Chap 002 FA

7/24/2019 Chap 002 FA

http://slidepdf.com/reader/full/chap-002-fa 1/86

Chapter 02 - Analyzing and Recording Transactions

Chapter 2

Analyzing and Recording Transactions

QUESTIONS

1. a. Coon asset acco!nts" cash# acco!nts recei$a%le# notes recei$a%le# prepaide&penses 'rent# ins!rance# etc.(# o))ice s!pplies# store s!pplies# e*!ipent#%!ilding# and land.

%. Coon lia%ility acco!nts" acco!nts paya%le# notes paya%le# and !nearnedre$en!e# +ages paya%le# and ta&es paya%le.

c. Coon e*!ity acco!nts" o+ner# capital and o+ner# +ithdra+als.

2. A note paya%le is )oral proise# !s!ally denoted %y signing a proissory note topay a )!t!re ao!nt. A note paya%le can %e short,ter or long,ter# depending on+hen it is d!e. An acco!nt paya%le also re)erences an ao!nt o+ed to an entity. Anacco!nt paya%le can %e oral or iplied# and o)ten arises )ro the p!rchase o) in$entory# s!pplies# or ser$ices. An acco!nt paya%le is !s!ally short,ter.

-. There are se$eral steps in processing transactions" '1( Identi)y and analyze thetransaction or e$ent# incl!ding the so!rce doc!ent's(# '2( apply do!%le,entryacco!nting# '-( record the transaction or e$ent in a o!rnal# and '/( post the o!rnal

entry to the ledger. These steps +o!ld %e )ollo+ed %y preparation o) a trial %alanceand then +ith the reporting o) )inancial stateents.

/. A general o!rnal can %e !sed to record any %!siness transaction or e$ent.

0. e%ited acco!nts are coonly recorded )irst. The credited acco!nts are coonlyindented.

. E&pense acco!nts ha$e de%it %alances %eca!se they are decreases to e*!ity 'ande*!ity has a credit %alance(.

3. A transaction is )irst recorded in a o!rnal to create a coplete record o) thetransaction in one place. 'The o!rnal is o)ten re)erred to as the %oo4 o) originalentry.( This process red!ces the li4elihood o) errors in ledger acco!nts.

5. The record4eeper prepares a trial %alance to s!arize the contents o) the ledger and to $eri)y the e*!ality o) total de%its and total credits. The trial %alance alsoser$es as a help)!l internal doc!ent )or preparing )inancial stateents and other reports.

2-1

7/24/2019 Chap 002 FA



6. The error sho!ld %e corrected +ith a separate 's!%se*!ent( correcting entry. Theentry7s e&planation sho!ld descri%e +hy the correction is necessary.

18. The )o!r )inancial stateents are" incoe stateent# %alance sheet# stateent o) o+ner7s e*!ity# and stateent o) cash )lo+s.

11. The incoe stateent lists the types and ao!nts o) re$en!es and e&penses# and

reports +hether the %!siness earned a net incoe 'also called pro)it or earnings( or a net loss.

12. An incoe stateent !ser !st 4no+ +hat tie period is co$ered to !dge +hether the copany7s per)orance is satis)actory. 9or e&aple# a stateent !ser +o!ld not%e a%le to assess +hether the ao!nts o) re$en!e and net incoe are satis)actory+itho!t 4no+ing +hether they +ere earned o$er a +ee4# a onth# a *!arter# or ayear.

1-. The %alance sheet pro$ides in)oration that helps !sers !nderstand a copany7s)inancial position at a point in tie. Accordingly# it is o)ten called the stateent o) )inancial position. The %alance sheet lists the types and dollar ao!nts o) assets#lia%ilities# and e*!ity o) the %!siness.

1/. 'a( Assets are pro%a%le )!t!re econoic %ene)its o%tained or controlled %y a speci)icentity as a res!lt o) past transactions or e$ents. '%( :ia%ilities are pro%a%le )!t!resacri)ices o) econoic %ene)its arising )ro present o%ligations o) a partic!lar entityto trans)er assets or pro$ide ser$ices to other entities in the )!t!re as a res!lt o) pasttransactions or e$ents. 'c( E*!ity is the resid!al interest in the assets o) an entitythat reains a)ter ded!cting its lia%ilities. 'd( Net assets re)er to e*!ity.

10. The %alance sheet is soeties re)erred to as the stateent o) )inancial position.

1. e%it %alance acco!nts on the Research In ;otion %alance sheet incl!de" Cash andcash e*!i$alents< Short,ter in$estents< Acco!nts recei$a%le< Other recei$a%les<In$entories< Other c!rrent assets< e)erred incoe ta& asset< :ong,terin$estents< =roperty# plant and e*!ipent< Intangi%le assets< >ood+il< Treas!ry

stoc4

Credit %alance acco!nts on the Research In ;otion %alance sheet incl!de" Acco!ntspaya%le< Accr!ed lia%ilities< Incoe ta&es paya%le< e)erred re$en!e< e)erredincoe ta& lia%ility< Coon stoc4< Additional paid,in capital< Retained earnings<Acc!!lated other coprehensi$e incoe.

13. The asset acco!nt +ith receivable in its acco!nt title is" Acco!nts recei$a%le. Thelia%ility +ith payable in its acco!nt title is" Acco!nts paya%le.

15. =al7s re$en!e acco!nt is titled ?Re$en!es.@

16. No4ia calls the asset re)erring to its erchandise a$aila%le )or sale" ?In$entories.@

2-2

7/24/2019 Chap 002 FA



QUIC STUIES

Q!ic4 St!dy 2,1 '0 in!tes(

a. B Balance sheet%. B Balance sheet

c. I Incoe stateent

d. B Balance sheet

e. B Balance sheet

). I Incoe stateent

g. B Balance sheet

h. E Stateent o) o+ner7s e*!ity

i. B Balance sheet

2-3

7/24/2019 Chap 002 FA




The li4ely so!rce doc!ents incl!de"a. Ban4 stateent%. Sales tic4et

e. Telephone %ill). In$oice )ro s!pplier

Q!ic4 St!dy 2,- '18 in!tes(

a. e%it e. Credit i. Credit%. e%it ). e%it . Creditc. Credit g. Creditd. e%it h. Credit

Q!ic4 St!dy 2,/ '18 in!tes(

a. e%it d. e%it g. e%it%. e%it e. e%it h. Creditc. Credit ). e%it i. Credit


a. Credit e. Credit i. e%it

%. e%it ). e%it . Creditc. e%it g. Credit 4. e%itd. Credit h. Credit l. e%it

2-4

7/24/2019 Chap 002 FA



Q!ic4 St!dy 2, '10 in!tes(

an.10 Cash.......................................................................... 30#888E*!ipent ................................................................ -8#888

. Anderson# Capital....................................... 180#888 Owner invests cash and equipment.

21 O))ice S!pplies......................................................... 08Acco!nts =aya%le........................................... 08

Purchased office supplies on credit.

20 Cash.......................................................................... 5#388Reodeling Ser$ices Re$en!e...................... 5#388

Received cash for remodeling services.

-8 Cash.......................................................................... /#888

Unearned Reodeling Ser$ices Re$en!e.... /#888 Received cash in advance for remodeling services.


The correct ans+er is ).

Explanation: I) a D2#208 de%it to Utilities E&pense is incorrectly posted as acredit# the e))ect is to !nderstate the Utilities E&pense de%it %alance %y D/#088.This ca!ses the e%it col!n total on the trial %alance to %e D/#088 less thanthe Credit col!n total.Q!ic4 St!dy 2,5 '18 in!tes(

a. B e. I i. B%. I ). I . Ic. E g. I 4. Bd. B h. B l. B

2-5

7/24/2019 Chap 002 FA




a. Acco!nting !nder I9RS )ollo+s the sae de%it and credit syste as !nder US >AA=.

%. The sae )o!r %asic )inancial stateents are prepared !nder I9RS and US

>AA=" incoe stateent# %alance sheet# stateent o) changes in e*!ity#and stateent o) cash )lo+s. Altho!gh soe $ariations )ro these titlese&ist +ithin %oth systes# the )o!r %asic stateents are present.

c. Acco!nting reports !nder %oth I9RS and US >AA= are li4ely di))erentdepending on the e&tent o) acco!nting controls and en)orceent. 9or e&aple# the a%sence o) controls and en)orceent increase the possi%ilityo) )ra!d!lent transactions and isleading )inancial stateents. itho!tcontrols and en)orceent# all acco!nting systes r!n the ris4 o) a%!seand anip!lation.

2-6

7/24/2019 Chap 002 FA



EFERCISES

E&ercise 2,1 '18 in!tes(

2 a. Record rele$ant transactions in a o!rnal.

/ %. =repare and analyze the trial %alance.

1 c. Analyze each transaction )ro so!rce doc!ents.

- d. =ost o!rnal in)oration to ledger acco!nts.


a. 0 d. 2

%. / e. 1

c. -

E&ercise 2,- '0 in!tes(

a. 1 %. 2

2-7

7/24/2019 Chap 002 FA



E&ercise 2,/ '10 in!tes(

Type o) Noral IncreaseAcco!nt Acco!nt Balance 'r. or Cr.(

a. 9ees Earned................................ re$en!e credit credit

%. E*!ipent................................... asset de%it de%itc. Notes =aya%le............................. lia%ility credit credit

d. O+ner Capital............................. e*!ity credit credit

e. Cash............................................. asset de%it de%it

). :egal E&pense............................ e&pense de%it de%it

g. =repaid Ins!rance...................... asset de%it de%it

h. :and............................................. asset de%it de%it

i. Acco!nts Recei$a%le................. asset de%it de%it

. O+ner ithdra+als.................... e*!ity de%it de%it

4. :icense 9ee Re$en!e................. re$en!e credit creditl. Unearned Re$en!e..................... lia%ility credit credit


O) the ites listed# the )ollo+ing e))ects sho!ld %e incl!ded"

a. D-/#088 increase in a lia%ility acco!nt.

%. D3#088 increase in the Cash acco!nt.e. D/5#888 increase in a re$en!e acco!nt.

E&planation" This transaction created a D/5#888 re$en!e# +hich e*!als the$al!e o) the ser$ice pro$ided. =ayent is recei$ed in the )or o) a D3#088increase in cash# a D30#888 increase in the cop!ter e*!ipent# and aD-/#088 increase in the copany7s lia%ilities. The net $al!e recei$ed %y thecopany is D/5#888.

2-8

7/24/2019 Chap 002 FA



E&ercise 2, '10 in!tes(

1. Beginning cash %alance 'de%it(.......................................................D GCash recei$ed in Octo%er 'de%its(...................................................63#088Cash dis%!rsed in Octo%er 'credits(...............................................'181#208(Ending cash %alance 'de%it(............................................................D 1#588

Beginning cash %alance 'de%it(.......................................................D 28#008

2. Beginning acco!nts recei$a%le 'de%it(...........................................D 63#088Sales on acco!nt in Octo%er 'de%its(............................................. GCollections on acco!nt in Octo%er 'credits(.................................. '55#608(Ending acco!nts recei$a%le 'de%it(................................................D188#088

Sales on acco!nt in Octo%er 'de%its(.............................................D 61#608

-. Beginning acco!nts paya%le 'credit(..............................................D1/3#888

=!rchases on acco!nt in Octo%er 'credits(...................................238#888=ayents on acco!nts in Octo%er 'de%its(....................................' G(Ending acco!nts paya%le 'credit(...................................................D1-#088

=ayents on acco!nts in Octo%er 'de%its(....................................D258#088

2-

7/24/2019 Chap 002 FA




A!g.1 Cash................................................................... 3#088

=hotography E*!ipent.................................. -2#088. ;adison# Capital.................................... /8#888 Owner investment in business.

