Solution manual accounting principles 9e by kieso kimmel chapter 03

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER Adjusting the Accounts ASSIGNMENT CLASSIFICATION TABLE A Problems B Problems 5, 6, 7, 8, 9, 10, 11, 12, 13, 15 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B 5, 6, 7, 8, 9, 10, 11, 12, 13, 15 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B 21 9, 10 10, 11, 12, 13, 14 1A, 2A, 3A, 5A, 6A 1B, 2B, 3B, 5B 22 11 16, 17 6A Study Objectives Questions *1 Explain the time period assumption *2 Brief Exercises Do It! Exercises 1, Explain the accrual basis of accounting 2, 3, 4, 5 2, 3, 10 *3 Explain the reasons for adjusting entries 6, *4 Identify the major types of adjusting entries 8, 18 2, *5 Prepare adjusting entries for deferrals 8, 9, 10, 11, 12, 13, 18, 19, 20, 23 3, 4, 5, *6 Prepare adjusting entries for accruals 8, 14, 15, 16, 17, 18, 19, 20 *7 Describe the nature and purpose of an adjusted trial balance *8 Prepare adjusting entries for the alternative treatment of deferrals 4, 6, 11 *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 3-1 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ASSIGNMENT CHARACTERISTICS TABLE Problem Number Difficulty Level Time Allotted (min.) 1A Prepare adjusting entries, post to ledger accounts, and prepare an adjusted trial balance Simple 40–50 2A Prepare adjusting entries, post, and prepare adjusted trial balance and financial statements Simple 50–60 3A Prepare adjusting entries and financial statements Moderate 40–50 4A Prepare adjusting entries Moderate 30–40 5A Journalize transactions and follow through accounting cycle to preparation of financial statements Moderate 60–70 Prepare adjusting entries, adjusted trial balance, and financial statements using appendix Moderate 40–50 *6A* 3-2 Description 1B Prepare adjusting entries, post to ledger accounts, and prepare an adjusted trial balance Simple 40–50 2B Prepare adjusting entries, post, and prepare adjusted trial balance and financial statements Simple 50–60 3B Prepare adjusting entries and financial statements Moderate 40–50 4B Prepare adjusting entries Moderate 30–40 5B Journalize transactions and follow through accounting cycle to preparation of financial statements Moderate 60–70 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com WEYGANDT ACCOUNTING PRINCIPLES 9E CHAPTER ADJUSTING THE ACCOUNTS Number SO BT Difficulty Time (min.) BE1 C Simple 4–6 BE2 AN Moderate 6–8 BE3 AN Simple 3–5 BE4 AN Simple 3–5 BE5 AN Simple 2–4 BE6 AN Simple 2–4 BE7 AN Simple 4–6 BE8 AN Simple 5–7 BE9 AP Simple 4–6 BE10 AP Simple 2–4 BE11* AN Moderate 3–5 DI1 1, K Simple 2–4 DI2 AN Simple 6–8 DI3 AN Simple 4–6 DI4 AN Moderate 20–30 EX1 C Simple 3–5 EX2 E Moderate 10–15 EX3 AP Simple 6–8 EX4 AN Simple 5–6 EX5 5, AN Moderate 10–15 EX6 4–6 AN Moderate 10–12 EX7 5, AN Moderate 8–10 EX8 5, AN Moderate 8–10 EX9 5, AN Simple 8–10 EX10 2, 5–7 AN Moderate 8–10 EX11 4–7 AN Moderate 12–15 EX12 5–7 AN Moderate 8–10 EX13 5–7 AN Simple 8–10 EX14 AP Simple 12–15 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 3-3 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ADJUSTING THE ACCOUNTS (Continued) Number SO BT Difficulty Time (min.) EX15 5, AN, S Moderate 8–10 EX16 AN Moderate 6–8 EX17 AN Moderate 10–12 P1A 5–7 AN Simple 40–50 P2A 5–7 AN Simple 50–60 P3A 5–7 AN Moderate 40–50 P4A 5, AN Moderate 30–40 P5A 5–7 AN Moderate 60–70 P6A 5–8 AN Moderate 40–50 P1B 5–7 AN Simple 40–50 P2B 5–7 AN Simple 50–60 P3B 5–7 AN Moderate 40–50 P4B 5, AN Moderate 30–40 P5B 5–7 AN Moderate 60–70 BYP1 5, AN Simple 10–15 BYP2 — AN Simple 10–15 BYP3 — AN Simple 10–15 BYP4 2–7 S Moderate 15–20 BYP5 3–6 C Simple 10–15 BYP6 3–6 E Moderate 10–15 BYP7 — E Moderate 10–15 3-4 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) Copyright © 2009 John Wiley & Sons, Inc Prepare adjusting entries for deferrals *5 Weygandt, Accounting Principles, 9/e, Solutions Manual Prepare adjusting entries for the alternative treatment of deferrals Broadening Your Perspective *8 Describe the nature and purpose of an adjusted trial balance Identify the major types of adjusting entries *4 *7 Explain the reasons for adjusting entries *3 Prepare adjusting entries for accruals Explain the accrual basis of