Solution manual intermediate accounting 9e by nicolai appendix c

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com APPENDIX C REVIEW OF THE ACCOUNTING PROCESS CONTENT ANALYSIS OF EXERCISES AND PROBLEMS Number Content Time Range (minutes) EC-1 Financial Statement Interrelationship Diagram 5-10 EC-2 Journal Entries Sales, purchases, accounts payable 5-10 EC-3 Journal Entries Sales, purchases, accounts payable, accounts receivable Post to t-accounts 5-10 EC-4 Income Statement Partial through gross profit on sales 5-10 EC-5 Income Statement Calculations, fill in the blanks 5-10 EC-6 Financial Statements Prepare income statement, retained earnings statement, balance sheet, closing entries EC-7 Adjusting Entries Bad debts, accruals, deferrals EC-8 Adjusting Entries Recognizing necessary adjustments, journal entries 10-15 EC-9 Adjusting Entries Record changes in trial balance accounts 5-10 EC-10 Closing Entries Prepare from ending account balances 5-15 EC-11 Reversing Entries Recognizing and preparing appropriate reversals 5-15 EC-12 Special Journals Indicate appropriate journal and account for various transactions 10-15 EC-13 Worksheet Adjustments, income statement, retained earnings statement, balance sheet Prepare financial statements from worksheet 10-20 EC-14 Worksheet Adjustments, income statement, retained earnings statement, balance sheet Financial statement preparation Closing entries 15-20 EC-15 Cash-Basis Accounting Prepare accrual-based income statement and balance sheet from cash-basis accounting records 15-20 C-1 10-20 5-15 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Number Content Time Range (minutes) PC-1 Trial Balance Journal entries, posting to general ledger, preparing trial balance 90-120 PC-2 Financial Statements Periodic inventory system Preparation of income statement, retained earnings statement, balance sheet from trial balance Closing entries 30-45 PC-3 Financial Statements Perpetual inventory system Preparation of income statement, retained earnings statement, balance sheet from trial balance Closing entries 30-45 PC-4 Adjusting Entries Recognize, calculate, journalize adjustments Accruals, deferrals, year-end 15-30 PC-5 Adjusting Entries Calculate and journalize accruals, deferrals, and year-end adjustments 20-40 PC-6 Adjusting Entries Determine by comparing trial balance and adjusted trial balance Prepare necessary reversing entries 20-40 PC-7 Adjusting Entries Year-end adjustments to update trial balance accounts 20-40 PC-8 Reversing Entries Note payable, note receivable Recording collection, payment with and without reversing entries 15-30 PC-9 Errors Effect on net income, total assets, total liabilities, total stockholders' equity 15-20 PC-10 Errors in Financial Statements Indicate effect on net income, assets, liabilities, and stockholders' equity of various errors 15-20 PC-11 Reversing Entries Prepare appropriate reversals and explain why entries should be reversed 15-30 PC-12 Special Journals Various transactions, record in appropriate journal 30-40 PC-13 Worksheet Prepare and complete worksheet Financial statements, adjusting and closing entries 60-90 PC-14 Worksheet Complete worksheet Prepare financial statements, adjusting and closing entries 75-105 PC-15 Special Journals Journalize and post various transactions in appropriate journals and accounts 45-90 PC-16 Comprehensive Journal entries, posting, trial balance, financial statements, adjusting and closing entries 90-120 PC-17 Comprehensive: Statements From Incomplete Records Prepare worksheet and financial statements from checkbook and other information 45-90 C-2 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Number PC-18 Content (AICPA adapted) Comprehensive Accrual adjustments to cash-basis records, worksheet, statement of changes in capital Time Range (minutes) 45-90 ANSWERS TO QUESTIONS QC-1 A primary objective of financial reporting is to provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions QC-2 An accounting system is the means by which a company records and stores the financial and managerial information from its transactions so that it can retrieve and report the information in an accounting statement All companies have accounting systems, ranging in degree of sophistication from the simple to the complex QC-3 Assets = Liabilities + Stockholders' Equity Stockholders' Equity = Contributed Capital + Retained Earnings Retained Earnings = Beginning Retained Earnings + Net Income - Dividends Net Income = Revenues - Expenses QC-4 A double-entry system standardizes the method that a company uses to record changes in its accounts resulting from various business transactions or events For each transaction or event that a company records, the dollar amount of the debits entered in all the related accounts must be equal to the total dollar amount of the credits These debit or credit entries affect two or more accounts in the assets, liabilities, and stockholders' equity (including the temporary accounts) All normal accounts on the left side of the accounting equation (assets) are increased by debits and decreased by credits whereas accounts on the right side of the equation (liabilities and stockholders' equity) are increased by credits and decreased by debits QC-5 A permanent account is an account whose balance at the end of the accounting period is carried forward into the next accounting period Examples: Cash, Accounts Payable, Capital Stock A temporary account is an account that is used temporarily to determine the change in retained earnings that occurred during the accounting period The balance in a temporary account is closed out at the end of the period Examples: Sales, Purchases, Salaries Expense C-3 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com QC-6 The major financial statements of a company include: a The income statement, which summarizes the results of the company's incomeproducing activities for the accounting period b The balance sheet, which summarizes the amounts of the assets, liabilities, and stockholders' equity of the company on a particular date c The statement of cash flows, which summarizes the cash receipts and cash payments of the company for the accounting period Some companies also have a fourth financial statement for reporting their comprehensive income QC-7 a An account is used by a company to store the recorded monetary information from its transactions and events An account can be in several physical forms such as a location on a computer disk or a standardized business paper b A contra account is an account established to emphasize a reduction from a related account c A ledger is the group of accounts for a company d A journal (or document of original entry) is used by a company to initially record the debit and credit entries to all accounts affected by its transactions e Posting involves transferring the date and debit and credit amounts from the journal entries to the appropriate debit and credit sides of the applicable accounts in the general or subsidiary ledger QC-8 The advantages to a company of initially recording each transaction in a journal include the following a Use of a journal helps to prevent errors because all account titles and debit and credit entries are initially recorded in one place b All the transactional information is recorded in one place, thereby providing a complete picture of the transaction c Since the transactions are recorded as they occur, the journal also provides a chronological record of the company's financial transactions QC-9 a b c d e Purchase of land on account Sale of capital stock for cash Collection of accounts receivable Payment of accounts payable Retirement of capital stock for cash (note: many examples may show a decrease in an asset and an increase in a contra-stockholders' equity account) QC-10 a b c d Purchase of merchandise on account Return of defective merchandise for credit Purchase of merchandise for cash Return of defective merchandise for cash refund C-4 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com QC-11 The steps that a company completes in the accounting cycle include: a Recording daily transactions or events in a journal The daily transactions or events are recorded in the general journal or the special journal b Posting journal entries to the accounts in the general ledger The dates and debit and credit amounts from the journal entries in the general journal and the special journals are transferred to the appropriate debit and credit sides of the applicable accounts in the ledger c Preparing and posting adjusting entries At the end of the accounting period, certain accounts are updated through the use of an adjusting entry so that financial statements include the correct amounts for the current period Those entries are transferred (by posting) to the appropriate accounts in the ledger just as the other journal entries are d Preparing the financial statements After all the adjusting entries have been posted to the general ledger, an adjusted trial balance is prepared From the adjusted trial balance, the income statement, the retained earnings statement, and the balance sheet are prepared e Preparing and posting closing entries All the temporary accounts are closed (their balances are reduced to zero) and the inventory and retained earnings accounts are updated by closing entries which are posted to the general ledger QC-12 For most companies, not all of their accounts are up to date at the end of the accounting period Some of these accounts need to be adjusted so that all revenues and expenses are recorded and the balance sheet accounts have a correct ending balance This is accomplished through the use of adjusting entries QC-13 A prepaid expense is a good or service purchased by the company for use in its operations, but which has not been fully consumed by the end of the accounting period Example: Assume the company paid for a two year insurance policy on July 1, in the amount of $400 and recorded this as Prepaid Insurance At the end of the year, the following adjusting entry is necessary: Insurance Expense [($400 Prepaid Insurance 2) x 1/2] 100 100 A deferred revenue is a payment received by the company in advance for the future delivery of inventory or performance of services Example: Assume the company received months rent, totaling $1,200 in advance on November and recorded the receipt as Unearned Rent On December 31, the following adjusting entry is necessary: Unearned Rent ($1,200 x 2/6) Rent Revenue 400 C-5 400 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com QC-14 An accrued expense is an expense incurred during the accounting period that has been neither paid nor recorded Example: Assume a company pays employees' salaries once a month on the 15th of the month The monthly salaries payment is $5,000 On December 31, the following adjusting entry is necessary: Salaries Expense ($5,000 x 1/2) Salaries Payable 2,500 2,500 An accrued revenue is a revenue earned during the accounting period that has neither been received nor recorded Example: Assume a company received a 90-day note receivable dated December The note has a face value of $10,000 and bears an annual interest rate of 12% The adjusting entry on December 31 is: Interest Receivable ($10,000 x 0.12 x 1/12) Interest Revenue QC-15 100 100 Examples of adjusting entries used to record estimated items include: a Estimation of bad debts: Assume a company adopts a policy of providing allowance for bad debt losses that is equal to ½% of net sales In the current year, the company has net sales of $1,500,000 The adjusting entry on December 31 is: Bad Debt Expense ($1,500,000 x 0.005) Allowance for Doubtful Accounts 7,500 7,500 b Estimation of depreciation expense: The cost of a depreciable asset is systematically allocated as an expense to each accounting period in which the asset is used This allocation process is called depreciation Assume that on July of the current year, a company purchased certain office equipment for $20,000, which is estimated to have a useful life of 10 years and a residual value of $500 Depreciation expense is calculated using the following formula (assuming the straight-line method is used): Annual depreciati on Cost Estimated residual v alue Estimated serv ice life On December 31 of the current year, the company records the following adjusting entry relating to its depreciation expense: Depreciation Expense Accumulated Depreciation [($20,000 - $500) 10 x 1/2] C-6 975 975 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com QC-16 A trial balance lists all of the account balances of a company but does not include the effect of adjusting entries on the accounts An adjusted trial balance lists all of the account balances of a company after the adjusting entries have been posted to the accounts and before closing entries have been made Items on an adjusted trial balance can be readily classified as belonging on either the income statement, retained earnings statement, or balance sheet, and, therefore, a company's financial statements can be easily prepared by using the information on the adjusted trial balance QC-17 A periodic inventory system requires counting, measuring, or weighing goods at the end of the accounting period to determine the quantities on hand Values are then assigned to these quantities to determine the portion of the recorded costs to be included in the ending inventory No record is kept for the cost of inventory which is sold during the period nor the cost of inventory on hand during the period A perpetual inventory system requires the maintenance of records that provide a continuous summary of inventory items on hand Inventory increases and decreases are recorded in the individual inventory accounts, the resulting balances representing the current amounts on hand Under a periodic inventory system, the balance of the beginning inventory account remains the same throughout the entire period, until it is closed at the end of the period When inventories are purchased, the Purchases account is debited and when inventories are sold, the Inventory account is not adjusted The cost of goods sold for the period is calculated by adding the beginning inventory balance to purchases (net) and subtracting the ending inventory balance All inventory losses and errors are buried in the cost of goods sold calculation Under a perpetual inventory system, the purchase of goods increases (debits) the Inventory account In addition, the Cost of Goods Sold account is increased (debited) and the Inventory account is decreased (credited) when the goods are sold A physical count of the units on hand is made at least once a year to confirm the inventory balance listed on the books Variations between the recorded amount and the amount actually on hand resulting from errors in recording, shrinkage, and theft may be recognized The book inventory is adjusted into agreement with the physical count and the discrepancy is recorded as an adjustment to cost of goods sold or an operating expense QC-18 When a company uses a periodic inventory system, cost of goods sold is computed as follows: Beginning inventory Add: Net purchases (including returns, allowances, and freight-in; less discounts taken) Cost of goods available for sale Less: Ending inventory Cost of goods sold C-7 $XX XX $XX (XX) $XX To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com QC-19 Closing entries are made by a company at the end of its accounting period to reduce the balance in each temporary account to zero and to update the retained earnings and inventory accounts After the company posts its closing entries, each temporary account begins the next accounting period with a zero balance, which makes it easier to summarize the company's net income and dividend information for the next accounting period The retained earnings and inventories balances are also updated and become the next period's beginning balances QC-20 Dec 31 Sales Revenue Interest Revenue Purchases Returns and Allowances Purchases Discounts Taken Inventory (December 31) Income Summary To close the temporary accounts with credit balances and to record the ending inventory Dec 31 Income Summary Sales Returns and Allowances Sales Discounts Taken Purchases Freight-In Depreciation Expense Salaries Expense Rent Expense Interest Expense Bad Debt Expense Utilities Expense Income Tax Expense Inventory (January 1) To close the temporary accounts with debit balances and to eliminate the beginning inventory Dec 31 Income Summary Retained Earnings To close the income summary balance (i.e., net income) to retained earnings Dec 31 Retained Earnings Dividends Distributed To close the dividends to retained earnings QC-21 Reversing entries are the exact reverse (accounts and amounts) of adjusting entries They are usually made at the same time as closing entries but are dated the first day of the next accounting period The use of reversing entries is optional; reversing entries are used to simplify the recording of a later transaction related to the adjusting entry The later transaction can be recorded routinely, without the need to consider the possible impact of the prior adjusting entry C-8 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com QC-21 (continued) Assume the ABC Company pays employees' salaries every Friday (5-day work week), the weekly payroll amounts to $6,000, and December 31 falls on Tuesday The adjusting, reversing, and payment entries are as follows: Dec 31 Salaries Expense Salaries Payable To accrue salaries expense ($6,000 x 2/5) 2,400 Jan Salaries Payable Salaries Expense To reverse adjusting entry relating to salaries payable 2,400 Jan Salaries Expense Cash To record payment of weekly salaries 6,000 2,400 2,400 6,000 QC-22 A worksheet is a large sheet of multicolumn accounting paper prepared by a company the end of an accounting period to minimize errors, simplify recording in the general journal of the adjusting and closing entries, and facilitate the preparation of the financial statements It consists of a column for listing all the ledger accounts, and debit and credit columns for the trial balance, adjustments, income statement, retained earnings statement, and balance sheet The trial balance is listed with the current accounts and balances Year-end adjustments are then initially entered on the worksheet The trial balance amount of each account is combined with the adjustments to that account and carried over to the proper column of the financial statement in which the account is located After each column is properly totaled and checked, financial statements, adjusting entries, and closing entries can be prepared from the information contained in the worksheet QC-23 A subsidiary ledger is a group of accounts, all of which pertain to one specific company activity, such as the sale or purchase on account It is common to have an Accounts Receivable subsidiary ledger and an Accounts Payable subsidiary ledger When a subsidiary ledger is used, a control account is maintained in the general ledger On any balance sheet date, the balance of a control account must always be equal to that of the subsidiary ledger Subsidiary ledgers and control accounts are used by large companies selling on credit to many customers and purchasing on credit from many suppliers If all the customer and supplier accounts were included in the general ledger, this ledger would substantially increase in size In order to reduce the size of the general ledger, minimize errors, divide the accounting task, and keep up-to-date records of the company's dealings with charge customers and suppliers, a subsidiary ledger is usually established C-9 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com QC-23 (continued) Example: Assume a company sells goods on account to three customers, A, B, and C During the year, the following transactions occurred and were recorded in a general journal January 15 February 29 April 25 June July 28 September October 21 November December December 22 Sale to A Sale to B Collection from A Sale to C Collection from B Collection from A Collection from B Sale to C Sale to A Collection from C $1,200 800 500 2,400 400 400 200 1,700 1,500 2,400 The Accounts Receivable control account in the general ledger and the Accounts Receivable subsidiary ledger accounts will appear as follows: General Ledger Accounts Receivable Subsidiary Ledger Accounts Receivable Control Account 01/15 1,200 04/25 500 02/29 800 07/28 400 06/07 2,400 09/05 400 11/03 1,700 10/21 200 12/05 1,500 12/22 2,400 12/31 Bal 3,700 A 1,200 04/25 1,500 09/05 1,800 500 400 Bal B 800 07/28 10/21 200 400 200 Bal C 2,400 12/22 1,700 1,700 01/14 12/05 12/31 Bal 02/29 12/31 06/07 11/03 12/31 QC-24 2,400 Special journals are journals used by a company to record transactions with a similar characteristic, such as credit sales and cash payments Advantages of using special journals are that (1) they allow the accounting task to be divided, (2) they reduce the time necessary to complete the various accounting activities, and (3) they provide for a chronological listing of similar transactions Subsidiary ledgers and control accounts are often used with special journals When this occurs, the postings to the Accounts Receivable control account are made less frequently from the sales journal and cash receipts journal C-10 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-15 (continued) (continued) Notes Payable 11/01 Bal 11/20 CP 11/30 Bal 2,400 6,000 8,400 Unearned Rent 11/01 Bal 11/12 CR 11/30 Bal 1,320 1,320 Common Stock, No Par 11/01 Bal 165,000 11/30 Bal 165,000 Retained Earnings 11/01 Bal 11/30 Bal 24,958 24,958 Sales Revenue 11/01 Bal 11/30 CR 11/30 S 11/30 Bal 38,400 3,400 2,300 44,100 Sales Discounts Taken 11/01 Bal 725 11/23 CR 42 11/30 Bal 767 Sales Returns and Allowances 11/01 Bal 842 11/19 G 200 11/30 Bal 1,042 11/01 11/30 11/30 11/30 Bal CP P Bal Purchases 32,000 900 1,600 34,500 Purchases Returns and Allowances 11/01 Bal 1,042 11/09 CR 100 11/30 Bal 1,142 Sales Salaries Expense 11/01 Bal 6,200 11/30 CP 520 11/30 Bal 6,720 Gain on Sale of Land 11/01 Bal 11/05 CR 11/30 Bal 350 350 Purchases Discounts Taken 11/01 Bal 11/26 CP 11/30 Bal 640 16 656 11/01 Bal 11/17 CP 11/30 Bal Freight-in 1,133 60 1,193 Office Salaries Expense 11/01 Bal 4,300 11/30 CP 390 11/30 