Unformatted Attachment Preview
FINANCIAL ACCOUNTING - Eleventh Edition
E3-21A - Please go to this problem in your textbook to view the data sets.
Compute the amounts that have been left blank for each situation. For situations 1 and
2, journalize the needed transaction. Consider each situation separately.
Solution:
Missing amounts in italics.
1
2
Situation
3
4
Beginning Supplies
Add: Purchases of supplies during the year
Total amount to account for
Less: Ending Supplies
Supplies Expense
Journal entries:
Situation 1: Supplies
Cash or Accounts Payable
Situation 2: Supplies Expense
Supplies
Chapter 3: Accrual Accounting and Income
Page 1 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E3-23A - Please go to this problem in your textbook to view the data sets.
Childtime Toys prepaid three years’ rent ($54,000) on January 1, 2016. At
December 31, 2016, Childtime prepared a trial balance and then made the
necessary adjusting entry at the end of the year. Childtime adjusts its
accounts once each year—on December 31.
Solution:
What amount appears for Prepaid Rent on
a. Childtime’s unadjusted trial balance at December 31, 2016?
a.
b. Childtime’s adjusted trial balance at December 31, 2016?
b.
What amount appears for Rent Expense on
c. Childtime’s unadjusted trial balance at December 31, 2016?
c.
d. Childtime’s adjusted trial balance at December 31, 2016?
d.
Chapter 3: Accrual Accounting and Income
Page 2 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E3-24A - Please go to this problem in your textbook to view the data sets.
Requirement
1. Prepare Honeybell, Inc.’s single step income statement and statement of
retained earnings for the year ended December 31, 2016, and its balance
sheet on that date.
Solution:
Honeybell, Inc.
Income Statement
Year Ended December 31, 2016
Thousands
Revenues:
Sales revenue
Expenses:
Cost of goods sold
Selling, administrative, and
general expenses
Total expenses
Income before tax
Income tax expense
Net income
$
-
Honeybell, Inc.
Statement of Retained Earnings
Year Ended December 31, 2016
Thousands
Retained earnings, December 31, 2015
Add: Net income
Subtotal
Less: Dividends declared
Retained earnings, December 31, 2016
Chapter 3: Accrual Accounting and Income
$
-
Page 3 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
ASSETS
Cash
Accounts receivable
Inventories
Prepaid expenses
Prop., plant, equip.
Less: Accum.
Deprec.
Other assets
Total assets
Honeybell, Inc.
Balance Sheet
December 31, 2016
Thousands
LIABILITIES
Accounts payable
Income tax payable
Other liabilities
Total liabilities
STOCKHOLDERS’
EQUITY
Common stock
Retained earnings
Total stockholders’ equity
Total liabilities and
$
- stockholders’ equity
Chapter 3: Accrual Accounting and Income
$
-
Page 4 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E3-25A - Please go to this problem in your textbook to view the data sets.
Compute the amount of sales revenue, insurance expense, and other operating
expenses to report on the income statement for the year ended August 31, 2016.
Solution:
Amounts in millions
Receivables
Beg. bal.
Sales revenue
Collections
End. bal.
Prepaid Insurance
Beg. bal.
Payment
Insurance expense
End. bal.
Accrued Liabilities Payable
Beg. bal.
Payments
Other operating expenses
End. bal.
Chapter 3: Accrual Accounting and Income
Page 5 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E3-27A - Please go to this problem in your textbook to view the data sets.
Requirement
1. Journalize the adjusting and closing entries of Winwood Production Company at
December 31. There was only one adjustment to Service Revenue.
Solution:
DATE
Journal
ACCOUNT TITLES
DEBIT
CREDIT
Adjusting Entries
Dec. 31 Unearned Service Revenue
Service Revenue ($19,900 − $13,600)
31 Salary Expense ($5,200 − $4,500)
Salary Payable
31 Rent Expense ($1,900 − $1,100)
Prepaid Rent
31 Depreciation Expense ($400 − $0)
Accumulated Depreciation
31 Income Tax Expense ($1,200 − $0)
Income Tax Payable
Closing Entries
31 Service Revenue
Retained Earnings
31 Retained Earnings
Salary Expense
Rent Expense
Depreciation Expense
Income Tax Expense
31 Retained Earnings
Dividends
Chapter 3: Accrual Accounting and Income
Page 6 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E3-28A - Please go to this problem in your textbook to view the data sets.
Requirements
1. Use the data in the partial worksheet to prepare Winwood Production Company’s
classified balance sheet at December 31 of the current year. Use the report format. First
you must compute the adjusted balance for several of the balance-sheet accounts.
2. Compute Winwood Production Company’s net working capital, current ratio, and debt
ratio at December 31. A year ago, net working capital was $3,900, the current ratio was
1.40, and the debt ratio was 0.64. Indicate whether the company’s ability to pay its
debts—both current and total—improved or deteriorated during the current year.
Solution:
Req. 1
Winwood Production Company
Balance Sheet
December 31, 2016
ASSETS
Current assets:
Cash
Prepaid rent ($1,600 − $800)
Total current assets
Plant assets:
Equipment
Less accumulated depreciation
($3,300 + $400)
Total assets
LIABILITIES
Current liabilities:
Accounts payable
Salary payable ($5,200 − $4,500)
Unearned service revenue ($9,200 − $6,300)
Income tax payable
Total current liabilities
Note payable, long-term
Total liabilities
STOCKHOLDERS’ EQUITY
Common stock…
Retained earnings ($11,400 + $19,900 − $5,200 − $1,900 −
$400 − $1,200 − $1,300)
Total stockholders’ equity
Total liabilities and stockholders’ equity
Chapter 3: Accrual Accounting and Income
-
$
-
Page 7 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
Req. 2
Current
Year
Net working
=
capital
Total current assets −
current liabilities
=
$14,100 −
$9,700
=
Current
ratio
=
Total current assets
Total Current liabilities
=
$14,100
$9,700
=
Debt ratio
=
Total assets
Total liabilities
=
$25,700
$55,400
=
Chapter 3: Accrual Accounting and Income
Prior
Year
Page 8 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E3-29A - Please go to this problem in your textbook to view the data sets.
Determine whether each transaction improved or hurt Landry’s current ratio
and debt ratio.
Solution:
a.
b.
c.
Current
ratio
=
=
Debt
ratio
=
=
Current
ratio
=
=
Debt
ratio
=
=
Current
ratio
=
=
Debt
ratio
=
=
Debt
ratio
=
=
Debt
ratio
=
=
Collecting cash in advance hurts both ratios.
d.
Current
ratio
=
=
Accruing an expense hurts both ratios.
e.
Current
ratio
=
=
Chapter 3: Accrual Accounting and Income
Page 9 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
P3-59A - Please go to this problem in your textbook to view the data sets.
Requirements
1. Show how each transaction would be handled (in terms of recognizing revenues
and expenses) using the cash basis and the accrual basis.
2. Compute October income (loss) before tax under each accounting method.
3. Indicate which measure of net income or net loss is preferable. Use the
transactions on October 11 and October 24 to explain.
Solution:
Req. 1 & 2
Date
Oct.
1
4
5
8
11
19
24
26
29
31
31
31
Masters Consulting
Amount of Revenue (Expense) for October
Cash Basis
Expense
Expense
Revenue
Expense
Revenue
Accrual Basis
Revenue
Expense
Expense
Expense
Revenue
Expense
Income (loss) before tax
Req. 3
Chapter 3: Accrual Accounting and Income
Page 10 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
P3-61A - Please go to this problem in your textbook to view the data sets.
Requirements
1. Prepare the adjusted trial balance of Spateness, Inc., at December 31, 2016.
2. Prepare the single step monthly income statement, the statement of retained earnings, and
the classified balance sheet.
Solution:
Req. 1
Spateness, Inc.
Adjusted Trial Balance
December 31, 2016
TRIAL BALANCE
ADJUSTMENTS
ACCOUNT TITLE
Cash
Accounts receivable
Prepaid rent
Supplies
Furniture
Accum. Depreciation
Accounts payable
Salary payable
Common stock
Retained earnings
Dividends
Service revenue
Salary expense
Rent expense
Utilities expense
Depreciation expense
Supplies expense
DEBIT
CREDIT
Chapter 3: Accrual Accounting and Income
DEBIT
CREDIT
ADJUSTED TRIAL
BALANCE
DEBIT
CREDIT
Page 11 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
Req. 2
Spateness, Inc.