accounting *2 *6 Explain the time period assumption *1 Study Objective DI3-1 DI3-1 Knowledge Q3-4 Q3-5 E3-3 BE3-1 Q3-2 Q3-3 Q3-6 Q3-7 Communication Q3-22 E3-17 P3-6A E3-2 Evaluation Decision Making All About You Financial Reporting Ethics Case Comparative Analysis Across the Organization Exploring the Web BE3-11 E3-16 P3-1B P3-2B P3-3B P3-5B P3-1A P3-2A P3-3A P3-5A P3-6A DI3-4 E3-10 E3-11 E3-12 E3-13 BE3-9 BE3-10 E3-14 P3-4A E3-15 P3-5A P3-6A P3-1B P3-2B P3-3B P3-4B P3-5B E3-10 E3-11 E3-12 E3-13 E3-15 P3-1A P3-2A P3-3A Q3-16 Q3-18 BE3-7 DI3-3 E3-5 E3-6 E3-7 E3-8 E3-9 Q3-8 Q3-14 Q3-15 Q3-19 Q3-20 Q3-21 P3-4A E3-15 P3-5A P3-6A P3-1B P3-2B P3-3B P3-4B P3-5B E3-9 E3-10 E3-11 E3-12 E3-13 E3-15 P3-1A P3-2A P3-3A Q3-18 BE3-3 BE3-4 BE3-5 BE3-6 DI3-2 E3-5 E3-6 E3-7 E3-8 Q3-8 Q3-9 Q3-10 Q3-11 Q3-12 Q3-13 Q3-19 Q3-20 Q3-23 BE3-8 E3-6 E3-4 E3-11 Synthesis Q3-18 BE3-2 E3-10 Analysis Q3-8 Q3-17 E3-1 Application Q3-1 Comprehension Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BLOOM’S TAXONOMY TABLE (For Instructor Use Only) 3-5 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ANSWERS TO QUESTIONS (a) Under the time period assumption, an accountant is required to determine the relevance of each business transaction to specific accounting periods (b) An accounting time period of one year in length is referred to as a fiscal year A fiscal year that extends from January to December 31 is referred to as a calendar year Accounting periods of less than one year are called interim periods The two generally accepted accounting principles that relate to adjusting the accounts are: The revenue recognition principle, which states that revenue should be recognized in the accounting period in which it is earned The matching principle, which states that efforts (expenses) be matched with accomplishments (revenues) The law firm should recognize the revenue in April The revenue recognition principle states that revenue should be recognized in the accounting period in which it is earned Information presented on an accrual basis is more useful than on a cash basis because it reveals relationships that are likely to be important in predicting future results To illustrate, under accrual accounting, revenues are recognized when earned so they can be related to the economic environment in which they occur Trends in revenues are thus more meaningful Expenses of $4,500 should be deducted from the revenues in April Under the matching principle efforts (expenses) should be matched with accomplishments (revenues) No, adjusting entries are required by the revenue recognition and matching principles A trial balance may not contain up-to-date information for financial statements because: (1) Some events are not journalized daily because it is not efficient to so (2) The expiration of some costs occurs with the passage of time rather than as a result of daily transactions (3) Some items may be unrecorded because the transaction data are not yet known The two categories of adjusting entries are deferrals and accruals Deferrals consist of prepaid expenses and unearned revenues Accruals consist of accrued revenues and accrued expenses In the adjusting entry for a prepaid expense, an expense is debited and an asset is credited 10 No Depreciation is the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner Depreciation results in the presentation of the book value of the asset, not its market value 11 Depreciation expense is an expense account whose normal balance is a debit This account shows the cost that has expired during the current accounting period Accumulated depreciation is a contra asset account whose normal balance is a credit The balance in this account is the depreciation that has been recognized from the date of acquisition to the balance sheet date 12 Equipment Less: Accumulated Depreciation 3-6 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual $18,000 6,000 $12,000 (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Questions Chapter (Continued) *13 In the adjusting entry for an unearned revenue, a liability is debited and a revenue is credited *14 Asset and revenue An asset would be debited and a revenue would be credited *15 An expense is debited and a liability is credited *16 