Bal 4,690 C-65 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-15 (continued) (continued) Advertising Expense 11/01 Bal 1,250 11/27 CP 420 11/30 Bal 1,670 Interest Revenue 11/01 Bal 11/16 CR 11/30 Bal 550 30 580 Accts Receivable Subsidiary Ledger Grant Company 11/13 S 2,300 11/19 G 200 11/23 CR 2,100 11/01 Bal 11/30 Bal Utility Expense 1,845 1,845 11/01 Bal 11/30 Bal Interest Expense 210 210 Accounts Payable Subsidiary Ledger Mason Company 11/26 CP 1,600 11/17 P 1,600 Posting notations: S = Sales Journal, P = Purchases Journal, CR = Cash Receipts Journal, CP = Cash Payments Journal, G = General Journal PC-16 2004 Dec Cash Sales Revenue Made cash sales 3,000 Purchases Freight-in Accounts Payable Cash Purchased merchandise on account and paid related freight charges 2,400 50 11 Sales Returns and Allowances Accounts Receivable Customer returned defective merchandise for credit 600 14 Cash Accounts Receivable Collected on accounts receivable 900 C-66 3,000 2,400 50 600 900 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-16 (continued) (continued) Dec 18 Cash Land Gain on Sale on Land Sold land at a gain 7,800 20 Accounts Receivable Sales Revenue Made credit sales 4,000 21 Accounts Payable Purchases Returns and Allowances Returned defective merchandise for credit 27 Purchases Cash Purchased merchandise for cash 1,250 28 Accounts Payable Cash Paid on accounts payable 1,100 31 Land Cash Notes Payable Purchased land paying a $1,000 down payment and signing a 12%, 2-year note for the balance 6,000 300 5,000 2,800 4,000 300 1,250 1,100 1,000 5,000 Note to Instructor: Only the accounts to which postings are made are shown below 12/01 Bal 12/04 12/14 12/18 12/31 Bal Cash 3,200 12/07 3,000 12/27 900 12/28 7,800 12/31 11,500 50 1,250 1,100 1,000 Accounts Receivable 12/01 Bal 9,900 12/14 12/20 4,000 12/14 12/31 Bal 12,400 C-67 600 900 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-16 (continued) (continued) 12/01 Bal 12/31 12/31 Bal Land 9,000 12/18 6,000 10,000 Notes Payable 12/01 Bal 12/31 12/31 Bal 5,000 12/21 12/28 5,000 5,000 Sales Returns and Allowances 12/01 Bal 6,300 12/11 600 12/31 Bal 6,900 12/01 Bal 12/07 12/27 12/31 Bal Purchases 41,000 2,400 1,250 44,650 12/01 Bal 12/07 12/31 Bal Freight-in 4,300 50 4,350 Accounts Payable 300 12/01 Bal 1,100 12/07 12/31 Bal 10,700 2,400 11,700 Sales Revenue 12/01 Bal 12/04 12/20 12/31 Bal 76,000 3,000 4,000 83,000 Gain on Sale of Land 12/01 Bal 12/18 12/31 Bal 2,800 2,800 Purchases Returns and Allowances 12/01 Bal 3,400 12/21 300 12/31 Bal 3,700 C-68 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ZU COMPANY Worksheet For Year Ended December 31, 2004 Account Titles Cash Accounts receivable Allowance for doubtful accounts Inventory (1/1/04) Supplies Land Buildings and equipment Accumulated depreciation Accounts payable Notes payable Capital stock, no par (2,000 shares) Retained earnings (1/1/04) Dividends distributed Sales revenue Sales returns and allowances Gain on sale of land Purchases Purchases returns and allowances Freight-in Salaries expense Advertising expense Other expenses Totals Salaries payable Depreciation expense Supplies expense Bad debt expense Inventory (12/31/04) Income tax expense Income taxes payable Trial Balance Debit Credit Adjustments Debit Credit Retained Earnings Statement Debit Credit 11,500 12,400 100 (d) 830 12,600 1,400 10,000 42,000 930 12,600 (c) 770 4,200 11,700 5,000 20,000 42,400 630 10,000 42,000 (b)2,100 6,300 11,700 5,000 20,000 42,400 2,000 2,000 83,000 83,000 6,900 6,900 2,800 2,800 44,650 44,650 3,700 4,350 12,500 8,100 4,500 172,900 Balance Sheet Debit Credit 11,500 12,400 3,700 4,350 13,700 8,100 4,500 (a)1,200 172,900 (a)1,200 (b)2,100 (c) 770 (d) 830 4,900 (e)2,460 1,200 2,100 770 830 4,900 98,500 2,460 17,200 106,700 17,200 (e)2,460 Net income 7,360 7,360 Retained earnings (12/31/04) (a) $1,200 accrued salaries (b) $42,000 20 = $2,100 depreciation expense Income Statement Debit Credit (c) $1,400 - $630 = $770 supplies expense (d) $830 bad debt expense C-69 2,460 100,960 5,740 106,700 106,700 106,700 2,000 46,140 48,140 5,740 48,140 48,140 93,730 46,140 93,730 (e) $106,700 - $98,500 = $8,200 pretax income x 30% = $2,460 income tax expense To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-16 (continued) ZU COMPANY Income Statement For Year Ended December 31, 2004 C-70 Sales revenue Less: Sales returns and allowances Net sales Cost of goods sold Inventory, 1/1/2004 Purchases Purchases returns and allowances Freight-in Cost of goods available for sale Less: Inventory, 12/31/2004 Cost of goods sold Gross profit on sales Operating expenses Bad debt expense Depreciation expense Salaries expense Supplies expense Advertising expense Other expenses Total operating expenses Income from operations Other item Gain on sale of land Income before income taxes Income tax expense Net Income Earnings per share (2,000 shares) $83,000 (6,900) $76,100 $12,600 44,650 (3,700) 4,350 $57,900 (17,200) 830 2,100 13,700 770 8,100 4,500 (40,700) $35,400 $ (30,000) $ 5,400 2,800 $ 8,200 (2,460) $ 5,740 $ 2.87 ZU COMPANY Statement of Retained Earnings For Year Ended December 31, 2004 Retained earnings, January 1, 2004 Add: Net income for 2004 Less: Dividends for 2004 Retained earnings, December 31, 2004 $42,400 5,740 $48,140 (2,000) $46,140 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-16 (continued) (continued) ZU COMPANY Balance Sheet December 31, 2004 Assets Current Assets Cash Accounts receivable Less: Allowance for doubtful accounts Inventory Supplies Total current assets Property and Equipment Land Buildings and equipment Less: Accumulated depreciation Total property and equipment Total Assets Current Liabilities Accounts payable Salaries payable Income taxes payable Total current liabilities Long-Term Liabilities Notes payable Total Liabilities $42,000 (6,300) 11,470 17,200 630 $40,800 $10,000 35,700 $45,700 $86,500 Liabilities $11,700 1,200 2,460 $15,360 5,000 $20,360 Stockholders' Equity Contributed Capital Capital stock (2,000 shares) Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 5(a) 2004 Dec $12,400 (930) $11,500 $20,000 46,140 31 Salaries Expense Salaries Payable 1,200 31 Depreciation Expense Accumulated Depreciation 2,100 C-71 66,140 $86,500 1,200 2,100 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-16 (continued) 5(a) (continued) Dec 5(b) 2004 Dec 31 Supplies Expense Supplies 770 31 Bad Debt Expense Allowance for Doubtful Accounts 830 31 Income Tax Expense Income Taxes Payable 31 Sales Revenue Purchases Returns and Allowances Gain on Sale of Land Inventory (12/31/2004) Income Summary 2,460 83,000 3,700 2,800 17,200 31 Income Summary Sales Returns and Allowances Purchases Freight-in Inventory (1/1/2004) Bad Debt Expense Depreciation Expense Salaries Expense Supplies Expense Advertising Expense Other Expenses Income Tax Expense 31 Income Summary Retained Earnings 5,740 31 Retained Earnings 2,000 C-72 100,960 770 830 2,460 106,700 6,900 44,650 4,350 12,600 830 2,100 13,700 770 8,100 4,500 2,460 5,740 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com VALLEY SALES Worksheet For Year Ended December 31, 2004 12/31/03 Balance Debit Credit Account Titles Cash Accounts receivable Inventory Equipment Accumulated depreciation Accounts payable Salaries payable T Tunxis, capital 2,300 10,400 12,500 8,000 33,200 Transactions Debit Credit (b) 6,500 6,400 (b) 1,200 (b) 19,100 33,200 4,000 5,700 9,200 12,000 (f) 1,000 (d) 8,700 (e) 1,800 6,400 1,200 (a)152,800 (b) 2,000 (a) 10,000 (b)117,0001 (b) 3,0503 (b) 4,800 (b) 23,500 (b) 650 (c) 3,1002 (b) 4,100 343,000 343,000 (c) 9,200 (d) 8,500 (e) 1,800 162,000 - $6,100 in beginning accounts payable 2$3,400 - $300 in beginning accounts payable 3$4,250 - $1,200 in beginning salaries payable 10) x 1/2] C-73 8,000 125,500 4,850 4,800 140 (d) 200 790 3,100 4,300 (f) 1,0004 1,000 (g) 140 20,840 140 156,840 22,560 179,400 Net income 7,500 8,700 1,800 19,100 23,500 (g) 20,840 Inventory (12/31/04) 10) + [($4,000 Balance Sheet Debit Credit 12,500 Depreciation expense Interest payable 4($8,000 Income Statement Debit Credit (a)173,200 (b)169,800 (a) 10,400 (c) 9,200 Sales Notes payable Purchases Salaries expense Rent expense T Tunxis, withdrawals Interest expense Office expense Auto expense 1$123,100 Adjustments Debit Credit 17,400 179,400 17,400 67,800 179,400 67,800 45,240 22,560 67,800 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-17 (continued) VALLEY SALES Income Statement For Year Ended December 31, 2004 C-74 Sales Cost of goods sold Inventory, 1/1/2004 Purchases Cost of goods available for sale Less: Inventory, 12/31/2004 Cost of goods sold Gross profit on sales Operating expenses Salaries expense Rent expense Office expense Auto expense Depreciation expense Total operating expenses Income from operations Other item Interest expense Net Income $162,000 $ 12,500 125,500 $138,000 (17,400) $ 4,850 4,800 3,100 4,300 1,000 (120,600) $ 41,400 (18,050) $ 23,350 (790) $ 22,560 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-17 (continued) (continued) VALLEY SALES Balance Sheet December 31, 2004 Assets Current Assets Cash Accounts receivable Inventory Total current assets Property and Equipment Equipment Less: Accumulated depreciation Total property and equipment Total Assets Current Liabilities Accounts payable Salaries payable Interest payable Total current liabilities Long-Term Liabilities Notes payable Total Liabilities $12,000 (7,500) 4,500 $36,800 Liabilities $ 8,700 1,800 140 $10,640 8,000 $18,640 Owner's Equity T Tunxis, capital Total Liabilities and Owner's Equity a$19,100 $ 5,700 9,200 17,400 $32,300 $18,160a $36,800 beginning balance + $22,560 net income - $23,500 withdrawals C-75 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com WARD SPECIALTY FOODS Worksheet to Convert Trial Balance to Accrual Basis December 31, 2004 Cash Basis Debit Credit Cash Accounts receivable Allowance for doubtful accounts Inventory Equipment Accumulated depreciation Prepaid rent Prepaid insurance Accounts payable Accrued expenses Payroll taxes withheld Ward, withdrawals Ward, capital Sales Purchases Income summary–inventory Salaries Payroll taxes Rent Miscellaneous expense Insurance Utilities Depreciation Doubtful accounts expense 18,500 4,500 20,000 35,000 [1] 3,400 [3] 3,000 9,000 4,800 24,000 82,700 [4] 6,300 [5] 600 850 33,650 187,000 29,500 2,900 8,400 3,900 2,400 3,500 235,300 Adjustments Debit Credit 235,300 [8] 900 [7] 4,000 [3] 20,000 [8] 135 [8] 150 [8] 175 [6] 5,800 [2] 1,100 45,560 C-76 [2] 1,100 [6] 5,800 [7] 4,000 [8] 1,360 [4] 5,625 [5] 540 [1] 3,400 [3] 23,000 [4] 675 [5] 60 45,560 Accrual Basis Debit Credit 18,500 7,900 23,000 35,000 6,300 600 24,000 86,700 29,635 3,050 7,725 3,900 2,340 3,675 5,800 1,100 259,225 1,100 14,800 8,800 1,360 850 38,915 190,400 3,000 259,225 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-18 (continued) (continued) Explanations of Adjustments: [1] To convert 2004 sales to accrual basis Accounts receivable, 12/31/04 Deduct: Accounts receivable, 12/31/03 Increase in sales $ 7,900 (4,500) $ 3,400 [2] To record provision for doubtful accounts [3] To record increase in inventory from 12/31/03 to 12/31/04 C-77 Inventory, 12/31/04 Inventory, 12/31/03 Increase $23,000 (20,000) $ 3,000 [4] To adjust rent expense for prepaid rent at 12/31/03 and 12/31/04 Prepaid 12/31/04 ($8,400 x 9/12) Prepaid 12/31/03 ($7,500 x 9/12) Rent expense decrease $ 6,300 (5,625) $ 675 [5] To adjust insurance expense for prepaid insurance at 12/31/03 and 12/31/04 Prepaid 12/31/04 ($2,400 x 3/12) Prepaid 12/31/03 ($2,160 x 3/12) Insurance expense decrease $ $ 600 (540) 60 [6] To record depreciation for 2004 [7] To convert 2004 purchases to accrual basis Accounts payable 12/31/04 Deduct: Accounts payable 12/31/03 Increase in purchases $ 8,800 (4,800) $ 4,000 [8] To convert expenses to accrual basis Payroll taxes Salaries Utilities $ 400 - $250 $ 510 - $375 $ 450 - $275 $1,360 $900 C-77 $150 $135 $175 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com PC-18 (continued) WARD SPECIALTY FOODS Statement of Changes in Mary Ward, Capital For the Year Ended December 31, 2004 Mary Ward, capital, 12/31/03 $38,915 [1] Add: 49,475 [2] $88,390 (24,000) $64,390 Net income for year Deduct: Withdrawals for year Mary Ward, capital, 12/31/04 Explanations of Amounts: [1] Mary Ward, capital, 12/31/03 after adjustment to accrual basis (per worksheet) [2] Computation of net income on accrual basis for the year ended 12/31/04 (per worksheet) Sales Purchases Income summary-inventory Salaries Payroll taxes Rent Miscellaneous expenses Insurance Utilities Depreciation Bad debts Net income $86,700 (3,000) 29,635 3,050 7,725 3,900 2,340 3,675 5,800 1,100 C-78 $190,400 (140,925) $ 49,475 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com C-79 ... the accounting equation (assets) are increased by debits and decreased by credits whereas accounts on the right side of the equation (liabilities and stockholders' equity) are increased by credits... An accounting system is the means by which a company records and stores the financial and managerial information from its transactions so that it can retrieve and report the information in an accounting. .. increased by credits and decreased by debits QC-5 A permanent account is an account whose balance at the end of the accounting period is carried forward into the next accounting period Examples: Cash,