Solutions To The Suggested Problems From The Textbook

CHAPTER 1
1-27 (10-20 min.)

Sept. 2
LaPaz purchased $2,500 of store fixtures on account.
Owner or owners withdrew $3,000 cash.
LaPaz returned $5,000 of computers for $5,000 credit

against its accounts payable.
Computers (inventory) valued at $7,000 were invested in

the company by owners.
LaPaz paid $500 on accounts payable.
LaPaz purchased $3,000 of store fixtures, paying $500

now and agreeing to pay $2,500 later.
10
LaPaz returned $300 of store fixtures for credit against

accounts payable.
1-33 (20-35 min.)

1.
See Exhibit 1-33.
2.
BC PRODUCTS
Balance Sheet
March 31, 20X1
Assets
Cash
Inventory
Equipment
$44,800
15,600
17,500
Total
$77,900
Liabilities and
Stockholders' Equity
Liabilities:
Accounts payable
Note payable
Total liabilities
You, capital
Total
$ 4,500
9,000
$13,500
64,400
$77,900
EXHIBIT 133
BC PRODUCTS
Analysis of Transactions
For the Month Ended March 31, 20X1
Assets
Description of Transactions
1. Initial investment
2. Inventory acquired for cash
3. Inventory acquired on credit
4. Equipment acquired
5. No entry
6. Gloves for family
7. Gloves returned to
supplier for cash
8. No effect on total inventory
9. Caps returned to
supplier for credit
10. Payment on note
11. Equipment acquired
12. Payment to creditors
13. No entry
14. No entry
15. Exchange of equipment
Cash
+60,000
9,000
+Inventory
+ 9,000
+ 8,000
5,000
+15,000
600
300
=
=
=
=
=
=
=
+ 8,000
+10,000
- 600
300
=
=
500
=
=
500
3,000
1,000
1,000
+ 5,000 =
3,000
+ 2,500
+ 44,800
+15,600
77,900
Equip+ ment
Liabilities
+ Owners Equity
Accounts
Note
You,
Payable + Payable + Capital
+60,000
+5,000
4,000
+ 1,500
+17,500
+4,500
+ 9,000
77,900
+64,400
1-42 (10 min.)

1.
The par value line would increase by 500,000,000 x $.01 =

$5,000,000 and the number of shares issued and outstanding
would increase by 500 million. Additional paid-in capital would
increase by 500,000,000 x ($30.00 $.01) = $14,995,000,000.
2.
IBM shows all of its paid-in capital as a one-line item. Therefore,

its common stock line would increase by $60,000,000 and the
number of issued and outstanding shares would increase by 1
million.
CHAPTER 2
2-32 (15-20 min.)
The theme of this solution is that retained earnings is not a pot of
cash awaiting distribution to stockholders.
1.
Cash
$1,000
Paid-in capital
$1,000
2.
Cash
Inventory
Total
$ 200
800
$1,000
Paid-in capital
$1,000
Note in both Requirements 1 and 2 that the ownership equity is

fundamentally a claim against the total assets (in the aggregate).
For example, none of the shareholders have a specific claim on
cash, and none have a specific claim on inventory. Instead, they
all have an undivided claim against (or interest in) all of the
assets.
3.
Cash
$1,150
Paid-in capital
$1,000
Retained earnings
150
Total
$1,150
Retained earnings is part of stockholders' equity. Even though

Cash and Retained earnings have increased by identical
amounts compared to number 1, the retained earnings is
fundamentally a general claim against total assets (just as paid-in
capital is a general claim). Retained earnings is the net rise in
ownership claim attributable to profitable operations. However,
the assets themselves should not be confused with the claims
against the assets.
2-32 (continued)
4.
Cash
$ 50
($1,150 $300 $800)
Inventory
300
Equipment
800
Total
$1,150
Paid-in capital
$1,000
Retained earnings
150
Total
$1,150
The same explanation applies here as in Requirement 3.

However, Transaction 4 should clarify the lack of a specific link
between retained earnings (and paid-in capital) and any
particular assets. The ownership claims are general, not
specific.
5.
Cash
Inventory
($300 + $500)
Equipment
Total
50
800
800
$1,650
Account payable
$ 500
Paid-in capital
1,000
Retained earnings
150
Total
$1,650
The meaning of retained earnings was explained above.