Net income was understated $200 because prior to adjustment, revenues are understated by $900 and expenses are understated by $700 The difference in this case is $200 ($900 – $700) *17 The entry is: Jan Salaries Payable Salaries Expense Cash 2,000 3,000 5,000 *18 (a) (b) (c) Accrued revenues Unearned revenues Accrued expenses (d) (e) (f) Accrued expenses or prepaid expenses Prepaid expenses Accrued revenues or unearned revenues *19 (a) (b) (c) Salaries Payable Accumulated Depreciation Interest Expense (d) Supplies Expense (e) Service Revenue (f) Service Revenue *20 Disagree An adjusting entry affects only one balance sheet account and one income statement account *21 Financial statements can be prepared from an adjusted trial balance because the balances of all accounts have been adjusted to show the effects of all financial events that have occurred during the accounting period *22 For Supplies Expense (prepaid expense): expenses are overstated and assets are understated The adjusting entry is: Assets (Supplies) XX Expenses (Supplies Expense) XX For Rent Revenue (unearned revenues): revenues are overstated and liabilities are understated The adjusting entry is: Revenues (Rent Revenue) XX Liabilities (Unearned Rent Revenue) XX *23 PepsiCo’s depreciation was $1,304 million for 2007 and $1,182 million for 2006 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 3-7 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 3-1 (a) Prepaid Insurance—to recognize insurance expired during the period (b) Depreciation Expense—to account for the depreciation that has occurred on the asset during the period (c) Unearned Revenue—to record revenue earned for services provided (d) Interest Payable—to recognize interest accrued but unpaid on notes payable BRIEF EXERCISE 3-2 (a) Type of Adjustment (b) Account Balances before Adjustment Prepaid Expenses Assets Overstated Expenses Understated Accrued Revenues Assets Understated Revenues Understated Accrued Expenses Expenses Understated Liabilities Understated Unearned Revenues Liabilities Overstated Revenues Understated Item BRIEF EXERCISE 3-3 Dec 31 Advertising Supplies Expense Advertising Supplies ($6,700 – $2,700) Advertising Supplies 6,700 12/31 4,000 12/31 Bal 2,700 3-8 Copyright © 2009 John Wiley & Sons, Inc 4,000 4,000 Advertising Supplies Expense 12/31 4,000 Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BRIEF EXERCISE 3-4 Dec 31 Depreciation Expense—Equipment Accumulated Depreciation— Equipment Depr Expense—Equipment 12/31 5,000 5,000 5,000 Accum Depreciation—Equipment 12/31 5,000 Balance Sheet: Equipment Less: Accumulated Depreciation $30,000 5,000 $25,000 BRIEF EXERCISE 3-5 July Dec 31 Prepaid Insurance Cash 18,000 Insurance Expense [($18,000 ÷ 3) X 1/2] Prepaid Insurance 3,000 Prepaid Insurance 7/1 18,000 12/31 12/31 Bal 15,000 3,000 12/31 18,000 3,000 Insurance Expense 3,000 BRIEF EXERCISE 3-6 July Dec 31 Cash Unearned Insurance Revenue 18,000 Unearned Insurance Revenue Insurance Revenue 3,000 Unearned Insurance Revenue 12/31 3,000 7/1 18,000 12/31 Bal 15,000 Copyright © 2009 John Wiley & Sons, Inc 18,000 3,000 Insurance Revenue 12/31 Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 3,000 3-9 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BRIEF EXERCISE 3-7 Dec 31 31 31 Interest Expense Interest Payable 400 Accounts Receivable Service Revenue 1,500 Salaries Expense Salaries Payable 900 400 1,500 900 BRIEF EXERCISE 3-8 Account (a) Type of Adjustment (b) Related Account Accounts Receivable Prepaid Insurance Accum Depr.—Equipment Interest Payable Unearned Service Revenue Accrued Revenues Prepaid Expenses Prepaid Expenses Accrued Expenses Unearned Revenues Service Revenue Insurance Expense Depreciation Expense Interest Expense Service Revenue BRIEF EXERCISE 3-9 HARMONY COMPANY Income Statement For the Year Ended December 31, 2010 Revenues Service revenue Expenses Salaries expense Rent expense Insurance expense Supplies expense Depreciation expense Total expenses Net income 3-10 Copyright © 2009 John Wiley & Sons, Inc $35,400 $16,000 4,000 2,000 1,500 1,300 Weygandt, Accounting Principles, 9/e, Solutions Manual 24,800 $10,600 (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PROBLEM 3-5B (a), (c) & (e) Cash