Fundamental Accounting Principles, 24th Edition Solution Manual

Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 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: owner, capital and owner, withdrawals. 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 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. 59 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 10. The four financial statements are: income statement, balance sheet, statement of owner’s equity, 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 Apple balance sheet include: Cash and cash equivalents; Short-term marketable securities; Accounts receivable; Inventories; Deferred tax assets; Vendor non-trade receivables; Other current assets; Long-term marketable securities; Property, plant and equipment, net; Goodwill; Acquired intangible assets, net; Other assets. Credit balance accounts on the Apple balance sheet include: Accounts Payable; Accrued expenses; Deferred revenue; Commercial paper; Current portion of longterm debt; Deferred revenue, non-current; Long-term debt; Other non-current liabilities; Common stock; Retained earnings; Accumulated other comprehensive income (current year abnormal debit balance). 17. The asset accounts with receivable in its account title are: Accounts receivable, net; Receivable under reverse repurchase agreements; Income taxes receivable, net. The liabilities with payable in the account title are: Accounts payable; Securities lending payable; Income taxes payable, net; Income taxes payable, non-current. 18. Samsung’s balance sheet lists the following current liabilities: Trade and other payables; Short-term borrowings; Other payables; Advances received; Withholdings; Accrued expenses; Income tax payable; Current portion of long-term liabilities; Provisions; Other current liabilities; Liabilities held-for-sale. Samsung’s balance sheet lists the following noncurrent liabilities: Debentures; Long-term borrowings; Long-term other payables; Net defined benefit liabilities; Deferred income tax liabilities; Provisions; Other non-current liabilities. 60 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 QUICK STUDIES Quick Study 2-1 (10 minutes) The likely source documents include: a. Sales ticket d. Telephone bill e. Invoice from supplier h. Bank statement Quick Study 2-2 (5 minutes) a. b. c. d. e. f. g. h. i. A A A A A EQ L L EQ Asset Asset Asset Asset Asset Equity Liability Liability Equity Quick Study 2-3 (5 minutes) a. b. c. d. e. f. g. h. i. E R A A L A L EQ E Expense Revenue Asset Asset Liability Asset Liability Equity Expense 655 406 110 191 208 161 245 301 690 61 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Quick Study 2-4 (10 minutes) a. b. c. Credit Debit Debit d. e. f. Debit Debit Debit g. h. i. Credit Debit Credit Debit Credit Credit Debit i. j. k. l. Credit Debit Debit Credit Quick Study 2-5 (10 minutes) a. b. c. d. Debit Debit Credit Credit e. f. g. h. Quick Study 2-6 (15 minutes) a. 1) Analyze: Assets Cash Equipment 7,000 + 3,000 = Liabilities + = 0 + 2) Record: Date Account Titles and Explanation May 15 Cash Equipment D. Tyler, Capital PR 101 167 301 Equity D. Tyler, Capital 10,000 Debit 7,000 3,000 Credit 10,000 Owner invests cash & equipment. 3) Post Cash 7,000 101 Equipment 167 3,000 D. Tyler, Capital 301 10,000 62 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Quick Study 2-6 (Continued) b. 1) Analyze: Assets Office Supplies 500 = = Liabilities Accounts Payable 500 2) Record: Date Account Titles and Explanation May 21 Office Supplies Accounts Payable PR 124 201 + Equity + 0 Debit 500 Credit 500 Purchased office supplies on credit. 3) Post Office Supplies 124 500 c. 1) Analyze: Assets Cash 4,000 Accounts Payable 201 500 = Liabilities = 0 2) Record: Date Account Titles and Explanation May 25 Cash Landscaping Revenue + Equity Landscaping Revenue + 4,000 PR 101 403 Debit 4,000 Credit 4,000 Received cash for landscaping services. 3) Post Cash 101 Landscaping Revenue 4,000 4,000 403 63 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Quick Study 2-6 (Continued) d. 1) Analyze: Assets Cash = 1,000 Liabilities Unearned Landscaping Revenue 1,000 = 2) Record: Date Account Titles and Explanation PR May 30 Cash 101 Unearned Landscaping Revenue 236 + Equity + 0 Debit 1,000 Credit 1,000 Received cash in advance for landscaping services. 3) Post Cash Unearned Landscaping Revenue 1,000 101 1,000 236 Quick Study 2-7 (10 minutes) a. b. c. d. Debit Credit Credit Debit e. f. g. h. Debit Credit Credit Credit i. j. Credit Debit Quick Study 2-8 (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. 64 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Quick Study 2-9 (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 2-10 (10 minutes) a. b. Cash 100 300 20 Bal. c. Accounts Payable 2,000 8,000 2,700 50 60 310 d. Bal. 3,300 e. Accounts Receivable 600 150 150 150 100 Bal. 50 Supplies 10,000 1,100 3,800 Bal. 7,300 f. Wages Payable Cash 11,000 800 100 700 700 Bal. 0 Bal. 4,500 6,000 1,300 100 65 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Quick Study 2-11 (15 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. Quick Study 2-12 (10 minutes) Debt ratio = Total liabilities / Total assets =$30,624 mil/$39,946 mil= 76.7% Interpretation: Its debt ratio of 76.7% exceeds the 60% of its competitors. Home Depot’s financial leverage, and accordingly its riskiness, can be judged as above average based on the debt ratio. 66 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 EXERCISES Exercise 2-1 (10 minutes) 4 a. Prepare and analyze the trial balance. 1 b. Analyze each transaction from source documents. 2 c. Record relevant transactions in a journal. 3 d. Post journal information to ledger accounts. Exercise 2-2 (10 minutes) a. 5 ―Three‖ d. 1 ―Asset‖ b. 2 ―Equity‖ e. 3 ―Account‖ c. 4 ―Liability‖ b. 2 ―General Ledger‖ Exercise 2-3 (5 minutes) a. 1 ―Chart‖ 67 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-4 (15 minutes) a. b. c. d. e. f. g. h. i. j. k. l. Account Land …………………………………….. Cash …………………………………….. Legal Expense ………………………. Prepaid Insurance …………………. Accounts Receivable …………….. Owner Withdrawals……………….. License Fee Revenue ……………. Unearned Revenue ……………….. Fees Earned………………………….. Equipment ……………………………. Notes Payable ………………………. Owner, Capital ………………………. Type of Account asset asset expense asset asset equity revenue liability revenue asset liability equity Normal Balance debit debit debit debit debit debit credit credit credit debit credit credit Increase (Dr. or Cr.) debit debit debit debit debit debit credit credit credit debit credit credit Exercise 2-5 (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. 68 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-6 (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 2-7 (25 minutes) Aug.1 Cash ………………………………………………………… 6,500 Photography Equipment …………………………… 33,500 M. Harris, Capital ………………………………… 40,000 Owner investment in business. 2 Prepaid Insurance …………………………………….. Cash …………………………………………………… 2,100 2,100 Acquired 2 years of insurance coverage. 5 Office Supplies …………………………………………. Cash …………………………………………………… 880 880 Purchased office supplies. 20 Cash ………………………………………………………… Photography Fees Earned …………………… 3,331 3,331 Collected photography fees. 31 Utilities Expense ………………………………………. Cash …………………………………………………… 675 675 Paid for August utilities. 69 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-8 (30 minutes) Part 1 Aug. 1 20 Balance Cash 6,500 Aug. 2 3,331 5 31 6,176 Aug. 5 Office Supplies 880 Aug. 2 Prepaid Insurance 2,100 Photography Equipment Aug. 1 33,500 2,100 880 675 M. Harris, Capital Aug. 1 40,000 Photography Fees Earned Aug. 20 3,331 Aug. 31 Utilities Expense 675 Part 2 POSE-FOR-PICS Trial Balance August 31 Debit Cash ………………………………………….. $ 6,176 Office supplies …………………………… 880 Prepaid insurance ………………………. 2,100 Photography equipment …………….. 33,500 Credit M. Harris, Capital………………………… $40,000 Photography fees earned ……………. 3,331 Utilities expense…………………………. 675 ______ Totals ………………………………………… $43,331 $43,331 70 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-9 (30 minutes) a. Cash ………………………………………………………………… 100,750 K. Spade, Capital ……………………………………….. 100,750 Owner invested in the business. b. Office Supplies …………………………………………………. Cash ………………………………………………………….. Purchased supplies with cash. 1,250 Office Equipment ……………………………………………… Accounts Payable ……………………………………… Purchased office equipment on credit. 10,050 Cash ………………………………………………………………… Fees Earned ………………………………………………. Received cash from customer for services. 15,500 Accounts Payable …………………………………………….. Cash ………………………………………………………….. Made payment toward account payable. 10,050 Accounts Receivable ………………………………………… Fees Earned ………………………………………………. Billed customer for services provided. 2,700 Rent Expense …………………………………………………… Cash ………………………………………………………….. Paid for this period’s rental charge. 1,225 Cash ………………………………………………………………… Accounts Receivable …………………………………. Received cash toward an account receivable. 1,125 K. Spade, Withdrawals ……………………………………… Cash ………………………………………………………….. Owner withdrew cash for personal use. 10,000 c. d. e. f. g. h. i. 1,250 10,050 15,500 10,050 2,700 1,225 1,125 10,000 71 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-9 (concluded) (a) (d) (h) Cash 100,750 15,500 1,125 Balance 94,850 (b) (e) (g) (i) Accounts Receivable (f) 2,700 (h) Balance 1,575 1,250 10,050 1,225 10,000 (e) Accounts Payable 10,050 (c) Balance 10,050 0 K. Spade, Capital (a) Balance 100,750 100,750 K. Spade, Withdrawals (i) 10,000 Balance 10,000 1,125 (b) Balance Office Supplies 1,250 1,250 Fees Earned (d) (f) Balance (c) Balance Office Equipment 10,050 10,050 RentExpense 1,225 1,225 (g) Balance 15,500 2,700 18,200 Exercise 2-10 (15 minutes) SPADE COMPANY Trial Balance May 31, 2017 Debit $ 94,850 1,575 1,250 10,050 Cash ……………………………………… Accounts receivable ………………. Office supplies……………………….. Office equipment ……………………. Accounts payable …………………… K. Spade, Capital ……………………. K. Spade, Withdrawals ……………………………… 10,000 Fees earned …………………………… Rentexpense …………………………… 1,225 Totals……………………………………… $118,950 Credit $ 0 100,750 18,200 ________ $118,950 72 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-11 (20 minutes) 1. a. Account Payable ………………………………….. Cash ………………………………………………. 2,000 2,000 Paid amount owed. b. Salaries Expense………………………………….. Cash ………………………………………………. 1,200 1,200 Paid salary of receptionist. c. Equipment……………………………………………. Cash ………………………………………………. 39,000 39,000 Paid for equipment purchase. d. Utilities Expense ………………………………….. Cash ………………………………………………. 800 800 Paid utilities for the office. e. B. Valdez, Withdrawals …………………………. Cash ………………………………………………. 4,500 4,500 Paid for owner withdrawal. 2. Transactions a, c, and edid not yield an expense for the following reasons: e a c This transaction is a distribution of cash to the owner. Even though equity decreased, that decrease did not occur in the process of providing goods or services to customers. This transaction decreased assets in settlement of a previously existing liability (equity did not change). Cash payment does not mean the same as using up of assets (expense is recorded when assets are used). This transaction involves the purchase of an asset. The form of the company’s assets changed, but total assets did not (and equity did not change). 73 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-12 (20 minutes) 1. a. Cash …………………………………………………………… 20,000 B. Valdez, Capital …………………………………… 20,000 Cash received from owner investment. b. Cash …………………………………………………………… Services Revenue ………………………………….. 900 900 Provided services for cash. c. Cash …………………………………………………………… 10,000 Unearned Services Revenue ………………….. 10,000 Cash received for future services. d. Cash …………………………………………………………… 3,500 Accounts Receivable ……………………………… 3,500 Cash received toward accounts receivable. e. Cash …………………………………………………………… 5,000 Note Payable …………………………………………. 5,000 Cash received for note payable to bank. 2. Transactions a, c, d, and e did not yield revenue for the following reasons: d This transaction changed the form of an asset from receivable to cash. Total assets were not increased (revenue was recognized when the services were originally provided). e This transaction brought in cash (increased assets), but it also increased a liability by the same amount (no goods or services were provided to generate revenue). a This transaction brought in cash, but this is an owner investment. c This transaction brought in cash, but it created a liability because the services have not yet been provided to the client. Exercise 2-13 (25 minutes) b a c e f g d 1. The company paid $4,800 cash in advance for prepaid insurance coverage. 2. D. Belle created a new business and invested $6,000 cash, $7,600 of equipment, and $12,000 in web servers. 3. The company purchased $900 of supplies on account. 4. The company received $4,500 cash for services provided. 5. The company paid $900 cash towards accounts payable. 6. The company paid$3,400 cash for equipment. 7. The company paid $800 cash for selling expenses. 74 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-14 (30 minutes) a. b. c. d. e. f. g. Cash ………………………………………………………………… Equipment ……………………………………………………….. Web Servers …………………………………………………….. D. Belle, Capital …………………………………………. Owner investment in company. 6,000 7,600 12,000 Prepaid Insurance …………………………………………….. Cash ………………………………………………………….. Purchased insurance coverage. 4,800 Supplies …………………………………………………………… Accounts Payable ……………………………………… Purchased supplies on credit. 900 Selling Expenses ……………………………………………… Cash ………………………………………………………….. Paid cash for selling expenses. 800 Cash ………………………………………………………………… Services Revenue ………………………………………. Received cash for services provided. 4,500 Accounts Payable …………………………………………….. Cash ………………………………………………………….. Made payment on accounts payable. 900 Equipment ……………………………………………………….. Cash ………………………………………………………….. Paid cash for equipment. 3,400 25,600 4,800 900 800 4,500 900 3,400 75 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-15 (20 minutes) Calculation of change in equity for parta through part d Assets – Liabilities Beginning of the year ………. $ 60,000 – $20,000 End of the year ………………… 105,000 36,000 Net increase in equity ………. a. Net income …………………………………………………. Plus owner investments ……………………………… Less owner withdrawals …………………………….. Change in equity ………………………………………… = Equity = $40,000 = 69,000 $29,000 $ ? 0 (0) $29,000 Net Income = $29,000 Since there were no additional investments or withdrawals, the net income for the year equals the net increase in owner’s equity. b. Net income …………………………………………………. Plus owner investments ……………………………… Less owner withdrawals ($1,250/mo. x 12 mo.) Change in equity ………………………………………… $ ? 0 (15,000) $29,000 Net Income = $44,000 The withdrawals were added back because they reduced equity without reducing net income. c. Net income …………………………………………………. Plus owner investment ……………………………….. Less withdrawals by owner …………………………. Change in equity ………………………………………… $ ? 55,000 (0) $29,000 Net Loss = $26,000 The investment was deducted because it increased equity without creating net income. d. Net income …………………………………………………. Plus owner investment ……………………………….. Less owner withdrawals ($1,250/mo. X 12 mo.) Change in equity ………………………………………… $ ? 35,000 (15,000) $29,000 Net Income = $9,000 The withdrawals were added back because they reduced equity without reducing net income and the investments were deducted because they increased equity without creating net income. 76 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-16 (15 minutes) HELP TODAY Income Statement For Month Ended August 31 Revenues Consulting fees earned ……………………. Expenses Rent expense ………………………………….. Salaries expense …………………………….. Telephone expense …………………………. Miscellaneous expenses …………………. Total expenses ……………………………….. Net income ………………………………………….. $27,000 $ 9,550 5,600 860 520 16,530 $ 10,470 Exercise 2-17 (15 minutes) HELP TODAY Statement of Owner’s Equity For Month Ended August 31 C. Camry, Capital, July 31 ……………………. Add: Investment by owner …………………. Net income (from Exercise 2-16) …… Less: Withdrawals by owner ……………….. C. Camry, Capital, August 31 ……………….. $0 102,000 10,470 112,470 6,000 $106,470 77 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-18 (15 minutes) HELP TODAY Balance Sheet August 31 Assets Cash …………………………. Accounts receivable …. $25,360 22,360 Office supplies ………….. 5,250 Office equipment ………. 20,000 Land …………………………. 44,000 Total assets ………………. $116,970 * Liabilities Accounts payable ……………. $ 10,500 Equity C. Camry, Capital* ……………. 106,470 ________ Total liabilities & equity …… $116,970 Amount from Exercise 2-17. Exercise 2-19 (15 minutes) Answers (a) (b) (c) (d) $(28,000) $42,000 $73,000 $(45,000) $ $ $ Computations: Equity, Dec. 31, 2016 ………….. $ 0 0 0 0 Owner’s investments …………. 110,000 42,000 87,000 210,000 Owner’s withdrawals ………….. (28,000) (47,000) (10,000) (55,000) Net income (loss) ………………. 22,000 90,000 (4,000) (45,000) Equity, Dec. 31, 2017 ………….. $104,000 $85,000 $73,000 $110,000 78 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-20 (20 minutes) Description (1) (2) Difference between Column Debit and with the Credit Larger Columns Total (3) (4) Identify account(s) incorrectly stated Amount that account(s) is overstated or understated $2,260 Credit Rent Expense Rent Expense is understated by $2,260 $6,500 Credit Cash Cash is understated by $6,500 Owner, Capital Owner, Capital is understated by $10,900 Owner, Withdrawals Owner, Withdrawals is understated by $10,900 Prepaid Insurance Prepaid Insurance is understated by $2,050 Insurance Expense Insurance Expense is overstated by $2,050 Machinery a. $3,600 debit to Rent Expense is posted as a $1,340 debit. b. $6,500 credit to Cash is posted twice as two credits to Cash. c. $10,900 debit to the Withdrawals account is debited to Owner’s Capital. $0 –– d. $2,050 debit to Prepaid Insurance is posted as a debit to Insurance Expense. $0 –– e. $38,000 debit to $0 –– Accounts Payable Machinery is understated by $38,000 Accounts Payable is understated by $38,000 $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 $1,390 Credit Store Supplies Store Supplies is understated by $1,390 Machinery is posted as a debit to Accounts Payable. f. Supplies is not posted. 79 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-21 (15 minutes) Overstated, Understated, or Correctly-Stated Amount a. Correctly-stated. The debit column is correctly stated because the erroneous debit (to Accounts Payable) is deducted from an account with a (larger assumed) credit balance. $0 b. Understated. The credit column is understated by $37,900 because Accounts Payable was debited — it should have been credited. $37,900 c. Correctly-stated. The Automobiles account balance is correctly stated. $0 d. Understated. 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. $37,900 e. The credit column is $37,900 less than the debit column, or $162,100 in total ($200,000 – $37,900). 80 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Exercise 2-22 (15 minutes) Co. Liabilities / Assets Debt = Ratio 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 a. Net Income / Average Assets = ROA 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 (15 minutes) HEINEKEN N.V. Balance Sheet (in Euro millions) December 31, 2015 Assets Equity and liabilities Noncurrentassets ……… € 31,800 Currentassets …………… 5,914 Total equity …………………….. Noncurrentliabilities ………… Current liabilities …………….. Total equity and liabilities .. Total assets ………………. €37,714 € 15,070 14,128 8,516 €37,714 81 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 PROBLEM SET A Problem 2-1A (90 minutes) Part 1 April 1 Cash…………………………………………………….101 Office Equipment………………………………….163 K. Tanner, Capital ………………………….301 80,000 26,000 106,000 Owner invested cash and equipment. 2 Prepaid Rent ………………………………………..131 Cash ……………………………………………..101 9,000 9,000 Prepaid twelve months’ rent. 3 Office Equipment………………………………….163 Office Supplies …………………………………….124 Accounts Payable ………………………….201 8,000 3,600 11,600 Purchased equip. & supplies on credit. 6 Cash…………………………………………………….101 Services Revenue ………………………….403 4,000 4,000 Received cash for services. 9 Accounts Receivable ……………………………106 Services Revenue ………………………….403 6,000 6,000 Billed client for completed work. 13 Accounts Payable ………………………………..201 Cash ……………………………………………..101 11,600 11,600 Paid balance due on account. 19 Prepaid Insurance ………………………………..128 Cash ……………………………………………..101 2,400 2,400 Paid premium for insurance. 22 Cash…………………………………………………….101 Accounts Receivable …………………….106 4,400 4,400 Collected part of amount owed by client. 25 Accounts Receivable ……………………………106 Services Revenue ………………………….403 2,890 2,890 Billed client for completed work. 28 K. Tanner, Withdrawals …………………………302 Cash ……………………………………………..101 5,500 5,500 Owner withdrew cash for personal use. 29 Office Supplies …………………………………….124 Accounts Payable ………………………….201 600 600 Purchased supplies on account. 30 Utilities Expense…………………………………..690 Cash ……………………………………………..101 435 435 Paid monthly utility bill. 82 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-1A (Continued) Part 2 Date April Explanation 1 2 6 13 19 22 28 30 Cash PR G1 G1 G1 G1 G1 G1 G1 G1 Debit 80,000 4,000 4,400 Acct. No. 101 Credit Balance 80,000 9,000 71,000 75,000 11,600 63,400 2,400 61,000 65,400 5,500 59,900 435 59,465 9 22 25 Accounts Receivable Explanation PR Debit G1 6,000 G1 G1 2,890 Acct. No. 106 Credit Balance 6,000 4,400 1,600 4,490 3 29 Office Supplies Explanation PR G1 G1 Debit 3,600 600 Acct. No. 124 Credit Balance 3,600 4,200 Date April 19 Prepaid Insurance Explanation PR Debit G1 2,400 Acct. No. 128 Credit Balance 2,400 Date April 2 Prepaid Rent Explanation PR G1 Debit 9,000 Acct. No. 131 Credit Balance 9,000 1 3 Office Equipment Explanation PR G1 G1 Debit 26,000 8,000 Acct. No. 163 Credit Balance 26,000 34,000 Date April Date April Date April 83 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-1A (Continued) Date April Date April 3 13 29 Accounts Payable Explanation PR G1 G1 G1 1 K. Tanner, Capital Explanation PR G1 Date April 28 K. Tanner, Withdrawals Explanation PR G1 6 9 25 Services Revenue Explanation PR G1 G1 G1 Date April 30 Utilities Expense Explanation PR G1 Date April Debit 11,600 Debit Debit 5,500 Debit Debit 435 Acct. No. 201 Credit Balance 11,600 11,600 0 600 600 Acct. No. 301 Credit Balance 106,000 106,000 Acct. No. 302 Credit Balance 5,500 Acct. No. 403 Credit Balance 4,000 4,000 6,000 10,000 2,890 12,890 Acct. No. 690 Credit Balance 435 84 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-1A (Continued) Part 3 LINKWORKS Trial Balance April 30 Debit Cash …………………………………………………………….. $ 59,465 Accounts receivable …………………………………….. 4,490 Office supplies ……………………………………………… 4,200 Prepaid insurance ………………………………………… 2,400 Prepaid rent …………………………………………………. 9,000 Office equipment ………………………………………….. 34,000 Accounts payable …………………………………………. K. Tanner, Capital …………………………………………. K. Tanner, Withdrawals…………………………………. 5,500 Services revenue ………………………………………….. Utilities expense …………………………………………… 435 Total …………………………………………………………….. $119,490 Credit $ 600 106,000 12,890 $119,490 85 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-2A (90 minutes) Part 1 a. Cash…………………………………………………….101 100,000 Office Equipment………………………………….163 5,000 Drafting Equipment ………………………………164 60,000 J. Aracel, Capital ……………………………301 165,000 Owner invested cash and equipment. b. Land …………………………………………………….172 Cash ……………………………………………..101 Notes Payable ……………………………….250 49,000 6,300 42,700 Purchased land with cash and note payable. c. Building ……………………………………………….170 Cash ……………………………………………..101 55,000 55,000 Purchased building. d. Prepaid Insurance ………………………………..108 Cash ……………………………………………..101 3,000 3,000 Purchased 18-month insurance policy. e. Cash…………………………………………………….101 Engineering Fees Earned ………………402 6,200 6,200 Collected cash for completed work. f. Drafting Equipment ………………………………164 Cash ……………………………………………..101 Notes Payable ……………………………….250 20,000 9,500 10,500 Purchased equipment with cash and note payable. g. Accounts Receivable ……………………………106 Engineering Fees Earned ………………402 14,000 14,000 Completed services for client. h. Office Equipment………………………………….163 Accounts Payable ………………………….201 1,150 1,150 Purchased equipment on credit. 86 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-2A (Part 1 Continued) i. Accounts Receivable ……………………………106 Engineering Fees Earned ………………402 22,000 22,000 Billed client for completed work. j. Equipment Rental Expense …………………..602 Accounts Payable ………………………….201 1,333 1,333 Incurred equipment rental expense. k. Cash…………………………………………………….101 Accounts Receivable …………………….106 7,000 7,000 Collected cash on account. l. Wages Expense ……………………………………601 Cash ……………………………………………..101 1,200 1,200 Paid assistant’s wages. m. Accounts Payable ………………………………..201 Cash ………………………………………….. 101 1,150 1,150 Paid amount due on account. n. Repairs Expense ………………………………….604 Cash ………………………………………….. 101 925 925 Paid for repair of equipment. o. J. Aracel, Withdrawals ………………………….302 Cash ……………………………………………..101 9,480 9,480 Owner withdrew cash for personal use. p. Wages Expense ……………………………………601 Cash ……………………………………………..101 1,200 1,200 Paid assistant’s wages. q. Advertising Expense …………………………….603 Cash ……………………………………………..101 2,500 2,500 Paid for advertising expense. 87 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Problem 2-2A (Continued) Part 2 Cash Date PR (a) (b) (c) (d) (e) (f) (k) (l) (m) (n) (o) (p) (q) Debit 100,000 Credit 6,300 55,000 3,000 6,200 9,500 7,000 1,200 1,150 925 9,480 1,200 2,500 Solutions Manual: Chapter 2 Accounts Payable No. 101 Balance 100,000 93,700 38,700 35,700 41,900 32,400 39,400 38,200 37,050 36,125 26,645 25,445 22,945 Date PR (h) (j) (m) Date PR (b) (f) Debit 5,000 1,150 Date PR (a) Debit 60,000 20,000 Debit 55,000 Debit 49,000 J. Aracel, Withdrawals Date PR Debit Credit (o) 9,480 No. 302 Balance 9,480 Engineering Fees Earned Credit Wages Expense Date PR Debit (l) 1,200 (p) 1,200 Equipment Rental Expense Credit No. 164 Balance 60,000 80,000 Date PR (j) Credit No. 602 Balance 1,333 Credit No. 170 Balance 55,000 Advertising Expense Date PR Debit Credit (q) 2,500 No. 603 Balance 2,500 Repairs Expense Credit No. 172 Balance 49,000 No. 604 Balance 925 Date PR (n) Debit No. 402 Credit Balance 6,200 6,200 14,000 20,200 22,000 42,200 No. 163 Balance 5,000 6,150 Land Date PR (b) No. 301 Credit Balance 165,000 165,000 Balance 3,000 Credit Building Date PR (c) Debit No. 250 Credit Balance 42,700 42,700 10,500 53,200 Date PR (e) (g) (i) Drafting Equipment Date PR (a) (f) Debit J. Aracel, Capital No. 108 Office Equipment Date PR (a) (h) 1,150 Notes Payable Accounts Receivable No. 106 Date PR Debit Credit Balance (g) 14,000 14,000 (i) 22,000 36,000 (k) 7,000 29,000 Prepaid Insurance Date PR Debit (d) 3,000 Debit No. 201 Credit Balance 1,150 1,150 1,333 2,483 1,333 Debit 1,333 Debit 925 Credit Credit No. 601 Balance 1,200 2,400 88 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-2A (Concluded) Part 3 ARACEL ENGINEERING Trial Balance June 30 Debit Cash ……………………………………………………. $ 22,945 Accounts receivable ……………………………. 29,000 Prepaid insurance ……………………………….. 3,000 Office equipment …………………………………. 6,150 Drafting equipment ……………………………… 80,000 Building ………………………………………………. 55,000 Land ……………………………………………………. 49,000 Accounts payable ………………………………… Notes payable ……………………………………… J. Aracel, Capital …………………………………. J. Aracel, Withdrawals …………………………. 9,480 Engineering fees earned ………………………. Wages expense …………………………………… 2,400 Equipment rental expense ……………………. 1,333 Advertising expense ……………………………. 2,500 Repairs expense ………………………………….. 925 Totals ………………………………………………….. $261,733 Credit $ 1,333 53,200 165,000 42,200 $261,733 89 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-3A (90 minutes) Part 1 Mar. 1 Cash…………………………………………………….101 150,000 Office Equipment………………………………….163 22,000 D. Brooks, Capital ………………………….301 172,000 Owner invested cash and equipment. 2 Prepaid Rent ………………………………………..131 Cash ……………………………………………..101 6,000 6,000 Prepaid six months’ rent. 3 Office Equipment………………………………….163 Office Supplies …………………………………….124 Accounts Payable ………………………….201 3,000 1,200 4,200 Purchased equipment and supplies on credit. 6 Cash…………………………………………………….101 Services Revenue ………………………….403 4,000 4,000 Received cash for services. 9 Accounts Receivable ……………………………106 Services Revenue ………………………….403 7,500 7,500 Billed client for completed work. 12 Accounts Payable ………………………………..201 Cash ……………………………………………..101 4,200 4,200 Paid balance due on account. 19 Prepaid Insurance ………………………………..128 Cash ……………………………………………..101 5,000 5,000 Paid premium for insurance. 22 Cash…………………………………………………….101 Accounts Receivable …………………….106 3,500 3,500 Collected part of amount owed by client. 25 Accounts Receivable ……………………………106 Services Revenue ………………………….403 3,820 3,820 Billed client for completed work. 29 D. Brooks, Withdrawals ………………………..302 Cash ……………………………………………..101 5,100 5,100 Owner withdrew cash for personal use. 30 Office Supplies …………………………………….124 Accounts Payable ………………………….201 600 600 Purchased supplies on account. 31 Utilities Expense…………………………………..690 Cash ……………………………………………..101 500 500 Paid monthly utility bill. 90 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-3A (Continued) Part 2 Date Mar. Date Mar. Date Mar. Date Mar. Date Mar. Date Mar. Explanation 1 2 6 12 19 22 29 31 Cash PR G1 G1 G1 G1 G1 G1 G1 G1 Debit 150,000 4,000 3,500 Acct. No. 101 Credit Balance 150,000 6,000 144,000 148,000 4,200 143,800 5,000 138,800 142,300 5,100 137,200 500 136,700 9 22 25 Accounts Receivable Explanation PR Debit G1 7,500 G1 G1 3,820 Acct. No. 106 Credit Balance 7,500 3,500 4,000 7,820 3 30 Office Supplies Explanation PR G1 G1 Debit 1,200 600 Acct. No. 124 Credit Balance 1,200 1,800 19 Prepaid Insurance Explanation PR G1 Debit 5,000 Acct. No. 128 Credit Balance 5,000 2 Prepaid Rent Explanation PR G1 Debit 6,000 Acct. No. 131 Credit Balance 6,000 1 3 Office Equipment Explanation PR G1 G1 Debit 22,000 3,000 Acct. No. 163 Credit Balance 22,000 25,000 91 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-3A (Continued) Part 2 (Continued) Date Mar. Date Mar. Date Mar. Date Mar. Date Mar. 3 12 30 Accounts Payable Explanation PR G1 G1 G1 1 D. Brooks, Capital Explanation PR G1 29 D. Brooks, Withdrawals Explanation PR G1 6 9 25 Services Revenue Explanation PR G1 G1 G1 31 Utilities Expense Explanation PR G1 Debit 4,200 Debit Debit 5,100 Debit Debit 500 Acct. No. 201 Credit Balance 4,200 4,200 0 600 600 Acct. No. 301 Credit Balance 172,000 172,000 Acct. No. 302 Credit Balance 5,100 Acct. No. 403 Credit Balance 4,000 4,000 7,500 11,500 3,820 15,320 Acct. No. 690 Credit Balance 500 92 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-3A (Concluded) Part 3 VENTURE CONSULTANTS Trial Balance March 31 Debit Cash ……………………………………………………………. $136,700 Accounts receivable …………………………………….. 7,820 Office supplies ……………………………………………… 1,800 Prepaid insurance ………………………………………… 5,000 Prepaid rent …………………………………………………. 6,000 Office equipment ………………………………………….. 25,000 Accounts payable …………………………………………. D. Brooks, Capital ………………………………………… D. Brooks, Withdrawals ………………………………… 5,100 Services revenue ………………………………………….. Utilities expense …………………………………………… 500 Totals …………………………………………………………… $187,920 Credit $ 600 172,000 15,320 $187,920 93 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-4A (90 minutes) Part 1 a. Cash …………………………………………………. 101 Office Equipment ………………………………. 163 H. Venedict, Capital …………………….. 301 60,000 25,000 85,000 Owner invested cash and equipment. b. Land …………………………………………………. 172 40,000 Building ……………………………………………. 170 160,000 Cash ………………………………………….. 101 Notes Payable ……………………………. 250 30,000 170,000 Purchased land and building with cash and note payable. c. Office Supplies …………………………………. 108 Accounts Payable ………………………. 201 2,000 2,000 Purchased office supplies on account. d. Automobiles ……………………………………… 164 H. Venedict, Capital ……………………. 301 16,500 16,500 Owner contributed automobile to business. e. Office Equipment ………………………………. 163 Accounts Payable ………………………. 201 5,600 5,600 Purchased office equipment on account. f. Salaries Expense ………………………………. 601 Cash ………………………………………….. 101 1,800 1,800 Paid assistant’s salary. g. Cash …………………………………………………. 101 Fees Earned……………………………….. 402 8,000 8,000 Provided services for cash. h. Utilities Expense ……………………………….. 602 Cash ………………………………………….. 101 635 635 Paid cash for utilities. 94 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-4A (Part 1 Continued) i. Accounts Payable …………………………….. 201 Cash ………………………………………….. 101 2,000 2,000 Paid cash on account. j. Office Equipment ………………………………. 163 Cash ………………………………………….. 101 20,300 20,300 Purchased new equipment with cash. k. Accounts Receivable ………………………… 106 Fees Earned……………………………….. 402 6,250 6,250 Provided services on account. l. Salaries Expense ………………………………. 601 Cash ………………………………………….. 101 1,800 1,800 Paid assistant’s salary. m. Cash …………………………………………………. 101 Accounts Receivable ………………….. 106 4,000 4,000 Received cash due on account. n. H. Venedict, Withdrawals…………………… 302 Cash ………………………………………….. 101 2,800 2,800 Owner withdrew cash for personal use. 95 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-4A (Continued) Part 2 Cash Date PR (a) (b) (f) (g) (h) (i) (j) (l) (m) (n) Debit 60,000 Credit 30,000 1,800 8,000 635 2,000 20,300 1,800 4,000 2,800 No. 101 Balance 60,000 30,000 28,200 36,200 35,565 33,565 13,265 11,465 15,465 12,665 Land Date PR (b) Accounts Payable Date PR (c) (e) (i) Date PR (c) Debit 2,000 Credit Debit 2,000 Notes Payable Date PR (b) Accounts Receivable No. 106 Date PR Debit Credit Balance (k) 6,250 6,250 (m) 4,000 2,250 Office Supplies Debit 40,000 Debit H. Venedict, Capital Date PR (a) (d) No. 108 Balance 2,000 Debit Credit No. 201 Credit Balance 2,000 2,000 5,600 7,600 5,600 No. 250 Credit Balance 170,000 170,000 No. 301 Credit Balance 85,000 85,000 16,500 101,500 H. Venedict, Withdrawals Office Equipment Date PR (a) (e) (j) Debit 25,000 5,600 20,300 No. 163 Balance 25,000 30,600 50,900 Date PR (n) Salaries Expense Credit No. 164 Balance 16,500 Credit No. 170 Balance 160,000 Credit Automobiles Date PR (d) Debit 16,500 Building Date PR (b) Debit 160,000 Debit 2,800 Fees Earned Date PR (g) (k) Date PR (f) (l) Debit Debit 1,800 1,800 Credit Debit 635 No. 302 Balance 2,800 No. 402 Credit Balance 8,000 8,000 6,250 14,250 Credit No. 601 Balance 1,800 3,600 Credit No. 602 Balance 635 Utilities Expense Date PR (h) No. 172 Balance 40,000 96 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-4A (Concluded) Part 3 HV CONSULTING Trial Balance September 30 Debit Cash …………………………………………………… $ 12,665 Accounts receivable ……………………………. 2,250 Office supplies …………………………………….. 2,000 Office equipment …………………………………. 50,900 Automobiles ………………………………………… 16,500 Building ………………………………………………. 160,000 Land ……………………………………………………. 40,000 Accounts payable ………………………………… Notes payable ……………………………………… H. Venedict, Capital …………………………….. H. Venedict, Withdrawals……………………… 2,800 Fees earned ………………………………………… Salaries expense …………………………………. 3,600 Utilities expense ………………………………….. 635 Total ……………………………………………………. $291,350 Credit $ 5,600 170,000 101,500 14,250 $291,350 97 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-5A (90 minutes) Part 1 NETTLE DISTRIBUTION Balance Sheet December 31, 2016 Assets Liabilities Cash …………………………. $ 64,300 Accounts receivable …. 26,240 Office supplies ………….. 3,160 Trucks ………………………. 148,000 Office equipment ………. 44,000 Total assets ………………. $285,700 Accounts payable ……………. $ 3,500 Equity Total equity …………………….. 282,200 Total liabilities and equity… $285,700 NETTLE DISTRIBUTION Balance Sheet December 31, 2017 Assets Cash …………………………. $ 15,640 Accounts receivable …. 19,100 Office supplies ………….. 1,960 Trucks ………………………. 157,000 Office equipment ………. 44,000 Building ……………………. 80,000 Land …………………………. 60,000 Total assets ………………. $377,700 Liabilities Accounts payable …………….. $ 33,500 Note payable…………………….. 40,000 Total liabilities ………………….. 73,500 Equity Total equity ………………………. 304,200 Total liabilities and equity …. $377,700 Part 2 Computation of 2017 net income: Owner investment ……………………………………………………………….. 35,000 Add net income …………………………………………………………………… ? Deduct withdrawals by owner ………………………………………………. (19,000) Increase in equity during 2017* ……………………………………………. $ 22,000* Thus, net income = ($22,000+$19,000-$35,000) = $ 6,000 *Computation of 2017 equity increase: Equity, December 31, 2016 …………………………………………………………………………………………… Equity, December 31, 2017 …………………………………………………………………………………………… Increase in equity during 2017 ……………………………………………………………………………………… $282,200 (304,200) $ 22,000 Part 3 Debt Ratio = $73,500 / $377,700 = 19.5% 98 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-6A (35 minutes) Part 1 MIN ENGINEERING Trial Balance May 31 Debit $37,600 890 4,600 12,900 Cash ……………………………………………………. Office supplies …………………………………….. Prepaid insurance ……………………………….. Office equipment …………………………………. Accounts payable ………………………………… Y. Min, Capital ……………………………………… Y. Min, Withdrawals ……………………………… 3,370 Engineering fees earned ………………………. Rent expense ………………………………………. 7,540 Totals ………………………………………………….. $66,900 Credit $12,900 18,000 36,000 . $66,900 Part 2 (a) (f) Balance Cash 18,000 (b) 36,000 (c) (d) (g) 37,600 7,540 4,600 890 3,370 Transactions a through g coded in T-account: (a) Yi Min invested $18,000 cash in the business. (b) Paid $7,540 cash for May’s monthly rent expense. (c) Paid $4,600 cash for this year’s insurance premium beginning immediately. (d) Purchased office supplies for $890 cash. (e) Purchased $12,900 of office equipment on credit (with accounts payable). (f) Received $36,000 cash for engineering services provided in May. (g) Yi Min withdrew $3,370 cash for personal use. 99 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 PROBLEM SET B Problem 2-1B (90 minutes) Part 1 Sept. 1 Cash …………………………………………………. 101 Office Equipment ………………………………. 163 H. Humble, Capital ……………………… 301 38,000 15,000 53,000 Owner invested in the business. 2 Prepaid Rent …………………………………….. 131 Cash ………………………………………….. 101 9,000 9,000 Prepaid twelve months’ rent. 4 Office Equipment ………………………………. 163 Office Supplies …………………………………. 124 Accounts Payable ………………………. 201 8,000 2,400 10,400 Purchased equipment and supplies on credit. 8 Cash …………………………………………………. 101 Services Revenue ………………………. 401 3,280 3,280 Received cash for services. 12 Accounts Receivable ………………………… 106 Services Revenue ………………………. 401 15,400 15,400 Billed client for completed work. 13 Accounts Payable …………………………….. 201 Cash ………………………………………….. 101 10,400 10,400 Paid balance due on account. 19 Prepaid Insurance …………………………….. 128 Cash ………………………………………….. 101 1,900 1,900 Paid premium for insurance. 22 Cash …………………………………………………. 101 Accounts Receivable ………………….. 106 7,700 7,700 Collected part of amount owed by client. 24 Accounts Receivable ………………………… 106 Services Revenue ………………………. 401 2,100 2,100 Billed client for completed work. 28 H. Humble, Withdrawals ……………………. 302 Cash ………………………………………….. 101 5,300 5,300 Owner withdrew cash for personal use. 29 Office Supplies …………………………………. 124 Accounts Payable ………………………. 201 550 550 Purchased supplies on account. 30 Utilities Expense ……………………………….. 690 Cash ………………………………………….. 101 860 860 Paid monthly utility bill. 100 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-1B (Continued) Part 2 Date Sept. Date Sept. Date Sept. Date Sept. Date Sept. Date Sept. Explanation 1 2 8 13 19 22 28 30 Cash PR G1 G1 G1 G1 G1 G1 G1 G1 Debit 38,000 3,280 7,700 Acct. No. 101 Credit Balance 38,000 9,000 29,000 32,280 10,400 21,880 1,900 19,980 27,680 5,300 22,380 860 21,520 12 22 24 Accounts Receivable Explanation PR Debit G1 15,400 G1 G1 2,100 Acct. No. 106 Credit Balance 15,400 7,700 7,700 9,800 4 29 Office Supplies Explanation PR Debit G1 2,400 G1 550 Acct. No. 124 Credit Balance 2,400 2,950 19 Prepaid Insurance Explanation PR G1 2 Prepaid Rent Explanation PR G1 1 4 Office Equipment Explanation PR G1 G1 Debit 1,900 Acct. No. 128 Credit Balance 1,900 Debit 9,000 Acct. No. 131 Credit Balance 9,000 Debit 15,000 8,000 Acct. No. 163 Credit Balance 15,000 23,000 101 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-1B (Continued) Date Sept. Date Sept. Date Sept. Date Sept. Date Sept. 4 13 29 Accounts Payable Explanation PR G1 G1 G1 Debit 10,400 Acct. No. 201 Credit Balance 10,400 10,400 0 550 550 Debit 1 H. Humble, Capital Explanation PR G1 Acct. No. 301 Credit Balance 53,000 53,000 28 H. Humble, Withdrawals Explanation PR Debit G1 5,300 Acct. No. 302 Credit Balance 5,300 8 12 24 Services Revenue Explanation PR G1 G1 G1 Acct. No. 401 Credit Balance 3,280 3,280 15,400 18,680 2,100 20,780 30 Utilities Expense Explanation PR G1 Debit Debit 860 Acct. No. 690 Credit Balance 860 102 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-1B (Concluded) Part 3 HUMBLE MANAGEMENT SERVICES Trial Balance September 30 Debit Cash ………………………………………………………… $21,520 Accounts receivable ………………………………… 9,800 Office supplies …………………………………………. 2,950 Prepaid insurance ……………………………………. 1,900 Prepaid rent …………………………………………….. 9,000 Office equipment ……………………………………… 23,000 Accounts payable …………………………………….. H. Humble, Capital ……………………………………. H. Humble, Withdrawals …………………………… 5,300 Services revenue ……………………………………… Utilities expense ………………………………………. 860 Totals ……………………………………………………… $74,330 Credit $ 550 53,000 20,780 . $74,330 103 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-2B (90 minutes) Part 1 a. Cash…………………………………………………….101 Office Equipment………………………………….163 Computer Equipment ……………………………164 B. Grechus, Capital ……………………….301 65,000 5,750 30,000 100,750 Owner invested cash and equipment. b. Land …………………………………………………….172 Cash ……………………………………………..101 Notes Payable ……………………………….250 22,000 5,000 17,000 Purchased land with cash and note payable. c. Building ……………………………………………….170 Cash ……………………………………………..101 34,500 34,500 Purchased building. d. Prepaid Insurance ………………………………..108 Cash ……………………………………………..101 5,000 5,000 Purchased 24-month insurance policy. e. Cash…………………………………………………….101 Fees Earned ………………………………….402 4,600 4,600 Collected cash for completed work. f. Computer Equipment ……………………………164 Cash ……………………………………………..101 Notes Payable ……………………………….250 4,500 800 3,700 Purchased equipment with cash and note payable. g. Accounts Receivable ……………………………106 Fees Earned ………………………………….402 4,250 4,250 Completed services for client. h. Office Equipment………………………………….163 Accounts Payable ………………………….201 950 950 Purchased equipment on credit. 104 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-2B (Part 1 Continued) i. Accounts Receivable ……………………………106 Fees Earned ………………………………….402 10,200 10,200 Billed client for completed work. j. Computer Rental Expense…………………….602 Accounts Payable ………………………….201 580 580 Incurred computer rental expense. k. Cash…………………………………………………….101 Accounts Receivable …………………….106 5,100 5,100 Collected cash on account. l. Wages Expense ……………………………………601 Cash ……………………………………………..101 1,800 1,800 Paid assistant’s wages. m. Accounts Payable ………………………………..201 Cash ……………………………………………..101 950 950 Paid amount due on account. n. Repairs Expense ………………………………….604 Cash ……………………………………………..101 608 608 Paid for repair of equipment. o. B. Grechus, Withdrawals ………………………302 Cash ……………………………………………..101 6,230 6,230 Owner withdrew cash for personal use. p. Wages Expense ……………………………………601 Cash ……………………………………………..101 1,800 1,800 Paid assistant’s wages. q. Advertising Expense …………………………….603 Cash ……………………………………………..101 750 750 Paid for advertising expense. 105 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Problem 2-2B (Continued) Part 2 Cash Date PR (a) (b) (c) (d) (e) (f) (k) (l) (m) (n) (o) (p) (q) Debit 65,000 Credit 5,000 34,500 5,000 4,600 800 5,100 1,800 950 608 6,230 1,800 750 Solutions Manual: Chapter 2 Accounts Payable No. 101 Balance 65,000 60,000 25,500 20,500 25,100 24,300 29,400 27,600 26,650 26,042 19,812 18,012 17,262 Date PR (h) (j) (m) Debit 4,250 10,200 Date PR (b) (f) Date PR (d) Debit 5,000 Date PR (a) Office Equipment Date PR (a) (h) Debit 5,750 950 Credit Computer Equipment Date PR (a) (f) Debit 30,000 4,500 Debit 34,500 Credit No. 170 Balance 34,500 Credit No. 172 Balance 22,000 Land Date PR (b) Debit 22,000 Date PR (e) (g) (i) No. 301 Credit Balance 100,750 100,750 Debit Date PR (l) (p) Debit 1,800 1,800 Credit Computer Rental Expense Date PR (j) Debit 580 Credit Advertising Expense Date PR (q) Debit 750 Debit 608 No. 601 Balance 1,800 3,600 No. 602 Balance 580 Credit No. 603 Balance 750 Credit No. 604 Balance 608 Repairs Expense Date PR (n) No. 302 Balance 6,230 No. 402 Credit Balance 4,600 4,600 4,250 8,850 10,200 19,050 Wages Expense No. 163 Balance 5,750 6,700 Credit Building Date PR (c) Fees Earned Balance 5,000 No. 164 Balance 30,000 34,500 Debit No. 250 Credit Balance 17,000 17,000 3,700 20,700 B. Grechus, Withdrawals Date PR Debit Credit (o) 6,230 No. 108 Credit Debit B. Grechus, Capital No. 106 Credit Balance 4,250 14,450 5,100 9,350 Prepaid Insurance 950 Notes Payable Accounts Receivable Date PR (g) (i) (k) Debit No. 201 Credit Balance 950 950 580 1,530 580 106 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-2B (Concluded) Part 3 SOFTWORKS Trial Balance April 30 Debit Cash …………………………………………………….. $ 17,262 Accounts receivable ………………………………. 9,350 Prepaid insurance ………………………………….. 5,000 Office equipment……………………………………. 6,700 Computer equipment ……………………………… 34,500 Building…………………………………………………. 34,500 Land ……………………………………………………… 22,000 Accounts payable ………………………………….. Notes payable………………………………………… B. Grechus, Capital ………………………………… B. Grechus, Withdrawals ……………………….. 6,230 Fees earned …………………………………………… Wages expense ……………………………………… 3,600 Computer rental expense ……………………….. 580 Advertising expense ………………………………. 750 Repairs expense ……………………………………. 608 Totals …………………………………………………….$141,080 Credit $ 580 20,700 100,750 19,050 $141,080 107 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-3B (90 minutes) Part 1 Nov. 1 Cash…………………………………………………….101 Office Equipment………………………………….163 M. Zucker, Capital ………………………….301 30,000 15,000 45,000 Owner invested cash and equipment. 2 Prepaid Rent ………………………………………..131 Cash ……………………………………………..101 4,500 4,500 Prepaid six months’ rent. 4 Office Equipment………………………………….163 Office Supplies …………………………………….124 Accounts Payable ………………………….201 2,500 600 3,100 Purchased equipment and supplies on credit. 8 Cash…………………………………………………….101 Services Revenue ………………………….403 3,400 3,400 Received cash for services. 12 Accounts Receivable ……………………………106 Services Revenue ………………………….403 10,200 10,200 Billed client for completed work. 13 Accounts Payable ………………………………..201 Cash ……………………………………………..101 3,100 3,100 Paid balance due on account. 19 Prepaid Insurance ………………………………..128 Cash ……………………………………………..101 1,800 1,800 Paid premium for 24 months of insurance. 22 Cash…………………………………………………….101 Accounts Receivable …………………….106 5,200 5,200 Collected part of amount owed by client. 24 Accounts Receivable ……………………………106 Services Revenue ………………………….403 1,750 1,750 Billed client for completed work. 28 M. Zucker, Withdrawals ………………………..302 Cash ……………………………………………..101 5,300 5,300 Owner withdrew cash for personal use. 29 Office Supplies …………………………………….124 Accounts Payable ………………………….201 249 249 Purchased supplies on account. 30 Utilities Expense…………………………………..690 Cash ……………………………………………..101 831 831 Paid monthly utility bill. 108 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-3B (Continued) Part 2 Date Nov. Date Nov. Date Nov. Date Nov. Date Nov. Date Nov. Date Nov. Explanation 1 2 8 13 19 22 28 30 Cash PR G1 G1 G1 G1 G1 G1 G1 G1 Debit 30,000 3,400 5,200 Acct. No. 101 Credit Balance 30,000 4,500 25,500 28,900 3,100 25,800 1,800 24,000 29,200 5,300 23,900 831 23,069 12 22 24 Accounts Receivable Explanation PR Debit G1 10,200 G1 G1 1,750 Acct. No. 106 Credit Balance 10,200 5,200 5,000 6,750 4 29 Office Supplies Explanation PR G1 G1 Debit 600 249 Acct. No. 124 Credit Balance 600 849 19 Prepaid Insurance Explanation PR Debit G1 1,800 Acct. No. 128 Credit Balance 1,800 2 Prepaid Rent Explanation PR G1 Debit 4,500 Acct. No. 131 Credit Balance 4,500 1 4 Office Equipment Explanation PR G1 G1 Debit 15,000 2,500 Acct. No. 163 Credit Balance 15,000 17,500 4 13 29 Accounts Payable Explanation PR G1 G1 G1 Debit 3,100 Acct. No. 201 Credit Balance 3,100 3,100 0 249 249 109 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-3B (Continued) Date Nov. Date Nov. Date Nov. Date Nov. 1 M. Zucker, Capital Explanation PR G1 28 M. Zucker, Withdrawals Explanation PR G1 8 12 24 Services Revenue Explanation PR G1 G1 G1 30 Utilities Expense Explanation PR G1 Debit Debit 5,300 Debit Debit 831 Acct. No. 301 Credit Balance 45,000 45,000 Acct. No. 302 Credit Balance 5,300 Acct. No. 403 Credit Balance 3,400 3,400 10,200 13,600 1,750 15,350 Acct. No. 690 Credit Balance 831 Part 3 ZUCKER MANAGEMENT SERVICES Trial Balance November 30 Debit Cash ………………………………………………………… $23,069 Accounts receivable ………………………………… 6,750 Office supplies …………………………………………. 849 Prepaid insurance ……………………………………. 1,800 Prepaid rent …………………………………………….. 4,500 Office equipment ……………………………………… 17,500 Accounts payable …………………………………….. M. Zucker, Capital …………………………………….. M. Zucker, Withdrawals ……………………………. 5,300 Services revenue ……………………………………… Utilities expense ………………………………………. 831 Totals ………………………………………………………. $60,599 Credit $ 249 45,000 15,350 $60,599 110 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-4B (90 minutes) Part 1 a. Cash …………………………………………………. 101 Office Equipment ………………………………. 163 A. Nuncio, Capital ……………………….. 301 35,000 11,000 46,000 Owner invested cash and equipment. b. Land …………………………………………………. 172 Building ……………………………………………. 170 Cash ………………………………………….. 101 Notes Payable ……………………………. 250 7,500 40,000 15,000 32,500 Purchased land and building with cash and note payable. c. Office Supplies …………………………………. 108 Accounts Payable ………………………. 201 500 500 Purchased office supplies on account. d. Automobiles ……………………………………… 164 A. Nuncio, Capital ………………………. 301 8,000 8,000 Owner contributed automobile to business. e. Office Equipment ………………………………. 163 Accounts Payable ………………………. 201 1,200 1,200 Purchased office equipment on account. f. Salaries Expense ………………………………. 601 Cash ………………………………………….. 101 1,000 1,000 Paid assistant’s salary. g. Cash …………………………………………………. 101 Fees Earned……………………………….. 402 3,200 3,200 Provided services for cash. h. Utilities Expense ……………………………….. 602 Cash ………………………………………….. 101 540 540 Paid cash for utilities. 111 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-4B Part 1—Concluded i. Accounts Payable …………………………….. 201 Cash ………………………………………….. 101 500 500 Paid cash on account. j. Office Equipment ………………………………. 163 Cash ………………………………………….. 101 3,400 3,400 Purchased equipment for cash. k. Accounts Receivable ………………………… 106 Fees Earned……………………………….. 402 4,200 4,200 Provided services on account. l. Salaries Expense ………………………………. 601 Cash ………………………………………….. 101 1,000 1,000 Paid assistant’s salary. m. Cash …………………………………………………. 101 Accounts Receivable ………………….. 106 2,200 2,200 Received cash due on account. n. A. Nuncio, Withdrawals …………………….. 302 Cash ………………………………………….. 101 1,100 1,100 Owner withdrew cash for personal use. 112 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-4B (Continued) Part 2 Cash Date PR (a) (b) (f) (g) (h) (i) (j) (l) (m) (n) Debit 35,000 Credit 15,000 1,000 3,200 540 500 3,400 1,000 2,200 1,100 Land No. 101 Balance 35,000 20,000 19,000 22,200 21,660 21,160 17,760 16,760 18,960 17,860 Date PR (b) Debit 7,500 Accounts Payable Date PR (c) (e) (i) Debit 500 Notes Payable Date PR (b) Debit Credit No. 172 Balance 7,500 No. 201 Credit Balance 500 500 1,200 1,700 1,200 No. 250 Credit Balance 32,500 32,500 Accounts Receivable Date PR (k) (m) Debit 4,200 No. 106 Credit Balance 4,200 2,200 2,000 Office Supplies Date PR (c) Debit 500 Credit A. Nuncio, Capital Date PR (a) (d) No. 108 Balance 500 Debit No. 301 Credit Balance 46,000 46,000 8,000 54,000 A. Nuncio, Withdrawals Office Equipment Date PR (a) (e) (j) Debit 11,000 1,200 3,400 No. 163 Balance 11,000 12,200 15,600 Date PR (n) Salaries Expense Credit No. 164 Balance 8,000 Credit No. 170 Balance 40,000 Credit Automobiles Date PR (d) Debit 8,000 Building Date PR (b) Debit 40,000 Debit 1,100 Fees Earned Date PR (g) (k) Date PR (f) (l) Debit Debit 1,000 1,000 Credit No. 402 Credit Balance 3,200 3,200 4,200 7,400 Credit No. 601 Balance 1,000 2,000 Credit No. 602 Balance 540 Utilities Expense Date PR (h) Debit 540 No. 302 Balance 1,100 113 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-4B (Concluded) Part 3 NUNCIO CONSULTING Trial Balance June 30 Debit Cash …………………………………………………… $17,860 Accounts receivable ……………………………. 2,000 Office supplies …………………………………….. 500 Office equipment …………………………………. 15,600 Automobiles ………………………………………… 8,000 Building ………………………………………………. 40,000 Land ……………………………………………………. 7,500 Accounts payable ………………………………… Notes payable ……………………………………… A. Nuncio, Capital ………………………………… A. Nuncio, Withdrawals ……………………….. 1,100 Fees earned ………………………………………… Salaries expense …………………………………. 2,000 Utilities expense ………………………………….. 540 Total ……………………………………………………. $95,100 Credit $ 1,200 32,500 54,000 7,400 $95,100 114 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-5B (60 minutes) Part 1 TAMA CO. Balance Sheet December 31, 2016 Assets Liabilities Cash …………………………….. $ 30,000 Accounts receivable ……… 35,000 Office supplies ……………… 8,000 Office equipment…………… 40,000 Machinery …………………….. 28,000 Total assets ………………….. $141,000 Accounts payable …………………………………………… $ 4,000 Equity Total equity …………………………………………………….. 137,000 Total liabilities & equity …………………………………… $141,000 TAMA CO. Balance Sheet December 31, 2017 Assets Liabilities Cash …………………………….. $ 5,000 Accounts receivable ……… 25,000 Office supplies ……………… 13,500 Office equipment…………… 40,000 Machinery …………………….. 28,500 Building………………………… 250,000 Land …………………………….. 50,000 Total assets ………………….. $412,000 Accounts payable …………………………………………… $ 12,000 Note payable…………………………………………………… 250,000 Total liabilities ………………………………………………… 262,000 Equity Total equity …………………………………………………….. 150,000 Total liabilities & equity …………………………………… $412,000 Part 2 Computation of 2017 net income: Owner investment ……………………………………………………………….. 5,000 Add net income …………………………………………………………………… ? Deduct withdrawals by owner ………………………………………………. (3,000) Increase in equity during 2017* ……………………………………………. $ 13,000* Thus, net income = ($13,000+$3,000-$5,000) = $ 11,000 *Computation of 2017 equity increase: Equity, December 31, 2016 …………………………………………………………………………………………… Equity, December 31, 2017 …………………………………………………………………………………………… Increase in equity during 2017 ……………………………………………………………………………………… $137,000 (150,000) $ 13,000 Part 3 Debt ratio = $262,000 / $412,000 = 63.6% 115 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Problem 2-6B (35 minutes) Part 1 GOULD SOLUTIONS Trial Balance April 30 Debit $20,000 750 1,800 12,250 Cash …………………………………………………………….. Office supplies ……………………………………………… Prepaid rent …………………………………………………. Office equipment ………………………………………….. Accounts payable …………………………………………. R. Gould, Capital ………………………………………….. R. Gould, Withdrawals ………………………………….. 5,200 Consulting fees earned …………………………………. Miscellaneous expenses ………………………………. 7,650 Totals …………………………………………………………… $47,650 Credit $12,250 15,000 20,400 $47,650 Part 2 (a) (f) Balance Cash 15,000 (b) 20,400 (c) (d) (g) 20,000 1,800 7,650 750 5,200 Transactions a through g coded in T-account: (a) R.Gould, the owner, invested $15,000 cash in the business. (b) Paid $1,800 cash for monthly rent expense for April. (c) Paid $7,650 cash for miscellaneous expenses. (d) Purchased office supplies for $750 cash. (e) Purchased $12,250 of office equipment on credit (with accounts payable). (f) Received $20,400 cash for consulting services provided in April. (g) R.Gould, the owner, withdrew $5,200 cash for personal use. 116 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Serial Problem — SP 2 Part 1 (120 minutes)Serial Problem, Business Solutions 2017 Oct. 1 Cash …………………………………………………. 101 Office Equipment ………………………………. 163 Computer Equipment ………………………… 167 S. Rey, Capital ……………………………. 301 45,000 8,000 20,000 73,000 Owner invests cash and equipment. 2 Prepaid Rent …………………………………….. 131 Cash ………………………………………….. 101 3,300 3,300 Paid four months’ rent in advance. 3 Computer Supplies …………………………… 126 Accounts Payable ………………………. 201 1,420 1,420 Purchased supplies on credit. 5 Prepaid Insurance …………………………….. 128 Cash ………………………………………….. 101 2,220 2,220 Paid 12 months’ premium in advance. 6 Accounts Receivable ……………………….. 106 Computer Services Revenue ………. 403 4,800 4,800 Billed customer for services. 8 Accounts Payable ……………………………. 201 Cash ………………………………………….. 101 1,420 1,420 Paid balance due on account payable. 10 No entry necessary in the journal. 12 Accounts Receivable ……………………….. 106 Computer Services Revenue ………. 403 1,400 1,400 Billed customer for services. 15 Cash …………………………………………………. 101 Accounts Receivable …………………. 106 4,800 4,800 Collected accounts receivable. 17 Repairs Expense—Computer …………….. 684 Cash ………………………………………….. 101 805 805 Paid for computer repairs. 20 Advertising Expense …………………………. 655 Cash ………………………………………….. 101 1,728 1,728 Purchased ads in local newspaper. 22 Cash …………………………………………………. 101 Accounts Receivable …………………. 106 1,400 1,400 Collected accounts receivable. 117 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Serial Problem, Business Solutions (Continued) 28 Accounts Receivable ……………………….. 106 Computer Services Revenue ……… 403 5,208 5,208 Billed customer for services. 31 Wages Expense ………………………………… 623 Cash …………………………………………. 101 875 875 Paid employee for part-time work. 31 S. Rey, Withdrawals ………………………….. 302 Cash …………………………………………. 101 3,600 3,600 Owner withdrew cash. Nov. 1 Mileage Expense ………………………………. 676 Cash …………………………………………. 101 320 320 Reimbursed Rey for mileage. 2 Cash …………………………………………………. 101 Computer Services Revenue ………. 403 4,633 4,633 Collected cash revenue from client. 5 Computer Supplies …………………………… 126 Cash …………………………………………. 101 1,125 1,125 Purchased computer supplies for cash. 8 Accounts Receivable ……………………….. 106 Computer Services Revenue ……… 403 5,668 5,668 Billed customer for services. 13 No entry necessary. (No revenue recognized until work performed.) 18 Cash …………………………………………………. 101 2,208 Accounts Receivable ………………….. 106 2,208 Collected accounts receivable. 22 Miscellaneous Expenses …………………… 677 Cash ………………………………………….. 101 250 250 Record donation. (Some companies use a Donations account.) 24 Accounts Receivable ………………………… 106 Computer Services Revenue ………. 403 3,950 3,950 Billed customer for services. 25 No entry necessary. 28 Mileage Expense ………………………………. 676 Cash ………………………………………….. 101 384 384 Reimbursed Rey for mileage. 30 Wages Expense ………………………………… 623 Cash ………………………………………….. 101 1,750 1,750 Paid employee for part-time work. 30 S. Rey, Withdrawals ………………………….. 302 Cash ………………………………………….. 101 2,000 2,000 Owner withdrew cash. 118 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Serial Problem, Business Solutions (Continued) Part 2 General Ledger accounts Cash Date Oct. 1 2 5 8 15 17 20 22 31 31 Nov. 1 2 5 18 22 28 30 30 Date Oct. 6 12 15 22 28 Nov. 8 18 24 Date Oct. 3 Nov. 5 Explanation PR Debit 45,000 4,800 1,400 4,633 2,208 Accounts Receivable Explanation PR Acct. No. 101 Credit Balance 45,000 3,300 41,700 2,220 39,480 1,420 38,060 42,860 805 42,055 1,728 40,327 41,727 875 40,852 3,600 37,252 320 36,932 41,565 1,125 40,440 42,648 250 42,398 384 42,014 1,750 40,264 2,000 38,264 3,950 Acct. No.106 Credit Balance 4,800 6,200 4,800 1,400 1,400 0 5,208 10,876 2,208 8,668 12,618 Computer Supplies Explanation PR Debit 1,420 1,125 Acct. No. 126 Credit Balance 1,420 2,545 Debit 4,800 1,400 5,208 5,668 119 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Serial Problem, Business Solutions (Continued) Date Oct. 5 Date Oct. 2 Date Oct. 1 Date Oct. 1 Date Oct. 3 8 Date Oct. 1 Date Oct. 31 Nov. 30 Prepaid Insurance Explanation PR Debit 2,220 Acct. No. 128 Credit Balance 2,220 Debit 3,300 Acct. No. 131 Credit Balance 3,300 Debit 8,000 Acct. No. 163 Credit Balance 8,000 Computer Equipment Explanation PR Debit 20,000 Acct. No. 167 Credit Balance 20,000 Accounts Payable Explanation PR Acct. No. 201 Credit Balance 1,420 1,420 0 Prepaid Rent Explanation PR Office Equipment Explanation PR Debit 1,420 S. Rey, Capital Explanation PR Debit Acct. No. 301 Credit Balance 73,000 73,000 S. Rey, Withdrawals Explanation PR Debit 3,600 2,000 Acct. No. 302 Credit Balance 3,600 5,600 120 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Serial Problem, Business Solutions (Concluded) Computer Services Revenue Explanation PR Debit Acct. No. 403 Credit Balance 4,800 4,800 1,400 6,200 5,208 11,408 4,633 16,041 5,668 21,709 3,950 25,659 Wages Expense Explanation PR Debit 875 1,750 Acct. No. 623 Credit Balance 875 2,625 Advertising Expense Explanation PR Debit 1,728 Acct. No. 655 Credit Balance 1,728 Mileage Expense Explanation PR Debit 320 384 Acct. No. 676 Credit Balance 320 704 Date Nov. 22 Miscellaneous Expenses Explanation PR Debit 250 Acct. No. 677 Credit Balance 250 Date Oct. 17 Repairs Expense—Computer Explanation PR Debit 805 Acct. No. 684 Credit Balance 805 Date Oct. 6 12 28 Nov. 2 8 24 Date Oct. 31 Nov. 30 Date Oct. 20 Date Nov. 1 28 121 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Serial Problem, Business Solutions (Continued) Part 3 BUSINESS SOLUTIONS Trial Balance November 30 Debit Cash ………………………………………………………… $38,264 Accounts receivable ………………………………… 12,618 Computer supplies …………………………………… 2,545 Prepaid insurance ……………………………………. 2,220 Prepaid rent …………………………………………….. 3,300 Office equipment ……………………………………… 8,000 Computer equipment ……………………………….. 20,000 Accounts payable …………………………………….. S. Rey, Capital …………………………………………. S. Rey, Withdrawals …………………………………. 5,600 Computer services revenue ……………………… Wages expense ……………………………………….. 2,625 Advertising expense ………………………………… 1,728 Mileage expense ………………………………………. 704 Miscellaneous expense ……………………………. 250 Repairs expense—Computer ……………………. 805 Totals ………………………………………………………. $98,659 Credit $ 0 73,000 25,659 $98,659 122 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Reporting in Action — BTN 2-1 1. Apple reports ($ millions): $171,124 in liabilities at September 26, 2015. $120,292 in liabilities at September 27, 2014. 2. Apple reports ($ millions): $290,479 in assets atSeptember 26, 2015. $231,839 in assets at September 27, 2014. 3. $ millions: As of September 26, 2015 Debt Ratio = $171,124/$290,479 As of September 27, 2014 Debt Ratio = $120,292/$231,839 = 58.9% = 51.9% 4. Apple employed more financial leverage as of September 26, 2015, when 58.9% of its assets were financed by debt, relative to September 27, 2014, when 51.9% of its assets were financed by debt. Consequently, its financing structure was more risky in its fiscal 2015 in comparison to its fiscal 2014. 5. Solution depends on the financial statements accessed. Comparative Analysis — BTN 2-2 1. Apple ($ millions) Current year debt ratio: $171,124/$290,479 = 58.9% Prior year debt ratio: $120,292/$231,839 = 51.9% 2. Google ($ millions) Current year debt ratio: $27,130/$147,461 = 18.4% Prior year debt ratio: $25,327/$129,187 = 19.6% 3. Apple has the higher degree of financial leverage. Apple’s debt ratio is markedly higher for the current year than that of Google (58.9% vs. 18.4%). This indicates that Apple carries more debt financing than Google. This also implies that Apple is attempting to use nonowner financing to make more money for its owners. This is fine provided Apple’s return does not decline below that of what it pays nonowners for use of that money— this is the main source of financing risk. 123 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Ethics Challenge — BTN 2-3 This case involves a conflict between the need for efficiency and the need for control. While it makes sense to take and process lunch orders quickly, this efficiency is being accomplished by a shortcut that greatly weakens control over cash receipts. Cash could be received and lost or stolen because there would be no initial record of how much was received. The assistant manager’s explanation about the head manager not arriving until 3 o’clock suggests that the head manager doesn’t know about the proposed shortcut. Thus, the new employee is faced with the dilemma of deciding whether to accept the assistant manager’s instructions, suggest to the assistant manager that the shortcut seems wrong, or to ask the head manager to confirm the instructions. Each of these alternatives involves personal risk. It is possible that the assistant manager does not understand the potential for fraud and abuse if this shortcut is used. If the relationship between you and the assistant manager is such that you feel you can do so, you should explain your understanding of how the shortcut could lead to the problems of inaccurate records for tax purposes, gathering inaccurate marketing information, and abuse by other employees who might not be as honest as you and the assistant manager. If the assistant manager insists, you may want to work as instructed to get an idea of whether the shortcut is being abused by the assistant manager and perhaps to find out discreetly whether the head manager knows about it. (Although, this behavior does involve personal risk of perceived collusion with the assistant manager.) If you conclude that the assistant manager is committing fraud, you should report the situation to the head manager as quickly as possible. 124 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Communicating in Practice — BTN 2-4 MEMORANDUM To: From: Subject: Date: Lila Corentine Financial statements explanation The four major financial statements and their purposes are:  Income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time. It helps explain how equity changes during a period due to earnings activities.  Statement of owner’s equity explains changes in equity due to net income (or net loss) and any withdrawals and or owner investments over a period of time.  Balance sheet describes a company’s financial position (assets, liabilities, and equity) at a point in time.  Statement of cash flows identifies cash inflows (receipts) and outflows (payments) over a period of time. It also explains how the cash balance on the balance sheet changed from the beginning to the end of a period. These financial statements are linked to each other across time. Specifically, a balance sheet reports an organization’s financial position at a point in time. The income statement, statement of owner’s equity, and statement of cash flows report on performance over a period of time. These three statements link balance sheets from the beginning to the end of a reporting period. That is, they explain how the financial position of an organization changes from one point to another. 125 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Taking It to the Net — BTN 2-5 1. The prior three years’ net income or (loss) for Amazon are ($ millions): 2014 = $ (241) 2013 = $274 2012 = $(39) 2. The three years net cash provided by operations follows($ millions): 2014 = $6,842 2013 = $5,475 2012 = $4,180 3. In 2014, Amazon had net loss of $(241) million and operating cash flows of $6,842 million; and, in that same year, total net cash increased by only $5,899 million (see its statement of cash flows). The reason its cash balance only increased by $5,899 million in 2014 was because of cash outflows of $5,065 million for its investing activities (and further reduced by $310 million related to foreign currency effects). Those uses of cash absorbed much of the cash generated by its operating activities. A large part of those cash outflows was tied to its investments in securities and its other purchases and acquisitions. Teamwork in Action — BTN 2-6 The following sample solution gives a summary outline of what a minimum report needs to include. Assume a team member selects assets: Category: Assets a. Increases (decreases) in assets are debits (credits) to asset accounts. Debit means left side, credit means right side. The normal side of an account refers to the side where increases are recorded. For assets, this is the debit, or left, side. b. Owner investment of $10,000 cash in business. c. Assets = Liabilities + Owner, Capital – Withdrawals + Revenues – Expenses + $10,000 = $0 + $10,000 – $0 + $0 – $0 Owner investments have no effect on the income statement, but they do increase the cash flows from financing by $10,000 on the statement of cash flows (this increases its net cash flow). d. Paid rent expense with $2,000 cash. e. Assets – $2,000 = Liabilities + Owner, Capital – Withdrawals + Revenues – Expenses = $0 + $0 – $0 + $0 – $2,000 An expense paid in cash will decrease net income on the income statement and decrease operating cash flows on the statement of cash flows. 126 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Entrepreneurial Decision — BTN 2-7 There are several issues that this entrepreneurial owner should consider. Those considerations include the following three issues (among others):  If she chooses to contribute her own funds for the expansion, she will be risking her own money, but she will not have the expense of interest payments, nor will she have the risk of the inability to repay a loan.  If she chooses to borrow, she will have interest and loan payments to make, and she will have more risk (as reflected in her company’s debt ratio).  If she can pay the interest and loan payments, it can be to her advantage to borrow, as long as her return on assets is high enough (that is, higher than the rate of interest on the borrowings). 127 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Entrepreneurial Decision — BTN 2-8 1. MARTIN MUSIC SERVICES Balance Sheet December 31, 2017 Assets Liabilities Cash ……………………………… $ 3,600 Accounts payable ………………. $ 2,200 Accounts receivable …….. 9,600 Unearned lesson fees ……….. 15,600 Prepaid insurance …………. 1,500 Total liabilities …………………… 17,800 Prepaid rent ………………….. 9,400 Store supplies ……………….. 6,600 Equity Equipment ……………………. 50,000 Total equity ……………………….. 62,900 Total assets …………………… $80,700 Total liabilities and equity ….. $80,700 2. Debt ratio = Total liabilities / Total assets = $17,800 / $80,700 = 22.1% Return on assets = Net income/Average assets = $40,000/$80,700*= 49.6% *Ending balance is used per instructions (”assume average assets equal its ending balance”). 3. The prospects of a bank loan are likely to be good. (i) The debt ratio indicates that 78% of the company’s funding is from equity. Also, there are no debt obligations requiring periodic payments. This implies low risk. (ii) The level of return on assets is very high. This implies good return. Overall, given the information and the assumption that current performance will continue into the future, the prospects of a bank loan are good. Note: The loan does carry some risk—fueling this risk are (i) poor recordkeeping, (ii) lack of information on growth potential, and (iii) a much higher pro forma debt ratio—that is, if the loan is granted, the debt ratio will jump to 43%, computed as: ($17,800 + $30,000) / ($80,700 + $30,000). 128 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 Hitting the Road — BTN 2-9 Findings will vary. It is advisable that the instructor obtain a few classified sections from newspapers that were published over the period of the assignment. If student reports lack responses for question 2, it is informative and motivating to bring these (accounting-related job opportunities) sections to class when discussing or returning student reports as many students are not accounting majors. Global Decision — BTN 2-10 1. An analysis of return on assets suggests that Apple (20.4%) yields the greatest return on assets, followed by Google (11.8%), and then Samsung (8.1%), which yields the lowest return. 2. An analysis of the debt ratio suggests that Apple (at 58.9%) presents the greatest risk, followed by Samsung (26.1%), and then Google (18.4%) with the least risk. That is, Apple carries the most debt, and debt must be repaid with principal and interest. The lower debt levels of Google and Samsung result in less risk in that their contractually required payments are less as a percent of their respective asset bases. 3. In this case, there is no clear answer based on these two ratios alone. Apple has a relatively higher return on assets but also the highest debt ratio. Google has the middle-level return (slightly higher return on assets compared to Samsung and substantially lower than that for Apple), but it has the lowest debt ratio. Samsung has the lowest return and the middle-level debt ratio. Overall, based on return on assets, Apple would warrant additional consideration for expanded investment; however, based on the debt ratio, Google would warrant additional consideration. Therefore, in this analysis of these three companies, we get a mixed inference from these two ratios (and further analysis is warranted, which we will illustrate over the next several chapters). 129 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 2 130 Copyright ©2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.