Purchases on "open account" usually create a general liability;
that is, the trade creditors usually hold only general claims
against the total assets, not specific claims against particular
assets (such as mortgages on buildings). In sum, both the
creditors and the owners hold general claims against the assets.
Of course, if the corporation is liquidated (all assets converted to
cash to be distributed to claimants), the creditors' general claims
must be satisfied before the owners get one dollar. Thus, the
stockholders are said to have a residual claim or residual
interest.
2-52
(50-75 min.)
1.
See Exhibit 2-52 on the following page.
2.
FUNCO SUPPLIES COMPANY

Balance Sheet
December 31, 20X8
Assets
Cash
$ 436,000
Accounts receivable
650,000
Merchandise inventory 610,000
Prepaid rent
56,000
Equipment
80,000
Total
$1,832,000
Liabilities and
Stockholders' Equity
Liabilities:
Accounts payable
$ 900,000
Stockholders' equity:
Paid-in capital
300,000
Retained earnings
632,000
Total stockholders' equity 932,000
Total
$1,832,000
EXHIBIT 252
Analysis of Transaction for 20X8
Transactions
Balance,
12/31/X7
a.
b.
c.
d1.
d2.
d3.*
e.
Cash
Accounts
+ Receivable
+ 340
+ 400
+ 200
+1,500
(In Thousands of Dollars)

Assets
=
Merchandise Prepaid
+ Inventory
+ Rent + Equipment
=
+ 860
+1,000
+40
+100
1,250
40
+84
28
84
20
1,250
=
=
=
=
Accounts
Payable
+ 800
+1,000
=
=
=
=
=
=
h.
70
i.
j.
Balance,
12/31/X8
900
100
=
=
900
+ 900
+610
1,832
+56
+80
+ 640
28 (increase rent expense)

20 (increase depreciation
expense)
+1,250
200
+ 650
+300
+1,700 (increase sales revenue)

1,250 (increase cost of
goods sold expense)
40 (increase rent expense)
f.
g.
+ 436
Liabilities and Stockholders' Equity

Paidin
Retained
+ Capital
Earnings
200 (increase wages

expense)
70 (increase misc.
expense)
100 (dividends)**
+300
+ 632
1,832
* All rent effects for the entire year are shown in three steps as part of the analysis of Transaction d. There are alternative ways of handling this transaction, but the ultimate effects
on the accounts would be identical. For instance, Transaction d3 might be shown as a final separate entry after Transaction i or j. The new lease is at a rate of $84 12 = $7 per
month and four months elapse in 20X8.
** Note that the amount of cash dividends is usually tied to the amount of net income, but not necessarily. The amount and timing of dividends is a separate decision by the board
of directors.
2-52
(continued)
Income Statement
For the Year Ended December 31, 20X8
Sales
Deduct expenses:
Cost of goods sold
Rent
Depreciation
Wages
Miscellaneous
Total expenses
Net income
$1,700,000
$1,250,000
68,000*
20,000
200,000
70,000
1,608,000
$ 92,000
*$40,000 for first 8 months plus $28,000 for next 4 months =

$68,000. Note that the beginning balance of prepaid rent of
$40,000 related to the first 8 months of the year, and therefore,
implies a monthly rate of $5,000 and annual rent of $60,000. The
payment in 20X8 of $84,000 represents an increase in the rental.

Statement of Retained earnings
Retained earnings, December 31, 20X7
Net income for the year 20X8
Total
Cash dividends declared
Retained earnings, December 31, 20X8
10
$640,000
92,000
$732,000
100,000
$632,000
2-52 (continued)
Statement of Income and Retained earnings
Sales
Deduct expenses:
Cost of goods sold
$1,250,000
Rent
68,000*
Depreciation
20,000
Wages
200,000
Miscellaneous
70,000
Total expenses
Net income
Retained earnings, Dec. 31, 20X7
Total
Cash dividends declared
Retained earnings, Dec. 31, 20X8
3.
$1,700,000
1,608,000
$ 92,000
640,000
$ 732,000
100,000
$ 632,000
Only the balance sheet would be affected. Cash would be