Date Nov 10 12 20 22 25 29 Explanation Balance Accounts Receivable Date Explanation Nov Balance 10 27 Supplies Date Explanation Nov Balance 17 30 Adjusting Store Equipment Date Explanation Nov Balance 15 3-68 Copyright © 2009 John Wiley & Sons, Inc Ref J1 J1 J1 J1 J1 J1 J1 Ref J1 J1 Ref J1 J1 Debit Credit 1,700 3,420 3,100 2,700 400 1,700 600 Debit Credit 3,420 900 Debit Credit 700 1,300 Ref Debit J1 2,000 Credit Weygandt, Accounting Principles, 9/e, Solutions Manual No 101 Balance 2,400 700 4,120 7,220 4,520 4,120 2,420 3,020 No 112 Balance 4,250 830 1,730 No 126 Balance 1,800 2,500 1,200 No 153 Balance 12,000 14,000 (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PROBLEM 3-5B (Continued) Accumulated Depreciation—Store Equipment Date Explanation Ref Debit Nov Balance 30 Adjusting J1 Accounts Payable Date Explanation Nov Balance 15 17 20 Ref J1 J1 J1 Unearned Service Revenue Date Explanation Nov Balance 29 30 Adjusting Salaries Payable Date Explanation Nov Balance 30 Adjusting V Morelli, Capital Date Explanation Nov Balance Copyright © 2009 John Wiley & Sons, Inc Ref J1 J1 Ref J1 J1 Ref Debit Credit 200 Credit 2,000 700 2,700 Debit Credit 600 1,250 Debit Credit 700 400 Debit Weygandt, Accounting Principles, 9/e, Solutions Manual Credit No 154 Balance 2,000 2,200 No 201 Balance 2,600 4,600 5,300 2,600 No 209 Balance 1,200 1,800 550 No 212 Balance 700 400 No 301 Balance 13,950 (For Instructor Use Only) 3-69 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PROBLEM 3-5B (Continued) Service Revenue Date Explanation Nov 12 27 30 Adjusting Depreciation Expense Date Explanation Nov 30 Adjusting Supplies Expense Date Explanation Nov 30 Adjusting Salaries Expense Date Explanation Nov 25 30 Adjusting Rent Expense Date Explanation Nov 22 3-70 Copyright © 2009 John Wiley & Sons, Inc Ref J1 J1 J1 Ref J1 Ref J1 Ref J1 J1 J1 Ref J1 Debit Debit 200 Debit 1,300 Debit 1,000 1,700 400 Debit 400 Credit 3,100 900 1,250 No 407 Balance 3,100 4,000 5,250 Credit No 615 Balance 200 Credit No 631 Balance 1,300 Credit Credit Weygandt, Accounting Principles, 9/e, Solutions Manual No 726 Balance 1,000 2,700 3,100 No 729 Balance 400 (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PROBLEM 3-5B (Continued) (b) Date Nov General Journal 10 12 15 17 20 22 25 27 29 Account Titles and Explanation Salaries Payable Salaries Expense Cash Ref 212 726 101 Debit 700 1,000 Cash Accounts Receivable 101 112 3,420 Cash Service Revenue 101 407 3,100 Store Equipment Accounts Payable 153 201 2,000 Supplies Accounts Payable 126 201 700 Accounts Payable Cash 201 101 2,700 Rent Expense Cash 729 101 400 Salaries Expense Cash 726 101 1,700 Accounts Receivable Service Revenue 112 407 900 Cash Unearned Service Revenue 101 209 600 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual J1 Credit 1,700 3,420 3,100 2,000 700 2,700 400 1,700 900 600 (For Instructor Use Only) 3-71 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PROBLEM 3-5B (Continued) (d) & (f) MORELLI EQUIPMENT REPAIR Trial Balances November 30, 2010 Cash Accounts Receivable Supplies Store Equipment Accumulated Depreciation Accounts Payable Unearned Service Revenue Salaries Payable V Morelli, Capital Service Revenue Depreciation Expense Supplies Expense Salaries Expense Rent Expense (e) Nov 30 3-72 30 30 30 Before After Adjustment Adjustment Dr Cr Dr Cr $ 3,020 $ 3,020 1,730 1,730 1,200 2,500 14,000 14,000 $ 2,000 $ 2,200 2,600 2,600 1,800 550 –0– 400 13,950 13,950 4,000 5,250 200 1,300 3,100 2,700 400 400 $24,350 $24,350 $24,950 $24,950 Supplies Expense Supplies ($2,500 – $1,200) 631 126 1,300 Salaries Expense Salaries Payable 726 212 400 Depreciation Expense Accumulated Depreciation— Store Equipment 615 200 154 Unearned Service Revenue Service Revenue 209 407 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual 1,300 400 200 1,250 1,250 (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PROBLEM 3-5B (Continued) (g) MORELLI EQUIPMENT REPAIR Income Statement For the Month Ended November 30, 2010 Revenues Service revenue Expenses Salaries expense Supplies expense Rent expense Depreciation expense Total expenses Net Income $5,250 $3,100 1,300 400 200 5,000 $ 250 MORELLI EQUIPMENT REPAIR Owner’s Equity Statement For the Month