Professional Documents
Culture Documents
SO
BT
Item
SO
1.
2.
3.
4.
5.
4
1
1
1
2
C
C
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K
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6.
7.
8.
9.
10.
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1.
2.
3.
1
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C
AP
AP
4.
5.
6.
3
3
5
1.
2.
2, 3
1.
2.
1
1
C
AP
5.
6.
1
3, 5
3.
4.
1
1
AP
AP
7.
1.
2.
3.
4.
1.
2.
3.
4.
1
1
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3, 5
1
1
1
3, 5
AP
AP
AP
AP
AP
AP
AP
AP
5.
5.
3, 5,
6, 7,
8
3, 5,
6, 7,
8
BT
Item
SO
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Item
SO
BT
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17.
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5
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5
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K
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AP
C
C
21.
22.
7
8
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AN
K
9.
C
10.
AP
Do It! Review Exercises
C
3.
4, 5
AP
4.
Exercises
AP
8.
5
AP
12.
AP
9. 3, 4,
13.
5
AP
C
10.
7, 8
AP
14.
11. 1, 5,
7
AP
5
7
AP
AP
11.
12.
8
8
AP
AP
6, 7
AP
5, 8
7, 8
AP
AP
15.
16.
8
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AN
AP
5, 8
AP
17.
18.
3
9
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AP
19.
AP
9.
AN
9.
AN
C
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AP
AP
Item
SO
BT
Questions
11.
3
K
12.
3
K
13.
3
K
14.
3
K
15.
4
K
Brief Exercises
7.
4
C
8.
4
C
Problems: Set A
6. 3, 5,
6, 7,
8
AP
Problems: Set B
6. 3, 5,
6, 7,
8
AP
7.
8.
7.
8.
8
3, 5,
6, 7,
8
AN
8
3, 5,
6, 7,
8
AN
AP
AP
3-1
3-2
Description
Difficulty
Level
Time
Allotted (min.)
1A
Moderate
4050
2A
Moderate
4050
3A
Moderate
5060
4A
Simple
2030
5A
Simple
3040
6A
Moderate
4050
7A
Moderate
3040
8A
Moderate
4050
9A
Moderate
3040
1B
Moderate
4050
2B
Moderate
4050
3B
Moderate
5060
4B
Simple
2030
5B
Simple
3040
6B
Moderate
4050
7B
Moderate
3040
8B
Moderate
4050
9B
Moderate
3040
ANSWERS TO QUESTIONS
1.
The system of collecting and processing transaction data and communicating financial information to decision makers is known as the accounting information system.
2.
Yes, a business can enter into a transaction in which only the left side of the accounting equation
is affected. An example would be a transaction where an increase in one asset is offset by a
decrease in another asset. An increase in the equipment account which is offset by a decrease in
the cash account is a specific example.
3.
Accounting transactions are the economic events of the company recorded by accountants because
they affect the basic accounting equation.
(a)
(b)
(c)
(d)
The death of a major stockholder of the company is not an accounting transaction as it does not
affect the basic accounting equation.
Supplies purchased on account is an accounting transaction because it affects the basic
accounting equation.
An employee being fired is not an accounting transaction as it does not affect the basic
accounting equation.
Paying a cash dividend to stockholders is an accounting transaction as it does affect the
basic accounting equation.
4.
5.
An account consists of three parts: (a) the title, (b) the left or debit side, and (c) the right or credit
side. Because the alignment of these parts resembles the letter T, it is referred to as a T account.
6.
Disagree. The terms debit and credit are synonymous with left and right, respectively.
7.
James is incorrect. The double-entry system merely records the dual (two-sided) effect of a transaction on the accounting equation. A transaction is not recorded twice; it is recorded once, and must
affect two or more accounts to keep the basic accounting equation in balance. In other words, for
each transaction, debits must equal credits.
8.
Gayle is incorrect. A debit balance only means that debit amounts exceed credit amounts in an
account. Conversely, a credit balance only means that credit amounts are greater than debit amounts
in an account. Thus, a debit or credit balance is neither favorable or unfavorable.
9.
3-3
11.
12.
13.
14.
Normal balances for accounts in Tootsie Rolls financial statements: Accounts Receivabledebit;
Income Taxes Payablecredit; Salescredit; Selling, Marketing, and Administrative Expenses
debit.
15.
16.
17.
(a) No, debits and credits should not be recorded directly in the ledger.
(b) The advantages of using the journal are:
(1) It discloses in one place the complete effect of a transaction.
(2) It provides a chronological record of all transactions.
(3) It helps to prevent or locate errors because the debit and credit amounts for each entry
can be readily compared.
18.
3-4
12,000
800
800
(d)
Supplies .....................................................................................................................
Accounts Payable ...........................................................................................
(Purchased supplies on account)
1,800
Cash ...........................................................................................................................
Service Revenue.............................................................................................
(Received cash for services rendered)
7,500
1,800
7,500
19.
(a) The entire group of accounts maintained by a company, including all the asset, liability, and
stockholders equity accounts, is referred to collectively as the ledger.
(b) The chart of accounts is important, particularly for a company that has a large number of
accounts, because it helps organize the accounts and identify their location in the ledger.
20.
A trial balance is a list of accounts and their balances at a given time. The primary purpose of a
trial balance is to prove the mathematical equality of debits and credits after all journalized transactions have been posted. A trial balance also facilitates the discovery of errors in journalizing
and posting. In addition, it is useful in preparing financial statements.
21.
22.
3-5
(a)
(b)
(c)
Assets
+
+
Liabilities
+
NE
NE
Stockholders Equity
NE
+
Cash
(1)
+$60,000
(2)
9,000
(3)
+13,000
Assets
=
Liabilities
+ Stockholders Equity
Accounts
Accounts
Bonds
Common
Retained
+ Receivable + Supplies = Payable + Payable + Stock + Earnings
+$60,000
$9,000
Paid div.
$13,000
(4)
+$3,100
+$3,100
$286,176
(2)
+137,590
(3)
+ Inventory +
Equipment
Liabilities
Accounts
Payable
+
+
Stockholders Equity
Common
Stock
Retained
Earnings
+$286,176
+$137,590
+$68,480
Issued stock
+$68,480
(a)
(b)
(c)
(d)
(e)
(f)
3-6
Accounts Payable
Advertising Expense
Service Revenue
Accounts Receivable
Retained Earnings
Dividends
Debit
Effect
Decrease
Increase
Decrease
Increase
Decrease
Increase
Credit
Effect
Increase
Decrease
Increase
Decrease
Increase
Decrease
Normal
Balance
Credit
Debit
Credit
Debit
Credit
Debit
June 1
2
3
12
Account Debited
Cash
Equipment
Rent Expense
Accounts Receivable
Account Credited
Common Stock
Accounts Payable
Cash
Service Revenue
Cash ..................................................................................
Common Stock .....................................................
5,000
Equipment.......................................................................
Accounts Payable................................................
1,100
Rent Expense.................................................................
Cash .........................................................................
740
Accounts Receivable...................................................
Service Revenue ..................................................
700
5,000
1,100
740
700
Analyze each transaction. In this step, source documents are examined to determine the effects of the transaction on the accounts.
2.
3.
3-7
(b)
Aug. 1
16
27
Debit-Credit Analysis
3-8
Cash ..................................................................................
Common Stock .....................................................
10,000
Prepaid Insurance.........................................................
Cash .........................................................................
1,500
Cash ..................................................................................
Service Revenue ..................................................
900
620
10,000
1,500
900
620
5/12
5/15
5/5
Cash
1,600
2,000
Service Revenue
5/5
5/15
3,800
2,000
Accounts Receivable
3,800 5/12
1,600
Debit
$ 5,400
3,000
13,000
Credit
$ 1,000
18,000
1,200
8,600
4,000
1,000
$27,600
$27,600
3-9
3-10
Debit
$20,800
3,500
Credit
$ 2,500
1,800
10,000
6,600
5,000
25,600
14,600
2,600
$46,500
$46,500
Liabilities
Accounts
+ Receivable =
Accounts
Payable
Common
Stock
Retained Earnings
+ Revenues Expenses Dividends
+$20,000
+$20,000
+$20,000
20,000
(3)
(4)
Stockholders Equity
+$1,800
$1,800
3,000
$3,000
DO IT! 3-2
Phil would likely need the following accounts in which to record the transactions necessary to ready his photography studio for opening day:
Cash (debit balance)
Supplies (debit balance)
Notes Payable (credit balance)
DO IT! 3-3
Each transaction that is recorded is entered in the general journal. The
three activities would be recorded as follows:
1.
2.
3.
Cash.......................................................................................
Common Stock..........................................................
Supplies ...............................................................................
Accounts Payable ....................................................
Cash..............................................................................
No entry because no transaction has occurred.
8,000
8,000
950
550
400
DO IT! 3-4
4/1
4/3
4/30
Cash
1,900 4/16
3,400 4/20
4,500
500
300
3-11
SOLUTIONS TO EXERCISES
EXERCISE 3-1
1.
2.
3.
4.
5.
6.
7.
8.
9.
EXERCISE 3-2
Assets
Accounts
Cash
Receivable + Equipment =
+$30,000
$ 4,000
(3)
+12,000
(4)
+5,000
(5)
8,000
(6)
+40,000
(7)
30,000
Payable
Stockholders Equity
Common
Stock
Retained Earnings
+ Revenues
$4,000
Rent Expense
$12,000
+$5,000
Service Revenue
8,000
+$40,000
Utilities Expense
Issued Stock
30,000
+1,300
$15,000 +
Expenses
+$30,000
(8)
$12,000
$30,000
$ 1,300
$33,000
3-12
Accounts
(1)
(2)
Liabilities
1,300
+
$40,000 +
$5,000
Advertising Expense
$13,300
$33,000
+16,000
(4)
$60,000
$4,700
$45,000 +
$100,000 +
$131,500
+$26,000
$33,200
$11,000
$4,700
$11,000
+
11,000
28,000
$5,200
$ 56,800 +
+10,000
+$16,000
Stockholders Equity
Retained Earnings
+ Revenues Expenses Dividends
(9)
$10,000
+$4,700
+$45,000
+$100,000
Common
+
Stock
28,000
+$10,000
+$4,700
+$60,000
Equipment
Liabilities
Accounts
Bonds
= Payable + Payable
(8)
(7)
(6)
5,200
60,000
(3)
(5)
+45,000
(2)
(1) +$100,000
Cash
Assets
Accounts
+ Receivable + Supplies +
Dividends
Salaries and
Wages Expense
Service Revenue
Rent Expense
Service Revenue
Issued Stock
EXERCISE 3-3
3-13
EXERCISE 3-4
(a)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
$20,000
9,500
(2,000)
(800)
(3,000)
(300)
$23,400
$ 9,500
(800)
(3,000)
(300)
$ 5,400
3-14
EXERCISE 3-5
NIGEL COMPANY
Income Statement
For the Month Ended August 31, 2012
Revenues
Service revenue .................................................................
Expenses
Salaries and wages expense.........................................
Rent expense......................................................................
Utilities expense ................................................................
Total expenses ..........................................................
Net income ...................................................................................
$9,500
$3,000
800
300
4,100
$5,400
NIGEL COMPANY
Retained Earnings Statement
For the Month Ended August 31, 2012
Retained earnings, August 1........................................................................
Add: Net income ............................................................................................
Less: Dividends...............................................................................................
Retained earnings, August 31......................................................................
$
0
5,400
5,400
2,000
$3,400
NIGEL COMPANY
Balance Sheet
August 31, 2012
Assets
Current Assets:
Cash.............................................................................................
Accounts receivable ..............................................................
Supplies .....................................................................................
Total current assets ......................................................
Equipment .................................................................................
Total assets......................................................................
$15,500
4,950
750
21,200
5,000
$26,200
$ 2,800
23,400
$26,200
3-15
3-16
Stockholders
Equity
Liability
7.
8.
Asset
6.
3.
Stockholders
Equity
Asset
2.
5.
Asset
1.
Asset
Asset
Transaction
4.
(a)
Basic
Type
(a)
Dividends
Accounts
Payable
Cash
Advertising
Expense
Accounts
Receivable
Supplies
Equipment
Cash
Increase
Decrease
Increase
Increase
Increase
Increase
Increase
Increase
Account Debited
(b)
(c)
Specific
Account
Effect
Debit
Credit
Debit
Debit
Debit
Debit
Debit
Debit
(d)
Normal
Balance
Asset
Asset
Asset
Asset
Stockholders
Equity
Liability
Asset
Stockholders
Equity
(a)
Basic
Type
Cash
Cash
Accounts
Receivable
Cash
Service
Revenue
Accounts
Payable
Cash
Common
Stock
Decrease
Decrease
Decrease
Decrease
Debit
Debit
Debit
Debit
Credit
Credit
Increase
Increase
Debit
Credit
(d)
Normal
Balance
Decrease
Increase
Account Credited
(b)
(c)
Specific
Account
Effect
EXERCISE 3-6
Account Titles
Cash ..............................................................................
Common Stock.................................................
Debit
15,000
Equipment...................................................................
Cash .....................................................................
10,000
Supplies .......................................................................
Accounts Payable............................................
300
Accounts Receivable...............................................
Service Revenue ..............................................
3,700
200
Cash ..............................................................................
Accounts Receivable......................................
1,100
Accounts Payable.....................................................
Cash .....................................................................
300
Dividends ....................................................................
Cash .....................................................................
400
Credit
15,000
10,000
300
3,700
200
1,100
300
400
EXERCISE 3-7
Oct. 1
No accounting transaction.
3-17
10
27
30
EXERCISE 3-8
General Journal
Date
Oct. 1
Debit
30,000
No entry.
Equipment.................................................................
Accounts Payable..........................................
3,800
Accounts Receivable.............................................
Service Revenue ............................................
10,800
Cash ............................................................................
Service Revenue ............................................
140
Accounts Payable...................................................
Cash ...................................................................
700
3,000
10
27
30
Credit
30,000
3-18
Account Titles
Cash ............................................................................
Common Stock...............................................
3,800
10,800
140
700
3,000
EXERCISE 3-9
General Journal
Date
May 4
7
8
9
17
22
29
Account Titles
Accounts Payable ...................................................
Cash....................................................................
Debit
700
6,800
Supplies .....................................................................
Accounts Payable ..........................................
850
Equipment .................................................................
Cash....................................................................
1,000
530
900
Prepaid Insurance...................................................
Cash....................................................................
1,200
Credit
700
6,800
850
1,000
530
900
1,200
3-19
EXERCISE 3-10
(a)
Oct. 1
10
Bal.
Cash
30,000 Oct. 27
140
30
26,440
700
3,000
Accounts Payable
Oct. 27
700 Oct. 3
Bal.
Common Stock
Oct. 1
Bal.
Accounts Receivable
Oct. 6
10,800
Bal.
10,800
Oct. 3
Bal.
Equipment
3,800
3,800
3,800
3,100
30,000
30,000
Service Revenue
Oct. 6 10,800
10
140
Bal.
10,940
Salaries and Wages Expense
Oct. 30
3,000
Bal.
3,000
(b)
3-20
Debit
$26,440
10,800
3,800
Credit
$ 3,100
30,000
10,940
3,000
$44,040
$44,040
EXERCISE 3-11
(a)
Assets
= Liabilities +
Accounts
Cash
+ Equipment =
Sept. 1
+$20,000
3,000
25
4,000
30
500
$ 12,500 +
Payable
Stockholders Equity
Common
Stock
Dividends
+$20,000
+$9,000
Issued stock
+$ 6,000
4,000
$500
$9,000
$21,500..
$ 2,000
+$20,000
Dividends
$500
$21,500
(b)
General Journal
Date
Sept. 1
5
25
30
Account Titles
Cash ...........................................................................
Common Stock..............................................
Debit
20,000
Equipment................................................................
Accounts Payable.........................................
Cash ..................................................................
9,000
Accounts Payable..................................................
Cash ..................................................................
4,000
Dividends .................................................................
Cash ..................................................................
500
J1
Credit
20,000
6,000
3,000
4,000
500
3-21
Bal.
9/5
Bal.
9/25
3-22
Cash
20,000 9/5
9/25
9/30
12,500
3,000
4,000
500
9/30
Bal.
Equipment
9,000
9,000
Accounts Payable
4,000 9/5
Bal.
Common Stock
9/1
Bal.
20,000
20,000
Dividends
500
500
6,000
2,000
EXERCISE 3-12
(a)
Date
Apr. 1
12
15
25
29
30
General Journal
Account Titles and Explanation
Cash.............................................................................
Common Stock ...............................................
(Issued stock for cash)
Debit
15,000
15,000
Supplies .....................................................................
Accounts Payable ..........................................
(Purchased supplies on account)
5,200
3,400
Cash.............................................................................
Service Revenue.............................................
(Received cash for revenue
earned)
700
800
3,500
Cash.............................................................................
Accounts Receivable ....................................
(Received cash in payment of
account)
800
Cash.............................................................................
Unearned Service Revenue ........................
(Received cash for future
services)
900
Credit
5,200
3,400
700
800
3,500
800
900
3-23
3-24
Debit
$13,100
2,600
5,200
Credit
$ 1,700
900
15,000
4,100
800
$21,700
$21,700
EXERCISE 3-13
(a)
Aug. 1
10
31
Bal.
Cash
8,000 Aug. 12
1,700
600
9,100
Accounts Receivable
Aug. 25
3,400 Aug. 31
Bal.
2,800
Aug. 12
Bal.
5,000
5,000
Common Stock
Aug. 1
Bal.
8,000
8,000
Service Revenue
Aug. 10
25
Bal.
1,700
3,400
5,100
1,200
600
Equipment
6,200
6,200
(b)
Notes Payable
Aug. 12
Bal.
GALAXY INC.
Trial Balance
August 31, 2012
Cash.................................................................................
Accounts Receivable .................................................
Equipment......................................................................
Notes Payable...............................................................
Common Stock.............................................................
Service Revenue..........................................................
Debit
$ 9,100
2,800
6,200
$18,100
Credit
$ 5,000
8,000
5,100
$18,100
3-25
EXERCISE 3-14
(a) Oct. 1
10
10
20
20
3-26
Cash...........................................................................
Common Stock .............................................
(Issued stock for cash)
7,000
Cash...........................................................................
Service Revenue...........................................
(Received cash for services
provided)
980
Cash...........................................................................
Notes Payable ...............................................
(Obtained loan from bank)
8,000
Cash...........................................................................
Accounts Receivable ..................................
(Received cash in payment of
account)
700
920
7,000
980
8,000
700
920
STAMPFER CO.
Trial Balance
October 31, 2012
Cash.................................................................................
Accounts Receivable .................................................
Supplies..........................................................................
Equipment......................................................................
Notes Payable...............................................................
Accounts Payable .......................................................
Common Stock.............................................................
Dividends .......................................................................
Service Revenue..........................................................
Salaries and Wages Expense..................................
Supplies Expense........................................................
Rent Expense................................................................
Debit
$15,730
1,020
220
3,000
Credit
$ 8,000
1,500
9,000
300
2,700
500
180
250
$21,200
$21,200
EXERCISE 3-15
Error
1.
2.
3.
4.
5.
6.
(a)
In Balance
No
Yes
Yes
No
Yes
No
(b)
Difference
$400
300
36
(c)
Larger Column
Debit
Credit
Credit
3-27
EXERCISE 3-16
(a)
3-28
Credit
$12,424
13,400
2,200
59,360
$ 8,400
820
28,450
40,000
5,200
700
15,500
7,428
1,958
900
$98,370
$98,370
$15,500
$7,428
1,958
900
10,286
$ 5,214
$ 5,200
5,214
10,414
700
$ 9,714
3-29
$12,424
13,400
2,200
$28,024
59,360
$87,384
3-30
$ 8,400
820
$ 9,220
28,450
37,670
40,000
9,714
49,714
$87,384
EXERCISE 3-17
Account
Accounts payable
Accounts receivable
Common stock
Depreciation expense
Interest expense
Interest income
Inventories
Prepaid expenses
Property and Equipment
Revenues
(a)
Normal Balance
Debit or Credit
Credit
Debit
Credit
Debit
Debit
Credit
Debit
Debit
Debit
Credit
(b)
Balance Sheet or
Income Statement
Balance sheet
Balance sheet
Balance sheet
Income statement
Income statement
Income statement
Balance sheet
Balance sheet
Balance sheet
Income statement
EXERCISE 3-18
1.
2.
3.
4.
5.
6.
7.
8.
9.
Financing activity
Operating activity
Operating activity
Non-cash event
Financing activity
Non-cash event
Operating activity
Investing activity
Non-cash event
EXERCISE 3-19
1.
2.
3.
4.
5.
6.
7.
8.
9.
Financing activity
Financing activity
Investing activity
Operating activity
Non-cash event
Operating activity
Non-cash event
Operating activity
Financing activity
3-31
3-32
900
3,400
2.
3.
+3,000
400
200
1,800
+9,000
6.
7.
8.
9.
10.
Assets
= Liabilities +
9,000
+$9,000
$500
+$500
$3,400
+$3,400
200
+$200
Stockholders Equity
$30,000 +
+$30,000
$38,700
$12,000
+$12,000
$2,900
1,800
200
$900
$400
$400
Retained Earnings
Common
Stock
+ Revenues Expenses Dividends
Accounts
Accounts
+ Receivable + Supplies + Equipment = Payable +
$34,800 +
500
5.
4.
+$30,000
Cash
1.
(a)
Expense
Dividends
Service Revenue
Advertising Expense
Rent Expense
SOLUTIONS TO PROBLEM
PROBLEM 3-1A
$12,000
$1,800
900
200
2,900
$ 9,100
OR
Revenues .............................................................................
Less: Expenses ................................................................
Net Income...........................................................................
$12,000
2,900
$ 9,100
3-33
3-34
Cash
+1,400
200
12
Liabilities
Stockholders Equity
$2,000
$5,000
$15,000 +
$5,600
$1,800
$23,770
$3,430
$500
$18,270 +
180
30
$3,000
180
200
29
+1,800
+5,000
26
+$2,000
+1,200
23
2,500
500
+$5,000
+4,200
+$1,400
150
20
500
+$500
$600
2,500
1,200
+4,200
+$500
+$15,000
$200
$200
Retained Earnings
Accounts
Notes
Accounts
Common
+ Receivable + Supplies + Equipment = Payable + Payable + Stock
+ Revenues Expenses Dividends
Assets
17
15
150
600
May 1 +$15,000
Date
(a)
Utilities Expense
Expense
Service Revenue
Dividends
Service Revenue
Advertising Expense
Rent Expense
PROBLEM 3-2A
(c)
$5,600
$2,500
600
180
150
3,430
$2,170
$18,270
3,000
500
$21,770
2,000
$23,770
$ 5,000
1,800
$ 6,800
15,000
1,970
16,970
$23,770
3-35
3-36
+3,600
700
2,450
700
+5,000
15
19
23
26
$7,150 +
2,700
$4,000 +
+1,100
31
Assets
Liabilities
$500
$500
$19,850
$3,200
+1,800
1,100
$2,500
$9,000
+4,000
$5,000
+380
$5,000 + $5,180
+$5,000
+3,300
2,700
$4,200
$6,200
$6,200
$19,850
$1,600
$1,600
$5,400
+$5,400
380
$2,830
$700
Utilities Expense
Dividends
Advertising Expense
350
$700
Rent Expense
Expense
Service Revenue
700
$1,400
Notes
Accounts Common
Accounts
Retained
Cash + Receivable + Supplies + Equipment = payable + Payable + Stock + Earnings + Revenues Expenses Dividends
Aug. 1
Bal.
July 31
(a)
PROBLEM 3-3A
$5,400
$1,400
700
380
350
2,830
$2,570
$1,600
2,570
4,170
700
$3,470
3-37
$7,150
3,200
500
$10,850
9,000
$19,850
3-38
$5,000
5,180
$10,180
6,200
3,470
9,670
$19,850
PROBLEM 3-4A
Date
Mar. 1
10
18
19
25
Debit
50,000
Land.............................................................................
Buildings....................................................................
Equipment .................................................................
Cash....................................................................
(Purchased Arnies Golf Land)
23,000
9,000
6,000
Advertising Expense..............................................
Cash....................................................................
(Paid for advertising)
1,200
Prepaid Insurance...................................................
Cash....................................................................
(Paid for one-year insurance policy)
2,400
Equipment .................................................................
Accounts Payable ..........................................
(Purchased equipment on account)
5,500
Cash.............................................................................
Service Revenue.............................................
(Received cash for revenue earned)
1,600
2,500
Dividends ...................................................................
Cash....................................................................
(Payment of cash dividend)
500
Credit
50,000
38,000
1,200
2,400
5,500
1,600
2,500
500
3-39
30
31
3-40
Debit
800
Accounts Payable...................................................
Cash ...................................................................
(Paid creditor on account)
5,500
Cash ............................................................................
Service Revenue ............................................
(Received cash for revenue earned)
900
Credit
800
5,500
900
PROBLEM 3-5A
(a)
Date
Apr. 1
Debit
18,000
18,000
No entrynot a transaction.
900
Supplies .....................................................................
Accounts Payable ..........................................
(Purchased supplies on account
from Spring Green Company)
1,300
1,900
Cash.............................................................................
Unearned Service Revenue ........................
(Received cash advance for future
service)
700
Cash.............................................................................
Service Revenue.............................................
(Received cash for revenue earned)
2,800
1,500
300
10
11
20
30
30
Credit
900
1,300
1,900
700
2,800
1,500
300
3-41
4/10
Bal.
4/3
Bal.
4/30
Cash
18,000 4/2
700 4/30
2,800 4/30
18,800
900
1,500
300
4/2
Bal.
Accounts Receivable
1,900
1,900
Rent Expense
900
900
Supplies
1,300
1,300
Accounts Payable
300 4/3
Bal.
1,300
1,000
3-42
Common Stock
4/1
Bal.
18,000
18,000
Service Revenue
4/10
4/20
Bal.
1,900
2,800
4,700
Debit
$18,800
1,900
1,300
Credit
$ 1,000
700
18,000
4,700
1,500
900
$24,400
$24,400
3-43
PROBLEM 3-6A
Bal.
Cash
8,200 10/15
1,300 10/20
10/29
10/31
5,700
Common Stock
10/1 Bal. 15,000
Bal.
15,000
1,200
1,900
300
400
10/29
Bal.
Accounts Receivable
10/1 Bal. 2,600 10/5
1,300
10/10
5,100
Bal.
6,400
10/1 Bal.
Bal.
Supplies
2,100
2,100
10/1 Bal.
Bal.
Equipment
8,000
8,000
10/20
Accounts Payable
1,900 10/1 Bal.
Bal.
Dividends
300
300
Service Revenue
10/10
10/17
Bal.
5,100
600
5,700
10/31
Bal.
Utilities Expense
400
400
4,800
2,900
3-44
10
15
17
20
29
31
Debit
1,300
5,100
1,200
600
1,900
Dividends ...................................................................
Cash....................................................................
(Payment of cash dividend)
300
Utilities Expense......................................................
Cash....................................................................
(Paid utilities)
400
Credit
1,300
5,100
1,200
600
1,900
300
400
3-45
MIMOSA COMPANY
Trial Balance
October 31, 2012
Cash ................................................................................
Accounts Receivable.................................................
Supplies .........................................................................
Equipment .....................................................................
Accounts Payable.......................................................
Unearned Service Revenue .....................................
Common Stock ............................................................
Dividends.......................................................................
Service Revenue .........................................................
Salaries and Wages Expense .................................
Utilities Expense .........................................................
3-46
Debit
$ 5,700
6,400
2,100
8,000
Credit
$ 2,900
500
15,000
300
5,700
1,200
400
$24,100
$24,100
PROBLEM 3-7A
MICHELS CO.
Trial Balance
June 30, 2012
Cash ($3,090 $780 + $870).....................................
Accounts Receivable*................................................
Supplies ($800 $340)...............................................
Equipment ($3,000 + $340) .......................................
Accounts Payable ($3,686 $206 $260) ...........
Unearned Service Revenue......................................
Common Stock.............................................................
Dividends ($800 + $600) ............................................
Service Revenue..........................................................
Salaries and Wages Expense
($3,600 + $700 $600) ............................................
Utilities Expense..........................................................
Debit
$ 3,180
3,910
460
3,340
Credit
$ 3,220
1,200
9,000
1,400
3,480
3,700
910
$16,900
$16,900
3-47
PROBLEM 3-8A
3/31
Bal.
3/1 Bal.
Bal.
3/1 Bal.
Bal.
3-48
2,000
10,900
500
5,000
3,800
Accounts Receivable
750
750
3/1 Bal.
Bal.
3/10
Cash
16,000 3/2
9,900 3/10
8,300 3/12
750 3/20
20,000 3/31
32,750
Land
38,000
38,000
Buildings
22,000
22,000
Equipment
16,000
16,000
Accounts Payable
10,900 3/1 Bal. 12,000
3/2
8,000
Bal.
9,100
Common Stock
3/1 Bal.
Bal.
80,000
80,000
Service Revenue
3/9
3/20
3/31
Bal.
9,900
8,300
20,000
38,200
Sales Revenue
3/31
Bal.
1,500
1,500
3/12
Bal.
Advertising Expense
500
500
3/2
3/20
Bal.
Rent Expense
10,000
5,000
15,000
Debit
10,000
8,000
2,000
No entrynot a transaction.
Cash ............................................................................
Service Revenue ............................................
(Received cash for admissions)
9,900
10,900
10
9,900
10,900
11
No entrynot a transaction.
12
500
Cash ............................................................................
Service Revenue ............................................
(Received cash for admissions)
8,300
Rent Expense...........................................................
Cash ...................................................................
(Paid film rental)
5,000
3,800
20
20
31
Credit
500
8,300
5,000
3,800
3-49
31
(d)
Debit
750
750
Cash............................................................................
Service Revenue............................................
(Received cash for admissions)
20,000
1,500
20,000
3-50
Credit
Debit
$ 32,750
750
38,000
22,000
16,000
Credit
500
15,000
3,800
$128,800
9,100
80,000
38,200
1,500
$128,800
PROBLEM 3-9A
Error
1.
(a) In Balance
No
(b) Difference
$600
2.
Yes
None
N/A
3.
Yes
None
N/A
4.
No
$680
Credit
5.
Yes
None
N/A
6.
Yes
None
N/A
7.
No
$900
Debit
8.
Yes
None
N/A
3-51
3-52
Cash
300
4.
+650
$15,510 +
11.
140
9.
+$1,000
1,700
8.
$300
+$300
$9,000
+$9,000
$750
+$750
$20,000 +
+$20,000
$25,160
$8,200
+1,000
+$7,200
$3,290
140
1,700
750
$700
$500
$500
Assets
= Liabilities +
Stockholders Equity
Accounts
Accounts
Common
Retained Earnings
+ Receivable + Supplies + Equipment = Payable +
Stock + Revenues Expenses Dividends
10.
500
7.
6.
+7,200
700
3.
5.
9,000
+$20,000
2.
1.
(a)
Service Revenue
Utilities Expense
Expense
Dividends
Service Revenue
Advertising Expense
Rent Expense
PROBLEM 3-1B
$8,200
$1,700
750
700
140
3,290
$4,910
OR
Revenues .............................................................................
Less: Expenses ................................................................
Net Income...........................................................................
$8,200
3,290
$4,910
3-53
3-54
600
500
180
240
750
23
26
29
30
Assets
Liabilities
$1,650
750
+$2,400
$240 +
+$240
$15,000 =
+$15,000
$12,500 +
500
+$13,000
$200
240
+200
+$240
750
180
200
$600
$3,900 $1,730
+1,500
+$2,400
$29,570
+ $15,000 +
$15,000
$300
$300
Retained Earnings
Accounts
Notes
Accounts
Common
+ Receivable + Supplies + Equipment = Payable + Payable + Stock + Revenues Expenses Dividends
$12,680 +
+1,500
+750
20
17
15
12
300
2,000
Cash
$15,000
Date
June 1
(a)
Salaries and
Wages Expense
Utilities Expense
Service Revenue
Advertising
Expense
Dividends
Service Revenue
Rent Expense
PROBLEM 3-2B
(c)
$3,900
$750
600
200
180
1,730
$2,170
$12,680
1,650
240
$14,570
15,000
$29,570
$12,700
16,870
$29,570
3-55
3-56
1,000
+2,300
600
2,250
8.
13.
17.
22.
30.
$10,250 +
+5,000
+1,200
5.
$9,000 +
3,400
26.
Assets
Liabilities
TIEDE COMPANY
Stockholders Equity
$29,750
$8,800
+8,300
1,200
$1,700
$600
$600
$10,100 =
+5,100
$5,000
$5,000 + $4,520
+$5,000
+220
+4,100
3,400
$3,600
+ $12,000 +
+ $12,000 +
+$10,600
+ $10,600
$29,750
$700
$700
$2,470
220
$600
Utilities Expense
Advertising Expense
Rent Expense
1,100
250
Dividends
Service Revenue
$900
$600
Accounts
Notes
Accounts Common
Retained
Cash + Receivable + Supplies + Equipment = Payable + Payable + Stock + Earnings + Revenues Expenses Dividends
Sept. 2.
Bal.
(a)
PROBLEM 3-3B
TIEDE COMPANY
Income Statement
For the Month Ended September 30, 2012
Revenues
Service revenue ............................................................
Expenses
Rent expense .................................................................
Salaries and wages expense ....................................
Advertising expense ...................................................
Utilities expense ...........................................................
Total expenses .....................................................
Net income...............................................................................
$10,600
$1,100
900
250
220
2,470
$8,130
TIEDE COMPANY
Retained Earnings Statement
For the Month Ended September 30, 2012
Retained earnings, September 1........................................................
Add: Net income ...................................................................................
Less: Dividends......................................................................................
Retained earnings, September 30 .....................................................
$ 700
8,130
8,830
600
$8,230
3-57
$10,250
8,800
600
$19,650
10,100
$29,750
3-58
$ 5,000
4,520
$ 9,520
12,000
8,230
20,230
$29,750
PROBLEM 3-4B
Date
Apr. 1
11
Debit
70,000
Land.............................................................................
Cash ...................................................................
(Purchased land for cash)
50,000
Advertising Expense..............................................
Accounts Payable..........................................
(Incurred advertising expense on
account)
1,200
2,700
70,000
50,000
1,200
2,700
12
No entrynot a transaction.
13
Prepaid Insurance...................................................
Cash ...................................................................
(Paid for one-year insurance policy)
7,200
Dividends...................................................................
Cash ...................................................................
(Payment of cash dividend)
600
Cash ............................................................................
Service Revenue ............................................
(Received cash for services
provided)
6,000
9,000
17
20
25
Credit
7,200
600
6,000
9,000
3-59
30
3-60
Debit
7,900
400
Credit
7,900
400
PROBLEM 3-5B
(a)
Date
May 1
Debit
40,000
40,000
No entrynot a transaction.
Supplies .....................................................................
Accounts Payable ..........................................
(Purchased supplies on account)
800
1,400
1,500
Cash.............................................................................
Unearned Service Revenue ........................
(Received an advance for future
services)
4,200
Cash.............................................................................
Service Revenue.............................................
(Received cash for revenue earned)
3,300
2,000
400
11
12
17
31
31
Credit
800
1,400
1,500
4,200
3,300
2,000
400
3-61
Cash
40,000 5/7
4,200 5/31
3,300 5/31
43,700
5/11
Bal.
Accounts Receivable
1,500
1,500
5/3
Bal.
Supplies
800
800
5/31
Accounts Payable
400 5/3
Bal.
1,400
2,000
400
5/7
Bal.
Rent Expense
1,400
1,400
800
400
3-62
Common Stock
5/1
Bal.
40,000
40,000
Service Revenue
5/11
5/17
Bal.
1,500
3,300
4,800
RIDGELL CONSULTING
Trial Balance
May 31, 2012
Cash.................................................................................
Accounts Receivable .................................................
Supplies..........................................................................
Accounts Payable .......................................................
Unearned Service Revenue......................................
Common Stock.............................................................
Service Revenue..........................................................
Salaries and Wages Expense..................................
Rent Expense................................................................
Debit
$43,700
1,500
800
Credit
400
4,200
40,000
4,800
2,000
1,400
$49,400
$49,400
3-63
PROBLEM 3-6B
Cash
12,532 7/9
5,189 7/14
7,320 7/30
7/31
7,464
Common Stock
7/1 Bal.
Bal.
2,100
9,810
5,267
400
7/31
Bal.
Accounts Receivable
7/1 Bal. 10,536 7/8
5,189
7/22
4,700
Bal.
10,047
7/1 Bal.
7/17
Bal.
Supplies
3,592
720
4,312
7/1 Bal.
Bal.
Equipment
25,950
25,950
7/14
Accounts Payable
9,810 7/1 Bal. 15,800
7/17
720
Bal.
6,710
35,000
35,000
Dividends
400
400
Service Revenue
7/11
7/22
Bal.
7,320
4,700
12,020
7/30
Bal.
Utilities Expense
1,767
1,767
3-64
11
14
17
22
30
31
Debit
5,189
2,100
Cash ............................................................................
Service Revenue ............................................
(Received cash for services
provided)
7,320
Accounts Payable...................................................
Cash ...................................................................
(Paid creditors)
9,810
Supplies .....................................................................
Accounts Payable..........................................
(Purchased supplies on account)
720
Accounts Receivable.............................................
Service Revenue ............................................
(Billed for services provided)
4,700
3,114
1,767
386
Dividends...................................................................
Cash ...................................................................
(Payment of cash dividend)
400
Credit
5,189
2,100
7,320
9,810
720
4,700
5,267
400
3-65
3-66
Debit
$ 7,464
10,047
4,312
25,950
Credit
$ 6,710
1,810
35,000
400
12,020
386
5,214
1,767
$55,540
$55,540
PROBLEM 3-7B
LAGERSTROM COMPANY
Trial Balance
May 31, 2012
Cash ($6,340 + $350 $441) .............................................
Accounts Receivable ($2,750 $180 $240)..............
Prepaid Insurance ($700 + $100).....................................
Supplies ($0 + $350)............................................................
Equipment ($8,000 $350)................................................
Accounts Payable ($4,100 $100 + $350 $240)......
Income Taxes Payable .......................................................
Common Stock ($5,700 + $600).......................................
Retained Earnings ...............................................................
Dividends ($0 + $600) .........................................................
Service Revenue ($7,690 + $270)....................................
Salaries and Wages Expense ($4,200 + $500)............
Advertising Expense ($1,100 + $441) ............................
Income Tax Expense ($900 + $100)................................
Debit
$ 6,249
2,330
800
350
7,650
Credit
$ 4,110
750
6,300
6,000
600
7,960
4,700
1,541
1,000
$25,220
$25,220
3-67
PROBLEM 3-8B
Cash
6,300 4/2
4,700 4/10
3,000 4/12
170 4/29
4/30
6,660
800
3,200
410
1,900
1,200
4/10
4/10
4/30
Bal.
Accounts Receivable
170
170
4/30
Bal.
4/1 Bal.
Bal.
4/1 Bal.
Bal.
4/1 Bal.
Bal.
3-68
Prepaid Rent
1,200
1,200
Land
10,000
10,000
2,300
750
1,850
Mortgage Payable
2,000 4/1 Bal.
Bal.
8,000
6,000
Common Stock
4/1 Bal.
Bal.
20,000
20,000
Service Revenue
4/9
4/25
Bal.
4,700
3,000
7,700
Sales Revenue
4/30
Bal.
Buildings
8,000
8,000
Equipment
6,000
6,000
Accounts Payable
1,200 4/1 Bal.
4/20
Bal.
4/12
Bal.
340
340
Advertising Expense
410
410
4/2
4/20
Bal.
(b)
Date
Apr. 2
Debit
800
800
No entrynot a transaction.
Cash ............................................................................
Service Revenue ............................................
(Received cash for admissions)
4,700
Mortgage Payable...................................................
Accounts Payable...................................................
Cash ...................................................................
(Made payments on mortgage
and accounts payable)
2,000
1,200
10
4,700
3,200
11
No entrynot a transaction.
12
410
Rent Expense...........................................................
Accounts Payable..........................................
(Rented film on account)
750
Cash ............................................................................
Service Revenue ............................................
(Received cash for admissions)
3,000
20
25
Credit
410
750
3,000
3-69
30
30
(d)
Debit
1,900
Cash............................................................................
Accounts Receivable ............................................
Sales Revenue (17% X $2,000) .....................
(Received cash and balance on
account for concession revenue)
170
170
1,200
1,900
340
1,200
3-70
Credit
Debit
$ 6,660
170
1,200
10,000
8,000
6,000
Credit
$ 1,850
6,000
20,000
7,700
340
410
1,550
1,900
$35,890
$35,890
PROBLEM 3-9B
(a) Correct: 2, 7
Incorrect: 1, 3, 4, 5, 6, 8
(b)
Error
(1) In Balance
(2) Difference
1.
No
$270
Credit
3.
No
$880
Credit
4.
Yes
None
N/A
5.
Yes
None
N/A
6.
Yes
None
N/A
8.
No
$5,000
Credit
3-71
CCC3
(a)
General Journal
Date
Nov.
Account Titles
No journal entry required.
Cash ........................................................................
Common Stock............................................
500
Supplies.................................................................
Cash................................................................
95
Supplies.................................................................
Cash................................................................
125
Equipment.............................................................
Common Stock............................................
300
Cash ........................................................................
Notes Payable..............................................
2,000
Equipment.............................................................
Cash................................................................
900
11
14
15
16
17
95
125
300
2,000
900
25
Cash ........................................................................
Unearned Service Revenue.....................
60
Cash ........................................................................
Service Revenue.........................................
100
Credit
500
18
29
3-72
Debit
60
100
Account Titles
Website..................................................................
Accounts Payable......................................
Debit
600
Credit
600
Prepaid Insurance..............................................
Cash ...............................................................
1,200
300
Utilities Expense.................................................
Accounts Payable......................................
50
1,200
300
50
(b)
Cash
Nov. 8
500 Nov.
Nov. 16
2,000 Nov.
Nov. 25
60 Nov.
Nov. 29
100 Nov.
Nov.30 Bal. 340
11
14
17
30
95
125
900
1,200
Equipment
Nov. 15
300
Nov. 17
900
Nov. 30 Bal. 1,200
Website
Nov. 30
600
Nov. 30 Bal. 600
Accounts Receivable
Nov. 30
300
Nov. 30 Bal. 300
Supplies
Nov. 11
95
Nov. 11
125
Nov. 30 Bal. 220
Accounts Payable
Nov. 30
Nov. 30
Nov. 30 Bal.
Prepaid Insurance
Nov. 30
1,200
Nov. 30 Bal. 1,200
600
50
650
Notes Payable
Nov. 16
2,000
Nov. 30 Bal. 2,000
3-73
(c)
Common Stock
Nov. 8
Nov. 15
Nov. 30 Bal.
500
300
800
Service Revenue
Nov. 29
Nov. 30
Nov. 30 Bal.
100
300
400
Utilities Expense
Nov. 30
50
Nov. 30 Bal. 50
3-74
Debit
$ 340
300
220
1,200
1,200
600
Credit
$ 650
60
2,000
800
400
50
$3,910
$3,910
BYP 3-1
(a)
Account
Common Stock
Accounts Payable
Accounts Receivable
Selling, Marketing, and
Administrative Expenses
Prepaid Expenses
Net Property, Plant, and
Equipment
Net Product Sales
1. Increase
2. Decrease
3. Normal
Side
Side
Balance
Right/Credit Left/Debit
Credit
Right/Credit Left/Debit
Credit
Left/Debit
Right/Credit
Debit
Left/Debit
Left/Debit
Right/Credit
Right/Credit
Debit
Debit
Left/Debit
Right/Credit
Right/Credit
Left/Debit
Debit
Credit
(b) 1.
2.
3.
Cash is increased.
Cash is decreased.
Cash is decreased.
(c) 1.
2.
3-75
BYP 3-2
(a)
1.
2.
3.
4.
5.
Tootsie Roll
Accounts Receivable:
Net Property, Plant, and
Equipment:
Accounts Payable:
Retained Earnings:
Net Product Sales:
debit
debit
credit
credit
credit
1.
2.
3.
4.
5.
Hershey Foods
Inventories:
Provision for Income
Taxes:
Accrued Liabilities:
Common Stock:
Interest Expense:
debit
debit
credit
credit
debit
3-76
1.
2.
3.
4.
BYP 3-3
RESEARCH CASE
(a) There are 15 items listed in this section. Students ranking of the top
three will vary. Their explanations for giving particular items high rankings should provide a basis for good classroom discussion. An additional activity would be to apply these criteria to an actual annual report.
(b) The answers to this question will vary depending on the year. In 2006
the companies with the highest ranked annual reports were: Tellabs,
Inc., Manitowoc Co., Inc., Tyson Foods, TD Bank Financial Group, MDU
Resources, Scotiabank, F. Hoffmann-La Roche.
(c) The annual report is the primary mechanism for a company to communicate its operating results and financial position to outsiders. If
outsiders think that the company has made its best effort to communicate this information effectively they may have more confidence in the
results, and may feel more comfortable relying on it to make decisions.
On the other hand, if outsiders feel that the company did not do its
best to communicate its results in an understandable fashion, or even
tried to conceal things, then they will be reluctant to rely on the annual
report as an information source.
3-77
BYP 3-4
3-78
BYP 3-5
(a) CPA stands for Certified Public Accountant. CPAs work in public
accounting, business and industry, government, and education.
(b) Public accounting is a term that describes accountants who provide
audit services. Auditors review company financial records for accuracy
and accountability.
Public accountants also provide advice to clients regarding taxation
laws, computer technology, and management operations.
(c) A CPA needs:
strong communication and leadership skills,
critical thinking and big-picture perspectives,
strong analytical and computer skills,
well-rounded academic background that combines liberal arts & science
courses with accounting and business classes,
strong sense of ethics and integrity,
a professional manner to interact well with a variety of people.
(d) Salary ranges are: $52,000 $62,250 during the first three years for a CPA
at a large firm;
$252,500 $358,750 for Chief Financial Officer (CFO) & Treasurer at a
large corporation.
3-79
BYP 3-6
(a) May 1
Cash ..........................................................................
Common Stock .............................................
15,000
15,000
Correct.
Cash ..........................................................................
Unearned Revenue ......................................
500
1,500
800
Dividends.................................................................
Cash .................................................................
400
Cash ..........................................................................
Riding Revenue ............................................
154
75
9
14
15
20
31
500
1,500
800
400
154
75
(b) The error in the entries of May 14 and May 20 would prevent the trial
balance from balancing.
(c) Net income as reported .................................................
Add: 5/9, Hay and feed expense...............................
5/15, Salaries expense (dividends
paid)....................................................................
$ 4,500
$1,500
400
3-80
1,900
6,400
500
$ 5,900
$12,475
$1,500
9
1,509
$13,984
BYP 3-7
COMMUNICATION ACTIVITY
To:
Accounting Instructor
From:
Accounting Student
Re:
In the first transaction, bills totaling $6,000 were sent to customers for
services provided. Therefore, the asset Accounts Receivable is increased
$6,000 and the revenue Service Revenue is increased $6,000. Debits increase
assets and credits increase revenues, so the journal entry is:
Accounts Receivable ........................................................................
Service Revenue........................................................................
(Billed customers for services provided)
6,000
6,000
The $6,000 amount is then posted to the debit side of the general ledger
account Accounts Receivable and to the credit side of the general ledger
account Service Revenue.
In the second transaction, $2,000 was paid in salaries to employees. Therefore,
the expense Salaries and Wages Expense is increased $2,000 and the asset
Cash is decreased $2,000. Debits increase expenses and credits decrease
assets, so the journal entry is:
Salaries and Wages Expense.........................................................
Cash...............................................................................................
(Salaries paid)
2,000
2,000
The $2,000 amount is then posted to the debit side of the general ledger
account Salaries and Wages Expense and to the credit side of the general
ledger account Cash.
3-81
BYP 3-8
ETHICS CASE
(b) By adding $1,000 to the Equipment account, that account total is intentionally misstated. By not locating the error causing the imbalance,
some other account may also be misstated by $1,000. If the amount of
$1,000 is determined to be immaterial, and the intent is not to commit
fraud (cover up an embezzlement or other misappropriation of assets),
Courtneys action might not be considered unethical in the preparation
of interim financial statements. However, if Courtney is violating a
company accounting policy by her action, then she is acting unethically.
(c) Courtneys alternatives are:
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1.
Miss the deadline but find the error causing the imbalance.
2.
3.
Do as she did and locate the error later, making the adjustment in
the next quarter.
BYP 3-9
ETHICS CASE
(a) Employees in the rail unit accelerated revenue in each of the fourth
quarters from 2000 to 2003. That is, revenue that should have been
reported in the first quarter of a year was instead reported in the fourth
quarter of the previous year.
(b) One possible motivation for engaging in this activity is that bonuses
are frequently based on annual results. If it appeared that the rail unit
was not going to meet the performance level required for bonuses, the
employees may have shifted the revenue recognition forward on these
sales in order to boost annual results to meet performance targets.
(c) The employees were fired. In addition, the matter was being investigated
by the Securities and Exchange Commission (SEC).
(d) To restate financial statements means to actually issue new financial
statements to replace those that were previously issued. We are told
that, for example, 2002 revenue was overstated by $158 million, and
net income was overstated by $22 million. While these numbers seem
large, to GE they are immaterial. $22 million was less than 0.2% of the
companys net income. As a percentage of GEs total results the errors
are not large enough to change investors evaluation of the company.
3-83
BYP 3-10
By taking out the bank loan your friend has incurred a liability. You do
not have a liability unless your friend defaults, or unless it becomes
clear that he will default. The loan application may, however, require you
to disclose any guarantees that you have signed, since they represent
potential liabilities.
(b) Accounting standards have specific requirements regarding accounting for situations where there is uncertainty regarding whether a liability
has been incurred. Those standards require an evaluation of the probability of an amount being owed. Without going into detail regarding
those standards, the basic idea is that if it is probable that you will
owe money, then you should accrue a liability. If it is not probable, but
it is possible that you will owe money, then you should disclose facts
regarding the situation. The most important point is that this event has
the potential to materially impact your finances, and therefore you have
a responsibility to disclose it to the bank in some form.
(c)
3-84
Losing your job would not create a financial liability, although it would
most certainly reduce your revenues. You are obviously concerned that
you might lose your job, but you dont have specific information that
would suggest that it will happen. Therefore, you probably dont have
an obligation to disclose this information to the bank. However, unless
you are relatively certain that you would be able to find suitable employment relatively quickly, you might want to wait until your job situation
has stabilized before pursuing a loan of this size.
IFRS 3-1
In deciding whether the U.S. should adopt IFRS, the SEC should consider
the following.
Whether IFRS is sufficiently developed and consistent in application
Whether the IASB is sufficiently independent
Whether IFRS is established for the benefit to investors
The issues involved in educating investors about IFRS
The impact of a switch to IFRS on U.S. laws and regulations
The impact on companies including changes to their accounting
systems, contractual arrangements, corporate governance, and
litigation
The issues involved in educating accountants, so they can prepare
statements under IFRS
3-85
IFRS 3-2
Account
Share capital
Financial Statement
Consolidated
Balance Sheet
Goodwill
Consolidated
Balance Sheet
Borrowings and Consolidated
overdrafts
Balance Sheet
Amortisation of Consolidated
intangible
Income Statement
assets
Derivative
Consolidated
financial asset
Balance Sheet
3-86