2 =repaid Ins!rance............................................ -#888Cash............................................................. -#888

Acquired years of insurance coverage.

0 O))ice S!pplies................................................. 1#/88Cash............................................................. 1#/88

Purchased office supplies.

28 Cash................................................................... 2#08=hotography 9ees Earned......................... 2#08

!ollected photography fees.

-1 Utilities E&pense............................................... 530Cash............................................................. 530

Paid for August utilities.

2-10

7/24/2019 Chap 002 FA



Exercise 2-8 (30 minutes)

Cash =hotography E*!ipent

A!g. 1 3#088 A!g. 2 -#888 A!g. 1 -2#088

28 2#08 0 1#/88-1 530 . ;adison# Capital

Balance /#530 A!g. 1 /8#888

O))ice S!pplies =hotography 9ees Earned

A!g. 0 1#/88 A!g. 28 2#08

=repaid Ins!rance Utilities E&pense

A!g. 2 -#888 A!g. -1 530

=OSE 9OR =ICSTrial Balance

A!g!st -1 "ebit !redit

Cash................................................... D /#530

O))ice s!pplies.................................. 1#/88

=repaid ins!rance............................ -#888=hotography e*!ipent.................. -2#088

. ;adison# Capital.......................... D/8#888

=hotography )ees earned................ 2#08

Utilities e&pense............................... 530 HHHHHH

Totals................................................. D/2#08 D/2#08

2-11

7/24/2019 Chap 002 FA



E&ercise 2,6 '-8 in!tes(

a. Cash............................................................................ 12#308;. e&ter# Capital............................................... 12#308

Owner invested in the business.

%. O))ice S!pplies.......................................................... -30Cash.................................................................... -30

Purchased supplies with cash.

c. O))ice E*!ipent....................................................... 3#808Acco!nts =aya%le.............................................. 3#808

Purchased office equipment on credit.

d. Cash............................................................................ 1#0889ees Earned........................................................ 1#088

Received cash from customer for services.

e. Acco!nts =aya%le..................................................... 3#808Cash.................................................................... 3#808

#ade payment toward account payable.

). Acco!nts Recei$a%le................................................ 2#3889ees Earned........................................................ 2#388

$illed customer for services provided.

g. Rent E&pense............................................................. 020Cash.................................................................... 020

Paid for this period%s rental charge.

h. Cash............................................................................ 1#120Acco!nts Recei$a%le......................................... 1#120

Received cash toward an account receivable.

i. ;. e&ter# ithdra+als............................................. 1#888Cash.................................................................... 1#888

Owner withdrew cash for personal use.

2-12

7/24/2019 Chap 002 FA



E&ercise 2,6 'concl!ded(

Cash Acco!nts =aya%le

'a( 12#308 '%( -30 'e( 3#808 'c( 3#808

'd( 1#088 'e( 3#808 Balance 8

'h( 1#120 'g( 020'i( 1#888

Balance #/20 ;. e&ter# Capital

'a( 12#308

Balance 12#308

Acco!nts Recei$a%le ;. e&ter# ithdra+als

')( 2#388 'h( 1#120 'i( 1#888

Balance 1#030 Balance 1#888

O))ice S!pplies 9ees Earned

'%( -30 'd( 1#088Balance -30 ')( 2#388

Balance /#288

O))ice E*!ipent Rent E&pense

'c( 3#808 'g( 020

Balance 3#808 Balance 020


EFTER CO;=ANTrial Balance;ay -1# 2811

"ebit !redit

Cash.............................................. D #/20

Acco!nts recei$a%le.................... 1#030

O))ice s!pplies............................. -30

O))ice e*!ipent......................... 3#808

Acco!nts paya%le........................ D 8

;. e&ter# Capital......................... 12#308;. e&ter# ithdra+als....................................1#888

9ees earned.................................. /#288

Rent e&pense................................. 020 HHHHHHH

Totals.............................................. D1#608 D1#608

2-13

7/24/2019 Chap 002 FA




&ransactions that created revenues:

%. Acco!nts Recei$a%le.................................. 1#-08Ser$ices Re$en!e.................................. 1#-08

Provided services on credit.

c. Cash.............................................................. 1#030Ser$ices Re$en!e.................................. 1#030

Provided services for cash.

JNote" Re$en!es are in)lo+s o) assets 'or decreases in lia%ilities(recei$ed in e&change )or goods or ser$ices pro$ided to c!stoers.K

&ransactions that did not create revenues along with the reasons are:

a. This transaction %ro!ght in cash# %!t this is an o+ner in$estent.

d. This transaction %ro!ght in cash# %!t it created a lia%ility %eca!se theser$ices ha$e not yet %een pro$ided to the client.

e. This transaction changed the )or o) the asset )ro acco!ntsrecei$a%le to cash. Total assets +ere not increased 're$en!e +asrecognized +hen the recei$a%le +as originally recorded(.

). This transaction %ro!ght in cash and increased assets# %!t it alsoincreased a lia%ility %y the sae ao!nt 'no goods or ser$ices +erepro$ided to generate re$en!e(.

2-14

7/24/2019 Chap 002 FA




&ransactions that created expenses:

%. Salaries E&pense......................................... 1#120Cash........................................................ 1#120

Paid salary of receptionist.

d. Utilities E&pense.......................................... 6-8Cash........................................................ 6-8

Paid utilities for the office.

JNote" E&penses are o!t)lo+s or !sing !p o) assets 'or the creation o)lia%ilities( that occ!r in the process o) pro$iding goods or ser$ices toc!stoers.K

&ransactions a' c' and e are not expenses for the following reasons:

a. This transaction decreased assets in settleent o) a pre$io!slye&isting lia%ility# and e*!ity did not change. Cash payent does notean the sae as !sing !p o) assets 'e&pense +as recorded +hen thes!pplies +ere !sed(.

c. This transaction in$ol$es the p!rchase o) an asset. The )or o) thecopany7s assets changed# %!t total assets did not change# and thee*!ity did not decrease.

e. This transaction is a distri%!tion o) cash to the o+ner. E$en tho!ghe*!ity decreased# the decrease did not occ!r in the process o)

pro$iding goods or ser$ices to c!stoers.

2-15

7/24/2019 Chap 002 FA



E&ercise 2,1- '10 in!tes(

TECL TOAIncoe Stateent

9or ;onth Ended A!g!st -1

Re$en!es"Cons!lting )ees earned......................... D13#888

E&penses"Salaries e&pense................................... D5#888Rent e&pense......................................... /#008Telephone e&pense............................... 08;iscellaneo!s e&penses...................... 258Total e&penses....................................... 1-#-68

Net incoe.................................................. D -#18

E&ercise 2,1/ '10 in!tes(

TECL TOAStateent o) O+ner7s E*!ity9or ;onth Ended A!g!st -1

. :opez# Capital# !ly -1.......................... D /#888

Add" O+ner in$estent........................... D58#888

Net incoe ')ro E&ercise 2,1-(...... -#18 5-#18

53#18

:ess" O+ner +ithdra+als......................... '-#888(

. :opez# Capital# A!g!st -1..................... D5/#18


TECL TOABalance Sheet

A!g!st -1 Assets (iabilities

Cash............................... D 5#-8 Acco!nts paya%le......... D 5#888Acco!nts recei$a%le.. .. 13#888O))ice s!pplies.............. -#208 Equity O))ice e*!ipent.......... 15#888:and............................... /#888 . :opez# Capital.......... 5/#18M

Total assets................... D62#18 Total lia%ilities e*!ity D62#18

M Ao!nt )ro E&ercise 2,1/.

2-16

7/24/2019 Chap 002 FA




a. Assets , :ia%ilities E*!ity

Beginning o) the year........... D 38#888 , D-8#888 D/8#888End o) the year..................... 110#888 , /#888 6#888

Net increase in e*!ity.......... D26#888

Net incoe............................ D26#888

Since there +ere no additional in$estents or +ithdra+als# the netincoe )or the year e*!als the net increase in o+nerPs e*!ity.

%. Net increase in e*!ity........................................ D26#888Add +ithdra+als '12 onths D1#208(........... 10#888Net incoe.......................................................... D//#888

The +ithdra+als +ere added %ac4 %eca!se they red!ced e*!ity+itho!t red!cing incoe.

c. Net increase in e*!ity........................................ D 26#888:ess additional in$estent............................... '/0#888(Net loss............................................................... D'1#888(

The in$estent +as ded!cted %eca!se it increased e*!ity +itho!tcreating incoe.

d. Net increase in e*!ity........................................ D26#888Add +ithdra+als '12 onths D1#208(........... 10#888>ross increase in e*!ity.................................... D//#888

:ess additional in$estent............................... '20#888(

Net incoe.......................................................... D16#888

The +ithdra+als +ere added %ac4 %eca!se they red!ced e*!ity+itho!t red!cing incoe and the in$estents +ere ded!cted

%eca!se they increased e*!ity +itho!t creating incoe.

2-17

7/24/2019 Chap 002 FA




'a( '%( 'c( 'd(

Ans+ers D'/6#088( D32#888 D3-#888 D'/0#888(

Cop!tations"

E*!ity# ec. -1# 2818.......D 8 D 8 D 8 D 8

O+nerPs in$estents...... 128#888 32#888 53#888 218#888

O+nerPs +ithdra+als...... '/6#088( '0/#888( '18#888( '00#888(

Net incoe 'loss(............ -1#088 51#888 '/#888( '/0#888 (

E*!ity# ec. -1# 2811...... D182#888 D66#888 D3-#888 D118#888


a. . oy created a ne+ %!siness and in$ested D3#888 cash# D0#88 o)e*!ipent# and D11#888 in a!too%ile's(.

%. =aid D-#88 cash in ad$ance )or ins!rance co$erage.

c. =aid D88 cash )or o))ice s!pplies.

d. =!rchased D288 o) o))ice s!pplies and D6#/88 o) e*!ipent on credit.

e. Recei$ed D2#088 cash )or deli$ery ser$ices pro$ided.

). =aid D2#/88 cash to+ards acco!nts paya%le.

g. =aid D388 cash )or gas and oil.

2-18

7/24/2019 Chap 002 FA



E&ercise 2,16 '-8 in!tes(

a. Cash............................................................................ 3#888E*!ipent.................................................................. 0#88A!too%iles............................................................... 11#888

. oy# Capital.................................................... 2-#88Owner invested in the business.

%. =repaid Ins!rance..................................................... -#88Cash.................................................................... -#88

Purchased insurance coverage.

c. O))ice S!pplies.......................................................... 88Cash.................................................................... 88

Purchased supplies with cash.

d. O))ice S!pplies.......................................................... 288E*!ipent.................................................................. 6#/88

Acco!nts =aya%le.............................................. 6#88 Purchased supplies and equipment on credit.

e. Cash............................................................................ 2#088eli$ery Ser$ices Re$en!e............................... 2#088

Received cash from customer.

). Acco!nts =aya%le..................................................... 2#/88Cash.................................................................... 2#/88 #ade payment on payables.

g. >as and Oil E&pense................................................. 388Cash.................................................................... 388

Paid for gas and oil.

2-1

7/24/2019 Chap 002 FA




escription

'1(i))erence%et+eene%it and

CreditCol!ns

'2(Col!n+ith the:arger

Total

'-(Identi)y

acco!nt's(incorrectly

stated

'/(Ao!nt that acco!nt's(

is o$erstated or !nderstated

a. D2#/88 de%it to RentE&pense is posted asa D1#068 de%it.

D518 credit Rent E&pense Rent E&pense is!nderstated %y D518

b. D/#808 credit to Cashis posted t+ice as t+ocredits to Cash.

D/#808 credit Cash Cash is !nderstated %yD/#808

c. D6#688 de%it to theithdra+als acco!nt

is de%ited to O+nerPsCapital.

D8

O+ner7s#Capital

O+ner7s#ithdra+als

O+ner7s Capitalacco!nt is !nderstated

%y D6#688O+ner7s ithdra+als is!nderstated %y D6#688

d. D2#208 de%it to=repaid Ins!rance isposted as a de%it toIns!rance E&pense.

D8

=repaidIns!rance

Ins!ranceE&pense

=repaid Ins!rance is!nderstated %y D2#208

and Ins!rance E&penseis o$erstated %y D2#208

e. D/2#888 de%it to;achinery is posted

as a de%it to Acco!nts=aya%le.

D8

;achinery

Acco!nts=aya%le

;achinery is!nderstated %y D/2#888

and Acco!nts =aya%leis !nderstated %y

D/2#888

f. D/#608 credit toSer$ices Re$en!e isposted as a D/60credit.

D/#/00 de%itSer$icesRe$en!e

Ser$ices Re$en!e is!nderstated %y D/#/00

g. D1#//8 de%it to StoreS!pplies is notposted.

D1#//8 creditStore

S!ppliesStore S!pplies is

!nderstated %y D1#//8

2-20

7/24/2019 Chap 002 FA




a. The de%it col!n is correctly stated %eca!se the erroneo!s de%it 'toAcco!nts =aya%le( is ded!cted )ro an acco!nt +ith a 'larger ass!ed(credit %alance.

%. The credit col!n is !nderstated %y D--#688 %eca!se o) the error inde%iting the Acco!nts =aya%le acco!nt it sho!ld ha$e %een credited.

c. The O))ice E*!ipent acco!nt is correctly stated.

d. The Acco!nts =aya%le acco!nt is !nderstated %y D--#688. It sho!ld ha$e%een increased 'credited( %y D1#608 %!t the posting error decreased'de%ited( it %y D1#608.

e. The credit col!n is D--#688 less than the de%it col!n# or D-2#188 intotal 'D-8#888 , D--#688(.


a.Co. :ia%ilities Assets

e%tRatio

NetIncoe

A$erageAssets ROA

1 D0#888 D1/3#888 8.-5 D21#888 D288#888 8.180

2 01#088 18/#088 8./6 12#888 38#888 8.131

- 12#888 68#088 8.1- 28#888 188#888 8.288

/ -1#888 62#888 8.-/ 3#088 /8#888 8.155

0 /3#888 /#888 8.3- -#588 /8#888 8.860 2#088 -2#088 8.52 8 08#888 8.81-

2-21

7/24/2019 Chap 002 FA



%. Copany relies ost hea$ily on creditor 'non,o+ner( )inancing +ith 52o) its assets )inanced %y lia%ilities.

c. Copany - relies least on creditor 'non,o+ner( )inancing at only 1-. Thisiplies that 53 o) the assets are )inanced %y e*!ity 'o+ners(.

d. The copanies +ith the highest de%t ratios indicate the greatest ris4. Thet+o copanies +ith the highest de%t ratios are 0 and .

e. Copany - yields the highest ret!rn on assets at 28< )ollo+ed %yCopany / at 15.5.

). As an in$estor# one pre)ers high ret!rns at lo+ ris4. Copany - is thepre)erred in$estent since it yields the lo+est ris4 'de%t ratio is 1-( andhighest ret!rn on assets '28(.

2-22

7/24/2019 Chap 002 FA



Exercise 2-23 (10 minutes)

B;Balance Sheet 'in E!ro illions(

ece%er -1# 2886

Assets E*!ity and lia%ilities

Nonc!rrent assets........ V #65/ Total e*!ity........................... V 0#-0/

C!rrent assets.............. 13#- Nonc!rrent lia%ilities........... 18#6/-

C!rrent lia%ilities.................. 5#-08

Total assets................... V2/#/3 Total e*!ity and lia%ilities... V2/#/3

2-23

7/24/2019 Chap 002 FA



=ROB:E; SET A

=ro%le 2,1A '68 in!tes(Part )

April 1 Cash............................................................181 188#888O))ice E*!ipent.......................................1- 2/#888

>. Ba!er# Capital.................................-81 12/#888Owner invested cash and equipment.

2 =repaid Rent...............................................1-1 3#288Cash....................................................181 3#288

Prepaid twelve months% rent.

- O))ice E*!ipent.......................................1- 12#888O))ice S!pplies...........................................12/ 2#/88

Acco!nts =aya%le..............................281 1/#/88Purchased equip. * supplies on credit.

Cash............................................................181 2#888Ser$ices Re$en!e.............................../8- 2#888

Received cash for services.

6 Acco!nts Recei$a%le.................................18 5#888Ser$ices Re$en!e.............................../8- 5#888

$illed client for completed wor+.

1- Acco!nts =aya%le......................................281 1/#/88

Cash....................................................181 1/#/88Paid balance due on account.

16 =repaid Ins!rance......................................125 #888Cash....................................................181 #888

Paid premium for insurance.

22 Cash............................................................181 #/88Acco!nts Recei$a%le.........................18 #/88

!ollected part of amount owed by client.

20 Acco!nts Recei$a%le.................................18 2#/8Ser$ices Re$en!e.............................../8- 2#/8$illed client for completed wor+.

25 >. Ba!er# ithdra+als...............................-82 #288Cash....................................................181 #288

Owner withdrew cash.

26 O))ice S!pplies...........................................12/ 588

2-24

7/24/2019 Chap 002 FA



Acco!nts =aya%le..............................281 588Purchased supplies on account.

-8 Utilities E&pense........................................68 388Cash....................................................181 388

Paid monthly utility bill.

2-25

7/24/2019 Chap 002 FA



Problem 2-1A (Continued)

Part Cash Acct. No. 181

ate E&planation =R e%it Credit BalanceApril 1 >1 188#888 188#888

2 >1 3#288 62#588 >1 2#888 6/#5881- >1 1/#/88 58#/8816 >1 #888 3/#/8822 >1 #/88 58#58825 >1 #288 3/#88-8 >1 388 3-#688

Acco!nts Recei$a%le Acct. No. 18

ate E&planation =R e%it Credit Balance

April 6 >1 5#888 5#88822 >1 #/88 1#8820 >1 2#/8 /#2/8

O))ice S!pplies Acct. No. 12/

ate E&planation =R e%it Credit BalanceApril - >1 2#/88 2#/88

26 >1 588 -#288

=repaid Ins!rance Acct. No. 125

ate E&planation =R e%it Credit BalanceApril 16 >1 #888 #888

=repaid Rent Acct. No. 1-1

ate E&planation =R e%it Credit BalanceApril 2 >1 3#288 3#288

O))ice E*!ipent Acct. No. 1-

ate E&planation =R e%it Credit BalanceApril 1 >1 2/#888 2/#888

- >1 12#888 -#888

2-26

7/24/2019 Chap 002 FA



=ro%le 2,1A ,!ontinued-

Acco!nts =aya%le Acct. No. 281

ate E&planation =R e%it Credit BalanceApril - >1 1/#/88 1/#/88

1- >1 1/#/88 826 >1 588 588

>. Ba!er# Capital Acct. No. -81

ate E&planation =R e%it Credit BalanceApril 1 >1 12/#888 12/#888

>. Ba!er# ithdra+als Acct. No. -82


April 25 >1 #288 #288

Ser$ices Re$en!e Acct. No. /8-

ate E&planation =R e%it Credit BalanceApril >1 2#888 2#888

6 >1 5#888 18#88820 >1 2#/8 12#/8

Utilities E&pense Acct. No. 68


April -8 >1 388 388

2-27

7/24/2019 Chap 002 FA



=ro%le 2,1A ,!ontinued-Part

TECLNO:O> CONSU:TANTSTrial Balance

April -8 "ebit !redit

Cash....................................................................... D 3-#688

Acco!nts recei$a%le............................................ /#2/8

O))ice s!pplies...................................................... -#288

=repaid ins!rance................................................ #888

=repaid rent.......................................................... 3#288

O))ice e*!ipent.................................................. -#888Acco!nts paya%le................................................. D 588

>. Ba!er# Capital................................................... 12/#888

>. Ba!er# ithdra+als......................................... #288

Ser$ices re$en!e.................................................. 12#/8

Utilities e&pense................................................... 388 HHHHHHH

Total....................................................................... D1-3#//8 D1-3#//8

2-28

7/24/2019 Chap 002 FA



=ro%le 2,2A '68 in!tes(

Part )

a. Cash............................................................181 180#888O))ice E*!ipent.......................................1- #888ra)ting E*!ipent....................................1/ /0#888

S. Shelton# Capital..............................-81 10#888Owner invested cash and equipment.

%. :and............................................................132 0/#888Cash....................................................181 0#/88Note =aya%le.......................................208 /5#88

Purchased land with cash and note payable.

c. B!ilding.......................................................138 30#888 Cash........................................................181 30#888

Purchased building with cash.

d. =repaid Ins!rance......................................185 #888Cash....................................................181 #888

Purchased )/0month insurance policy.

e. Cash............................................................181 0#388

Engineering 9ees Earned................../82 0#388!ollected cash for completed wor+.

). ra)ting E*!ipent....................................1/ 22#088Cash....................................................181 18#088

Note =aya%le........................................208 12#888Purchased equipment with cash and note

payable.

g. Acco!nts Recei$a%le.................................18 12#888

Engineering 9ees Earned................../82 12#888!ompleted services for client.

h. O))ice E*!ipent.......................................1- 2#208Acco!nts =aya%le..............................281 2#208

Purchased equipment on credit.

2-2

7/24/2019 Chap 002 FA



i. Acco!nts Recei$a%le.................................18 15#888Engineering 9ees Earned................../82 15#888


2-30

7/24/2019 Chap 002 FA



=ro%le 2,2A '=art 1 Contin!ed(

. E*!ipent Rental E&pense.......................82 1#288Acco!nts =aya%le..............................281 1#288

1ncurred equipment rental expense.

4. Cash............................................................181 3#288Acco!nts Recei$a%le.........................18 3#288

!ollected cash on account.

l. ages E&pense..........................................81 1#088Cash....................................................181 1#088

Paid assistant%s wages.

. Acco!nts =aya%le......................................281 2#208Cash...................................................181 2#208

Paid amount due on account.

n. Repairs E&pense........................................8/ 30Cash...................................................181 30

Paid for repair of equipment.

o. S. Shelton# ithdra+als............................-82 6#-8Cash....................................................181 6#-8

!ash withdrawn for personal use.

p. ages E&pense..........................................81 1#088Cash....................................................181 1#088


*. Ad$ertising E&pense..................................8- -#888Cash....................................................181 -#888

Paid for advertising expense.

2-31

7/24/2019 Chap 002 FA



=ro%le 2,2A 'Contin!ed(Part

Cash No. 181 Acco!nts =aya%le No. 281

ate =R e%it Credit Balance ate =R e%it Credit Balance'a( 180#888 180#888 'h( 2#208 2#208

'%( 0#/88 66#88 '( 1#288 -#/08'c( 30#888 2/#88 '( 2#208 1#288'd( #888 15#88'e( 0#388 2/#-88 Notes =aya%le No. 208')( 18#088 1-#588 ate =R e%it Credit Balance'4( 3#288 21#888 '%( /5#88 /5#88'l( 1#088 16#088 ')( 12#888 8#88

'( 2#208 13#208'n( 30 1#030'o( 6#-8 3#210 S. Shelton# Capital No. -81'p( 1#088 0#310 ate =R e%it Credit Balance

'*( -#888 2#310 'a( 10#888 10#888

Acco!nts Recei$a%le No. 18 S. Shelton# ithdra+als No. -82

ate =R e%it Credit Balance ate =R e%it Credit Balance'g( 12#888 12#888 'o( 6#-8 6#-8'i( 15#888 -8#888'4( 3#288 22#588 Engineering 9ees Earned No. /82

ate =R e%it Credit Balance=repaid Ins!rance No. 185 'e( 0#388 0#388

ate =R e%it Credit Balance 'g( 12#888 13#388'd( #888 #888 'i( 15#888 -0#388

O))ice E*!ipent No. 1- ages E&pense No. 81

ate =R e%it Credit Balance ate =R e%it Credit Balance'a( #888 #888 'l( 1#088 1#088'h( 2#208 5#208 'p( 1#088 -#888

ra)ting E*!ipent No. 1/ E*!ipent Rental E&pense No. 82

ate =R e%it Credit Balance ate =R e%it Credit Balance'a( /0#888 /0#888 '( 1#288 1#288')( 22#088 3#088

B!ilding No. 138 Ad$ertising E&pense No. 8-

ate =R e%it Credit Balance ate =R e%it Credit Balance'c( 30#888 30#888 '*( -#888 -#888

:and No. 132 Repairs E&pense No. 8/

ate =R e%it Credit Balance ate =R e%it Credit Balance'%( 0/#888 0/#888 'n( 30 30

2-32

7/24/2019 Chap 002 FA



=ro%le 2,2A ,!oncluded-Part

SLE:TON EN>INEERIN>Trial Balance

!ne -8 "ebit !redit

Cash............................................................. D 2#310

Acco!nts recei$a%le.................................. 22#588

=repaid ins!rance...................................... #888

O))ice e*!ipent........................................ 5#208

ra)ting e*!ipent.................................... 3#088

B!ilding....................................................... 30#888

:and............................................................. 0/#888

Acco!nts paya%le....................................... D 1#288

Notes paya%le............................................. 8#88

S. Shelton# Capital...................................... 10#888

S. Shelton# ithdra+als............................. 6#-8

Engineering )ees earned............................ -0#388

ages e&pense........................................... -#888E*!ipent rental e&pense......................... 1#288

Ad$ertising e&pense.................................. -#888

Repairs e&pense......................................... 30

Totals........................................................... D20-#088 D20-#088

2-33

7/24/2019 Chap 002 FA



=ro%le 2,-A '8 in!tes(Part )

9ABIANO ISTRIBUTIONBalance Sheet

ece%er -1# 2818

Assets (iabilitiesCash............................... D 02#088 Acco!nts paya%le................D 3#088Acco!nts recei$a%le... . 25#088O))ice s!pplies.............. /#088Tr!c4s............................ 0/#888 Owner2s Equity O))ice e*!ipent.......... 1-5#888 9a%iano# Capital................... D238#888Total assets................... D233#088 Total lia%ilities and e*!ity.. . D233#088

9ABIANO ISTRIBUTION

Balance Sheetece%er -1# 2811

Assets (iabilitiesCash............................... D 15#308 Acco!nts paya%le................. D -3#088Acco!nts recei$a%le.. .. 22#-08 Note paya%le.......................... 180#888O))ice s!pplies.............. -#-88 Total lia%ilities....................... 1/2#088Tr!c4s............................ 0/#888O))ice e*!ipent.......... 1/3#888B!ilding......................... 158#888 Owner2s Equity :and............................... /0#888 9a%iano# Capital.................... -23#688

Total assets................... D/38#/88 Total lia%ilities and e*!ity.. .. D/38#/88

Part

Cop!tation o) 2811 net incoe"

E*!ity# ece%er -1# 2811............................................................ D-23#688E*!ity# ece%er -1# 2818............................................................ '238#888(

Increase in e*!ity in 2811.............................................................. 03#688

ed!ct additional in$estent....................................................... '-0#888(

Net increase in e*!ity in 2811# apart )ro ne+ in$estent....... 22#688

Add +ithdra+als 'D-#888 & 12(...................................................... -#888

Net incoe earned in 2811............................................................ D 05#688

2-34

7/24/2019 Chap 002 FA



Part

e%t Ratio D1/2#088 D/38#/88 -8.26

=ro%le 2,/A '68 in!tes( Part )

;ar. 1 Cash............................................................181 108#888O))ice E*!ipent.......................................1- 22#888

S. Birch# Capital..................................-81 132#888Owner invested cash and equipment.

2 =repaid Rent...............................................1-1 #888Cash....................................................181 #888


- O))ice E*!ipent.......................................1- -#888O))ice S!pplies...........................................12/ 1#288

Acco!nts =aya%le..............................281 /#288Purchased equipment and supplies on credit.

Cash............................................................181 /#888Ser$ices Re$en!e.............................../8- /#888




1- Acco!nts =aya%le......................................281 /#288Cash....................................................181 /#288Paid balance due on account.

16 =repaid Ins!rance......................................125 0#888Cash....................................................181 0#888


22 Cash............................................................181 -#088Acco!nts Recei$a%le.........................18 -#088


20 Acco!nts Recei$a%le.................................18 -#528Ser$ices Re$en!e.............................../8- -#528


26 S. Birch# ithdra+als................................-82 0#188Cash....................................................181 0#188

3ithdrew cash for personal use.

2-35

7/24/2019 Chap 002 FA



-8 O))ice S!pplies...........................................12/ 88Acco!nts =aya%le..............................281 88

Purchased supplies on account.

-1 Utilities E&pense........................................68 288Cash....................................................181 288

2-36

7/24/2019 Chap 002 FA




=ro%le 2,/A 'Contin!ed(Part

Cash Acct. No. 181


;ar. 1 >1 108#888 108#8882 >1 #888 1//#888 >1 /#888 1/5#888

1- >1 /#288 1/-#58816 >1 0#888 1-5#58822 >1 -#088 1/2#-8826 >1 0#188 1-3#288-1 >1 288 1-3#888


ate E&planation =R e%it Credit Balance;ar. 6 >1 3#088 3#08822 >1 -#088 /#88820 >1 -#528 3#528


ate E&planation =R e%it Credit Balance;ar. - >1 1#288 1#288

-8 >1 88 1#588

=repaid Ins!rance Acct. No. 125ate E&planation =R e%it Credit Balance;ar. 16 >1 0#888 0#888


ate E&planation =R e%it Credit Balance;ar. 2 >1 #888 #888



;ar. 1 >1 22#888 22#888- >1 -#888 20#888

2-37

7/24/2019 Chap 002 FA



=ro%le 2,/A ,!ontinued-


ate E&planation =R e%it Credit Balance;ar. - >1 /#288 /#288

1- >1 /#288 8-8 >1 88 88

S. Birch# Capital Acct. No. -81

ate E&planation =R e%it Credit Balance;ar. 1 >1 132#888 132#888

S. Birch# ithdra+als Acct. No. -82ate E&planation =R e%it Credit Balance;ar. 26 >1 0#188 0#188


ate E&planation =R e%it Credit Balance;ar. >1 /#888 /#888

6 >1 3#088 11#08820 >1 -#528 10#-28


ate E&planation =R e%it Credit Balance;ar. -1 >1 288 288

2-38

7/24/2019 Chap 002 FA



=ro%le 2,/A ,!oncluded-Part

SLO,;E,TLE,;ONE CONSU:TANTSTrial Balance

;arch -1 "ebit !redit

Cash ...................................................................... D1-3#888

Acco!nts recei$a%le............................................ 3#528

O))ice s!pplies...................................................... 1#588

=repaid ins!rance................................................ 0#888

=repaid rent.......................................................... #888

O))ice e*!ipent.................................................. 20#888

Acco!nts paya%le................................................. D 88

S. Birch# Capital.................................................... 132#888

S. Birch# ithdra+als........................................... 0#188

Ser$ices re$en!e.................................................. 10#-28

Utilities e&pense................................................... 288 HHHHHHH

Totals..................................................................... D153#628 D153#628

2-3

7/24/2019 Chap 002 FA



=ro%le 2,0A '68 in!tes(

Part )

a. Cash............................................................181 2-#888O))ice E*!ipent.......................................1- 12#888

E. =ense# Capital...............................-81 -0#888Owner invested cash and equipment.

%. :and............................................................132 5#888B!ilding.......................................................138 --#888

Cash....................................................181 10#888Notes =aya%le.....................................208 2#888

Purchased land and building with cash and note payable.

c. O))ice S!pplies...........................................185 88Acco!nts =aya%le..............................281 88

Purchased office supplies on account.

d. A!too%iles...............................................1/ 3#888E. =ense# Capital................................-81 3#888

Owner contributed automobile to business.

e. O))ice E*!ipent.......................................1- 1#188

Acco!nts =aya%le..............................281 1#188Purchased office equipment on account.

). Salaries E&pense........................................81 588Cash....................................................181 588

Paid assistant%s salary.

g. Cash............................................................181 2#3889ees Earned......................................../82 2#388


h. Utilities E&pense........................................82 /-8Cash....................................................181 /-8

Paid cash for utilities.

2-40

7/24/2019 Chap 002 FA



=ro%le 2,0A ,Part ) !ontinued-

i. Acco!nts =aya%le......................................281 88Cash....................................................181 88

Paid cash on account.

. O))ice E*!ipent.......................................1- /#888Cash....................................................181 /#888

Purchased new equipment with cash.

4. Acco!nts Recei$a%le.................................18 2#/889ees Earned......................................../82 2#/88

Provided services on account.

l. Salaries E&pense........................................81 588Cash....................................................181 588


. Cash............................................................181 1#888Acco!nts Recei$a%le.......................18 1#888

Received cash due on account.

n. E. =ense# ithdra+als...............................-82 1#808

Cash...................................................181 1#808 !ash withdrawn for personal use.

2-41

7/24/2019 Chap 002 FA



=ro%le 2,0A ,!ontinued-

Part

Cash No. 181 :and No. 132

ate =R e%it Credit Balance ate =R e%it Credit Balance'a( 2-#888 2-#888 '%( 5#888 5#888

'%( 10#888 5#888')( 588 3#288 Acco!nts =aya%le No. 281'g( 2#388 6#688 ate =R e%it Credit Balance'h( /-8 6#/38 'c( 88 88'i( 88 5#538 'e( 1#188 1#388'( /#888 /#538 'i( 88 1#188'l( 588 /#838

'( 1#888 0#838 Notes =aya%le No. 208'n( 1#808 /#828 ate =R e%it Credit Balance

'%( 2#888 2#888

Acco!nts Recei$a%le No. 18ate =R e%it Credit Balance'4( 2#/88 2#/88 E. =ense# Capital No. -81'( 1#888 1#/88 ate =R e%it Credit Balance

'a( -0#888 -0#888O))ice S!pplies No. 185 'd( 3#888 /2#888

ate =R e%it Credit Balance'c( 88 88

E. =ense# ithdra+als No. -82O))ice E*!ipent No. 1- ate =R e%it Credit Balance

ate =R e%it Credit Balance 'n( 1#808 1#808'a( 12#888 12#888'e( 1#188 1-#188 9ees Earned No. /82'( /#888 13#188 ate =R e%it Credit Balance

'g( 2#388 2#388'4( 2#/88 0#188

A!too%iles No. 1/ Salaries E&pense No. 81

ate =R e%it Credit Balance ate =R e%it Credit Balance'd( 3#888 3#888 ')( 588 588

'l( 588 1#88

B!ilding No. 138ate =R e%it Credit Balance Utilities E&pense No. 82

'%( --#888 --#888 ate =R e%it Credit Balance'h( /-8 /-8

2-42

7/24/2019 Chap 002 FA



=ro%le 2,0A ,!oncluded-Part

E= CONSU:TIN>Trial Balance

Septe%er -8 e%it Credit

Cash ............................................................ D /#828

Acco!nts recei$a%le.................................. 1#/88

O))ice s!pplies............................................ 88

O))ice e*!ipent........................................ 13#188

A!too%iles................................................ 3#888

B!ilding....................................................... --#888

:and............................................................. 5#888

Acco!nts paya%le....................................... D 1#188

:ong,ter notes paya%le........................... 2#888

E. =ense# Capital........................................ /2#888

E. =ense# ithdra+als............................... 1#808

9ees earned................................................ 0#188

Salaries e&pense........................................ 1#88Utilities e&pense......................................... /-8

Total............................................................. D3/#288 D3/#288

2-43

7/24/2019 Chap 002 FA



=ro%le 2,A '-0 in!tes(Part )

BE:TRAN EN>INEERIN>Trial Balance

;ay -1

e%it CreditCash............................................................. D2#8O))ice s!pplies............................................ 8=repaid ins!rance...................................... -#288O))ice e*!ipent........................................ 1#088Acco!nts paya%le....................................... D1#088C. Beltran# Capital...................................... 13#888C. Beltran# ithdra+als............................. -#3/8Engineering )ees earned............................ 2/#888Rent e&pense.............................................. #3/8 HHHHHH Totals........................................................... D03#088 D03#088

Part : :i4ely transactions ')ollo+ing order o) trial %alance(.

1. =!rchased D8 o) o))ice s!pplies )or cash.

2. =aid D-#288 ins!rance prei! in ad$ance.

-. =!rchased D1#088 o))ice e*!ipent on credit '+ith acco!nt paya%le(.

/. C. Beltran in$ested D13#888 cash in the %!siness 'gi$en(.

0. C. Beltran +ithdre+ D-#3/8 cash )or personal !se.

. Earned D2/#888 cash )or engineering ser$ices.

3. =aid D#3/8 cash )or rent e&pense.

Part

Report o) Cash Recei$ed and =aid

Cash recei$ed Ao!nt in$ested ...................................... D13#888Engineering )ees ....................................... 2/#888Total cash recei$ed .................................. D/1#888

Cash paid O))ice s!pplies .......................................... 8 Ins!rance prei! .................................. -#288 ithdra+als ............................................... -#3/8 Rent ............................................................ #3/8 Total cash paid .......................................... 1/#-/8Ending %alance ........................................... D2#8

2-44

7/24/2019 Chap 002 FA



Problem sET b

=ro%le 2,1B '68 in!tes( Part )

No$. 1 Cash............................................................181 -8#888

O))ice E*!ipent.......................................1- 10#888. Sha+# Capital..................................-81 /0#888

Owner invested cash and equipment..

2 =repaid Rent...............................................1-1 /#088Cash....................................................181 /#088

Prepaid six months% rent.

/ O))ice E*!ipent.......................................1- 2#088O))ice S!pplies...........................................12/ 88

Acco!nts =aya%le..............................281 -#188

Purchased equipment and supplies on credit.

5 Cash............................................................181 -#/88Ser$ices Re$en!e.............................../8- -#/88




1- Acco!nts =aya%le......................................281 -#188Cash....................................................181 -#188

Paid balance due on account.

16 =repaid Ins!rance......................................125 1#588Cash....................................................181 1#588


22 Cash............................................................181 0#288Acco!nts Recei$a%le.........................18 0#288


2/ Acco!nts Recei$a%le.................................18 1#308

Ser$ices Re$en!e.............................../8- 1#308$illed client for completed wor+.

25 . Sha+# ithdra+als................................-82 0#-88Cash....................................................181 0#-88

3ithdrew cash from business.

26 O))ice S!pplies...........................................12/ 2/6Acco!nts =aya%le..............................281 2/6

2-45

7/24/2019 Chap 002 FA




-8 Utilities E&pense........................................68 0-1Cash....................................................181 0-1


2-46

7/24/2019 Chap 002 FA



Problem 2-1B (Continued)

Part Cash Acct. No. 181

ate E&planation =R e%it Credit BalanceNo$. 1 >1 -8#888 -8#888

2 >1 /#088 20#0885 >1 -#/88 25#6881- >1 -#188 20#58816 >1 1#588 2/#88822 >1 0#288 26#28825 >1 0#-88 2-#688-8 >1 0-1 2-#-6



No$. 12 >1 18#288 18#28822 >1 0#288 0#8882/ >1 1#308 #308


ate E&planation =R e%it Credit BalanceNo$. / >1 88 88

26 >1 2/6 5/6


ate E&planation =R e%it Credit BalanceNo$. 16 >1 1#588 1#588


ate E&planation =R e%it Credit BalanceNo$. 2 >1 /#088 /#088


ate E&planation =R e%it Credit BalanceNo$. 1 >1 10#888 10#888

/ >1 2#088 13#088


ate E&planation =R e%it Credit BalanceNo$. / >1 -#188 -#188

1- >1 -#188 826 >1 2/6 2/6

2-47

7/24/2019 Chap 002 FA



=ro%le 2,1B ,!ontinued-

. Sha+# Capital Acct. No. -81

ate E&planation =R e%it Credit BalanceNo$. 1 >1 /0#888 /0#888

. Sha+# ithdra+als Acct. No. -82

ate E&planation =R e%it Credit BalanceNo$. 25 >1 0#-88 0#-88


ate E&planation =R e%it Credit BalanceNo$. 5 >1 -#/88 -#/88

12 >1 18#288 1-#882/ >1 1#308 10#-08


ate E&planation =R e%it Credit BalanceNo$. -8 >1 0-1 0-1

Part

SLA ;ANA>E;ENT SERWICESTrial Balance

No$e%er -8 "ebit !redit

Cash....................................................................... D2-#-6

Acco!nts recei$a%le............................................ #308

O))ice s!pplies...................................................... 5/6

=repaid ins!rance................................................ 1#588

=repaid rent.......................................................... /#088

O))ice e*!ipent.................................................. 13#088

Acco!nts paya%le................................................. D 2/6. Sha+# Capital.................................................... /0#888

. Sha+# ithdra+als.......................................... 0#-88

Ser$ices re$en!e.................................................. 10#-08

Utilities e&pense................................................... 0-1 HHHHHH

Totals..................................................................... D8#066 D8#066

2-48

7/24/2019 Chap 002 FA



Problem 2-2B (90 minutes)

Part )

a. Cash............................................................181 /0#888O))ice E*!ipent.......................................1- /#088

Cop!ter E*!ipent.................................1/ 25#888B. >a%le# Capital.................................-81 33#088

Owner invested cash and equipment.

%. :and............................................................132 2/#888Cash....................................................181 /#588Notes =aya%le.....................................208 16#288

Purchased land with cash and note payable.

c. B!ilding.......................................................138 21#888Cash....................................................181 21#888Purchased building

d. =repaid Ins!rance......................................185 #88Cash....................................................181 #88

Purchased 40month insurance policy.

e. Cash............................................................181 -#2889ees Earned......................................../82 -#288

!ollected cash for completed wor+.

). Cop!ter E*!ipent.................................1/ -#088Cash....................................................181 388Notes =aya%le.....................................208 2#588

Purchased equipment with cash and note payable.

g. Acco!nts Recei$a%le.................................18 -#308

9ees Earned......................................../82 -#308!ompleted services for client.

h. O))ice E*!ipent.......................................1- 308Acco!nts =aya%le..............................281 308

Purchased equipment on credit.

2-4

7/24/2019 Chap 002 FA



i. Acco!nts Recei$a%le.................................18 6#2889ees Earned......................................../82 6#288


2-50

7/24/2019 Chap 002 FA



Problem 2-2B (Part 1 Continued)

. Cop!ter Rental E&pense........................82 -28Acco!nts =aya%le..............................281 -28

1ncurred computer rental expense.

4. Cash............................................................181 /#88Acco!nts Recei$a%le.........................18 /#88

!ollected cash on account.

l. ages E&pense..........................................81 1#88Cash....................................................181 1#88


. Acco!nts =aya%le......................................281 308Cash...................................................181 308

Paid amount due on account.

n. Repairs E&pense........................................8/ /20Cash...................................................181 /20

Paid for repair of equipment.

o. B. >a%le# ithdra+als...............................-82 -#530Cash....................................................181 -#530


p. ages E&pense..........................................81 1#88Cash....................................................181 1#88


*. Ad$ertising E&pense..................................8- 588Cash....................................................181 588

Paid for advertising expense.

2-51

7/24/2019 Chap 002 FA



=ro%le 2,2B 'Contin!ed(Part

Cash No. 181 Acco!nts =aya%le No. 281

ate =R e%it Credit Balance ate =R e%it Credit Balance'a( /0#888 /0#888 'h( 308 308

'%( /#588 /8#288 '( -28 1#838'c( 21#888 16#288 '( 308 -28'd( #88 12#88'e( -#288 10#588 Notes =aya%le No. 208')( 388 10#188 ate =R e%it Credit Balance'4( /#88 16#388 '%( 16#288 16#288'l( 1#88 15#188 ')( 2#588 22#888

'( 308 13#-08'n( /20 1#620'o( -#530 1-#808 B. >a%le# Capital No. -81'p( 1#88 11#/08 ate =R e%it Credit Balance

'*( 588 18#08 'a( 33#088 33#088

Acco!nts Recei$a%le No. 18 B. >a%le# ithdra+als No. -82

ate =R e%it Credit Balance ate =R e%it Credit Balance'g( -#308 -#308 'o( -#530 -#530'i( 6#288 12#608'4( /#88 5#-08 9ees Earned No. /82

ate =R e%it Credit Balance=repaid Ins!rance No. 185 'e( -#288 -#288

ate =R e%it Credit Balance 'g( -#308 #608'd( #88 #88 'i( 6#288 1#108

O))ice E*!ipent No. 1- ages E&pense No. 81

ate =R e%it Credit Balance ate =R e%it Credit Balance'a( /#088 /#088 'l( 1#88 1#88'h( 308 0#208 'p( 1#88 -#288

Cop!ter E*!ipent No. 1/ Cop!ter Rental E&pense No. 82

ate =R e%it Credit Balance ate =R e%it Credit Balance'a( 25#888 25#888 '( -28 -28')( -#088 -1#088

B!ilding No. 138 Ad$ertising E&pense No. 8-

ate =R e%it Credit Balance ate =R e%it Credit Balance'c( 21#888 21#888 '*( 588 588

:and No. 132 Repairs E&pense No. 8/

ate =R e%it Credit Balance ate =R e%it Credit Balance'%( 2/#888 2/#888 'n( /20 /20

2-52

7/24/2019 Chap 002 FA



=ro%le 2,2B ,!oncluded-

Part

SO9TAS

Trial BalanceApril -8 "ebit !redit

Cash ............................................................. D 18#08

Acco!nts recei$a%le.................................... 5#-08

=repaid ins!rance....................................... #88

O))ice e*!ipent......................................... 0#208

Cop!ter e*!ipent.................................. -1#088

B!ilding........................................................ 21#888:and.............................................................. 2/#888

Acco!nts paya%le........................................ D -28

Notes paya%le.............................................. 22#888

B. >a%le# Capital.......................................... 33#088

B. >a%le# ithdra+als................................. -#530

9ees earned.................................................. 1#108

ages e&pense............................................ -#288

Cop!ter rental e&pense........................... -28

Ad$ertising e&pense................................... 588

Repairs e&pense.......................................... /20

Totals........................................................... D110#638 D110#638

2-53

7/24/2019 Chap 002 FA



=ro%le 2,-B '8 in!tes(

Part )

SCL;IT CO.

Balance Sheetece%er -1# 2818

Assets (iabilitiesCash...................................D 1/#888 Acco!nts paya%le..........................................D 0#888Acco!nts recei$a%le......... 20#888O))ice s!pplies.................. 18#888O))ice e*!ipent............... 8#888 Owner2s Equity ;achinery.......................... -8#088 . Schit# Capital........................................... 1-/#088Total assets........................D1-6#088 Total lia%ilities e*!ity.................................D1-6#088

SCL;IT CO.Balance Sheet

ece%er -1# 2811

Assets (iabilitiesCash................................... D 18#888 Acco!nts paya%le..........................................D 10#888Acco!nts recei$a%le......... -8#888 Note paya%le...................................................28#888O))ice s!pplies.................. 12#088 Total lia%ilities................................................230#888O))ice e*!ipent............... 8#888;achinery.......................... -8#088

B!ilding.............................. 28#888 Owner2s Equity :and.................................... 0#888 . Schit# Capital........................................... 16-#888Total assets........................D/5#888 Total lia%ilities e*!ity.................................D/5#888

Part

Calc!lation o) 2811 net incoe"

E*!ity# ece%er -1# 2811........................................................... D16-#888E*!ity# ece%er -1# 2818........................................................... '1-/#088(

Increase in e*!ity in 2811............................................................. 05#088

ed!ct additional in$estent..................................................... '20#888(

Net increase in 2811 e*!ity# apart )ro ne+ in$estent........... --#088

Add +ithdra+als 'D1#888 & 12(..................................................... 12#888

Net incoe in 2811........................................................................ D /0#088

2-54

7/24/2019 Chap 002 FA



Part

e%t ratio D230#888 D/5#888 05.3=ro%le 2,/B '68 in!tes(

Part )Sept.1 Cash..........................................................181 25#888O))ice E*!ipent.....................................1- 20#888

R. :!!s# Capital..........................-81 0-#888Owner invested in the business.

2 =repaid Rent.............................................1-1 18#088Cash...................................................181 18#088


/ O))ice E*!ipent.....................................1- 6#888O))ice S!pplies.........................................12/ 1#288

Acco!nts =aya%le............................281 18#288Purchased equipment and supplies on credit.

5 Cash..........................................................181 2#88Ser$ice 9ees Earned......................../81 2#88


12 Acco!nts Recei$a%le...............................18 1-#/88Ser$ice 9ees Earned......................../81 1-#/88


1- Acco!nts =aya%le....................................281 18#288Cash...................................................181 18#288

Paid balance due on account.16 =repaid Ins!rance....................................125 0#288

Cash...................................................181 0#288

2-55

7/24/2019 Chap 002 FA




22 Cash..........................................................181 3#588Acco!nts Recei$a%le.......................18 3#588


2/ Acco!nts Recei$a%le..............................18 1#688

Ser$ice 9ees Earned......................../81 1#688$illed client for completed wor+.

25 R. :!!s# ithdra+als........................-82 0#-88Cash...................................................181 0#-88

3ithdrew cash for personal use.

26 O))ice S!pplies.........................................12/ 1#388Acco!nts =aya%le............................281 1#388


-8 Utilities E&pense......................................68 /8Cash...................................................181 /8


2-56

7/24/2019 Chap 002 FA



Problem 2-4B (Continued)

Part

Cash Acct. No. 181

ate E&planation =R e%it Credit BalanceSept. 1 >1 25#888 25#888

2 >1 18#088 13#0885 >1 2#88 28#1881- >1 18#288 6#68816 >1 0#288 /#38822 >1 3#588 12#08825 >1 0#-88 3#288-8 >1 /8 #3/8


ate E&planation =R e%it Credit BalanceSept. 12 >1 1-#/88 1-#/8822 >1 3#588 0#882/ >1 1#688 3#088


ate E&planation =R e%it Credit BalanceSept. / >1 1#288 1#288

26 >1 1#388 2#688







/ >1 6#888 -/#888

2-57

7/24/2019 Chap 002 FA



=ro%le 2,/B ,!ontinued-


ate E&planation =R e%it Credit BalanceSept. / >1 18#288 18#288

1- >1 18#288 826 >1 1#388 1#388

R. :!!s# Capital Acct. No. -81

ate E&planation =R e%it Credit BalanceSept. 1 >1 0-#888 0-#888

R. :!!s# ithdra+als Acct. No. -82ate E&planation =R e%it Credit BalanceSept. 25 >1 0#-88 0#-88

Ser$ice 9ees Earned Acct. No. /81


12 >1 1-#/88 1#888

2/ >1 1#688 13#688


ate E&planation =R e%it Credit BalanceSept. -8 >1 /8 /8

2-58

7/24/2019 Chap 002 FA



=ro%le 2,/B ,!oncluded-

Part

:U;;US ;ANA>E;ENT SERWICES

Trial BalanceSepte%er -8 "ebit !redit

Cash....................................................................... D #3/8

Acco!nts recei$a%le............................................ 3#088

O))ice s!pplies...................................................... 2#688

=repaid ins!rance................................................ 0#288

=repaid rent.......................................................... 18#088O))ice e*!ipent.................................................. -/#888

Acco!nts paya%le................................................. D 1#388

R. :!!s# Capital............................................. 0-#888

R. :!!s# ithdra+als..................................... 0#-88

Ser$ice )ees earned.............................................. 13#688

Utilities e&pense................................................... /8 HHHHHH

Totals .................................................................... D32#88 D32#88

2-5

7/24/2019 Chap 002 FA



=ro%le 2,0B '68 in!tes(

Part )

a. Cash............................................................181 58#888O))ice E*!ipent.......................................1- -8#888

C. Coo4e# Capital..............................-81 118#888Owner invested cash and equipment.

%. :and............................................................132 -8#888 B!ilding.......................................................138 138#888

Cash....................................................181 /8#888Notes =aya%le.....................................208 18#888

Purchased land and building with cash and note payable.

c. O))ice S!pplies...........................................185 2#/88Acco!nts =aya%le..............................281 2#/88

Purchased office supplies on account.

d. A!too%iles...............................................1/ 15#888C. Coo4e# Capital................................-81 15#888

Owner contributed automobile to business.

e. O))ice E*!ipent.......................................1- #888

Acco!nts =aya%le..............................281 #888Purchased office equipment on account..

). Salaries E&pense........................................81 1#088Cash....................................................181 1#088


g. Cash............................................................181 #8889ees Earned......................................../82 #888


h. Utilities E&pense........................................82 588Cash....................................................181 588

Paid cash for utilities.

2-60

7/24/2019 Chap 002 FA



=ro%le 2,0B ,Part ) !ontinued-

i. Acco!nts =aya%le......................................281 2#/88Cash....................................................181 2#/88

Paid cash on account.

. O))ice E*!ipent.......................................1- 28#888Cash....................................................181 28#888

Purchased new equipment with cash.

4. Acco!nts Recei$a%le.................................18 0#2889ees Earned......................................../82 0#288

Provided services on account.

l. Salaries E&pense........................................81 1#088Cash....................................................181 1#088


. Cash............................................................181 -#588Acco!nts Recei$a%le.......................18 -#588

Received cash due on account.

n. C. Coo4e# ithdra+als..............................-82 #/88Cash...................................................181 #/88


2-61

7/24/2019 Chap 002 FA



=ro%le 2,0B ,!ontinued-

Part

Cash No. 181 :and No. 132

ate =R e%it Credit Balance ate =R e%it Credit Balance'a( 58#888 58#888 '%( -8#888 -8#888

'%( /8#888 /8#888')( 1#088 -5#088 Acco!nts =aya%le No. 281'g( #888 //#088 ate =R e%it Credit Balance'h( 588 /-#388 'c( 2#/88 2#/88'i( 2#/88 /1#-88 'e( #888 5#/88'( 28#888 21#-88 'i( 2#/88 #888'l( 1#088 16#588

'( -#588 2-#88 Notes =aya%le No. 208'n( #/88 13#288 ate =R e%it Credit Balance

'%( 18#888 18#888

Acco!nts Recei$a%le No. 18ate =R e%it Credit Balance'4( 0#288 0#288 C. Coo4e# Capital No. -81'( -#588 1#/88 ate =R e%it Credit Balance

'a( 118#888 118#888O))ice S!pplies No. 185 'd( 15#888 125#888

ate =R e%it Credit Balance'c( 2#/88 2#/88

C. Coo4e# ithdra+als No. -82O))ice E*!ipent No. 1- ate =R e%it Credit Balance

ate =R e%it Credit Balance 'n( #/88 #/88'a( -8#888 -8#888'e( #888 -#888 9ees Earned No. /82'( 28#888 0#888 ate =R e%it Credit Balance

'g( #888 #888'4( 0#288 11#288

A!too%iles No. 1/ Salaries E&pense No. 81

ate =R e%it Credit Balance ate =R e%it Credit Balance'd( 15#888 15#888 ')( 1#088 1#088

'l( 1#088 -#888

B!ilding No. 138ate =R e%it Credit Balance Utilities E&pense No. 82

'%( 138#888 138#888 ate =R e%it Credit Balance'h( 588 588

2-62

7/24/2019 Chap 002 FA



=ro%le 2,0B ,!oncluded-

Part

COOE CONSU:TIN>

Trial Balance!ne -8 e%it Credit

Cash ............................................................ D 13#288

Acco!nts recei$a%le.................................. 1#/88

O))ice s!pplies............................................ 2#/88

O))ice e*!ipent........................................ 0#888

A!too%iles................................................ 15#888

B!ilding....................................................... 138#888:and............................................................. -8#888

Acco!nts paya%le....................................... D #888

Notes paya%le............................................. 18#888

C. Coo4e# Capital........................................ 125#888

C. Coo4e# ithdra+als............................... #/88

9ees earned................................................ 11#288

Salaries e&pense........................................ -#888

Utilities e&pense......................................... 588Total............................................................. D-80#288 D-80#288

2-63

7/24/2019 Chap 002 FA



=ro%le 2,B '-0 in!tes(

Part )

>OU: SO:UTIONSTrial Balance

April -8

e%it CreditCash ...................................................................... D12#/50O))ice s!pplies ..................................................... 08=repaid rent ......................................................... 1#088O))ice e*!ipent ................................................. 11#/08Acco!nts paya%le................................................. D11#/08;. >o!ld# Capital ................................................. 18#888;. >o!ld# ithdra+als ........................................ #288Cons!lting )ees earned ....................................... 1#/88Operating e&penses ............................................ 0#00

Totals .................................................................... D-3#508 D-3#508

Part : :i4ely transactions ')ollo+ing order o) trial %alance(.

1. =!rchased D08 o) o))ice s!pplies )or cash.

2. =aid D1#088 cash )or prepaid rent.

-. =!rchased D11#/08 o))ice e*!ipent on credit.

/. >o!ld in$ested D18#888 cash in the %!siness.

0. >o!ld +ithdre+ D#288 cash )ro the %!siness )or personal !se.

. Earned D1#/88 cash in cons!lting )ees.

3. =aid D0#00 cash )or operating e&penses.

2-64

7/24/2019 Chap 002 FA



Part 3

Report o) Cash Recei$ed and =aid

Cash recei$ed Ao!nt in$ested ..................................... D18#888Cons!lting )ees ....................................... 1#/88

Total cash recei$ed ................................. D2#/88Cash paid O))ice s!pplies ......................................... 08 =repaid rent ............................................. 1#088 ithdra+als ............................................. #288 Operating e&penses ................................ 0#00 Total cash paid......................................... 1-#610Ending %alance........................................... D12#/50

2-65

7/24/2019 Chap 002 FA



Serial =ro%le S= 2

Part ) '128 in!tes(

2811

Oct. 1 Cash..........................................................181 /0#888O))ice E*!ipent.....................................1- 5#888Cop!ter E*!ipent..............................13 28#888

S. Rey# Capital...................................-81 3-#888Owner invests cash and equipment.

2 =repaid Rent.............................................1-1 -#-88Cash...................................................181 -#-88

Paid four months% rent in advance.

- Cop!ter S!pplies..................................12 1#/28

Acco!nts =aya%le............................281 1#/28Purchased supplies on credit.

0 =repaid Ins!rance....................................125 2#228Cash...................................................181 2#228

Paid ) months% premium in advance.

Acco!nts Recei$a%le ..............................18 /#588Cop!ter Ser$ices Re$en!e.........../8- /#588

$illed customer for services.

5 Acco!nts =aya%le ...................................281 1#/28Cash...................................................181 1#/28

Paid balance due on account payable.

18 5o entry necessary in the 6ournal

2-66

7/24/2019 Chap 002 FA



12 Acco!nts Recei$a%le ..............................18 1#/88Cop!ter Ser$ices Re$en!e.........../8- 1#/88


10 Cash..........................................................181 /#588Acco!nts Recei$a%le ......................18 /#588

!ollected accounts receivable.

13 Repairs E&penseCop!ter.................5/ 580Cash...................................................181 580

Paid for computer repairs.

28 Ad$ertising E&pense...............................00 1#325Cash...................................................181 1#325

Purchased ads in local newspaper.

22 Cash..........................................................181 1#/88Acco!nts Recei$a%le ......................18 1#/88


2-67

7/24/2019 Chap 002 FA



Serial Problem, Business Solutions

(Continued)

25 Acco!nts Recei$a%le ..............................18 0#285Cop!ter Ser$ices Re$en!e ........../8- 0#285

$illed customer for services.-1 ages E&pense........................................2- 530

Cash ..................................................181 530Paid employee for part0time wor+.

-1 S. Rey# ithdra+als.................................-82 -#88Cash ..................................................181 -#88


No$. 1 ;ileage E&pense......................................3 -28Cash ..................................................181 -28

Reimbursed Rey for mileage.

2 Cash..........................................................181 /#--Cop!ter Ser$ices Re$en!e.........../8- /#--!ollected cash revenue from client.

0 Cop!ter S!pplies..................................12 1#120Cash ..................................................181 1#120

Purchased computer supplies for cash.

5 Acco!nts Recei$a%le ..............................18 0#5Cop!ter Ser$ices Re$en!e ........../8- 0#5


1- 5o entry necessary. ,5o revenue recogni7ed until wor+ performed.-

15 Cash..........................................................181 2#285Acco!nts Recei$a%le.......................18 2#285


22 ;iscellaneo!s E&penses........................33 208Cash...................................................181 208

Record donation. ,8ome companies use a "onations account.-

2/ Acco!nts Recei$a%le...............................18 -#608Cop!ter Ser$ices Re$en!e.........../8- -#608


2-68

7/24/2019 Chap 002 FA



25 No entry necessary.

25 ;ileage E&pense......................................3 -5/Cash...................................................181 -5/

Reimbursed Rey for mileage.

-8 ages E&pense........................................2- 1#308

Cash...................................................181 1#308Paid employee for part0time wor+.

-8 S. Rey# ithdra+als.................................-82 2#888Cash...................................................181 2#888


2-6

7/24/2019 Chap 002 FA



Serial =ro%le# B!siness Sol!tions,!ontinued-

Part

>eneral :edger acco!nts Cash Acct. No. 181

ate E&planation =R e%it Credit BalanceOct. 1 /0#888 /0#888

2 -#-88 /1#3880 2#228 -6#/585 1#/28 -5#88

10 /#588 /2#5813 580 /2#80028 1#325 /8#-23

22 1#/88 /1#323-1 530 /8#502-1 -#88 -3#202

No$. 1 -28 -#6-22 /#-- /1#000 1#120 /8#//8

15 2#285 /2#/522 208 /2#-6525 -5/ /2#81/-8 1#308 /8#2/

-8 2#888 -5#2/

2-70

7/24/2019 Chap 002 FA



Acco!nts Recei$a%le Acct. No.18

ate E&planation =R e%it Credit BalanceOct. /#588 /#588

12 1#/88 #28810 /#588 1#/88

22 1#/88 825 0#285 0#285

No$. 5 0#5 18#5315 2#285 5#52/ -#608 12#15

Cop!ter S!pplies Acct. No. 12

ate E&planation =R e%it Credit BalanceOct. - 1#/28 1#/28

No$. 0 1#120 2#0/0

2-71

7/24/2019 Chap 002 FA



Serial Problem, Business Solutions (Continued)


ate E&planation =R e%it Credit BalanceOct. 0 2#228 2#228


ate E&planation =R e%it Credit BalanceOct. 2 -#-88 -#-88



Cop!ter E*!ipent Acct. No. 13


2-72

7/24/2019 Chap 002 FA




ate E&planation =R e%it Credit BalanceOct. - 1#/28 1#/28

5 1#/28 8

S. Rey# Capital Acct. No. -81

ate E&planation =R e%it Credit BalanceOct. 1 3-#888 3-#888

S. Rey# ithdra+als Acct. No. -82

ate E&planation =R e%it Credit BalanceOct.-1 -#88 -#88

No$.-8 2#888 0#88

2-73

7/24/2019 Chap 002 FA



Serial =ro%le# B!siness Sol!tions ,!oncluded-

Cop!ter Ser$ices Re$en!e Acct. No. /8-

ate E&planation =R e%it Credit BalanceOct. /#588 /#588

12 1#/88 #28825 0#285 11#/85

No$. 2 /#-- 1#8/15 0#5 21#386

2/ -#608 20#06

ages E&pense Acct. No. 2-

ate E&planation =R e%it Credit BalanceOct.-1 530 530No$.-8 1#308 2#20

Ad$ertising E&pense Acct. No. 00


;ileage E&pense Acct. No. 3


No$. 1 -28 -2825 -5/ 38/

;iscellaneo!s E&penses Acct. No. 33

ate E&planation =R e%it Credit BalanceNo$.22 208 208

Repairs E&penseCop!ter Acct. No. 5/

ate E&planation =R e%it Credit BalanceOct. 13 580 580

2-74

7/24/2019 Chap 002 FA



Serial =ro%le# B!siness Sol!tions ,!ontinued-

Part

BUSINESS SO:UTIONS

Trial BalanceNo$e%er -8 e%it Credit

Cash.................................................................. D-5#2/

Acco!nts recei$a%le....................................... 12#15

Cop!ter s!pplies.......................................... 2#0/0

=repaid ins!rance........................................... 2#228

=repaid rent..................................................... -#-88

O))ice e*!ipent............................................. 5#888Cop!ter e*!ipent...................................... 28#888

Acco!nts paya%le............................................ D 8

S. Rey# Capital.................................................. 3-#888

S. Rey# ithdra+als........................................ 0#88

Cop!ter ser$ices re$en!e........................... 20#06

ages e&pense................................................ 2#20

Ad$ertising e&pense....................................... 1#325

;ileage e&pense.............................................. 38/;iscellaneo!s e&pense.................................. 208

Repairs e&penseCop!ter......................... 580...........................................................................

Totals................................................................ D65#06 D65#06

2-75

7/24/2019 Chap 002 FA



Reporting in Action BTN 2,1

1. Research In ;otion reports 'D illions(" D2#223 in lia%ilities )or the )iscalyear ended 9e%r!ary 25# 2886# and D2#82 )or )iscal year ended 9e%r!ary23# 2818.

2. Research In ;otion reports 'D illions(" D5#181 in assets )or )iscal year ended 9e%r!ary 25# 2886# and D18#28/ )or )iscal year ended 9e%r!ary 23#2818.

-. ear ended 9e%r!ary 25# 2886 e%t Ratio D2#223 D5#181 23.0

ear ended 9e%r!ary 23# 2818 e%t Ratio D2#82 D18#28/ 20.0

/. Research In ;otion eployed slightly less )inancial le$erage in the year ended 9e%r!ary 23# 2818. In the year ended 9e%r!ary 25# 2886# 23.0 o)

its assets +ere )inanced %y de%t. In 2818# only 20.0 o) its assets +ere)inanced %y de%t. Conse*!ently# its )inancing str!ct!re +as a %it oreris4y )or 2886 in coparison to 2818.