Ended November 30, 2010 V Morelli, Capital, November Plus: Net income V Morelli, Capital, November 30 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual $13,950 250 $14,200 (For Instructor Use Only) 3-73 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PROBLEM 3-5B (Continued) MORELLI EQUIPMENT REPAIR Balance Sheet November 30, 2010 Assets Cash Accounts receivable Supplies Equipment Less: Accumulated depreciation— equipment Total assets $ 3,020 1,730 1,200 $14,000 2,200 11,800 $17,750 Liabilities and Owner’s Equity Liabilities Accounts payable Unearned service revenue Salaries payable Total liabilities Owner’s equity V Morelli, Capital Total liabilities and owner’s equity 3-74 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual $ 2,600 550 400 3,550 14,200 $17,750 (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BYP 3-1 FINANCIAL REPORTING PROBLEM (a) Items that may result in adjusting entries for prepayments are: Prepaid expenses and other current assets (per balance sheet) Property, plant and equipment, net of depreciation (per balance sheet) Amortizable intangible assets, net (per balance sheet)—amortization is similar to depreciation (explained later in Chapter 10) (b) Accrual adjusting entries were probably made for accounts payable and other current liabilities, interest expense, and income taxes payable (c) As indicated in the 5-Year Summary, the trend in net income has been positive In every year since 2003 (except 2005), net income has increased In 2003 net income was $3,568 million and in 2007 it was $5,658 million Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 3-75 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BYP 3-2 COMPARATIVE ANALYSIS PROBLEM PepsiCo Coca-Cola (a) Net increase (decrease) in property, plant, and equipment (net) from 2006 to 2007 $1,541,000,000 $1,590,000,000 (b) Increase (decrease) in selling, general, and administrative expenses from 2006 to 2007 $1,497,000,000 $1,514,000,000 (c) Increase (decrease) in long-term debt (obligations) from 2006 to 2007 $1,653,000,000 $1,963,000,000 (d) Increase (decrease) in net income from 2006 to 2007 $ $ 901,000,000 (e) Increase (decrease) in cash and cash equivalents from 2006 to 2007 3-76 Copyright © 2009 John Wiley & Sons, Inc 16,000,000 (($ 741,000,000) Weygandt, Accounting Principles, 9/e, Solutions Manual $1,653,000,000 (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BYP 3-3 EXPLORING THE WEB (a) The categories are: The Big Professional Associations Education Finance Professors Taxation Audit and Law Government 10 11 12 13 14 15 16 17 18 Edgar FASB International Publishers Journals and Publications Softwares Other sites Entertainment Interest books (b) Student answers will vary depending on the category selected Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 3-77 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BYP 3-4 (a) DECISION MAKING ACROSS THE ORGANIZATION HAPPY CAMPER PARK Income Statement For the Quarter Ended March 31, 2010 Revenues Rental revenue ($90,000 – $15,000) Expenses Wages expense [$29,800 + ($300 X 2)] Advertising expense ($5,200 + $110) Supplies expense ($6,200 – $1,700) Repairs expense ($4,000 + $260) Insurance expense ($7,200 X 3/12) Utilities expense ($900 + $180) Depreciation expense Interest expense ($12,000 X 10% X 3/12) Total expenses Net income $75,000 $30,400 5,310 4,500 4,260 1,800 1,080 800 300 48,450 $26,550 (b) The generally accepted accounting principles pertaining to the income statement that were not recognized by Amaya were the revenue recognition principle and the matching principle The revenue recognition principle states that revenue is recognized when it is earned The fees of $15,000 for summer rentals have not been earned and, therefore, should not be reported in income for the quarter ended March 31 The matching principle dictates that efforts (expenses) be matched with accomplishments (revenues) whenever it is reasonable and practicable to so This means that the expenses should include amounts incurred in March but not paid until April The difference in expenses was $7,750 ($48,450 – $40,700) The overstatement of revenues ($15,000) plus the understatement of expenses ($7,750) equals the difference