………………………… Paid cash on account. 140 CREDIT 10,100 7,300 7,000 28,000 800 130 5,700 140 Cash balance = $4,690 ($10,100 + $7,300 − $7,000 + $130 − $5,700 − $140) Company owes $35,960 ($7,300 + $28,000 + $800 − $140) Chapter 2 Transaction Analysis 2-29 (10-20 min.) E 2-32B Req. 1 Custom Pool Service, Inc. Trial Balance June 30, 2012 ACCOUNT DEBIT CREDIT Cash ………………………………………… 9,200 Accounts receivable ………………… 15,200 Land ………………………………………… 29,600 Accounts payable …………………….. $ 4,100 Note payable ……………………………. 11,500 Common stock ………………………… 8,300 Retained earnings ……………………. 24,700 Dividends ………………………………… 5,800 Service revenue ……………………….. 22,300 Salary expense ………………………… 8,500 Utilities expense ………………………. 1,700 Delivery expense ……………………… 900 Total ………………………………………… $70,900 $70,900 Req. 2 Custom Pool Service, Inc. Income Statement For the Month Ended June 30, 2012 Service revenue ……………………….. $22,300 Salary expense ……………….. $8,500 Utilities expense ……………… 1,700 Delivery expense …………….. 900 Total expenses ………………………… 11,100 Net income ………………………………. $11,200 (15-25 min.) E 2-33B 2-30 Financial Accounting 8/e Solutions Manual Doyle, Inc. Trial Balance June 30, 2012 ACCOUNT DEBIT Cash… ……………………………….. $ 5,200* Accounts receivable ……………. 12,600* Inventory ……………………………. 17,100 Supplies……………………………… 800 Land …………………………………… 58,000 CREDIT Accounts payable ……………….. $15,500* Common stock ……………………. 47,600* Sales revenue …………………….. 38,500 Salary expense …………………… 3,400 Insurance expense ……………… 1,900* Rent expense ……………………… 1,100 Utilities expense …………………. 1,500* _______ Total …………………………………… $101,600 $101,600 _____ *Explanations: Cash: $4,600 + $600 = $5,200 Accounts Receivable: $13,200 − $600 = $12,600 Accounts Payable: $12,400 + $3,000 − $300 + $400 = $15,500 Common Stock: $47,400 + $200 = $47,600 Insurance Expense: $0 + $3,400 = $3,400 Utilities Expense: $1,100 + $400 = $1,500 Chapter 2 Transaction Analysis 2-31 (5-15 min.) E 2-34B Cash (a) Bal. Accounts Receivable 13,000 (b) 1,800 (f) 8,700 (d) 1,800 Bal. 8,700 (e) 900 (g) 2,500 6,000 Office Supplies Office Furniture (c) 1,300 (a) 8,900 Bal. 1,300 Bal. 8,900 Accounts Payable (e) Common Stock 900 (c) 1,300 (a) 21,900 Bal. 400 Bal. 21,900 Dividends Service Revenue (g) 2,500 (f) 8,700 Bal. 2,500 Bal. 8,700 Salary Expense Rent Expense (d) 1,800 (b) 1,800 Bal. 1,800 Bal. 1,800 2-32 Financial Accounting 8/e Solutions Manual (10-20 min.) E 2-35B Req. 1 Lisa Oxford, Attorney Trial Balance March 31, 2012 ACCOUNT DEBIT Cash………………………………….. $ 6,000 Accounts receivable …………… 8,700 Office supplies …………………… 1,300 Office furniture …………………… 8,900 CREDIT Accounts payable ………………. $ Common stock …………………… 21,900 Dividends ………………………….. 400 2,500 Service revenue …………………. 8,700 Salary expense ………………….. 1,800 Rent expense …………………….. 1,800 Total ………………………………….. $31,000 $31,000 Req. 2 The business performed well during March. The result of operations was net income of $5,100, as shown by the income statement accounts: Service revenue…………………. $ 8,700 Salary expense …………. $1,800 Rent expense ……………. 1,800 Total expenses………………….. (3,600) Net income……………………….. $ 5,100 Chapter 2 Transaction Analysis 2-33 Serial Exercise (20-30 min.) E 2-36 Reqs. 1 and 3 Cash Jan. 2 9 Bal. Accounts Receivable 11,000 Jan. 2 1,000 700 3 3,900 12 200 Jan. 18 1,500 Bal. 1,500 7,200 Supplies Equipment Jan. 5 400 Jan. 3 3,900 Bal. 400 Bal. 3,900 Furniture Accounts Payable Jan. 4 4,700 Jan. 4 4,700 Bal. 4,700 5 400 Bal. Common Stock 5,100 Service Revenue Jan. 2 11,000 Jan. 9 1,000 Bal. 11,000 18 1,500 Bal. Rent Expense Utilities Expense Jan. 2 700 Jan. 12 200 Bal. 700 Bal. 200 2-34 Financial Accounting 8/e Solutions Manual 2,500 (continued) E 2-36 Req. 2 DATE Journal ACCOUNT TITLES AND EXPLANATION DEBIT Jan. 2 Cash ………………………………………………… Common Stock …………………………. 11,000 2 Rent Expense …………………………………… Cash ………………………………………… 700 3 Equipment ……………………………………….. Cash… ……………………………………… 3,900 4 Furniture… ……………………………………….. Accounts Payable …………………….. 4,700 5 Supplies …………………………………………… Accounts Payable …………………….. 400 9 Cash ………………………………………………… Service Revenue……………………….. 1,000 12 Utilities Expense ………………………………. Cash ………………………………………… 200 18 Accounts Receivable ………………………… Service Revenue……………………….. 1,500 Chapter 2 Transaction Analysis CREDIT 11,000 700 3,900 4,700 400 1,000 200 1,500 2-35 (continued) E 2-36 Req. 3 Steve Ruiz, Certified Public Accountant, P.C. Trial Balance January 18, 2012 ACCOUNT DEBIT Cash…………………………………….. $ 7,200 Accounts receivable ……………… 1,500 Supplies ………………………………. 400 Equipment ……………………………. 3,900 Furniture………………………………. 4,700 Accounts payable …………………. $ 5,100 Common stock……………………… 11,000 Dividends …………………………….. — Service revenue ……………………. 2-36 CREDIT 2,500 Rent expense ……………………….. 700 Utilities expense …………………… 200 Salary expense …………………….. — Total …………………………………….. $18,600 Financial Accounting 8/e Solutions Manual $18,600 Quiz Q2-37 d Q2-38 d Q2-39 d Q2-40 d Q2-41 d Q2-42 c Q2-43 a Q2-44 c Q2-45 c Q2-46 b Q2-47 d Q2-48 d Q2-49 a Q2-50 d Q2-51 c Q2-52 c Q2-53 d Q2-54 d Q2-55 a Q2-56 d ($45,000 + $22,000 + $11,000) = $78,000 Chapter 2 Transaction Analysis 2-37 Problems (15-30 min.) P 2-57A Dear Abby, This trial balance lists the accounts of the company, along with their balances at December 31, 2012. The trial balance provides the data for computing total assets, total liabilities, and net income or net loss. Dorman Specialties a. Total assets = $407,000 ($20,000 + $45,000 + $3,000 + $235,000 + $104,000) b. Total liabilities = $184,000 ($102,000 + $82,000) c. Net income = $24,000 ($180,000 − $59,000 − $12,000 −$76,000 − $9,000) Student responses may vary. 2-38 Financial Accounting 8/e Solutions Manual (45-60 min.) P 2-58A Req. 1 Cash ASSETS Accounts + Receivable + Supplies + Bal. 1,400 a) 9,000 b) 6,800 c) (4,700) 1,300 11,600 f) g) 3,500 2,800 Issued stock 6,800 Service revenue (4,700) 1,200 400 8,000 9,000 d) e) Analysis of Transactions = LIABILITIES + STOCKHOLDERS’ EQUITY Accounts Common Retained Type of Stockholders’ Land = Payable + Stock + Earnings Equity Transaction 1,200 (400) 2,400 2,400 Service revenue (1,400) (1,400) Rent expense (900) (900) Advertising expense h) (1,700) ____ ____ Bal. 8,900 3,300 1,200 (1,700) Dividends 11,600 $25,000 Chapter 2 4,500 12,500 8,000 $25,000 Transaction Analysis 2-39 (continued) P 2-58A Req. 2 Mason Resources, Inc. Income Statement Month Ended June 30, 2012 Revenues: Service revenue ($6,800 + $2,400)… Expenses: Rent expense………………………… Advertising expense………………… Total expenses………………………. Net income……………………………………. $9,200 $1,400 900 2,300 $6,900 Req. 3 Martin Resources, Inc. Statement of Retained Earnings Month Ended June 30, 2012 Retained earnings, May 31, 2012……………….. Add: Net income……………………………….. Less: Dividends…………………………………. Retained earnings, June 30, 2012…………….. $ 2,800 6,900 9,700 (1,700) $ 8,000 Req. 4 Martin Resources, Inc. Balance Sheet June 30, 2012 ASSETS LIABILITIES Cash………………………. $8,900 Accounts payable………… Accounts receivable…… 3,300 STOCKHOLDERS’ Supplies………………….. 1,200 EQUITY Land………………………. 11,600 Common stock……………. Retained earnings………… Total stockholders’ equity Total liabilities and Total assets……………… $25,000 stockholders’ equity….. 2-40 Financial Accounting 8/e Solutions Manual $ 4,500 12,500 8,000 20,500 $25,000 (30-40 min.) P 2-59A Req. 1 Journal ACCOUNT TITLES a. b. c. d. e. f. g. h. DEBIT Cash ……………………………………………….. Common Stock ………………………… 9,000 Cash ……………………………………………….. Service Revenue………………………. 6,800 Accounts Payable… …………………………. Cash ……………………………………….. 4,700 Supplies ………………………………………….. Accounts Payable ……………………. 1,200 Cash……………………………………………….. Accounts Receivable ……………….. 400 Accounts Receivable ……………………….. Service Revenue… …………………… 2,400 Rent Expense ………………………………….. Advertising Expense ………………………… Cash ……………………………………….. 1,400 900 Dividends… …………………………………….. Cash ……………………………………….. 1,700 Chapter 2 Transaction Analysis CREDIT 9,000 6,800 4,700 1,200 400 2,400 2,300 1,700 2-41 (continued) P 2-59A Reqs. 2 and 3 Cash Accounts Receivable Supplies 1,200 11,600 1,200 11,600 Retained Earnings Dividends 1,400 4,700 1,300 9,00 2,300 2,400 6,800 1,700 3,300 400 Land 400 8,900 Accounts Payable 4,700 Common Stock 8,000 3,500 1,200 9,000 4,500 12,500 Service Revenue 6,800 Rent Expense 2,800 1,700 2,800 1,700 Advertising Expense 1,400 900 1,400 900 2,400 9,200 The balances of all the accounts Cash through Common Stock agree with the ending balances obtained in Problem 2-58A. 2-42 Financial Accounting 8/e Solutions Manual (40-50 min.) P 2-60A Req. 1 Classification of Transactions Nov. 4 b 5 c 6 c 7 c 10 b 11 b 12 a 18 c 21 c 25 c 30 c Chapter 2 Transaction Analysis 2-43 (continued) P 2-60A Req. 2 Date Analysis of Transactions ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY Accounts Office Accounts Common Retained Type of Stockholders’ Cash + Receivable+ Supplies + Equipment = Payable + Stock + Earnings Equity Transaction Nov. 4* 5 58,000 6 (100) 7 (10,000) 58,000 Issued stock 100 16,500 6,500 10* 11* 12* 18 Bal. 5,500 21 (3,250) 25 (1,400) 30 (2,400) 40,850 Service revenue (1,400) Rent expense (2,400) 1,700 Dividends (3,250) 5,500 $62,950 *Not a transaction of the business. 2-44 5,500 Financial Accounting 8/e Solutions Manual ___ 100 16,500 3,250 58,000 $62,950 (continued) P 2-60A Req. 3 DATE Nov. Journal ACCOUNT TITLES AND EXPLANATION DEBIT 5 Cash ……………………………………………….. Common Stock…………………………. Issued stock to owner. 58,000 6 Supplies …………………………………………… Cash ………………………………………… Purchased supplies. 100 7 Office Equipment ……………………………… Cash ………………………………………… Accounts Payable …………………….. Purchased equipment. 16,500 18 Accounts Receivable ………………………… Service Revenue ………………………. Performed service on account. 5,500 21 Accounts Payable …………………………….. Cash ………………………………………… Paid on account. 3,250 25 Rent Expense …………………………………… Cash ………………………………………… Paid rent. 1,400 30 Dividends …………………………………………. Cash ………………………………………… Paid dividend. 2,400 Chapter 2 Transaction Analysis CREDIT 58,000 100 10,000 6,500 5,500 3,250 1,400 2,400 2-45 (15-20 min.) P 2-61A Req. 1 Journal DATE ACCOUNT TITLES Dec. 1 Cash ……………………………………………….. Common Stock… ……………………… DEBIT 23,000 5 Rent Expense …………………………………… Cash… …………………………………….. 1,900 9 Land… ……………………………………………… Cash ………………………………………… Notes Payable ………………………….. 35,000 10 Supplies …………………………………………… Accounts Payable …………………….. 1,100 19 Accounts Payable …………………………….. Cash ………………………………………… 700 22 Cash ……………………………………………….. Notes Payable ………………………….. 19,000 31 Cash ……………………………………………….. Accounts Receivable ………………………… Service Revenue ………………………. 14,000 6,000 31 Salary Expense ………………………………… Advertising Expense… ……………………… Utilities Expense ………………………………. Cash ………………………………………… 2,500 1,300 1,700 31 Dividends …………………………………………. Cash ………………………………………… 2,500 2-46 Financial Accounting 8/e Solutions Manual CREDIT 23,000 1,900 7,000 28,000 1,100 700 19,000 20,000 5,500 2,500 (continued) P 2-61A Req. 2 Cash 23,000 1,900 19,000 7,000 14,000 700 5,500 2,500 38,400 Accounts Payable 700 1,100 400 Notes Payable 28,000 19,000 47,000 Req. 3 Cash: $38,400 Total amount owed: $47,400 ($400 + $47,000) Chapter 2 Transaction Analysis 2-47 (50-60 min.) P 2-62A Req. 1 Journal DATE Mar. ACCOUNT TITLES 2 Cash ……………………………………………. Common Stock …………………….. 37,000 3 Supplies… ……………………………………. Equipment… …………………………………. Accounts Payable …………………. 300 3,000 4 Cash ……………………………………………. Service Revenue …………………… 1,500 7 Land ……………………………………………. Cash…………………………………….. 28,000 11 Accounts Receivable …………………….. Service Revenue …………………… 1,100 16 Accounts Payable …………………………. Cash…………………………………….. 3,000 17 Utilities Expense …………………………… Cash…………………………………….. 110 18 Cash… …………………………………………. Accounts Receivable …………….. 550 Utilities Expense… ……………………….. Cash… …………………………………. 130 Cash……… …………………………………… Service Revenue …………………… 1,000 Salary Expense …………………………….. Cash ……………………………………. 1,900 Dividends …………………………………….. Cash ……………………………………. 2,200 22 29 31 31 2-48 DEBIT Financial Accounting 8/e Solutions Manual CREDIT 37,000 3,300 1,500 28,000 1,100 3,000 110 550 130 1,000 1,900 2,200 (continued) P 2-62A Req. 2 Cash Mar. 2 Accounts Receivable 37,000 Mar. 7 28,000 Mar. 11 4 1,500 16 3,000 Bal. 18 550 17 110 29 1,000 22 130 31 1,900 31 2,200 Bal. 4,710 1,100 Supplies Mar. 3 300 Bal. 300 Land Mar. 3 3,000 Mar. 7 28,000 Bal. 3,000 Bal. 28,000 Accounts Payable 3,000 Common Stock Mar. 3 3,300 Mar. 2 37,000 Bal. 300 Bal. 37,000 Dividends Mar. 31 550 550 Equipment Mar. 16 Mar. 18 Service Revenue 2,200 Mar. 4 1,500 2,200 11 1,100 29 1,000 Bal. Salary Expense Mar. 31 1,900 Bal. 1,900 3,600 Utilities Expense Mar.17 22 Bal. Chapter 2 Transaction Analysis 110 130 240 2-49 (continued) P 2-62A Req. 3 Coutier Heating and Air Conditioning, Inc. Trial Balance March 31 ACCOUNT DEBIT CREDIT Cash…………………………………….. $ 4,710 Accounts receivable ……………… 550 Supplies ………………………………. 300 Equipment ……………………………. 3,000 Land …………………………………….. 28,000 Accounts payable …………………. $ 300 Common stock……………………… 37,000 Dividends …………………………….. 2,200 Service revenue ……………………. 3,600 Salary expense …………………….. 1,900 Utilities expense …………………… 240 Total …………………………………….. $40,900 $40,900 Req. 4 Total resources (assets) = $36,560 ($4,710 + $550 + $300 + $3,000 + $28,000) Amount owed (total liabilities) = $300 Profit (net income)= $1,460 ($3,600 − $1,900 − $240) 2-50 Financial Accounting 8/e Solutions Manual (40-50 min.) P 2-63A Reqs. 1 and 2 Cash (a) (b) (f) (j) Bal. 25,000 (c) 34,300 (e) 1,400 (h) 1,900 (k) 27,700 (d) Bal. Supplies 200 200 (a) Bal. Building 51,000 51,000 Accounts Receivable 31,000 2,200 100 1,600 (g) Bal. 2,800 (j) 900 (c) Bal. Music Equipment 31,000 31,000 (h) Note Payable (b) Bal. 34,300 34,300 1,900 Accounts Payable 100 (d) (i) Bal. 200 700 800 Common Stock (a) Bal. 76,000 76,000 Service Revenue (f) 1,400 (g) 2,800 Bal. 4,200 Salary Expense Rent Expense (e) 2,200 (k) 1,100 Bal. 2,200 Bal. 1,100 Advertising Expense Utilities Expense (k) 500 (i) 700 Bal. 500 Bal. 700 Chapter 2 Transaction Analysis 2-51 (continued) P 2-63A Req. 3 Self Music Services Corporation Trial Balance October 31, 2012 ACCOUNT DEBIT 2-52 Cash……………………………………. $ 27,700 Accounts receivable …………….. 900 Supplies ……………………………… 200 Music equipment …………………. 31,000 Building ………………………………. 51,000 CREDIT Accounts payable ………………… $ Note payable……………………….. 34,300 Common stock…………………….. 76,000 Service revenue …………………… 4,200 Salary expense ……………………. 2,200 Rent expense………………………. 1,100 Advertising expense…………….. 500 Utilities expense ………………….. 700 Total ……………………………………. $115,300 Financial Accounting 8/e Solutions Manual 800 $115,300 (15-30 min.) P 2-64B Dear Rachael, This trial balance lists the accounts of the company, along with their balances at December 31, 2012.The trial balance provides the data for computing total assets, total liabilities, and net income or net loss. Famous Specialties a. Total assets = $409,000 ($27,000 + $40,000 + $6,000 + $239,000 + $97,000) b. Total liabilities = $189,000 ($104,000 + $85,000) c. Net income = $49,000 ($160,000 − $24,000 − $10,000 − $73,000 − $4,000) Student responses may vary. Chapter 2 Transaction Analysis 2-53 (45-60 min.) P 2-65B Req. 1 Analysis of Transactions = LIABILITIES ASSETS Cash Bal. 1,050 a) 8,900 b) 6,300 c) (4,100) Accounts + Receivable + Supplies + 1,350 11,700 200 f) Accounts Payable + Common Stock + Retained Earnings 7,900 3,600 2,600 Issued stock 6,300 Service revenue 2,400 Service revenue 700 (200) 2,400 g) Type of Stockholders’ Equity Transaction (4,100) 700 e) = STOCKHOLDERS’ EQUITY 8,900 d) (1,300) (1,300) Rent expense (1,000) (1,000) Advertising expense i) (2,000) Bal. 8,050 ___ 3,550 700 $24,000 2-54 Land + Financial Accounting 8/e Solutions Manual (2,000) Dividends 11,700 4,500 12,500 $24,000 7,000 (continued) P 2-65B Req. 2 Davis Resources, Inc. Income Statement Month Ended June 30, 2012 Revenues: Service revenue ($6,300 + $2,300) ………. $ 8,700 Expenses: Rent expense………………………… $1,300 Advertising expense……………….. 1,000 Total expenses……………………… 2,300 Net income ……………………………………….. $6,400 Req. 3 Davis Resources, Inc. Statement of Retained Earnings For the Month Ended June 30, 2012 Retained earnings, May 31, 2012 ………… $2,600 Add: Net income………………………………… 6,400 9,000 Less: Dividends ………………………………… (2,000) Retained earnings, June 30, 2012 ……….. $7,000 Chapter 2 Transaction Analysis 2-55 (continued) P 2-65B Req. 4 Davis Resources, Inc. Balance Sheet June 30, 2012 ASSETS LIABILITIES Cash……………………. $8,050 Accounts payable…………. Accounts receivable… 3,550 STOCKHOLDERS’ Supplies…………….…. 700 EQUITY Land……………………. $ 4,500 11,700 Common stock…………….. 12,500 Retained earnings…………. 7,000 Total stockholders’ equity. 19,500 Total liabilities and Total assets…………… 2-56 $24,000 Financial Accounting 8/e Solutions Manual stockholders’ equity. $24,000 (30-40 min.) P 2-66B Req. 1 Journal ACCOUNT TITLES AND EXPLANATION a. b. c. d. e. f. g. i. DEBIT Cash ………………………………………………. Common Stock ……………………….. 8,900 Cash ………………………………………………. Service Revenue……………………… 6,300 Accounts Payable ………………………….. Cash… ……………………………………. 4,100 Supplies ………………………………………… Accounts Payable …………………… 700 Cash ………………………………………………. Accounts Receivable… ……………. 200 Accounts Receivable ………………………. Service Revenue……………………… 2,400 Rent Expense …………………………………. Advertising Expense… ……………………. Cash… ……………………………………. 1,300 1,000 Dividends ……………………………………….. Cash ………………………………………. 2,000 Chapter 2 Transaction Analysis CREDIT 8,900 6,300 4,100 700 200 2,400 2,300 2,000 2-57 (continued) P 2-66B Reqs. 2 and 3 Accounts Cash Receivable Supplies 700 11,700 700 11,700 1,050 4,100 1,350 8,900 1,300 2,400 6,300 1,000 3,550 200 2,000 200 Land 8,050 Accounts Payable 4,100 Retained Common Stock 7,900 3,600 700 8,900 4,500 12,500 Service Revenue 6,300 Earnings Dividends 2,600 2,000 2,600 2,000 Advertising Rent Expense Expense 1,300 1,000 1,300 1,000 2,400 8,700 The balances of all the accounts Cash through Common Stock agree with the ending balances obtained in Problem 2-65B. 2-58 Financial Accounting 8/e Solutions Manual (40-50 min.) P 2-67B Req. 1 Classification of Transactions Nov 4 b 5 c 6 c 7 c 10 b 11 b 12 a 18 c 21 c 25 c 30 c Chapter 2 Transaction Analysis 2-59 (continued) P 2-67B Req. 2 Analysis of Transactions = LIABILITIES ASSETS Date Cash Accounts + Receivable + Supplies + Office Equipment= Accounts Payable + + STOCKHOLDERS’ EQUITY Common Stock + Retained Earnings Type of Stockholders’ Equity Transaction Nov. 4* 5 54,000 6 (1,000) 7 (9,500) 54,000 Issued stock 1,000 17,000 7,500 10* 11* 12* 18 Bal. 4,500 21 (3,750) 25 (1,000) 30 (1,800) 36,950 Service revenue (3,750) (1,000) Rent expense ___ 4,500 $59,450 _____ *Not a transaction of the business. 2-60 4,500 Financial Accounting 8/e Solutions Manual 1,000 (1,800) Dividend 17,000 3,750 54,000 $59,450 1,700 (continued) P 2-67B Req. 3 DATE Nov. Journal ACCOUNT TITLES AND EXPLANATION DEBIT 5 Cash ………………………………………………… Common Stock………………………….. Issued stock to owner. 54,000 7 Supplies …………………………………………… Cash… ………………………………………. Purchased supplies. 1,000 9 Office Equipment… …………………………… Cash… ………………………………………. Accounts Payable… …………………… Purchased furniture. 17,000 23 Accounts Receivable ………………………… Service Revenue ………………………… Performed service on account. 4,500 29 Accounts Payable …………………………….. Cash …………………………………………. Paid on account. 3,750 30 Rent Expense …………………………………… Cash ………………………………………… . Paid rent. 1,000 31 Dividends… ……………………………………… Cash… ………………………………………. Paid dividend. 1,800 Chapter 2 CREDIT 54,000 1,000 9,500 7,500 4,500 3,750 1,000 1,800 Transaction Analysis 2-61 (15-20 min.) P 2-68B Req. 1 Journal DATE Dec 2-62 ACCOUNT TITLES DEBIT 1 Cash ………………………………………………… Common Stock ………………………….. 25,000 5 Rent Expense… ………………………………… Cash ……………………………………………. 1,600 9 Land ………………………………………………… Cash… ………………………………………. Notes Payable… ………………………… 44,500 10 Supplies …………………………………………… Accounts Payable ……………………… 1,000 19 Accounts Payable …………………………….. Cash …………………………………………. 650 22 Cash ………………………………………………… Notes Payable… …………………………… 20,000 31 Cash ………………………………………………… Accounts Receivable ………………………… Service Revenue ………………………….. 13,500 5,000 31 Salary Expense… ……………………………… Advertising Expense… ……………………… Utilities Expense ………………………………. Cash …………………………………………. 2,700 1,700 1,100 30 Dividends …………………………………………. Cash …………………………………………. 4,000 Financial Accounting 9/e Solutions Manual CREDIT 25,000 1,600 8,500 36,000 1,000 650 20,000 18,500 5,500 4,000 (continued) P 2-68B Req. 2 Cash 25,000 1,600 20,000 8,500 13,500 650 2,700 1,700 1,100 4,000 38,250 Accounts Payable 650 1,000 350 Notes Payable 36,000 20,000 56,000 Req. 3 Cash: $38,250 Total amount owed: $56,350 ($350 + $56,000) Chapter 2 Transaction Analysis 2-63 (50-60 min.) P 2-69B Req. 1 Journal ACCOUNT TITLES DATE Mar. 2 Cash ………………………………………………… Common Stock… ………………………. 35,000 3 Supplies… ……………………………………….. Equipment ……………………………………….. Accounts Payable… …………………… 200 3,200 4 Cash…… ………………………………………….. Service Revenue… …………………….. 1,400 7 Land ………………………………………………… Cash…………………………………………. 24,000 11 Accounts Receivable… …………………….. Service Revenue ……………………….. 800 16 Accounts Payable …………………………….. Cash …………………………………………. 3,200 17 Utilities Expense ………………………………. Cash…………………………………………. 150 18 Cash… …………………………………………….. Accounts Receivable… ………………. 400 22 Utilities Expense ……………………………….. Cash ………………………………………….. 170 Cash …………………………………………………. Service Revenue ………………………… 1,500 Salary Expense …………………………………. Cash ………………………………………….. 1,800 Dividends …………………………………………. Cash ………………………………………….. 2,100 29 31 31 2-64 DEBIT Financial Accounting 9/e Solutions Manual CREDIT 35,000 3,400 1,400 24,000 800 3,200 150 400 170 1,500 1,800 2,100 (continued) P 2-69B Req. 2 Cash Mar. Accounts Receivable 2 35,000 Mar. 7 24,000 Mar. 11 800 4 1,400 16 3,200 Bal. 400 18 400 17 150 29 1,500 22 170 31 1,800 31 2,100 Bal. 6,880 Sept. 3 200 Bal. 200 Land Mar. 3 3,200 Mar. 7 24,000 Bal. 3,200 Bal. 24,000 Accounts Payable Common Stock 3,200 Mar.3 3,400 Mar. 2 35,000 Bal. 200 Bal. 35,000 Dividends Mar. 31 2,100 Bal. 2,100 Service Revenue Mar. 4 1,400 11 800 29 1,500 Bal. Mar. 31 Bal. 400 Supplies Equipment Mar. 16 Mar. 18 Salary Expense 1,800 1,800 3,700 Utilities Expense Mar. 17 150 22 170 Bal. 320 Chapter 2 Transaction Analysis 2-65 (continued) P 2-69B Req. 3 Johnson Plumbing, Inc. Trial Balance March 31 ACCOUNT DEBIT Cash……………………………………. $ 6,880 Accounts receivable …………….. 400 Supplies ……………………………… 200 Equipment …………………………… 3,200 Land ……………………………………. 24,000 CREDIT Accounts payable ………………… $ Common stock…………………….. 35,000 Dividends ……………………………. 200 2,100 Service revenue …………………… 3,700 Salary expense ……………………. 1,800 Utilities expense ………………….. 320 Total ……………………………………. $38,900 $38,900 Req. 4 Total resources (assets) = $34,680 ($6,880 + $400 + $200 + $3,200 + $24,000) Amount owed (total liabilities) = $200 Profit (net income) = $1,580 ($3,700 − $1,800 − $320) 2-66 Financial Accounting 9/e Solutions Manual (40-50 min.) P 2-70B Reqs. 1 and 2 Cash (a) (b) (f) (j) Bal. 19,000 (c) 41,100 (e) 1,600 (h) 1,100 (k) 21,800 Accounts Receivable 37,000 2,000 200 1,800 (g) Bal. Supplies (d) Bal. 300 300 (c) Bal. 37,000 37,000 Accounts Payable 53,000 53,000 (h) Note Payable (b) Bal. 1,100 Music Equipment Building (a) Bal. 2,900 (j) 1,800 200 (d) (i) Bal. 300 900 1,000 Common Stock 41,100 41,100 (a) Bal. 72,000 72,000 Service Revenue (f) (g) Bal. Salary Expense (e) Bal. 2,000 2,000 Advertising Expense (k) Bal. Rent Expense (k) Bal. 1,000 1,000 1,600 2,900 4,500 800 800 Utilities Expense (i) Bal. 900 900 Chapter 2 Transaction Analysis 2-67 (continued) P 2-70B Req. 3 Star Entertainment Corporation Trial Balance February 29, 2012 ACCOUNT DEBIT Cash…………………………… $ 21,800 Accounts receivable………… 1,800 Supplies………………………. 300 Music equipment…………….. 37,000 Building……………………….. 53,000 Accounts payable…………… 2-68 CREDIT $ 1,000 Note payable…………………. 41,100 Common stock………………. 72,000 Service revenue……………… 4,500 Salary expense………………. 2,000 Advertising expense………… 1,000 Rent expense………………… 900 Utilities expense…………….. 800 Total……………………………. $118,600 Financial Accounting 9/e Solutions Manual $118,600 Challenge Exercises and Problem (20-40 min.) E 2-71 a. Total cash paid during December: Cash Nov. 30 Bal. 10,000 Dec. receipts 82,000 Dec. payments Dec. 31 Bal. 5,000 X = $87,000 $10,000 + $82,000 − X = $ 5,000 X = $87,000 b. Cash collections from customers during December: Accounts Receivable Nov 30 Bal. 27,000 Dec. sales on account Dec. 31 Bal. 54,000 Dec. collections X = $56,000 25,000 $27,000 + $54,000 − X = $25,000 X = $56,000 c. Cash paid on notes payable during December: Notes Payable Nov. 30 Bal. X = 24,000 Dec. note payments 11,000 X Dec. new borrowing Dec. 31 Bal. 32,000 19,000 $11,000 + $32,000 − X = $19,000 X = $24,000 Chapter 2 Transaction Analysis 2-69 (20-30 min.) E 2-72 Req. 1 Rectangle 120, Inc. Trial Balance August 31, 2012 Cash…………………………… $ 3,900 Accounts receivable……….. 7,400 Land…………………………… 34,400 Accounts payable………….. $ 6,000 Note payable………………… 5,500 Common stock……………… 20,100 Retained earnings………….. 7,500 Service revenue…………….. 9,500 Salary expense……………… 3,300 Advertising expense………. 1,100 _______ Totals…………………………. $50,100 $48,600 Out of balance by $1,500 The correct balance of Accounts Receivable is $5,900* ($7,400 − $1,500). After this correction, total debits will be $48,600 ($50,100 − $1,500), the same as total credits. Req. 2 a. Total assets = $44,200 ($3,900 + $5,900* + $34,400) b. Total liabilities = $11,500 ($6,000 + $5,500) c. Net income = $ 5,100 ($9,500 − $3,300 − $1,100) 2-70 Financial Accounting 9/e Solutions Manual (10-15 min.) E 2-73 Burlington Co.: Income statement Medical expense ……….. November $44,000 December $ -0- Balance sheet Cash …………………………. Accounts payable ……… Nov. 30 $53,000 44,000 Dec. 31 $23,000* 14,000** Gardner Hospital: Income statement Service revenue ………… November $44,000 December $ -0- Balance sheet Cash …………………………. Accounts receivable ….. Nov. 30 $ -044,000 Dec. 31 $30,000 14,000** Explanation: Burlington’s $44,000 expense is Gardner’s revenue. Burlington’s $30,000 cash payment is Gardner’s cash receipt. Burlington’s $14,000 account payable is Gardner’s account receivable. __________ *$53,000 − $30,000 = $23,000 **$44,000 − $30,000 = $14,000 Chapter 2 Transaction Analysis 2-71 (20 min.) P 2-74 Req 1. Effect Date on Cash May 1 Understated $300 2 Overstated $4,500 Effect on Total Assets Effect on Net Income Correct Overstated $300 Overstated Correct $4,500 5 Correct Correct Understated $1,000 10 Correct Correct Correct 16 Correct Correct Overstated $2,000 25 Correct Overstated Correct $1,500 Req. 2. Correct cash balance, $1,300 ($5,500 +$300 – $4,500) Req.3. Correct total assets, $19,000 ($25,000 – $4,500 – $1,500) Req. 4. Correct net income, $8,700 ($10,000 – $300 +$1,000 – $2,000) 2-72 Financial Accounting 9/e Solutions Manual Decision Cases (40-50 min.) Decision Case 1 Reqs. 1 and 2 Cash Accounts Receivable (a) 5,000 (c) 1,300 (g) 7,000 (i) (b) 5,000 (d) 1,800 Bal. 5,800 (h) 2,500 (f) 2,000 (i) 1,200 (f) 1,200 (j) 1,000 Bal. 6,400 Supplies (c) Furniture 1,300 (e) Accounts Payable (j) 1,200 1,000 (e) Bal. 4,400 Notes Payable 4,400 (b) 5,000 3,400 Common Stock (a) 5,000 Service Revenue Salary Expense (g) 7,000 (h) 2,500 Bal. 9,500 (f) Advertising Expense (d) 1,800 2,000 Rent Expense (f) 1,200 Chapter 2 Transaction Analysis 2-73 (continued) Decision Case 1 Req. 3 Barlow Networks, Inc. Trial Balance Current Date ACCOUNT Cash…………………………… Accounts receivable……….. Supplies……………………… Furniture……………………… Accounts payable………….. Notes payable……………….. Common stock……………… Service revenue…………….. Salary expense……………… Advertising expense……….. Rent expense………………… Total…………………………… DEBIT $6,400 5,800 1,300 4,400 CREDIT $ 3,400 5,000 5,000 9,500 2,000 1,800 1,200 $22,900 $22,900 Req. 4 (net income or loss for first month of operations) Revenues: Service revenue …………….. Expenses: Salary expense ………………. Advertising expense ………. Rent expense…………………. Total expenses ……………………….. Net income for month …………….. $9,500 $2,000 1,800 1,200 5,000 $4,500 Recommendation: Barlow may want to review his criteria for keeping the business open. His criteria for remaining in operation was net income of $5,000. His actual result was close to his goal. Perhaps he was unrealistic in his expectations. Most businesses, large and small, incur losses in their first months of operation. Barlow Networks actually earned a profit! The author suggests that Barlow stick it out for another few months, at least. 2-74 Financial Accounting 9/e Solutions Manual (20-30 min.) Decision Case 2 Little Italy, Inc. Income Statement Month Ended December 31, 2012 Sales revenue…………………………….. $42,000 Cost of goods sold (expense)…………. 22,000 Rent expense……………………………… 6,000 Advertising expense…………………….. 5,000 Total expenses………………………… 33,000 Net income………………………………… $ 9,000 Little Italy, Inc. Balance Sheet December 31, 2012 ASSETS Cash……………….. LIABILITIES $ 12,000 Accounts payable……… $ 8,000 Food inventory…… 5,000 OWNERS’ EQUITY Furniture…………… 10,000 Common stock…………. 10,000 Retained earnings……… 9,000* Total owners’ equity… 19,000 Total liabilities Total assets……. $27,000 and equity…………. $27,000 _____ *Must solve for this amount. It is also the amount of net income, which is the only change in retained earnings for the month. Recommendation: Do not expand this month. The business falls short of the goals for both net income and total assets. However, Little Italy, Inc. appears to be profitable, and assets are building toward Sophia’s goals. Maybe next month. Chapter 2 Transaction Analysis 2-75 Ethical Issue 1 1. The ethical issue is whether these alternatives of financing the business are proper from an economic, legal, and ethical standpoint. 2. The stakeholders are Scruffy Murphy, the bank, potential new creditors, and the friend who may become a stockholder. Option 1: Option 2: Cash…………………………. Common Stock…… 100,000 Land…………………………. Common Stock…… 100,000 Common Stock…………….. Land………………… 100,000 100,000 100,000 100,000 Option 1 is economically sound, perfectly legal, and also ethical because the sale of the stock is a valid transaction between the business and a stockholder. The consequences of this decision are that Murphy obtains additional financing at a cost (he now shares ownership of the business with his friend). The friend gives up cash in exchange for an ownership interest in the business. The bank and future creditors obtain complete and truthful disclosure of the manner in which the business has been financed. Option 2 represents ―window dressing‖ (making the company look like an entity that it is not). Although it might be legal in the strictest sense of the word (and it might not), this option does not faithfully represent economic reality. Thus, it is not in accordance with GAAP, which is a substitute for the legal criterion. This option is also unethical because the receipt of the land by the business is not a real transaction. The transfer of the land back to Murphy means that the business never actually has the land for its use. It violates the rights of the bank and future creditors to give them information that is inaccurate and that does not faithfully represent economic reality. The best option to take is definitely Option 1. The decision maker can walk away from this transaction confident that he or she told the truth. 2-76 Financial Accounting 9/e Solutions Manual Ethical Issue 2 Part A. 1. The ethical issue is whether you should question your grade, which is higher than you expected. Your choices are (a) discuss the grade with the professor; and (b) do not discuss the grade with the professor. 2, 3. Stakeholders are you, the professor, the other students in the class, and the university. The possible consequences to you of discussing the grade with the professor is that it may lead to the discovery that the professor made a mistake in calculating the grade, which may lead to a downward adjustment. While this could possibly have adverse economic consequences (i.e., perhaps loss of scholarship if the is substantially lowered), it is unlikely that a letter-grade drop in one course would have such an impact on grade point average as to cause loss of a scholarship. There is no legal consequence to reporting a grade that is too high. The ethical consequence is generally positive on all concerned, as it leads to clarification of the true grade. 4. Student opinions will vary on this part. Part B. 1. The ethical issue in this case is whether you should question your grade, which is now lower than you expected. Your choices are (a) discuss the grade with the professor; and (b) do not discuss the grade with the professor. 2, 3. Like part a, the stakeholders are you, the professor, the other students in the class, and the university. The possible consequences to you of discussing the grade with the professor is that it may lead to the discovery that the professor made a mistake in calculating the grade, which may lead Chapter 2 Transaction Analysis 2-77 (continued) Ethical Issue 2 to an upward adjustment. This could have positive economic consequences (i.e., perhaps keeping a scholarship). Like part a, the ethical consequence of this action is generally positive on all concerned, as it leads to clarification of the true grade. 4. Most students would probably respond ―take it to the professor.‖ But shouldn’t we be just as concerned about knowing the true grade either way? The author recommends discussing the grade with the professor one way or the other. Part C. Both course grades and financial statements report results that people use in order to make decisions that can carry both positive and negative consequences. In both situations, it is important that the user receive relevant information, and that the information faithfully represent facts as they actually occurred. 2-78 Financial Accounting 9/e Solutions Manual Focus on Financials: Amazon.com, Inc. (20-30 min.) Reqs. 1 and 3 (All amounts in millions) b g j Cash 3,444 25,146 33,605 6,237 91 352 1,628 3,777 e f h j Fixed Assets, net 1,290 1,124 2,414 Net Sales 34,204 Acc Rec. net and Other 988 33,605 b a 34,204 1,587 i j a Non-op. Income (net) 91 g Other Assets 1,474 7 504 1,985 c e Inventories 2,171 26,561 27,592 3,202 d Accounts Payable 25,146 5,605 27,592 c 8,051 Cost of Sales 26,561 Operating Expenses f 6,237 Provision for Income Tax h 352 Equity Method Invest. 7 i d Chapter 2 Transaction Analysis 2-79 (continued) Amazon.com, Inc. Req. 2 (Millions) 34,204 34,204 a. Accounts Receivable, net . ……………………… Net Sales (Revenue) ……………………….. b. Cash ……………………………………………………… Accounts Receivable, net ……………….. 33,605 Inventories …………………………………………….. Accounts Payable. …………………………. 27,592 Cost of Sales …………………………………………. Inventories …………………………………….. 26,561 Accounts Payable ………………………………….. Cash ……………………………………………… 25,146 Operating Expenses ………………………………. Cash ……………………………………………… 6,237 Cash ……………………………………………………… Non-operating income ……………………. 91 Provision for income taxes …………………….. Cash ……………………………………………… 352 Other Assets………………………………………….. Equity Method Investment Activity, net 7 Fixed Assets ………………………………………….. Other assets ………………………………………….. Cash ……………………………………………… 1,124 504 c. d. e. f. g. h. i. j. 2-80 Financial Accounting 9/e Solutions Manual 33,605 27,592 26,561 25,146 6,237 91 352 7 1,628 (continued) Amazon.com, Inc. Req. 4 All the selected account balances except other assets agree with Amazon.com, Inc.’s actual figures on the income statement or the balance sheet. Req. 5 Revenue: (Millions) Net sales …………………………………………… $34,204 Non-operating income, net …………………. 91 Equity method investment activity, net … 7 Total revenue ……………………………………………… 34,302 Expenses: Cost of sales ………………………………………. $26,561 Operating (expenses) ………………………….. 6,237 Provision for income taxes ………………….. 352 Total expenses …………………………………………… 33,150 Net income …………………………………………. $1,152 Chapter 2 Transaction Analysis 2-81 Focus on Analysis: RadioShack, Corp. (20-30 min.) Req. 1 During fiscal 2010, RadioShack, Corp. had more sales than cash collections. This is determined by analyzing net receivables, as follows: Net receivables (from Note 3): (Millions) Balance at the end of fiscal 2009 …………………………. + Sales during fiscal 2010…(from consolidated $ 49.1 4,472.7 statement of operations) …………………………………….. − Collections from customers during fiscal 2007 ……. = Balance at the end of fiscal 2010………………………….. (X) $ 57.6 Solving for X, collections were $4,464.2 (49.1 + 4,472.7 – 57.6). Another way to express this relationship is that when accounts receivable increase during the year, sales must exceed cash collections. If accounts receivable decrease during the year, cash collections must exceed sales. 2-82 Financial Accounting 9/e Solutions Manual (continued) RadioShack Corp. Req. 2 Sales increased slightly in 2009 but increase more substantially in 2010 perhaps due to a better economy. Net income increased more dramatically in 2009 and only slightly in 2010 largely due to an increase in Cost of Goods Sold and Selling, General, and Administrative Expenses. 2010 2009 2008 Net sales (millions) $4,472.7 $4,276.0 $4,224.5 $ change 196.7 51.5 Percentage change 4.60% 1.22% Net income (millions) $206.1 $205.0 1.1 15.6 0.54% 8.24% $ change Percentage change Chapter 2 $189.4 Transaction Analysis 2-83 Group Projects Student responses will vary. 2-84 Financial Accounting 9/e Solutions Manual