0. Sol!tion depends on the )inancial stateents accessed.

Coparati$e Analysis BTN 2,2

1. Research In ;otion 'D illions(

C!rrent year de%t ratio" D2#82 D18#28/ 20.0

=rior year de%t ratio" D2#223 D5#181 23.0

2-76

7/24/2019 Chap 002 FA



2. Apple 'D illions(

C!rrent year de%t ratio" D10#51 D/3#081 --./

=rior year de%t ratio" D1-#53/ D-#131 -5./

-. Apple has the higher degree o) )inancial le$erage. Apple7s de%t ratio isar4edly higher '--./ $s. 20.0( than that o) Research In ;otion. Thisindicates that Apple carries ore de%t )inancing than Research In;otion. This also iplies that Apple is attepting to !se nono+ner )inancing to a4e ore oney )or its o+ners. This is )ine pro$idedApple7s ret!rn does not decline %elo+ that o) +hat it pays nono+ners )or !se o) that oney this is the ain so!rce o) )inancing ris4.

2-77

7/24/2019 Chap 002 FA



Ethics Challenge BTN 2,-

This case in$ol$es a con)lict %et+een the need )or e))iciency and the need)or control. hile it a4es sense to ta4e and process l!nch orders *!ic4ly#this e))iciency is %eing accoplished %y a shortc!t that greatly +ea4ens

control o$er cash receipts. Cash co!ld %e recei$ed and lost or stolen%eca!se there +o!ld %e no initial record o) ho+ !ch +as recei$ed.

The assistant anager7s e&planation a%o!t the head anager not arri$ing!ntil - o7cloc4 s!ggests that the head anager doesn7t 4no+ a%o!t theproposed shortc!t. Th!s# the ne+ eployee is )aced +ith the dilea o) deciding +hether to accept the assistant anager7s instr!ctions# s!ggestto the assistant anager that the shortc!t sees +rong# or to as4 the headanager to con)ir the instr!ctions. Each o) these alternati$es in$ol$espersonal ris4.

2-78

7/24/2019 Chap 002 FA



It is possi%le that the assistant anager does not !nderstand the potential)or )ra!d and a%!se i) this shortc!t is !sed. I) the relationship %et+een yo!and the assistant anager is s!ch that yo! )eel yo! can do so# yo! sho!lde&plain yo!r !nderstanding o) ho+ the shortc!t co!ld lead to the pro%les

o) inacc!rate records )or ta& p!rposes# gathering inacc!rate ar4etingin)oration# and a%!se %y other eployees +ho ight not %e as honest asyo! and the assistant anager.

I) the assistant anager insists# yo! ay +ant to +or4 as instr!cted to getan idea o) +hether the shortc!t is %eing a%!sed %y the assistant anager and perhaps to )ind o!t discreetly +hether the head anager 4no+s a%o!tit. 'Altho!gh# this %eha$ior does in$ol$e personal ris4 o) percei$edcoll!sion +ith the assistant anager.( I) yo! concl!de that the assistantanager is coitting )ra!d# yo! sho!ld report the sit!ation to the headanager as *!ic4ly as possi%le.

2-7

7/24/2019 Chap 002 FA



Co!nicating in =ractice BTN 2,/

;E;ORANU;To" ;ora Stanley

9ro"S!%ect" 9inancial stateents e&planationate"

The )o!r aor )inancial stateents and their p!rposes are"• 1ncome statement descri%es a copany7s re$en!es and e&penses along

+ith the res!lting net incoe or loss o$er a period o) tie. It helpse&plain ho+ e*!ity changes d!ring a period d!e to earnings acti$ities.

• 8tatement of owner%s equity e&plains changes in e*!ity d!e to net

incoe 'or net loss( and any +ithdra+als and or o+ner in$estentso$er a period o) tie.• 8tatement of cash flows identi)ies cash in)lo+s 'receipts( and o!t)lo+s

'payents( o$er a period o) tie. It also e&plains ho+ the cash %alanceon the %alance sheet changed )ro the %eginning to the end o) a period.

• $alance sheet descri%es a copany7s )inancial position 'assets#lia%ilities# and e*!ity( at a point in tie.

These )inancial stateents are lin4ed to each other across tie.Speci)ically# a %alance sheet reports an organization7s )inancial position at

a point in time. The incoe stateent# stateent o) o+ner7s e*!ity# andstateent o) cash )lo+s report on per)orance o$er a period of time. Thesethree stateents lin4 %alance sheets )ro the %eginning to the end o) areporting period. That is# they e&plain ho+ the )inancial position o) anorganization changes )ro one point to another.

2-80

7/24/2019 Chap 002 FA



Ta4ing It to the Net BTN 2,0

1. The prior three years7 net incoe or 'loss( )or Aazon are 'D illions("2886 D682 2885 D/0 2883 D/3

2. The three years net cash provided %y operations )ollo+s 'D illions("2886 D-#26- 2885 D1#63 2883 D1#/80

-. In 2886# Aazon had net incoe o) D682 illion and operating cash)lo+s o) D-#26- illion< and# in that sae year# cash increased %y onlyD30 illion 'see its stateent o) cash )lo+s(.

The reason its cash %alance only increased %y D30 illion in 2886 +as%eca!se o) cash o!t)lo+s o) D2#--3 illion )or its in$esting acti$ities and

D258 illion )or its )inancing acti$ities 'along +ith a )oreign c!rrencye))ect(. Those !ses o) cash a%sor%ed !ch o) the cash generated %y itsoperating acti$ities. A large part o) those cash o!t)lo+s +as tied to itsin$estents in sec!rities and its other p!rchases and ac*!isitions.

Tea+or4 in Action BTN 2,

91nstructor note: &here is no specific solution to this activity.

The )ollo+ing saple sol!tion gi$es a s!ary o!tline o) +hat a ini! reportneeds to incl!de. Ass!e a tea e%er selects assets"

!ategory: Assetsa. Increases 'decreases( in assets are de%its 'credits( to asset acco!nts.

e%it eans le)t side# credit eans right side. The noral side o) anacco!nt re)ers to the side +here increases are recorded. 9or assets# thisis the de%it# or le)t# side.

2-81

7/24/2019 Chap 002 FA



%. O+ner in$estent o) D18#888 cash in %!siness.

c. Assets :ia%ilities X O+ner# Capital ithdra+als X Re$en!es E&penses

X D18#888 D8 X D18#888 D8 X D8 D8

O+ner in$estents ha$e no e))ect on the incoe stateent# %!t they doincrease the cash )lo+s )ro )inancing %y D18#888 on the stateent o)cash )lo+s 'this increases its net cash )lo+(.

d. =aid rent e&pense +ith D2#888 cash.

e. Assets :ia%ilities X O+ner# Capital ithdra+als X Re$en!es E&penses

, D2#888 D8 X D8 D8 X D8 D2#888An e&pense paid in cash +ill decrease net incoe on the incoe stateentand decrease operating cash )lo+s on the stateent o) cash )lo+s.

2-82

7/24/2019 Chap 002 FA



Entreprene!rial ecision BTN 2,3

There are se$eral iss!es that S!sie and atie sho!ld consider. Those

considerations incl!de the )ollo+ing three iss!es 'aong others("

• I) they choose to contri%!te their o+n )!nds )or the e&pansion# they +ill

%e ris4ing their o+n sa$ings# %!t they +ill not ha$e the e&pense o)

interest payents# nor +ill they ha$e the ris4 o) the ina%ility to repay a

loan.

• I) they choose to %orro+# they +ill ha$e interest and loan payents to

a4e# and they +ill ha$e ore ris4 'as re)lected in their copany7s de%t

ratio(.

•

I) they can pay the interest and loan payents# it can %e to their ad$antage to %orro+# as long as their ret!rn on assets is high eno!gh

'that is# higher than the rate o) interest on the %orro+ings(.

2-83

7/24/2019 Chap 002 FA



•

Entreprene!rial ecision BTN 2,5

1.

:angely ;!sic Ser$icesBalance Sheet

ece%er -1# 2811

Assets (iabilitiesCash.................................... D 1#588 Acco!nts paya%le................... D 1#188Acco!nts recei$a%le ........ /#588 Unearned lesson )ees ........... 3#588=repaid ins!rance............. 308 Total lia%ilities......................... 5#688=repaid rent....................... /#388Store s!pplies.................... -#-88 Equity E*!ipent ......................... 20#888 Total e*!ity.............................. -1#/08Total assets........................ D/8#-08 Total lia%ilities and e*!ity...... D/8#-08

2.e%t ratio Total lia%ilities Total assets D5#688 D/8#-08 8.22

Ret!rn on assets Net incoeA$erage assets D28#888D/8#-08M 8.08

MEnding %alance is !sed per instr!ctions.

-. The prospects o) a %an4 loan are li4ely to %e good. 'i( The de%t ratioindicates that 35 o) the copany7s )!nding is )ro e*!ity. Also# thereare no de%t o%ligations re*!iring periodic payents. This iplies lo+ris4. 'ii( The le$el o) ret!rn on assets is $ery high. This iplies goodret!rn.

O$erall# gi$en the in)oration and the ass!ption that c!rrentper)orance +ill contin!e into the )!t!re# the prospects o) a %an4 loanare good. JNote# the loan does carry soe ris4)!eling this ris4 are 'i(poor record4eeping# 'ii( lac4 o) in)oration on gro+th potential# and 'iii(

a !ch higher pro )ora de%t ratiothat is# i) the loan is granted# thede%t ratio +ill !p to 8./-# cop!ted as 'D5#688 X D10#888( di$ided %y'D/8#-08 X D10#888(.K

2-84

7/24/2019 Chap 002 FA



Litting the Road BTN 2,6

9indings +ill $ary. It is ad$isa%le that the instr!ctor o%tain a )e+ classi)iedsections )ro ne+spapers that +ere p!%lished o$er the period o) theassignent. I) st!dent reports lac4 responses )or *!estion 2# it is

in)orati$e and oti$ating to %ring these 'acco!nting,related o%opport!nities( sections to class +hen disc!ssing or ret!rning st!dentreports as any st!dents are not acco!nting aors.

2-85

7/24/2019 Chap 002 FA



>lo%al ecision BTN 2,18

1. An analysis o) ret!rn on assets s!ggests that Research In ;otion'2.5(# )ollo+ed %y Apple '16.3(# yields the greatest ret!rn on assets#

+hile No4ia '8.3( yields the lo+est ret!rn.2. An analysis o) the de%t ratio s!ggests that No4ia '05.3( presents the

greatest ris4# +hile Research In ;otion '20.0( presents the least ris4.Apple7s de%t ratio '--./( is higher than Research In ;otion7s %!t lo+er than No4ia7s de%t ratios. There)ore# Apple7s )inancing ris4 is higher thanResearch In ;otion %!t lo+er than No4ia.

-. In this case# Research In ;otion +o!ld appear to +arrant soeconsideration )or additional in$estent. Research In ;otion has thehighest pro)ita%ility )or the c!rrent year# and it has the lo+est )inancing

ris4 le$el o) the three. Apple is not )ar %ehind on %oth diensions# +hileNo4ia7s ret!rn is s!%stantially lo+er and its )inancing ris4 le$el iss!%stantially higher )or the c!rrent year copared to Research In;otion7s.

Date post:	21-Feb-2018
Category:	Documents
Upload:	jenny-kok
View:	223 times
Download:	0 times

Chap 002 FA

Documents