in reported income of $22,750 ($49,300 – $26,550) 3-78 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BYP 3-5 COMMUNICATION ACTIVITY Dear President Nickels: Upon reviewing the accounts of your company at the end of the year, I discovered that adjusting entries were not made Adjusting entries are made at the end of the accounting period to ensure that the revenue recognition and matching principles required under generally accepted accounting principles are followed The use of adjusting entries makes it possible to report on the balance sheet the appropriate assets, liabilities, and owner’s equity at the statement date and to report on the income statement the proper net income (or loss) for the year Adjusting entries are needed because the trial balance may not contain an up-to-date and complete record of transactions and events for the following reasons: Some events are not journalized daily because it is not efficient to so Examples are the use of supplies and the earning of wages by employees The expiration of some costs is not journalized during the accounting period because these costs expire with the passage of time rather than as a result of recurring daily transactions Examples of such costs are building and equipment depreciation, rent, and insurance Some expenses, such as the cost of utility service and property taxes, may be unrecorded because the bills for the costs have not been received There are four types of adjusting entries: Prepaid expenses—expenses paid in cash and recorded as assets before they are used or consumed Unearned revenues—revenues received in cash and recorded as liabilities before they are earned Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 3-79 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BYP 3-5 (Continued) Accrued revenues—revenues earned but not yet received in cash or recorded Accrued expenses—expenses incurred but not yet paid in cash or recorded I will be happy to answer any questions you may have on adjusting entries Signature 3-80 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BYP 3-6 ETHICS CASE (a) The stakeholders in this situation are: Cathi Bell, controller The president of Bluestem Company Bluestem Company stockholders (b) It is unethical for the president to place pressure on Cathi to misstate net income by requesting her to prepare incorrect adjusting entries It is customary for adjusting entries to be dated as of the balance sheet date although the entries are prepared at a later date Cathi did nothing unethical by dating the adjusting entries December 31 (c) Cathi can accrue revenues and defer expenses through the preparation of adjusting entries and be ethical so long as the entries reflect economic reality Intentionally misrepresenting the company’s financial condition and its results of operations is unethical (it is also illegal) Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 3-81 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com BYP 3-7 ALL ABOUT YOU ACTIVITY We address the issue of contingent liabilities with greater precision in Chapter 11 Our primary interest in this exercise is to engage students in a discussion regarding the general nature of the financial statement elements (assets, liabilities, equity, revenues and expenses) (a) By taking out the bank loan your friend has incurred a liability You 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) 3-82 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 don’t have specific information that would suggest that it will happen Therefore, you probably don’t 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 Copyright © 2009 John Wiley & Sons, Inc Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) ... 5–7 AN Moderate 60–70 BYP1 5, AN Simple 10–15 BYP2 — AN Simple 10–15 BYP3 — AN Simple 10–15 BYP4 2–7 S Moderate 15–20 BYP5 3–6 C Simple 10–15 BYP6 3–6 E Moderate 10–15 BYP7 — E Moderate 10–15... Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) Copyright © 2009 John Wiley & Sons, Inc Prepare adjusting entries for deferrals *5 Weygandt, Accounting Principles, ... Weygandt, Accounting Principles, 9/e, Solutions Manual (For Instructor Use Only) 3-7 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTIONS