List of Check Figures and Solution Hints to accompany Phillips/ Libby/Libby: Fundamentals of Financial Accounting, 3e

Chapter 1
Mini-Exercises M1-1 (5) IFRS = International Financial Reporting Standards M1-2 (2) F, (8) G M1-3 (2) I, (9) E M1-4 (7) L M1-5 (3) A M1-6 (8) SE M1-7 (10) A M1-8 (3) SE M1-9 (4) A M1-10 (7) I/S, SRE M1-11 (4) (O) M1-12 (1) (I) M1-13 Retained earnings, 12/31/10 = $46,000 M1-14 Net income = $645, Total assets = $16,772 Exercises E1-1 (c) $3,500 + $1,300 $500 = $4,300 E1-2 (d) $3,200 + $15,700 $7,200 $5,300 = $6,400 E1-3 (1) Total liabilities = $314,597, (2) stockholders E1-4 (1) Total assets = $122,400, (4) 14,550 E1-5 (f) Dividends, SE E1-6 (1) Total expenses = $662,000 E1-7 Total expenses = $130,825 E1-8 (A) Net income = $18,000 (C) Stockholders' equity = $78,000 E1-9 (1) Net income = $40,500, (2) Total assets = $96,800 E1-10 (1) $18,000 E1-11 (3) F E1-12 (4) (O) Coached Problems CP1-1 (1) Net income = $21,950, (3) Total assets = $115,500 CP1-2 (3) Stockholders CP1-3 (1) Net income = $58,806, (3) Total assets = $1,595,925

Group Problems PA1-1 (1) Net income = $23,450, (3) Total assets = $113,850 PA1-2 (1) Profitable since NI = $23,450 PA1-3 (1) Net income = $100, (3) Total assets = $2,259, (4) Cash used in financing activities = ($4) PB1-1 (1) Net income = $25,150, (3) Total assets = $118,400 PB1-2 (4) Cash increase of $13,900 PB1-3 (1) Net income = $81,282, (3) Total assets = $1,039,731, (4) Cash used in financing activities = ($11,681) Skill Development Cases S1-1 (4) Cash = $519 (million) S1-2 (2) Lowes revenue of $48,230 (million) was lower than the $71,288 (million) reported by Home Depot S1-3 Solutions vary depending on company and/or accounting period selected S1-4 (1) Separate entity concept S1-5 (1) An independent audit is an absolute must S1-6 (1) Based on historical cost, Ashleys net worth = $1,550. Based on market value, Ashleys net worth = $2,150 S1-7 Net income = $51, Total assets = $3,754 Continuing Case CC1 (1) Net income = $2,400, (3) Total assets = $73,930

Chapter 2
Mini-Exercises M2-1 Stockholders equity: debits decrease, credits increase M2-2 Assets: increased with debits, decreased with credits M2-3 (2) C M2-4 (4) NCA, (11) SE M2-5 (2) CL, credit, (7) SE credit M2-6 (1) CL, credit, (6) NCA, debit M2-7 (2) No, (6) Yes
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Fundamentals of Financial Accounting, 3/e

M2-8 M2-9 M2-10 M2-11

M2-12 M2-13 M2-14 M2-15

M2-16 M2-17 M2-18 M2-19 M2-20 M2-21

(1)Yes, (3) No, lacks exchange (b) Cash (+A) +$4,630, Contributed Capital (+SE) + $4,630 (b) dr Cash (+A) $4,630 cr Contributed Capital (+SE) $4,630 (a) Debit (left side) Cash account for $3,940, Credit (right side) Notes Payable account for $3,940 Ending balance in Cash account = $8,008 debit, Total current assets = $9,080 (a) dr Cash (+A) $55,000 cr Contributed Capital (+SE) $55,000, (e) No transaction (d) dr Accounts Payable (-L) $1,500 cr Cash (-A) $1,500 (b) No transaction, (e) dr Equipment (+A) $2,200 cr Cash (-A) $1,000 cr Notes Payable (+L) $1,200 (c) dr Cash (+A) $400 cr Accounts Receivable (-A) $400 Total current assets = $3,600, Total assets = $50,500, Total current liabilities = $2,500 (1) Total assets = $2,076,280, Total stockholders equity = $44,881,000 2.0, yes (a) Decrease, 1.87 vs. 2.0, (c) Increase, 2.13 vs. 2.0 (a) Decrease, 1.96 vs. 2.0, (c) Increase, 2.20 vs. 2.0

E2-10 E2-11 E2-12

E2-13 E2-14

note, (2) Total assets = $77,000 (1) (3) Borrowed money by signing note, (2) Total assets = $76,000 (a) dr Cash (+A) $60,000 cr Contributed Capital (+SE) $60,000, (c) No transaction (1) (e) Not a business transaction, Ending balance of Equipment = $22,000, (3) Ending balance of Cash = $36,000, (4) Total assets = $70,000 (c) Used cash to purchase supplies costing $1,500 (1) 5.22 at 9/30/08, 6.02 at 12/31/07, (3) 6.87

Exercises E2-1 (1) E, (10) D E2-2 (1) (b) Cash (-A), Equipment (+A), (2) Equipment = $21,000, Land = $50,000, Cost principle E2-3 (4) CA debit, (10) CL credit E2-4 (a) Cash (+A) $10,000, Contributed Capital (+SE) $10,000 E2-5 (1) (c) No effect E2-6 (b) dr Cash (+A) $7,000 cr Notes Payable (+L) $7,000 E2-7 (1) (a) dr Equipment (+A) $216.3 cr Cash (-A) $211.3 cr Notes Payable (+L) $5.0 E2-8 (1) Ending cash balance = $57,000 debit, (2) Liabilities = $9,000 E2-9 (1) (6) Purchased land by signing
Fundamentals of Financial Accounting, 3/e

Coached Problems CP2-1 (2) Total cash = $28,000, (4) (c) $120,000 - $80,000 = $40,000, (5) Liabilities CP2-2 (1) (b) Cash (+A) $30,000, Notes Payable (+L) $30,000, (2) (b) dr Cash (+A) $30,000 cr Notes Payable (+L) $30,000, (3) Total Cash = $105,000 debit, Total Notes Payable = $147,000 credit (4) Total assets = $679,000 CP2-3 (1) (a) Equipment (+A) $21,000, Cash (-A) $5,000, Notes Payable (+L) +$16,000, (2) (b) dr Cash (+A) $20,000 cr Contributed Capital (+SE) $20,000, (3) Ending Cash balance = $64,000 debit, (5) Total assets = $412,000 Group Problems PA2-1 (1) Ending Cash = $12,000, Ending Notes Payable = $149,000, (3) (c) $749,000 $349,000 = $400,000, (4) Stockholders equity PA2-2 (1) (e) Supplies (+A ) $30,000, Accounts Payable (+L) $30,000, (2)(b) dr Cash (+A) $90,000 cr Notes Payable (+L) $90,000, (3) Ending Cash = $234,000 debit, (4) Total assets = $1,071,000, (5) Stockholders Equity PA2-3 (1) (e) No effect, (2) (c) dr Property, Plant, and Equipment (+A) $11 cr Cash (-A) $2 cr Long 2010, The McGraw-Hill Companies, Inc. Page 2

PB2-1

PB2-2

PB2-3

term Debt (+L) $9, (3) Ending cash = $79 debit, (4) Event (e) is not a transaction since it lacks an exchange, (5) Total assets = $771 (1) Ending Cash = $87,000, Ending Notes Payable = $218,000, (3) (b) $1,780,000 + $218,000 = $1,998,000, (4) Liabilities (1) (d) Equipment (+A) $90,000, Cash (-A) $90,000, (2) (c) dr Factory Building (+A) $166,000 cr Cash (-A) $66,000 cr Notes Payable (+L) $100,000, (3) Ending Cash = $594,000 debit, (4) Total assets = $2,041,000 (1) (e) no effect, (2) (c) dr Property, Plant, and Equipment (+A) $20,700 cr Cash (-A) $11,200 cr Long-term Debt (+L) $9,500, (3) Ending Cash = $259,700 debit, (5) Total assets = $5,687,200

M3-4 M3-5 M3-6 M3-7 M3-8 M3-9 M3-10 M3-11 M3-12 M3-13 M3-14 M3-15 M3-16 M3-17 M3-18 M3-19 M3-20 M3-21

Skill Development Cases S2-1 (2) Assets = $41,164,000,000 S2-2 (2) Lowes Current Ratio = 1.2 S2-3 Solutions vary depending on company and/or accounting period selected S2-4 (1) Total Assets = $15,000 S2-5 (3) Conservatism S2-6 Inclusion of the owners personal residence as a business asset S2-7 Ending Cash = $19,300 debit, Ending Property and Equipment = $58,800 debit Continuing Case CC2 (1) (b) dr Land (+A) $9,000 cr Cash (-A) $2,000 cr Notes Payable (+L) $7,000, (2) Ending Cash = $59,650 debit, (3) Total Assets = $87,650, (4) 93.3

(b) dr Accounts receivable (+A) $250, (d) cr Unearned revenue (+L) $1,500 (e) dr Repairs and maintenance expense (+E, -SE) $1,500 (b) Assets +$250, Liabilities = NE, SE (Service revenue) +$250 (e) Assets -$1,500, Liabilities = NE, SE (Repairs and maintenance expense -$1,500 Net income = $2,775 (e) $125 (h) $800 (d) dr Cash (+A) $2,250 cr Unearned revenue (+L) $2,250 (g) dr Accounts payable (-L) $1,750 cr Cash (-A) $1,750 (b) dr Cash (+A) $25,000 cr Contributed capital (+SE) $25,000 (e) dr Accounts receivable (+A) $180 cr Service revenue (+R, +SE) $180 (e) dr Supplies (+A) $2,500 cr Donations revenue (+R, +SE) $2,500 (b) dr Accounts receivable (+A) $2,000 cr Repair/service revenue (+R, +SE) $2,000 (a) Assets +$15,000, Liabilities = NE, SE (Lesson revenue) +$15,000 (h) Assets = NE, Liabilities +$800, SE (Utilities expense) - $800 Net income = $9,575 Net income = $42,120, Total assets = $151,850 Net income = $4,387

Chapter 3
Mini-Exercises M3-1 Cash income = $6,400, accrual income = $9,200 M3-2 (b) $250 M3-3 (g) $5,475
Fundamentals of Financial Accounting, 3/e

Exercises E3-1 (5) B E3-2 (d) $100,000 (=1,000 installations x $100 per installation) E3-3 (a) No revenue; stock issuance is a financing activity E3-4 (c) $1,000 E3-5 (a) No expense in January when paid. Expense (and liability) recorded in December. In January, decrease liability, decrease cash E3-6 (b) Assets = +$5,000, Liabilities = +$5,000, SE = NE E3-7 (d) Assets increase and decrease $18,600. Liabilities = NE, SE = NE E3-8 (a) dr Cash (+A), $80,000 cr Notes payable (+L) $80,000
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E3-9 E3-10 E3-11

E3-12 E3-13

E3-14 E3-15 E3-16 E3-17 E3-18 E3-19

E3-20 E3-21

(b) dr Equipment (+A) $20,000 cr Cash (-A) $20,000 2/2 dr Fuel expense (+E, -SE) $450 cr Accounts payable (+L) $450 (2) (c) dr Cash (+A) $14,500 cr Piano rebuilding revenue (+R, +SE) $14,500 (3) Ending Cash = $14,800 Total debits = $89,150, Total credits = $89,150 (1)(c) Purchased $1,000 of supplies, paying $200 cash and putting the balance on account (2) Total debits = $111,800 (2) 12/31 Balance of unearned revenue = $253 (f) Assets = NE, Liabilities (Accounts payable) +$1,250, SE (+Utilities expense) -$1,250 (e) dr Supplies (+A) +$1,000 cr Accounts payable (+L) $1,000 Ending Cash balance = $45,500 debit Total debits =$81,950 (1) (g) Paid $3,000 of the accounts payable balance, (2) Net income = $2,540, Total assets = $15,800 (f) Utilities expense E + Debit, Utilities (or Accounts) payable L + Credit (1) Assets (Cash) +$50,000, Assets (Accounts receivable) -$50,000, Liabilities = NE, SE = NE, (2)(c) dr Equipment (+A) $33,500 cr cash (-A) $10,000 cr Notes payable (+L) $23,500, (3) Ending balance of Cash account = $1,286,500 debit, (4) Total debits = $4,440,050, (5) Net income = $(143,350), (7) Total assets = $4,046,700

PA3-2 PA3-3

PB3-1 PB3-2 PB3-3

4/8 dr Advertising expense (+E, -SE) $400 cr cash (-A) $400 (1) and (2) Ending Cash balance = $134,560 (3) Total debits = $303,670, Total credits = $303,670 (d) Debit: 3, Credit: 11 (c) dr Equipment (+A) $82,000 cr Long-term notes payable (+L) $82,000 (1) and (2) Ending Cash balance = $23,500 (3) Total debits = $68,100, Total credits = $68,100

Coached Problems CP3-1 (h) Debit: 13, Credit: 3 CP3-2 (c) 5/1 dr Prepaid Insurance (+A) $2,400 cr Cash (-A) $2,400 CP3-3 (1) and (2) Ending Cash balance = $13,910 debit (3) Total debits = $27,800, Total credits = $27,800 Group Problems PA3-1 (d) Debit: 11, Credit: 5
Fundamentals of Financial Accounting, 3/e

Skill Development Cases 3-1 (1) Revenues decreased by $6,061,000,000 which is a decrease of 7.8% ((-6,061 / 77,349) x 100) from the previous year 3-2 (2) Cost of sales = $31,729,000,000, which is an increase over the previous year of $173,000,000, or 0.5% ((173 / 31,556) x 100) S3-3 Solutions vary depending on company and/or accounting period selected S3-4 (3) Current year net income will be higher than it should be since some expenses were avoided by recording them as assets. The following years net income will be lower when those assets are expensed S3-5 You should not comply with Mr. Lynchs request since to act in ways that benefit management to the detriment of stockholders is inappropriate and could be considered fraud S3-6 (1)(d) Purchased land for $18,000; $14,000 was paid in cash and a note was signed for the remainder (2) Total debits = $136,000, Total credits = $136,000 S3-7 Ending Cash balance = $9,555 debit, Total debits on unadjusted trial balance = $11,350 Continuing Case CC3 May 4, no transaction, May 19, dr cash (+A) $1,900 cr
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Unearned revenue (+L) $1,900

Chapter 4
Mini-Exercises M4-1 (4) B, F M4-2 (5) B M4-3 (3) A M4-4 (2) dr Interest receivable (+A) $250 cr Interest revenue (+R +SE) $250 M4-5 (a) Assets = NE, Liabilities (Unearned rent revenue) -$400, SE (Rent revenue) +$400 M4-6 (b) dr Insurance expense(+E, -SE) $100 cr Prepaid insurance (-A) $100 ($100 = 1/24 x $2,400) M4-7 (c) Assets (Interest receivable) + $100, Liabilities = NE, SE(Interest revenue) +$100 M4-8 (c) dr Interest receivable (+A) $100 cr Interest revenue (+R +SE) $100 ($100 = 1/12 x $1,200) M4-9 (b) Sept 30 dr Cash (+A) $6,000 cr Unearned revenue (+L) $6,000, Oct 31 AJE dr Unearned revenue (-L) $3,000 cr Admissions revenue (+R +SE) $3,000 M4-10 (a) Dec 30 dr Cash (+A) $12,000 cr Unearned revenue (+L) $12,000, Jan 31 AJE dr Unearned revenue (-L) $1,000 cr Subscriptions revenue (+R +SE) $1,000 M4-11 Total debits = $6,200, Total credits = $6,200 M4-12 Net income = $4,910 M4-13 Ending Retained earnings balance = $5,610 M4-14 Total assets = $17,930 M4-15 After closing, all revenue, expense, and dividends declared account balances should be zero. Retained earnings should have been credited for $4,910 which reflects the net income in the first closing entry. In the second closing entry, Retained earnings should have been debited for $300 which reflects the dividends declared M4-16 Ending balance in the Supplies account after adjustment = $1,300 debit M4-17 Ending balance in the Accumulated depreciation
Fundamentals of Financial Accounting, 3/e

M4-18 M4-19 M4-20 M4-21 M4-22 M4-23 M4-24

account after adjustment = $6,000 credit Ending balance in the Prepaid insurance account after adjustment = $3,600 debit Ending balance in the Unearned revenue account after adjustment = $2,500 credit Ending balance in the Wages expense account after adjustment = $21,200 debit Ending balance in the Interest payable account after adjustment = $500 credit Ending balance in the Dividends declared account after adjustment = $200 debit Total debits = $77,600 (e) CJE: 12/31/10 dr Retained earnings (-SE) $10,000 cr Insurance expense (-E) $10,000

Exercises E4-1 (1) Total debits = $3,288,990 E4-2 (2) Five balance sheet accounts may need adjustment. One example is Accounts receivable which corresponds to Sales revenue on the income statement E4-3 (c) Sept 1 No journal entry, Sept 30 dr Accounts receivable (+A) $2,000 cr Rent revenue (+R +SE) $2,000 E4-4 (2) Both transactions are accruals E4-5 (b) 12/31/09 dr Interest receivable (+A) $3,000 cr Interest revenue (+R +SE) $3,000 E4-6 (1) Insurance expense on the income statement = $3,600 ((12/24) x $7,200) E4-7 (b) dr Shipping supplies expense (+E SE) $5,000 cr Shipping supplies (-A) $5,000 E4-8 (a) Office supplies $100 on the balance sheet, Supplies expense $750 on the income statement E4-9 (f) Assets (Accounts receivable) + $750, Liabilities = NE, SE (Repair shop revenue (+R +SE) +$750 E4-10 (b) Debit = C $600, Credit = Q $600 E4-11 (1) Income tax payable is increased with a credit for accrual of additional income taxes payable and decreased with
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E4-12 E4-13 E4-14

E4-15

E4-16 E4-17

E4-18

a debit for cash paid on accrued income taxes payable Correct amounts: net income = $4,620, Total assets = $82,000, Total liabilities = $57,380 (1) (c) dr Depreciation expense (+E SE) $23,000 cr Accumulated depreciation (+xA A) $23,000 (2) (d) dr Income tax expense (+E SE) $800 cr Income tax payable (+L) $800 (3) Total debits = $89,700 (1) (b) dr Depreciation expense (+E SE) $4 cr Accumulated depreciation (+xA A) $4 (2) Total debits = $189 Net income = $19, Ending Retained earnings = $23, Total assets = $124 The closing entry should close revenue and expense account balances to Retained earnings (Retained earnings will get credited for $19) (f) (1) Billed customers for advertising services, (2) Assets (Accounts receivable) +$10,000, Liabilities = NE, SE (Advertising revenue) + $10,000

(3) Total debits = $279, (4) (p) dr Income tax expense (+E SE) $8 cr Income tax payable (+L) $8, (5) Total debits = $306, (6) Net income = $28, Ending retained earnings = $19, Total assets = $145, (7)(1) Credit Retained earnings (+SE) $28, (8) Total debits = $157, (9) primarily by stockholders Group Problems PA4-1 (1) Total debits = $9,779, (2) debit revenue accounts, credit expense accounts, credit Retained earnings $494, (3) Total debits = $3,812 PA4-2 (1) (b) Assets (Supplies) - $700, Liabilities = NE, SE (Supplies expense) = $-700, (2)(b) dr Supplies expense (+E SE) $700 cr Supplies (-A) $700 PA4-3 (f) Assets = -$2,750, Liabilities = NE, SE (Depreciation expense) = $2,750, (h) Assets = NE, Liabilities = +$9,435, SE (Income tax expense = -$9,435 ($31,450 x .30) PA4-4 (1) Net income = $9,700, (2) Wages payable on the balance sheet and Wages expense on the income statement, (3) Credit Wages payable for $150, (4) (c) dr Wages expense (+E SE) $150 cr Wages payable (+L) $150, (5) Net income = $2,800 PA4-5 (1)Ending Cash balance = $26 debit, (2) (b) dr Equipment (+A) $25 cr Cash (-A) $25, (3) Total debits = $112, (4) (n) dr Interest expense (+E SE) $1 cr Interest payable (+L) $1, (5) Total debits = $124, (6) Net income = $6, Ending Retained earnings = $6, Total assets = $66, (7) (1) debit revenue account, credit expense accounts, credit Retained Earnings $6, (8)Total debits = $71, (9) creditors (liabilities) PB4-1 (1) Total debits = $5,476, (2) debit revenue account, credit expense accounts, credit Retained earnings $85, (3) Total debits = $2,822 PB4-2 (1) (a) Assets = +$2,000,
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Coached Problems CP4-1 (1) Retained earnings = $80,226, Total debits = $540,627, (2) Debit revenue accounts, credit expense accounts, credit Retained Earnings for $21,709, (3) Total credits = $228,938 CP4-2 (1)(g) Assets = NE, Liabilities (Property tax payable) = +$400, SE (Property tax expense) = $400, (2) (b) dr Unearned rent revenue (-L) $3,200 cr Rent revenue (+R +SE) $3,200 CP4-3 (g) Assets = NE, Liabilities (Property tax payable) +$400, SE (Property tax expense) $-400 CP4-4 (1) Net income = $13,000, (3) Interest payable +100 (interest owed on note payable), (4) dr Interest expense (+E SE) $100 cr Interest payable (+L) $100, (5) Net income = $10,710 CP4-5 (1) Cash ending balance = $43 debit, (2)(j) No entry required as no revenue was earned in 2009,
Fundamentals of Financial Accounting, 3/e

PB4-3 PB4-4

PB4-5

Liabilities = NE, SE (Service revenue) +$2,000, (2) (a) dr Accounts receivable (+A) $2,000 cr Service revenue (+R +SE) $2,000 (c) Assets = NE, Liabilities = +900, SE (Wages expense) -$900 (1) Net income = $6,600, (2) Unearned revenue on the balance sheet should be decreased while Lesson revenue on the income statement should be increased, (3) Note payable = No adjustment required, (4) (b) dr Unearned revenue (-L) $500 cr Lesson revenue (+R +SE) $500, (5) Net income = $4,760 (1) Ending Cash balance = $28 debit, (2) (f) dr Small tools (+A) $3 cr Cash (-A) $3, (3) Total debits = $126, (4) (l) dr Operating expenses (+E SE) $8 cr Supplies (-A) $8, (5) Total debits = $136, (6) Net income = $12, Ending Retained earnings = $6, Total assets = $71, (7) (2) dr Retained Earnings (-SE) $10 cr Dividends declared (-D) $10, (8) Total debits = $73, (9) Primarily financed by creditors (liabilities)

S4-7

assets = $67,800, (3) (a) Decrease net income by $27,050 Total debits = $267,301, Net income = $11,138, Ending Retained earnings = $38,709, Total assets = $96,786

Continuing Case CC4 (1) (a) Deferral, (2) (f) dr Cash (+A) $90 cr Unearned revenue (+L) $90, (3) (d) dr Insurance expense (+E SE) $1,750 cr Prepaid insurance (-A) $1,750 (7/12 x $3,000)

Chapter 5
Mini-Exercises M5-1 (3) B M5-2 (5) B M5-3 Annual Report = 3 M5-4 Net income = $5,250 M5-5 Ending Retained earnings balance = $48,000 M5-6 (c) Assets = NE, Liabilities = + $1,000, SE (Advertising expense) = -$1,000 M5-7 (b) Debt-to-assets = +, Turnover = -, Margin = NE M5-8 (b) Assets = +$4,000, Liabilities = +$4,000, SE = NE M5-9 (c) Debt-to-assets = +, Turnover = +, Margin = - M5-10 (e) 80 (from 12/31/09 balance sheet) M5-11 2010 Contributed capital = $480, Retained earnings = $180 M5-12 Prior year margin = 9.4%, Current year margin = 10.0% M5-13 Prior year Debt-to-assets = 20.0%, Current year = 16.7% M5-14 Asset turnover = 0.737 M5-15 (a) Asset turnover = 1.14 for Columbia and 1.53 for Levi Strauss Exercises E5-1 (5) D E5-2 (2) F E5-3 (5) A, F E5-4 (1) D E5-5 (8) D E5-6 (1) Comparability E5-7 (2) Form 8-K E5-8 2005 Net profit margin = 7.4% E5-9 (3) The annual report is issued
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Skill Development Cases S4-1 (1) $18,000,000 S4-2 (1) Home Depot has $1,000,000,000 in Advertising expense while Lowes had $789,000,000 S4-3 Solutions vary depending on company and/or accounting period selected S4-4 (3) 1999 (Q3) debit Bonus expense (+E SE) for $7.6 M, 1999 (Q4) credit Bonus expense (-E +SE) for $7.6 M, 2000 (Q1) debit Bonus expense (+E, -SE) $7.6M S4-5 The change in estimated depreciation expense will increase net income this year but since some depreciation will now extend into next year, net income will be reduced S4-6 (1)(b) dr Insurance expense (+E SE) $2,000 cr Prepaid insurance (-A) $2,000, (2) Corrected net income = $10,950, Corrected
Fundamentals of Financial Accounting, 3/e

E5-10 E5-11 E5-12 E5-13 E5-14

E5-15

E5-16

after the 10-K (1) 2008 Asset turnover = 2.87, 2008 net profit margin = 3.3% (1) 2008 Asset turnover = 1.98, 2008 net profit margin = 4.5% (3) 2008 Debt-to-assets = 64.2% (a) Assets = -$10, Liabilities = $10, SE = NE (b) Debt-to-assets = NE, Turnover = NE, Margin = NE (1) 2010 Net income = 41,000, 2010 Ending Retained earnings = $86,000, 2010 Total assets = $400,000, (3) 2010 Debt-to-assets = 25%, 2010 Asset turnover = 1.03, 2010 Net profit margin = 10% (1) On the balance sheet, longterm assets are listed before current assets and stockholders equity is listed before liabilities (1) B/S, (6) SSE, (8) I/S

PB5-2 PB5-3 PB5-4

(b) Debt-to-assets = +, Turnover = +, Margin = NE (3) McDonalds better controls its expenses as suggested by its higher net profit margin (1) On the balance sheet, longterm assets are listed before current assets and stockholders equity is listed before liabilities, (3) 2010 net profit margin = 10.0%

Coached Problems CP5-1 (a) Assets +$7,208, Liabilities = NE, SE (Marketing revenue) = + $7,208 CP5-2 (a) Debt-to-assets = -, Turnover = CD, Margin = + CP5-3 (2) Best Buy is more efficient in using its assets to generate sales since its asset turnover is higher than GameStops CP5-4 (1) On the balance sheet, longterm assets are listed before current assets and stockholders equity is listed before liabilities (3) 2008 profit margin = 7.9% Group Problems PA5-1 (a) Assets = -$7, Liabilities = -$7, SE = NE PA5-2 (a) Debt-to-assets = -, Turnover = +, Margin = NE PA5-3 (1) Dillards relies more on debt as suggested by its higher debtto-assets ratio PA5-4 (1) On the balance sheet, longterm assets are listed before current assets and stockholders equity is listed before liabilities, (4) 2010 Asset turnover = 3.83 PB5-1 (d) Assets = +$450, Liabilities = NE, SE (Admissions revenue) = + $450
Fundamentals of Financial Accounting, 3/e

Skill Development Cases S5-1 (1) 2/1/09 Debt-to-assets = 56.8%, (2) 2008-09 Asset turnover = 1.67, (3) 2008-09 Net profit margin = 3.2% S5-2 (2) Asset turnover = 1.52 S5-3 Solutions vary depending on company and/or accounting period selected S5-4 (1) 1998 Q3 Debt-to-assets = 59.6%, (2) 1998 Q3 Debt-to-assets = 60.4%, (6) Auditors brought the fraud to the attention of the directors, which was the appropriate level S5-5 (1) The debt-to-assets ratio and the asset turnover ratios would decrease while the net profit margin would increase S5-6 (1) Asset turnover = 1.32 S5-7 (3) Debt-to-assets ratios: Hershey = 90.4%, Tootsie Roll = 21.8%, Rocky Mountain = 25.0% Continuing Case CC5 (1) (a) Assets = +$320, Liabilities = +$320, SE = NE, Revenues = NE, Expenses = NE, Net income = NE (2) (a) Debt-to-assets = +, Turnover = -, Margin = NE

Chapter 6
Mini-Exercises M6-1 (4) RM M6-2 (3) D M6-3 (4) Document procedures M6-4 (5) A M6-5 (d) Establish responsibility so it will be possible to trace errors M6-6 (1) C M6-7 (a) Segregate duties warehouse manager could divert goods
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M6-8 M6-9 M6-10 M6-11 M6-12 M6-13 M6-14

M6-15

M6-16 M6-17 M6-18 M6-19 M6-20

(b) - on Company books (b) dr Office expenses (+E SE) $15 cr Cash (-A) $15 Perpetual systems provide more timely information and can estimate inventory shrinkage Shrinkage = $3,000 FOB Destination; Revenue would be booked earlier under FOB Shipping point Gross profit = $460 At time of collection: dr Cash (+A) $1,960 dr Sales discounts (+xR SE) $40 cr Accounts receivable (-A) $2,000 ($40 = $2,000 x .02) (b) dr Cash (+A) $686 dr Sales discounts (+xR SE) $14 cr Accounts receivable (-A) $700 ($14 = $700 x .02) Net income = $5,452 Gross profit percentage = 40.0% Zieharts Gross profit percentage = 67.4% 2007 Income from Operations = 815,000, 2008 Income from Operations = 725,000 2007 Gross profit percentage = 46.5%, 2008 Gross profit percentage = 47.4%

E6-9 E6-10

E6-11 E6-12

E6-13 E6-14 E6-15 E6-16 E6-17 E6-18 E6-19 E6-20

Net sales = $228 Feb. 28 dr Accounts receivable (+A) $50 cr Sales revenue (+R +SE) $50, dr Cost of goods sold (+E SE) $30 cr Inventory (-A) $30 Net sales = $8,850 July 12 dr Cash (+A) $1,000 cr Sales revenue (+R +SE) $1,000, dr Cost of goods sold (+E SE) $600 cr Inventory (-A) $600 Sales discount = $162 Dec 6 dr Cash (+A) $5,238 dr Sales discounts (+xR SE) $162 cr Accounts receivable (-A) $5,400 July 12: Gross profit = +$140 (2) dr Cash (+A) $784 dr Sales discounts (+xR SE) $16 cr Accounts receivable (-A) $800 (A) Net sales = $7,850, Gross profit = $2,100 (1) Gross profit = $110,000, net income = $33,200 (2) Gross profit = $485, gross profit percentage = 39.8% (1) 2005: % sales discounts and returns = 6.5%, (2) 2005: Gross profit percentage = 57.2%

Exercises E6-1 (1) Segregation of duties to prevent or detect unauthorized activities E6-2 Give receipts to all donors and have volunteers work in pairs E6-3 (1) (b) Document procedures, (3) lack of separation of duties E6-4 (1) (b) Segregate duties, document procedures, (2) (1) Step = Request that goods or services be ordered, Documentation = Purchase requisition, Performed by = Sales manager E6-5 (1) Up-to-date cash balance = $6,370 E6-6 (1) Up-to-date cash balance = $2,680, (2) Entries needed for EFT, Service charge, and NSF check E6-7 (A) Ending inventory = $500, Shrinkage = $80 E6-8 Shrinkage = $100
Fundamentals of Financial Accounting, 3/e

Coached Problems CP6-1 (1) (a) Strength, (2) (d) entry should be made after ensuring the register receipt total equals the total on the count sheet and deposit slip CP6-2 (3) Up-to-date cash balance = $5,875 CP6-3 (1) Deposit in transit of $5,000, (3) Up-to-date cash balance = $20,290 CP6-4 (1) Gross profit = $69,000, (2) Net income = $22,400 CP6-5 (1) Gross profit = $131,130, (4) Gross profit will increase by $3,000 but the gross profit percentage will decrease to 43.8% CP6-6 (1) (a) Sales = +$230,000, Returns & Allowances = NE, Discounts = NE, Net sales = + $230,000, CGS = +$175,000, Gross profit = +$55,000 Group Problems PA6-1 (1) (a) Weakness: document
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PA6-2 PA6-3 PA6-4 PA6-5

PA6-6

PB6-1 PB6-2 PB6-3 PB6-4 PB6-5

PB6-6

procedures, (2) (e) Supplies should be safeguarded by locking the rear door, for example (1) Up-to-date cash balance = $17,180, (4) Cash = $17,230 (2) Outstanding checks = $3,650, (3) Up-to-date cash balance = $96,070 (2) Net income = $35,000, (3) Gross profit percentage = 30.9% (1) Net sales $60,340, (3) (d) dr Cash (+A) $4,900 dr Sales Discounts (+xR SE) $100 cr Accounts receivable (-A) $5,000 (1) (b) Sales revenues = NE, Returns & Allowances = + $10,000, Discounts = NE, Net sales = -$10,000, CGS = NE, Gross profit = -$10,000 (1) (d) Weakness: no documentation (1) Up-to-date cash balance = $37,240, (4) Cash = $37,290 (1) Deposit in transit = $21,000, Up-to-date cash balance = $122,930 (1) Net income = $79,000, (3) Gross profit percentage = 35.9% (1) Net sales +$501,000, Gross profit +$275,550, (4) Gross profit percentage will increase to 54.1% (1) (c) Sales revenues = NE, Returns & Allowances = NE, Discounts = +$2,440, Net sales = -$2,440, CGS = NE, Gross profit = -$2,440

S6-6 S6-7

Selling Expenses = $40,000 (1) (a) $50 x 12 months = $600, (d) Amount stolen = $4,820 (1) Gross profit = $97,500, (2) Net income = $35,100, (3) Gross profit percentage = 28.22%

Continuing Case CC6 (2) Gross profit = $874, Company earns 45.1 cents of gross profit per dollar of merchandise sales

Chapter 7
Mini-Exercises M7-1 (b) Winston owns the inventory M7-2 Raw materials = manufacturing M7-3 Purchases = $4,422 million M7-4 (b) (2) FIFO M7-5 (b) Rising costs = LIFO M7-6 FIFO CGS = $2,300 M7-7 (c) Weighted average CGS = $209,250 M7-8 (b) Ending inventory = $7,050 M7-9 Total inventory = $4,750 M7-10 Entry should reduce Inventory by $336M M7-11 Inventory cost = $22,014 M7-12 (d) Entry should include a credit to Cash of $21,364 M7-13 (b) Gross profit = $15,000 M7-14 (c) NE M7-15 Inventory turnover = 3.1 times M7-16 Total FIFO value less adjustment to LIFO basis M7-17 Perpetual FIFO ending inventory = $175,000 M7-18 Perpetual LIFO CGS = $4,650 M7-19 2010 Gross profit is overstated by $10,000 M7-20 2009 Gross profit is overstated by $100,000 Exercises E7-1 E7-2 E7-3 E7-4 E7-5 E7-6 (3) PC Malls balance sheet (D) Total available = $900 (B) CGS = $750 Purchases = $9,010 (1) Cost of goods available = $6,580, (3) Weighted average CGS = $2,256 (1) Cost of goods available = 20,000 units, (3) LIFO CGS = $114,000, (4) FIFO operating income = $69,000

Skill Development Cases S6-1 (2) 2008-09 Gross profit percentage = 33.7%, (3) Purchases = $46,240 S6-2 (2) Lowes current year = 34.2%, The Home Depots current year = 33.7%, The Home Depot appears to have lower mark-ups S6-3 Solutions vary depending on company and/or accounting period selected S6-4 (3) If periodic system used, Famous Footwear would not be able to quantify the amount of shrinkage S6-5 (1) Net Sales = $90,000, (2)
Fundamentals of Financial Accounting, 3/e

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E7-7

E7-8 E7-9 E7-10 E7-11 E7-12 E7-13 E7-14 E7-15 E7-16 E7-17 E7-18 E7-19 E7-20 E7-21 E7-22 E7-23

(1) Goods available = $164,500, (3) FIFO CGS = $105,000, (5) Operating income Case A = $9,000, Case B = ($4,000), Case C = $1,200 (1) FIFO CGS = $152,800, Weighted average CGS = $153,340 (1) Ending inventory Case A = $1,950, Case B = $1,800, Case C = $1,800, Case D = $1,950 (1) LCM Valuation = $7,400 (2) Write-down = $325 (1) dr Cost of goods sold (+E SE) $18M cr Inventory (-A) $18M Cost of inventory = $2,426 Jan. 14 dr Accounts payable (-L) $1,200 cr Inventory (-A) $24 cr Cash (-A) $1,176 Cost of inventory $3,058 June 3 dr Inventory (+A) $3,200 cr Accounts payable (+L) $3,200 Inventory turnover = 6.8 times in 2008, Days to sell = 53.7 days in 2008 (1) FIFO CGS = $2,050, (2) LIFO inventory turnover = 4.41 (2) Purchases = $125,600, (3) LIFO inventory turnover = 13.6 times Perpetual LIFO Ending inventory = $4,420 Perpetual FIFO Cost of goods sold = $96,000 (3) Second quarter Operating income = $4,600 (a) No year-end adjustment needed, (b) Cost of goods sold = $1,875

CP7-7

Ending inventory = $12,200

Group Problems PA7-1 (1)(d) Cost of goods sold = $19,834 PA7-2 (2) Net income decreased $5,600 PA7-3 (1) (c) -$10,800, (2) (c) entry should include a credit to Cash for $529,200 PA7-4 (1) Inventory turnover = 7.1 times in 2008 PA7-5 Cost of goods sold = $22,930 PA7-6 (1) 2009 Gross profit = $750,000 since the decrease in ending inventory in 2008 causes cost of goods sold to be overstated in 2009 PA7-7 Dec 31: dr Inventory (+A) $15,490 cr Cost of goods sold (-E +SE) $15,490 PB7-1 (1)(c) Cost of goods sold = $1,130 PB7-2 (2) Net income decreased by $9,450 PB7-3 (1) (c) -$2,440, (2) (c) entry should include a credit to Inventory for $2,440 PB7-4 (1) Days to Sell = 31.7 in 2008 PB7-5 Cost of goods sold = $950 PB7-6 Q3 Cost of goods sold = $2,625 PB7-7 Ending inventory = $920 Comprehensive Problem C7-1 (1) Dec 1 Assets (Inventory) = + $260, Liabilities (Accounts payable) = +$260, SE = NE, (2)AJE a: dr Selling Expenses (+E SE) $200 cr Accounts Payable (+L) $200, (3) Ending balance in Accounts payable = $910 credit, (4) Net income = $1,841, Total assets = $13,170, (5) Inventory turnover = 25.6 times Skill Development Cases S7-1 (3) Inventory turnover ratio = 4.2 times per year, Days to sell measure = 86.9 days S7-2 (3) Lowes inventory turnover ratio = 4.0 times per year and Days to sell measure = 91.3 days S7-3 Solutions vary depending on company and/or accounting period selected
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Coached Problems CP7-1 (1)(c) Cost of goods sold = $12,400 CP7-2 (1) Net income = $27,300 CP7-3 (1) (c) -$4,500, (2) entry should include a credit to Cash for $220,500 CP7-4 Inventory turnover = 7.2 times in 2009 CP7-5 (2) Cost of goods sold = $12,900 CP7-6 (1) Corrected 2009 Gross profit = $25,000 since the increase in ending inventory in 2008 causes cost of goods sold to be understated in 2009
Fundamentals of Financial Accounting, 3/e

S7-4

S7-5 S7-6 S7-7

Look for seven pieces of evidence: three related to management action, three related to the companys books, and one related to inventory levels (1) Cost of goods sold = $147,500, (3) Gross profit = $52,500 (2) Ending inventory = $330,000 (1) Total LCM = $6,505, (2) LCM adjustment = $560

M8-13 M8-14 M8-15 M8-16

Total current assets = $31,633 (a) Turnover ratio = -, Days to collect = + Factoring fee = $15,000 and reported as Other expense (a) Accounts receivable = $800,000, (b) Debit Bad debt expense for $5,000

Continuing Case CC7 (2) CGS = $753, (3) Inventory turnover ratio = 7.3 times

Chapter 8
Mini-Exercises M8-1 Gross profit percentage = 33.3% M8-2 National programs only charge a modest fee to approve, track, and collect accounts thereby reducing the companys costs and speeding up cash collections M8-3 (c) Net accounts receivable = $745,000 M8-4 Make two entries: one to reinstate the account (Credit Allowance for doubtful accounts for $500) and one entry to collect the account (Credit Accounts receivable for $500) M8-5 (b) dr Bad debts expense (+E SE) $14,000 cr Allowance for Doubtful Accounts (+xA A) $14,000 M8-6 (b) Assets (Allowance for doubtful accounts) -$10,000, Liabilities = NE, SE (Bad debt expense) = -$10,000 M8-7 Bad debt expense = $1,250 M8-8 Required adjustment = $1,350 credit M8-9 (a) dr Bad debts expense (+E SE) $1,250 cr Allowance for Doubtful Accounts (+xA A) $1,250 M8-10 (a) Interest earned = $5,000 M8-11 June 30 Interest revenue = $700 M8-12 April 30 Interest revenue = $160
Fundamentals of Financial Accounting, 3/e

Exercises E8-1 (b) Debit Allowance for doubtful accounts $1,000 E8-2 (a) Assets (Allowance for doubtful accounts) = -$9,750, Liabilities = NE, SE (Bad debt expense) = -$9,750 E8-3 (3) 2% rate is too low given the Allowance account began 2009 with a $800 balance but $1,500 was written off during the year E8-4 (a) dr Allowance for doubtful accounts (-xA +A) $300 cr Accounts receivable (-A) $300 E8-5 (a) Assets (Allowance for doubtful accounts = +$300, Accounts receivable = -$300), Liabilities = NE, SE = NE E8-6 (2) Desired balance = $145,000 credit E8-7 (3) Adjustment = $2,610 credit E8-8 (2) Desired balance in the Allowance account = $3,850 credit E8-9 (d) Income from operations = $500 E8-10 July 1, 2010 entry should have a credit to Interest revenue of $3,500 E8-11 Dec. 31 dr Cash (+A) $3,500 cr Interest receivable (-A) $1,750 cr Interest revenue (+R +SE) $1,750 E8-12 April 30, 2011 entry should contain a credit to Interest revenue of $2,000 E8-13 (2) Receivables turnover ratio = 4.8 times E8-14 (d) Bad debt expense = $18 E8-15 (b) Net credit sales = NE, Average net accounts receivable = -, Receivables turnover = + E8-16 (1) Days to collect = 40.1 E8-17 (2) Receivables turnover ratio = 13.1
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E8-18

(2) 2010 Net income = $1,000

accounts = $1,600, (3) Income from operations = $12,400 Skill Development Cases S8-1 (2) Receivables turnover ratio = 63.9 times S8-2 (1) No; since Lowes sold its receivables to GE Finance in 2005, it did not report any receivables S8-3 Solutions vary depending on company and/or accounting period selected S8-4 (3) Net accounts receivable = $700,000 S8-5 (3) Net income = $13,110 S8-6 (c) Receivables turnover ratio = 7.8 times S8-7 (2) dr Bad debt expense (+E SE) $10,060 cr Allowance for doubtful accounts (+xA A) $10,060 Continuing Case CC8 (2) Desired balance in the allowance account = $318 credit, (4) Receivable turnover = 9.8 times

Coached Problems CP8-1 (3) Entry should include a credit to Allowance for doubtful accounts for $1,017,050 CP8-2 (3) Net receivables is not affected when accounts are written off CP8-3 (2) Dec. 31, 2009 dr Interest receivable (+A) $1,667 cr Interest revenue (+R +SE) $1,667 CP8-4 (1) (j) Desired ending balance in the Allowance account = $8,390 credit, thus requiring a $2,390 credit as part of the adjusting entry CP8-5 Hasbro 2008 Receivables turnover = 6.3 times, Days to collect = 57.5 Group Problems PA8-1 (3) dr Bad debt expense (+E SE) $253 cr Allowance for doubtful accounts (+xA A) $253 PA8-2 (4) Write-offs = $155 PA8-3 (2) Dec 31, 2009 dr Interest receivable (+A) $2,000 cr Interest revenue (+R +SE) $2,000 PA8-4 (1) (i) Adjustment needed to the allowance account = $478 credit PA8-5 (1) Coca-cola 2008 receivable turnover = 10.0, Days to collect = 36.5 PB8-1 (4) Debit Allowance for doubtful accounts $15 PB8-2 (1) Ending balance in the Allowance for doubtful accounts = $131 credit PB8-3 (2) May 31, 2011 entry should have a credit to Interest receivable of $2,000 PB8-4 (1) Desired ending balance in Allowance for doubtful accounts = $11,240 credit PB8-5 (2) Wal-Mart appears quicker than Target at converting receivables to cash Comprehensive Problem C8-1 (2) Estimated uncollectible
Fundamentals of Financial Accounting, 3/e

Chapter 9
Mini-Exercises M9-1 (9) E, D M9-2 (6) E M9-3 (7) E M9-4 Book value at the end of the second year = $120,000 M9-5 Book value at the end of the second year = $112,000 M9-6 Book value at the end of the second year = $50,000 M9-7 (b) Year 1 depreciation = $13,200 M9-8 Impairment losses of $2.5 billion are significant since they represent 12.5% of GMs 2008 operating loss M9-9 (a) dr Accumulated depreciation (-xA, +A) $4,800 cr Computers (-A) $4,800 M9-10 Gain on sale of store fixtures = $600 M9-11 Expense in the current year M9-12 Market value of Taste-Ts assets less liabilities on the date of the offer = $5,600,000
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M9-13 M9-14 M9-15

Fixed asset turnover ratio = 0.5 Entry should contain a debit to Timber inventory of $60,000 Book value at end of fifth year = $29,000, New depreciation expense = $3,250 per year

E9-16 E9-17

Straight-line = $12,000, Unitsof-production = $18,000, Double-declining balance = $15,600 Book value of oil reserves at the end of year 1 = $2,400,000 (1) Depreciable cost = $71,000

Exercises E9-1 (1) Total Property, plant, and equipment = $212 E9-2 (4) Book value = $192,000 E9-3 (2) Cost = $31,750, (4) Book value at end of year 2 = $25,950 E9-4 (1) Assets (Accumulated Depreciation) = $10,000, Liabilities = NE, SE (Depreciation expense) $10,000 E9-5 (1) Credit Accumulated Depreciation (+xA, -A) $10,000 E9-6 (1) (a) Straight-line book value after Year 4 = $4,000, (b) Units-of-production book value after year 4 = $3,000, (c) Double-declining-balance book value after year 3 = $2,000 E9-7 (a) Straight-line book value after Year 2 = $10,000 (b) Units-of-production book value after year 2 = $6,855 (c) Double-declining-balance book value after year 2 = $3,000 E9-8 Straight-line depreciation is preferred because it results in higher net income, particularly in the early years of an assets life E9-9 Depreciation expense per year = $2,000 E9-10 Impairment loss = $3,200 E9-11 (1) (b) Loss on sale = $2,000, (4) (c) Entry should include a credit to Gain on disposal for $3,000 E9-12 (2)Trademark is not amortized due to indefinite life, (3) Amortization expense = $15,376 E9-13 (1) Patent book value at end of year = $900,000 E9-14 2006 Fixed asset turnover ratio = 18.4 times E9-15 (1) Depreciation expense Year 2
Fundamentals of Financial Accounting, 3/e

Coached Problems CP9-1 (1) Machine A total cost = $8,400, (2) Machine C doubledeclining-balance depreciation = $3,040 CP9-2 (1) Machine As loss on disposal = $10,400 CP9-3 (2) Vehicle partial year depreciation = $4,000, Equipment partial year depreciation = $400, Building partial year depreciation = $1,750 Group Problems PA9-1 (1) Total cost of Machine C= $24,400, (2) Machine B depreciation = $7,000 PA9-2 (1) Machine As loss on disposal = $650 PA9-3 (2) Equipment depreciation = $22,000, Licensing rights amortization = $100 PA9-4 2009 Building depreciation = $20,000, truck depreciation = $4,500, and Patent amortization = $2,000 PB9-1 (1) Total cost of Machine B = $10,900, (2) Machine C depreciation = $5,300 PB9-2 (1) Machine As gain on disposal = $1,500 PB9-3 (2) Equipment depreciation = $400, Franchise rights amortization = $190 PB9-4 2010 Building depreciation = $7,500, Delivery van depreciation = $3,200, and Franchise rights amortization = $1,000 Comprehensive Problem C9-1 (1) (g) Depreciation expense = $6,000, (i) Bad debt expense = $150, (2) Net income = $350, Total assets = $92,850
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Skill Development Cases S9-1 (2) Accumulated depreciation = $10,243M which is 28.1% of the total cost of property and equipment S9-2 (2) Accumulated depreciation is 27.8% of the total cost of property reported, (5) Fixed asset turnover = 2.19 times S9-3 Solutions vary depending on company and/or accounting period selected S9-4 (1) Q1 Year 1 with the entries: Property & equipment, net = $38,614; Sales revenues = $8,825; Operating expenses = $7,628; Operating income = $1,197 (2) Fixed asset turnover ratio in Q2 Year 1 = 0.24 S9-5 (1) Straight-line depreciation expense = $7,000; Book value = $28,000, Units of production depreciation = $4,000, Double declining-balance book value = $17,500 S9-6 The two companies financial results differ in terms of depreciation expense and other gains (losses). Provide possible explanations for these two differences S9-7 Straight line method: Depreciation formula for Year 1 in cell D8 is =($C$3-$C$4)/ $C$5, Formula for Year 7 EOYAD in cell E14 is =SUM($D$8:D14), Double declining-balance method: Depreciation formula for Year 1 in cell D8 is =IF((C8+ (($C$3 C8)*2/$C$5))>$C$3$C$4,F7-$C$4,($C$3C8)*2/$C$5), Formula for Year 7 EOY-AD in cell E14 is =C14+D14 Continuing Case CC9 (1) (a) Book value at end of Year 4 = $1,400, (b) Book value at end of Year 4 = $1,460, (c) Book value at end of Year 4 = $648, (2) Straight line method = loss of $200, Units-ofproduction method = gain of
Fundamentals of Financial Accounting, 3/e

$100, double declining-balance method = gain of $1,020, (3) Income before taxes = $3,100 (straight line), $3,280 (units-ofproduction), and $4,500 (double declining-balance)

Chapter 10
Mini-Exercises M10-1 (b) Performance revenue (+R, +SE) $75,000 M10-2 To record the expense: dr Cost of goods sold (+E -SE) $3,000 cr Inventory (-A) $3,000 M10-3 Net pay = $80,750 M10-4 Credit FICA Payable (+L) $5,250 M10-5 Current portion of long-term debt as of December 31, 2010 = $2,000 M10-6 (b) Debit Interest expense (+E -SE) $10,000 M10-7 Long-term debt = $800,000 M10-8 The bonds are selling at a discount since the bond quote is less than 100 M10-9 Bonds payable would be shown as $400,000 (the face amount of $500,000 less the discount on bonds payable of $10,000) M10-10 Bonds payable would be shown as $515,000 (the face amount of $500,000 plus the premium on bonds payable of $15,000) M10-11 (b) December 31, 2010 debit Interest expense (+E -SE) $150,000 M10-12 To retire the bonds, the company was required to pay more than their carrying value M10-13 2009: do not record or disclose the liability because the probability of the liability occurring is remote M10-14 Numerator for quick ratio: $100,000 $40,000 - $10,000 = $50,000, Income tax expense for the Times interest earned ratio = $1,960 M10-15 (a) Decreases to 1.15 M10-16 (a) Debit Discount on bonds payable (+xL, -L) $20,000 M10-17 (a) Debit Discount on bonds payable (+xL, -L) $59,000 M10-18 (a) Debit Interest expense (+E, -SE) $5,700 Exercises E10-1 (1) (b) Assets = NE, Liabilities (Interest payable) = +$75,000, SE (Interest Expense) = -$75,000
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E10-2 E10-3 E10-4 E10-5 E10-6 E10-7 E10-8 E10-9 E10-10 E10-11 E10-12 E10-13 E10-14 E10-15 E10-16

(1) Nov. 1, 2010 dr Cash (+A) + $6,000,000 cr Note payable (+L) + $6,000,000 (2) Credit Withheld income taxes payable employees (+L) $50,200 (1) (b) Procedure 2 Total labor cost = $850 (2) Cash paid = $41,600 (2) (b) dr Unearned revenue (-L) $190,000,000 cr Subscription revenue (+R +SE) $190,000,000 (3) Debit Interest expense (+E, -SE) $60,000 (3) Debit Loss on bond retirement (+E -SE) $4,000 (1) Bond issuance increases Cash, Bonds payable, and Premium on bonds payable (1) Quick ratio for 2008 = 0.54, Times interest earned ratio for 2008 = 3.93 (1) Credit Premium on bonds payable (+L) $50,328 (1) Debit Cash (+A) $300,328 (2) Debit Interest expense (+E -SE) $24,026 (2) Credit Discount on Bonds Payable (xL, +L) $1,284 (2) Debit Interest expense (+E, -SE) $16,845 (2) Debit Interest expense (+E, -SE) $16,845

PA10-2 PA10-3 PA10-4 PA10-5 PA10-6 PA10-7

PA10-8

PA10-9 PB10-1

Coached Problems CP10-1 (1) Dec. 20: Assets (Cash) = +$100, Liabilities (Customer deposit)= +$100, SE = NE CP10-2 (3) Total current liabilities = $49,400 CP10-3 (1) Payroll tax expense = $11,300, (2) (a) Credit Unearned rent revenue (+L) $3,600 CP10-4 (1) (b) Case B at 96 Unamortized discount = $8,000 CP10-5 (2) Credit Cash (-A) $1,173.5 million CP10-6 The lawsuit is considered a contingent liability CP10-7 (2) January 1, 2009 Credit Premium on bonds payable (+L) $24,000 CP10-8 (2) January 1, 2009 Credit Premium on bonds payable (+L) $24,000 CP10-9 (2) January 1, 2009 Credit Bonds payable, net (+L) $624,000 CP10-10 (1) End of year 2011 balance = $6,026 CP10-11 (1) End of year 2011 balance = $6,028 Group Problems PA10-1 (1) April 30, 2010: Assets (Cash) = +
Fundamentals of Financial Accounting, 3/e

PB10-2

PB10-3 PB10-4 PB10-5 PB10-6

PB10-7

PB10-8

$550,000, Liabilities (Note payable) = + $550,000, SE + NE (1) April 30, 2010 dr Cash (+A) $550,000 cr Note payable (+L) $550,000, (3) Total current liabilities = $616,000 (2) (a) Credit Unearned rent revenue (+L) $3,000 (1) (c) Carrying value of bonds payable for Case B at 97 = $194,000 The fair value is the price at which the bonds sell today Contingent liabilities are to be recorded only when they are probable and the amount can be reasonably estimated (5) January 1, 2011: dr Bonds Payable (L) $600,000 cr Discount on bonds payable (-xL +L) $5,350 cr Cash (-A) $588,000 cr Gain on bond retirement (+R +SE) $6,650 (5) January 1, 2011: dr Bonds Payable (L) $600,000 dr Loss on bond retirement (+E -SE) $11,767 cr Cash (-A) $606,000 cr Discount on bonds payable (-xL +L) $5,767 (5) January 1, 2011: dr Bonds Payable (L) $594,233 dr Loss on bond retirement (+E -SE) $11,767 cr Cash (-A) $606,000 (1) January 3: Assets (Inventory) + $24,000, Liabilities (Accounts payable) = +$24,000, SE = NE (2) January 3 effect decreased (1) August 1: dr Cash (+A) $8,000 cr Unearned rent revenue (+L) $8,000, (3) Total current liabilities = $98,000,(4) January 3 effect = decreased, Numerator = No change, Denominator = Increased (1) Payroll tax expense (+E -SE) = $22,000 (1) (c) The carrying value of Case C at 102 = $510,000 (2) Loss would be reported on the income statement between operating income and income before income taxes (5) January 1, 2011: dr Bonds Payable (L) $100,000 dr Premium on bonds payable (-L) $690 dr Loss on bond retirement (+E -SE) $1,310 cr Cash (-A) $102,000 (5) January 1, 2011: dr Bonds Payable (L) $100,000 dr Premium on bonds payable (-L) $718 dr Loss on bond retirement (+E -SE) $282 cr Cash (-A) $101,000 (5) January 1, 2011: dr Bonds Payable (L) $100,718 dr Loss on bond retirement (+E -SE) $282 cr Cash (-A) $101,000

2010, The McGraw-Hill Companies, Inc. Page 16

M11-11 Skill Development Cases S10-1 (1) 2009 Quick ratio = 0.13 M11-12 S10-2 (2) Lowes' times interest earned ratio = 13.52 M11-13 S10-3 Solutions vary depending on company and/or accounting period selected M11-14 S10-4 Most people conclude that the use of theM11-15 call option is ethical but that corporations have an obligation to provide understandable information to M11-16 investors S10-5 The manager has been hired to protect the interests of the investors. Therefore, the manager must place investors first regardless of his or her own personal social conscience M11-17 S10-6 (1) Quick ratio = 1.21 M11-18 S10-7 The formula for cell D12: =$G$11/$D$8 The formula for cell B12: S10-8 =If(A12<$C$8,ROUND(G11*$C$7*12/12,0),F11+C12) Exercises The formula for cell C11: S10-9 E11-1 =If(A11<$D$8,ROUND(B11*$D$7*12/12,0),D10+ E11-2 Continuing Case CC10 (1) Dec. 31, 2011: dr Interest expense (+E -SE) $750 cr Interest payable (+L) $750 E11-3 E11-4 E11-5 E11-6
$D$4-F10)

(4) No change in total stockholders equity Credit Common stock (+SE) $100,000 Total to preferred stockholders $400,000 EPS = $2.00 (e) Assets(Cash) +$60,000, Liabilities = NE, SE (Common stock) = +$60,000 (c) EPS = NE (because preferred stock is excluded from the denominator and preferred dividends are excluded from the numerator), ROE = NE 2009 P/E ratio = 25 (b) Capital, end of year = $27,000 Treasury Stock at end of 2008 = 85 million (81+5-1) (2) (a) Credit Additional paid-in capital (+SE) $96,000, (3) Total contributed capital = $166,000 Additional paid-in capital, common = $181,000 Additional paid-in capital, preferred stock $255,000 Retained earnings $38,000 (1) (a) dr Cash (+A) $800,000 cr Common stock, no-par (+SE) $800,000, (2) Total stockholders' equity = $1,236,000 (2) Number of preferred shares outstanding: 4,700 (2) Feb. 1, 2010: dr Treasury stock (+xSE -SE) $8,800 cr Cash (-A) $8,800, (3) Dividends are not paid on treasury stock (1) (b) Assets = "-", Liabilities = "+" and "-", SE = "-" (1) (b) Preferred shares cumulative: $14,400 total, $2.40 per share (1) (a) Debit Dividends declared (-SE) $119,900,000, (2) Ending Retained earnings = $1,600.3 million

Chapter 11

Mini-Exercises M11-1 (4) E M11-2 One right: Stockholders may vote in stockholders meeting M11-3 33,000 additional shares may be issued M11-4 Credit Additional Paid-in Capital (+SE) $7,400,000 M11-5 Debit Cash (+A) $7,500,000 M11-6 It is advisable to invest in the common stock M11-7 (3) Total assets = decreased by $900,000, Total liabilities = no change, Total stockholders equity = decreased by $900,000, net income = no change M11-8 Dividend amount to be paid = $85,000 M11-9 June 14: dr Debit Dividends payable (+L) $200,000 cr Cash (-A) $200,000 M11-10 (1) Stock Dividend: No change in total assets
Fundamentals of Financial Accounting, 3/e

E11-7 E11-8

E11-9 E11-10 E11-11

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E11-12

E11-13 E11-14 E11-15 E11-16

E11-17

E11-18

E11-19

E11-20 E11-21

E11-22

(1) Additional paid-in capital after stock dividend = $36,000, (3) Large stock dividends are recorded at par value April 30, 2009: Credit Dividends payable (+L) $7,200,000 Total stockholders equity = $410,000 in all cases Dividends in arrears indicates some financial difficulty Effect of cash dividend (preferred): Assets No effect on declaration date. On payment date, assets are decreased by the amount of the dividend Stock dividend effect on common no effect on assets through December 31, 2010 or on February 15, 2011 (1) Total contributed capital = $705,000, Total stockholders' equity = $781,000 (1) Stockholders equity decreases $60,000,000, (3) Dividends are not paid on treasury stock (1) EPS = $0.10, ROE = 5.0% (1) Jan 15: Assets (Cash) + $50,000, Liabilities = NE, SE (Common stock) +$5,000 (Additional paid-in capital, common stock) + $45,000 (1) Case A: Credit Proprietor A, Capital (+OE) $20,000, Case B: Debit Individual revenue accounts (-R) $150,000, Case C: Credit Retained earnings (+SE) $20,000, (2) Case A: A, Capital, December 31, 2010 = $62,000, Case B: Partners Equity for B on December 31, 2010 is $39,000, Case C: Retained earnings = $85,000

CP11-2

CP11-3 CP11-4

CP11-5

(1) 100% stock dividend was result in moving $600 from Retained earnings to common stock, thus leaving total stockholders' equity unchanged (2) Additional paid-in capital = $875,000 (2) Assets: Cash Dividend Case C: $66,000 decrease, Stock dividends: No assets were disbursed (1) ROE Aaron = 12.6%

Group Problems PA11-1 (3) Total contributed capital = $37,800,000,Total stockholders equity = $36,979,000 PA11-2 (1) March 5, 2010: Credit Dividends payable (+L) $1,000,000 PA11-3 (3) EPS on net income = $3.43 PA11-4 Case A Preferred dividend = $16,800 PA11-5 (2) BusinessWorld P/E ratio = 17.0 PB11-1 (3) Total contributed capital = $4,600,000, Total stockholders equity = $4,538,000 PB11-2 (1) May 31, 2009: Debit Retained earnings (-SE) $19,000 PB11-3 (2) Additional paid-in capital = $14,250,000 PB11-4 (1) Case A: Common dividend = $8,800; Case C: Common dividend = $21,400 PB11-5 (2) Sound Jonx PE ratio = 17.0 Comprehensive Problem C11-1 (1) Assets(Cash) = +$50,000, Liabilities = NE, SE(Common stock) +$5,000, (Additional paid-in capital-common + $45,000, (2) August 15: dr Cash (+A) $4,600 dr Additional paid-in capitalTreasury stock (-SE) $2,000 cr Treasury stock (-xSE +SE) $6,600, (3) Retained earnings = $125,400
2010, The McGraw-Hill Companies, Inc. Page 18

Coached Problems CP11-1 (3) Total Stockholders Equity = $746,200

Fundamentals of Financial Accounting, 3/e

M12-4 Skill Development Cases S11-1 (1) Shares outstanding = 1,707,000,000 S11-2 (3) Lowe's net earnings declined throughout the three-year period S11-3 Solutions vary depending on company and/or accounting period selected S11-4 (4) Yes, this would be a concern because it suggests that management might be acting opportunistically buying when the stock price is low and selling when the price is high S11-5 Whether you believe that employees are more important than investors or vice versa, ultimately, most people agree that a balanced perspective is warranted, for short-term returns and long-term payoffs S11-6 Every investor must consider his or her own financial requirements, stage of life, and acceptable level of risk. For most retired people living on a fixed income, option 2 is the most appropriate choice S11-7 Responses will vary depending on the company selected and depending on how "surprising" the information in the earnings or dividend announcement is to the investor Continuing Case CC11 (2) Common stockholders would prefer issuance of additional preferred shares to avoid diluting ownership and voting rights in the company (4) (a) ROE = "+" M12-5 M12-6 M12-7 M12-8 M12-9 M12-10

M12-11 M12-12 M12-13 M12-14

M12-15

Case A: Cash provided by operating activities = $140,000 Case A: Net cash provided by operating activities = $1,400 Net cash provided by (used in) investing activities = $(50) Net cash provided by financing activities = $1,200 Net cash provided by investing activities $250 (1) No Company reports a net cash outflow for both years even though they borrowed significant amounts and issued stock. There is very little cash available for the coming year's operations. Thus, they appear to be in big trouble Capital acquisition ratio for 2008-2010 = 1.2 Quality of income ratio = 75% (5) O Case A: Cash collected from customers = $71,000, Net cash provided by operating activities = $30,000 Case B: Cash payments to suppliers= $(12,040), Net cash provided by operating activities = $3,760

Chapter 12
Mini-Exercises M12-1 (3) E M12-2 (5) O M12-3 (2) +
Fundamentals of Financial Accounting, 3/e

Exercises E12-1 (1) F E12-2 (4) Net cash provided by operating activities = $100 E12-3 (2) The $200 increase in cash should be reported as net cash outflow from operating activities E12-4 (4) Net cash provided by operating activities = $100 E12-5 (5) When converting net income to cash flow here is how to handle changes in current account balances: subtract increases in noncash current assets and decreases in noncash current liabilities, add back decreases in noncash current assets and increases in current liabilities E12-6 Net cash flow from operating activities = $170 E12-7 (2) Net cash provided by
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E12-8 E12-9 E12-10 E12-11 E12-12 E12-13 E12-14 E12-15

E12-16 E12-17 E12-18 E12-19

E12-20 E12-21 E12-22 E12-23 E12-24 E12-25 E12-26

operating activities = $170, Net cash used in investing activities = $(60), Net cash provided by financing activities = $60 Net cash provided by operating activities = $15,500 (1) Net cash provided by operating activities = $32,300 Net cash flow provided by operating activities = $22,492 Accounts receivable increased during the period Unearned revenue increased during the period Net cash used for investing activities $(16,000) (2) Quality of income ratio = 1.4 (1) Aztec Cost of goods sold = $175, (2) Aztec Total cash paid = $200, (4) Aztec Inventory increase = $25, Aztec Accounts payable increase = $0 Net cash provided by financing activities = $1,105 Net cash provided by investing activities $7,074 (1) Capital acquisitions ratio = 0.81 (2) The average capital acquisitions ratio is 282%. This means that Disney generated nearly three times the financing required to purchase parks, resorts, and other property 2008 Quality of income ratio = 1.2 (13) Both direct and indirect methods Net cash provided by operating activities = $32,300 Net cash provided by operating activities = $22,492 Book value = $2,000 Cash received from the sale = $1,000 Net cash flow provided by operating activity = $13,700, Net cash flow used in investing activities = $(9,000), Net cash flow used in financing activities = $(6,000)

CP12-3 CP12-4 CP12-5 CP12-6 CP12-7

(1) Net cash provided by operating activities = $28,800 (1) Net cash provided by operating activities = $3,000 Net cash provided by operating activities = $263 (1) Cash flows from operating activities = $3,000 Cash flows from financing activities = $2,000

Group Problems PA12-1 (1) Activity ="I", Cash Flow = "-" PA12-2 Net cash provided by operating activities = $8,813 PA12-3 (1) Net cash provided by operating activities $16,000 PA12-4 (1) Net cash provided by financing activities = $1,000 PA12-5 Net cash provided by operating activities = $8,813 PA12-6 (1) Net cash used for investing activities $(500) PA12-7 Net cash provided by operating activities $2,000 PB12-1 (1) Activity = "O", Cash Flow ="+" PB12-2 Net cash provided by operating activities $25,980 PB12-3 Net cash provided by operating activities = $48,000 PB12-4 (1) Net cash provided by financing activities = $200 PB12-5 Net cash provided by operating activities = $25,980 PB12-6 (1) Net cash used in operating activities = $(1,000) Skill Development Cases S12-1 (2) Income taxes paid in cash = $1,265 million S12-2 (1) Lowe's used the indirect method to report cash flows from operating activities S12-3 Solutions vary depending on company and/or accounting period selected S12-4 (2) Since transaction recorded as a regular sale, the company will report the cash as a cash flow from operating activities. Had the transaction been recorded as a loan, the cash received would have been reported as a financing activity S12-5 (2) If cash is spent on long-lived
2010, The McGraw-Hill Companies, Inc. Page 20

Coached Problems CP12-1 (2) Activity = "O", Cash flow = "-" CP12-2 Total adjustments = $243
Fundamentals of Financial Accounting, 3/e

S12-6

S12-7 S12-8

S12-9

assets, it is typically classified as an investing activity. If cash is spent on expenses, it is classified as an operating activity The idea will not work. If depreciation expense is increased, net income will decrease by exactly the same amount Net cash flow used in operating activities = $(4,000) The amount of Net cash flow from operating activities is not affected by the method (direct or indirect) in which it is computed (2) Net cash flows from operating activities would decrease by $2,000

Continuing Case CC12 (1) Net cash provided by operating activities = $3,269, (2) Capital acquisitions ratio = 0.43

Chapter 13
Mini-Exercises M13-1 Horizontal analysis: Percentage change in net income = 37.9% M13-2 Vertical analysis: 2010 net income = 21% of net sales M13-3 The two most significant changes, in terms of dollar amounts, are revenues and cost of goods sold M13-4 The increase in net profit margin ratio (20.3% to 21.0%) is an improvement M13-5 Gross profit percentage = 60% M13-6 Gross profit percentage = 40% M13-7 Return on equity = 16.0% M13-8 If inventory decreases, the inventory turnover ratio will increase M13-9 Current liabilities = $6,480,000 M13-10 2010 Market price per share = $55 M13-11 (d) Days to collect M13-12 (e) Good M13-13 Current ratio will increase M13-14 (1) (a) straight-line yields lower depreciation which yields higher net income and net profit margin
Fundamentals of Financial Accounting, 3/e

Exercises E13-1 (1) Total revenues increased $52 billion from 2007 to 2008, a 23.5% increase E13-2 (1) 2008 Gross profit percentage = 37.4% E13-3 (2) 2008 net income as a percentage of Sales = 1.2% E13-4 (2) 2008 net profit margin = 1.1% E13-5 (2) 2008 times interest earned = 4.8 E13-6 (6) = J E13-7 (1) Accounts receivable turnover = 6.0 E13-8 Inventory Turnover: Cintas turned its inventory over (i.e., bought and sold) 6.8 times during the year E13-9 (1) Inventory turnover ratio = 5.3 E13-10 (1) Gross profit percentage of 29.3% means that the company generates 29.3 cents of gross profit on each dollar of sales E13-11 Current ratio after transaction 1 = 1.67 E13-12 (1) Current assets = Increase, Current liabilities = no change, Current ratio = Increase E13-13 Current ratio after transaction 3 = 1.63 E13-14 Current ratio after transaction 4 = 1.81 E13-15 LIFO higher inventory higher current ratio Company B Coached Problems CP13-1 (1) Sales revenue increased by $15,000, a 9.1% increase CP13-2 (1) 2010 Gross profit percentage = 38.9%, (8) 2010 P/E Ratio = 18.0 CP13-3 (1) (c) 8% CP13-4 (1) (b) 32% CP13-5 (3) Kohls appears more solvent, with debt providing financing for 23% of its assets compared to 45% for J. C. Penney CP13-6 (1) (6) Armstrong EPS = $3.00, Blair EPS = $4.50 CP13-7 Consider liquidity, level of debt, and growth opportunity
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Group Problems PA13-1 (1) Change in cash = $31,500, a 175.0% increase PA13-2 (1) 2010 Gross profit percentage = 52.7%, (6) 2010 Debt-to-assets ratio = 0.40 PA13-3 (3) Simultechs assets are financed more by liabilities (60%) than by equity (40%) PA13-4 (1) (e) 4% PA13-5 (2) Pepsi appears more liquid PA13-6 (1) (9) Receivables turnover: Royale = 7.84, Cavalier = 8.75 PA13-7 Company A appears to be a better choice PB13-1 (2) 2010 appears to have been a successful year for Tiger Audio. The percentage increase in sales (20%) was greater than that for cost of goods sold (15%) and operating expenses (17.4%). The combined result of these changes was a significant increase in net income (37.2%) PB13-2 (1) 2010 Gross profit percentage = 42.5% PB13-3 (1) (c) 35% PB13-4 (1) (f) 7% PB13-5 (4) Analyses suggest Hasbro and Mattel are fairly evenly matched with respect to profitability, liquidity, and solvency PB13-6 (1) (1) Net profit margin: Thor = 10.0%, Gunnar = 12.5% PB13-7 Company As ratios suggest that it has a high level of debt, low level of liquidity and a low price/earnings ratio Skill Development Cases S13-1 Return on Equity = 12.7% in 2008, Inventory turnover ratio = 4.22 in 2008 S13-2 (1) Lumber Liquidators does not control its non-product costs as well as Lowes S13-3 Solutions vary depending on company and/or accounting period selected S13-4 Inaccurate audit reports (either failing to report problems that exist or reporting problems that dont exist) have negative consequences for parties internal and external to the firm
Fundamentals of Financial Accounting, 3/e

S13-5 S13-6

S13-7

Current ratio after the transaction = 2.26 (2) It is impossible to determine which company will report the higher ratios without knowledge of the average life of the companys depreciable assets (2) The formula to calculate the percent of total assets represented by Cash is found in Cell I7: =H7/$H$15*100

Continuing Case CC13 (1) 2011 Quality of income = 1.19, 2011 Asset turnover = 0.99, (2) 2011 Quick ratio = 0.84, (3) 2011 Times interest earned = 1.94

Appendix C
Mini-Exercises MC-1 $231,600 MC-2 $92,169 MC-3 $487,133 MC-4 It is much better to save $15,000 for 20 years Exercises EC-1 (1) $15,562 EC-2 (1) $58,800 EC-3 (3) $10,386 EC-4 (2) $1,311 EC-5 $83,805 Coached Problems CPC-1 Option 1 = $8,513,600 Group Problems PAC-1 Option 2 = $589,086 PBC-1 Option 3 = $55,308

Appendix D
Mini-Exercises MD-1 January 2: dr Investments (+A) $100,000 cr Cash (-A) $100,000 MD-2 January 2: Assets +/- $100,000 MD-3 December 15: dr Cash (+A) $16,000 cr Investment income (+R +SE) $16,000 MD-4 July 2: Assets +/- $224,000 MD-5 July 2: dr Securities available for sale (+A) $224,000 cr Cash (-A) $224,000 MD-6 December 31: Assets +8,000,
2010, The McGraw-Hill Companies, Inc. Page 22

MD-7

Stockholders equity +8,000 June 23: dr Cash (+A) $19,800 cr Trading securities (-A) $17,400 cr Gain on sale of investments (+R +SE) $2,400

PAD-2

Exercises ED-1 (1) Equity method since the company owns 35% of the total shares outstanding of Nueces Corporation ED-2 December 31, 2009: dr Market valuation allowance (+A) $40,000 cr Unrealized gains and losses on investments (+SE) $40,000 ED-3 December 31, 2010: dr Market valuation allowance (+A) $70,000 cr Unrealized gains and losses on investments (+SE) $70,000 ED-4 (1) 2009 Investments = $240,000 ED-5 December 31, 2009: dr Unrealized gains and losses on investments (-SE) $25,000 cr Market valuation allowance (-A) $25,000 ED-6 December 31, 2010: dr Unrealized loss on trading securities (+E SE) $15,000 cr Market valuation allowance (-A) $15,000 ED-7 (2) Current assets on the balance sheet: Trading securities, $210,000 in 2010 Coached Problems CPD-1 (1) Dec. 31, 2008: Credit Unrealized gains and losses in equity (+SE) $7,000, (2) Dec. 31, 2008: Credit Unrealized gain on trading securities (+R, +SE) $7,000, (3) Dec. 31, 2008: Credit Equity in Investee Earnings (+R, +SE) $15,000 CPD-2 (1) Case A: The market value method must be used because it only owns 12% of the total outstanding shares of Bart Company Group Problems PAD-1 (1) Dec. 31, 2008 Credit Unrealized gains and losses on investments (+SE) $3,000, (2) Dec. 31, 2008 Debit Market
Fundamentals of Financial Accounting, 3/e

valuation allowance (+A) $3,000, (3) Dec. 31, 2008 Debit Investment in Affiliates (+A) $15,000 (2) Case A: (b) no entry, (c) Credit Investment income (+R +SE) $6,000, (d) Debit Unrealized loss on investments (-SE) $20,000, (3) Case B: Income Statement, Equity in Investee Earnings, $120,000

Check Figures prepared by: Dr. J. Lowell Mooney, CPA, CMA, CFM Professor of Accounting Georgia Southern University Statesboro, GA 30460

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