Income Statement
Month Ended December 31, 2016
Revenues:
Service revenue
Expenses:
Salary expense
Supplies expense
Rent expense
Depreciation expense, furniture
Utilities expense
Total expenses
Net income
Spateness, Inc.
Statement of Retained Earnings
Month Ended December 31, 2016
Retained earnings, December 1, 2016
Add: Net income
Subtotal
Less: Dividends declared
Retained earnings, December 31, 2016
Spateness, Inc.
Balance Sheet
31-Dec-16
ASSETS
Current assets:
Cash
Accounts receivable
Prepaid rent
Supplies
Total current assets
Furniture
Less: Accum.
deprec.
Total assets
Chapter 3: Accrual Accounting and Income
LIABILITIES
Current liabilities:
Accounts payable
Salary payable
Total current liabilities
STOCKHOLDERS’
EQUITY
Common stock
Retained earnings
Total stockholders’ equity
Total liabilities and
stockholders’ equity
Page 12 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E4-17A - Please go to this problem in your textbook to view the data sets.
Evaluate the internal controls in each situation as strong or weak, and give the
reason for your answer.
Solution:
Chapter 4: Internal Control and Cash
Page 13 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E4-19A - Please go to this problem in your textbook to view the data sets.
Requirement
1. Prepare Hardy’s bank reconciliation at October 31, 2017.
Solution:
F.L. Hardy
Bank Reconciliation
October 31, 2017
BANK:
Balance, October 31
Add: Deposit in transit
Less: Outstanding checks:
Check No.
626
627
Adjusted bank balance
BOOKS:
Balance, October 31
Less:
Correction of book error —
Recorded $86 check as $68
NSF check
Service charge
Adjusted book balance
Chapter 4: Internal Control and Cash
$
-
Page 14 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E4-22A - Please go to this problem in your textbook to view the data sets.
Write a memo to convince the store manager that there is an internal control
weakness over cash receipts. Identify the weakness that gives an employee the
best opportunity to steal cash, and state how to prevent such a theft.
Solution:
TO:
FROM:
SUBJECT:
Store Manager
Student
Evaluation of internal control and plan for improvement
Chapter 4: Internal Control and Cash
Page 15 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E4-23A - Please go to this problem in your textbook to view the data sets.
Identify the main internal control weakness in this situation, state how the
weakness can hurt Linus Manufacturing, and propose a way to correct the
Solution:
Chapter 4: Internal Control and Cash
Page 16 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E4-25B - Please go to this problem in your textbook to view the data sets.
Identify the internal control weakness in the given situations. State how the person
can hurt the company.
Solution:
Chapter 4: Internal Control and Cash
Page 17 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E4-29B - Please go to this problem in your textbook to view the data sets.
How much cash does Neal actually have at October 31, 2016?
Solution:
Neal's Rink
Bank Reconciliation
October 31, 2016
BANK:
Balance, October 31
Add: Deposit in transit
Less: Outstanding checks
Adjusted bank balance
BOOKS:
Balance, October 31
Add: EFT collection — rent
Less:
Service charge
NSF checks
Charge for printed checks
Correction of book error —
recorded $310 check as $31
Adjusted book balance
Chapter 4: Internal Control and Cash
$
-
Page 18 of 19
FINANCIAL ACCOUNTING - Eleventh Edition
E4-30B - Please go to this problem in your textbook to view the data sets.
Use the data from Exercise 4-29B to make the journal entries that Neal should record
on October 31 to update his Cash account. Include an explanation for each entry.
Solution:
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
Aug. 31 Cash
Rent Revenue
EFT collection of rent.
DEBIT
CREDIT
31 Miscellaneous Expense ($10 + $11)
Cash
Bank service charge and charge
for printed checks.
31 Accounts Receivable
Cash
NSF checks returned by bank.
31 Salary Expense ($310 − $31)
Cash
Correction of book error.
Chapter 4: Internal Control and Cash
Page 19 of 19