$100,000 higher and a $100,000 liability -- Dividends Payable -would be created. Both accounts would be decreased by
$100,000 when the dividend disbursement is made on January
31.
We usually point out that a stockholder is simultaneously a
creditor and an owner the minute the board of directors declares
a dividend. Of course, the entity is never liable for a dividend
until such a declaration occurs.
11
CHAPTER 4
4-22 (10-15 min.)
Trucano, Tenant
A
= L +
Cash
1.
2.
3.
4.
Prepaid
Rent
- 18,000 + 18,000
- 6,000
- 6,000
- 6,000
=
=
=
=
Resing, Landlord
SE
A
=
L
+
SE
Unearned
Rent
Rent
Rent
Expense Cash
Revenue
Revenue
+ 18,000 =
- 6,000
=
- 6,000
=
- 6,000
=
+18,000
- 6,000
- 6,000
- 6,000
Trucano:
Rent expense
Prepaid rent
6,000
Resing:
Unearned rent revenue
Rent revenue
6,000
+ 6,000
+ 6,000
+ 6,000
6,000
6,000
4-25 (10 min.)

1.
2.
12
Wage expense (or vacation pay expense)

Accrued salaries and related benefits
To record accrual of vacation pay.
Accrued salaries and related benefits
Cash
To record payment of vacation pay.
40
40
2,000
2,000
4-31 (40-50 min.)

a)
b)
c)
d)
e)
f)
g)
h)
i)
Machinery & equipment

Accounts payable
3,000
Fuel expense
Fuel on hand
700
Prepaid insurance
Insurance expense
($1,600 24) x 15 months remaining =1,000
1,000
Rent expense
Prepaid rent
($6,000 5) = $1,200 Rent for one month
1,200
Prepaid repairs & maintenance

Repairs & maintenance expense
($900 12) x 9 months remaining = 675
675
Interest expense
Accrued interest payable
($600 x .05 x 1.5/12) = 3.75
3.75
Unearned subscription revenue

Subscription revenue
($24,000 12) x 7 months = 14,000
14,000
Inventory
Machinery & equipment
1,000
Accrued interest receivable

Interest revenue
($20,000 x .08 x 2/12) = 266.67
3,000
700
1,000
1,200
675
3.75
14,000
1,000
266.67
266.67
13
4-35 (15-20 min.)

Recall that increases in expense accounts decrease stockholders'
equity.
(a)
Supplies used, $2,000 $900 = $1,100.

A
=
Office
Supplies
Inventory
Supplies used
1,100
SE
Office
Supplies
Expense
1,100
1,100
Four months of services rendered, 4 x $3,000 = $12,000.

A
Fees earned
Journal entry:
Unearned fee revenue
Fee revenue
14
1,100
Journal entry:
Office supplies expense
Office supplies inventory
(b)
L
+
SE
Unearned
Fee
Fee
Revenue
Revenue
= 12,000
+12,000
12,000
12,000
4-35 (continued)
(c)
Interest earned, $8,000 x .12 x 3/12 = $240.

A
=
Accrued
Interest
Receivable
Interest earned
+240
Wages earned but unpaid

Journal entry
Wages expense
Accrued wages payable
SE
Interest
Revenue
Journal entry:
Accrued interest receivable
Interest revenue
(d)
+240
240
240
L
+
SE
Accrued
Wages
Wages
Payable
Expense
+600
600
600
600
15
CHAPTER 5
5-45
(15-20 min.)
POOLS, INC.
Statement of Cash Flows
(In Thousands)
Cash flows from operating activities:
Cash collections from customers
Cash payments:
To suppliers
To employees
For other expenses
For interest
For income taxes
Cash disbursed for operating activities
Net cash provided by operating activities
$1,400
$(825)
(200)
(100)
( 11)
(35)
(1,171)
229
Cash flows from investing activities:

Purchase of plant and facilities
Cash flows from financing activities:
Issued long-term debt
Paid dividends
Net cash provided by financing activities
Net decrease in cash
Cash, December 31, 20X6
Cash, December 31, 20X7
16
(435)
110
(41)
69
(137)
176
$ 39
5-52
(10-15 min.)
POOLS, INC.
Supporting Schedule to Statement of Cash Flows
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
(In Thousands)
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Add:
Depreciation, which was included
in computing net income but does
not affect cash
Deduct: Increase in accounts receivable
Deduct: Increase in inventory
Add:
Increase in accounts payable
Deduct: Decrease in salaries
and wages payable
Add:
Increase in income taxes payable
5-59
1.
$ 314
45
(100)
(50)
25
(10)
5
$ 229
[1,500 1,400]
[ 850 800]
[ 850 825]
[ 200 190]
[ 40 35]
(30-40 min.)
ROSENBERG COMPANY
Statement of Cash Flows
(In Millions)
Cash flows from operating activities:
Cash collections from customers
($275 $14)
Cash payments:
$261
17
To suppliers ($165 + $20 $14)

For general expenses ($51 + $1)
For taxes ($10 $1)
Cash disbursed for operating activities
Cash flows from investing activities:
Acquisition of plant assets
Proceeds from sale of plant assets
Net cash used for investing activities
Cash flows from financing activities:
Issue long-term debt
Pay cash dividends
Net cash provided by financing activities
Net decrease in cash
Cash balance, December 31, 20X3
Cash balance, December 31, 20X4
$(171)
(52)
(9)
(232)
29
$ (98)
6
(92)
$ 50
(2)
48
(15)
20
$ 5
2.
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
Increase in accounts receivable
Increase in inventory
Increase in prepaid general expenses
Increase in accounts payable for merchandise
Increase in accrued tax payable
18
$ 9
40
(14)
(20)
( 1)
14
1
$ 29
3.
Rosenbergs stress may be reduced but not eliminated. The

statement of cash flows has shown why cash has fallen by $15
million. Operating activities provided $29 million, and financing
activities provided an additional $48 million, a total of $77 million.
However, $92 million was needed for the net acquisition of plant
assets.
Severe crunches on cash commonly accompany quick
corporate growth. There may be substantial net income and
working capital provided by operations, but heavy demands for
cash to expand receivables, inventories, and plant assets
diminish the cash on hand despite profitable operations. Hence,
most "growth" companies pay skimpy or no dividends.
19
CHAPTER 6
6-35 (10 min.)
1.
If there is a significant chance that payment on the contract will

not be received, the realization test has not been met.
Recognition of revenue should be delayed until there is a high
probability of receiving the payment. This may mean recognizing
all $11 million of revenue at completion of the contract, and
recognizing all of the expenses on the contract at the same time.
It is reasonable to ask whether the contract should be accepted in
this instance. It is reasonable to suggest that the contract be
altered to require progress payments as milestones are reached.
2.
Revenue should be recognized as it is earned:

20X0 3/10 x $11 million
20X1 3/10 x $11 million
20X2 4/10 x $11 million
=
=
=
$3.3 million
$3.3 million
$4.4 million
$11.0
6-42 (10-15 min.)

1.
n/30 indicates that the gross invoice amount, which is the list price
net of trade discounts (n means net of trade discounts, not net of
cash discounts), should be received by the vendor by 30 days after
the date of the invoice.
EOM means the gross invoice amount should be received by the
end of the month of the invoice.
20
15, EOM means the gross amount should be received by the

fifteenth day after the end of the month of the invoice.
1/10, n/30 means that a discount of 1 percent of the gross amount
may be deducted if the remainder is received by the vendor by the
tenth day after the date of the invoice. Otherwise, the gross
amount should be received by the vendor by 30 days after the date
of the invoice.
2/10, n/30 means the same as the preceding terms, except that the
cash discount is 2%.
2.
You should borrow and use the cash to take advantage of the
discounts offered by both vendors. The equivalent annual interest
rates for "borrowing" from the vendors are 18% for Johns
Fisheries and 36% for Garcia, as compared with the bank rate of
16%.
When the discount applies for ten days and the invoice price is due
anyway by the 30th day, failure to take the discount provides only a
20 day delay or borrowing period.
1/10, n/30 is 1% for 20 days, or 18% for 360 days (that is, 1% x 18
periods of 20 days each).
2/10, n/30 is 2% for 20 days, or 36% for 360 days (that is, 2% x 18
periods of 20 days each).
6-48 (15 min.)

1.
Cash
Accounts receivable
Sales
To record sales
Cash
400,000
600,000
1,000,000
560,000
21
Accounts receivable
To record collections
560,000
Bad debt expense

Allowance for bad debts
To record bad debt expense
12,000

Accounts receivable
To record write-offs
10,000
2.
Accounts receivable
Book value
12,000
10,000
December 31
20X8
20X7
$120,000*
$90,000
10,000**
8,000
$110,000
$82,000
* $90,000 + $600,000 $560,000 10,000

** $8,000 + $12,000 $10,000
3.
The central question is whether the current balance of Allowance
for Bad Debts is adequate. While receivables rose by 33% from 90,000 to
120,000, the allowance changed by about 25%. This relationship seems
reasonable. Write-offs were similar to the bad debt expense. Additional
questions could be asked to refine this decision. What is the collectibility
of the $120,000 gross balance of receivables? What is the composition of
the receivables? Were there many new customers? How old are the
balances in relation to the ages in previous years?
6-58 (20 min.)

Note that the data provide four years of experience to use in
calculating the proper percentage. Sales and ending accounts receivable
from 20X1 through 20X4 are matched with write-offs for 20X2 through
20X5.
22
1.
Bad debt write-offs as a percentage of sales provides the amount to

be added to the allowance account. Bad debt write-offs as a
percentage of sales are:
($12,500 + $14,000 + $16,500 + $17,600)/($680,000 + $750,000 +
$750,000 + $850,000) = $60,600/$3,030,000 = 2%
Bad debt expense, 20X5 = 2% x $840,000 = $16,800
Ending balance, allowance for uncollectible accounts
= Beginning balance + bad debt expense bad debts written off
= $15,900 + $16,800 $17,600
= $15,100
6-58 (continued)
Use of T-accounts might help:
Allowance for Uncollectible Accounts
Written off
2.
17,600
Beg. Bal.
Expense
End. Bal.
15,900
16,800
15,100
The percentage of ending accounts receivable method provides the

desired balance in the allowance account. The allowance account
balance, as a percentage of ending accounts receivable, should be
calculated as follows:
($12,500 + $14,000 + $16,500 + $17,600)/($90,000 + $97,000 +
$103,000 + $114,000) = $60,600/$404,000 = 15%
Ending balance, allowance for uncollectible accounts, 20X5 = 15% x
$110,000 = $16,500
23
Beginning + bad debt bad debt

balance
expense
write offs
$15,900
+ bad debt $17,600

expense
= Ending balance
= $16,500
Bad debt expense = $16,500 + $17,600 $15,900 = $18,200

The critical issue is to realize the allowance balance before the bad
debt expense entry is the beginning balance of $15,900 less the
write-offs of $17,600; a debit balance of $1,700. The expense must
bring this balance to zero and then create the required $16,500
credit balance
Note: If both problems 6-57 and 6-58 are assigned, you should
realize that the tables are constructed differently. Both are explicit
about timing, but the structure of the solutions make different
assumptions. In 6-57 the write-offs are related to the A/R in the
same row. In 6-58 the write-offs are listed for the year in which they
were written off, not in the year in which the sale arose.
Using the T-account for the percentage of ending accounts
receivable method:
Allowance for Uncollectible Accounts
Written off
24
17,600
Beg. Bal.
Expense
End. Bal.
15,900
18,200
16,500
CHAPTER 7
7-32 (20 min.)
Sales
$71,200
Sales returns
2,300
Net sales
$68,900
Cost of goods sold:
Inventory, January 1*
x = $39,864
Purchases
$54,000
Purchase returns
2,000
Net purchases
$52,000
Freight in
500
52,500
Cost of goods available for sale
$92,364
Inventory, January 15
40,000
Cost of goods sold, .76 x $68,900
52,364
Gross margin, .24 x $68,900
$16,536
* $52,364 + $40,000 52,500 = $39, 864
or:
Cost of goods sold (.76 x 68,900)
Cost of goods purchased
Inventory increase
Beginning Balance = Ending Balance + Change =
$40,000 - $136
$52,364
52,500
$ 136
$39,864
25
7-34 (10-15 min.)

Cost of Goods Available = 21,400
(8,000 + 4,200 + 4,400 + 2,300 + 2,500)
LIFO Ending Inventory = (4,000 @ 2) + (1,500 @ 2.10) = 11,150
FIFO Ending Inventory = 1,000 @ 2.50= 2,500
1,000 @ 2.30=
2,300
2,000 @ 2.20=
4,400
1,500 @ 2.10=
3,150
5,500
12,350
Weighted average = 21,400/10,000
Ending inventory
5,500 @ 2.14
= 2.14 per unit

= 11,770
Cost of Goods Sold Calculation:
Cost of goods available

Less Ending Inventory
Cost of Goods Sold
26
LIFO
21,400
(11,150)
10,250
Weighted
FIFO
Average
21,400
21,400
(12,350)
(11,770)
9,050
9,630
7-85 (15-20 min.)

1.
Raw material used
= 1,500 shirts @ $3
= $4,500
Wages paid
= 1 month
1,600
Depreciation
= 1,500 units
@ [$5,000 10,000 = .50]
750
Studio rent
500
Total production costs
$7,350
Cost per unit produced
= $7,350 1,500
$ 4.90
Cost of goods sold
= 1,200 x $4.90
= $5,880
Ending inventory:
Raw material available
500 shirts @ $3
Finished goods
1,500 1,200 =
= $1,500
300 shirts @ $4.90
Total inventory
2.
1,470
$2,970
SAMS T-SHIRTS
Income Statement for January
Revenue 1,200 shirts @ $9
Cost of goods sold
Income before tax
Tax expense
Net Income
$10,800
5,880
4,920
1,476
$ 3,444
27
CHAPTER 8
8-29 (5-10 min.)
In the absence if more reliable data, the assessed values for
property taxes are frequently used as a guide to allocating the costs of
a basket purchase.
(1)
Assessed
Value
Land
Building
Total
(2)
(3)
(2) x (3)
Weighting
Total Cost
to Allocate
Allocated
Costs
$200,000
20/60
$720,000
$240,000
400,000
40/60
720,000
480,000
$600,000
$720,000
8-32 (10-15 min.) You may want to use T-accounts too.

1. Depreciation expense, equipment
Accumulated depreciation, equipment
To record annual depreciation:
($880,000-$80,000) 5 = $160,000
160,000
2. Cash
Equipment
Gain on sale of equipment
160,000
80,000
To record sale of equipment:

28
160,000
220,000
20,000
Cash proceeds
$160,000
Original cost
$220,000
Accumulated depreciation,
2 x $40,000 =
80,000
Book value (or carrying
amount)
140,000
Gain on sale
$ 20,000
3.
Cash
Loss on sale of equipment
Equipment
110,000
80,000
30,000
220,000
To record sale of equipment:

Cash proceeds
$110,000
Book value (see above)
140,000
Loss on sale
$ 30,000
8-38 (20-30 min.)

(Equipment costs $32,000, five-year life, predicted residual value of
$2,000)
Straight-Line*
Annual
Book
Depreciation
Value
$32,000
At acquisition
Year
1
2
3
Declining Balance at
Twice the Straight
Line Rate (DDB)**
Annual
Book
Depreciation
Value
$ 6,000
6,000
6,000
26,000
20,000
14,000
$32,000
$12,800
7,680
4,608
19,200
11,520
6,912
29
4
5
6,000
6,000
$30,000
Total
8,000
2,000
2,765
1,659***
$29,512
4,147
2,488
* Depreciation is the same each year, 20% of ($32,000 $2,000).

** Straight-line rate is 100% 5 = 20%. The DDB rate is 40%. Depreciation in the
first year is 40% of $32,000; in the second year it is 40% of ($32,000 $12,800);
in the third year it is 40% of [$32,000-($12,800+$7,680)]; etc.
*** Unmodified, this method will never fully depreciate the existing book value.
Therefore, in the later years of an asset's life, companies typically switch to a
straight-line method. See the text for a fuller explanation. If a switch to
straight-line were used here, it would occur in year 5 and the annual
depreciation would be $2,147, the amount required to reduce the book value
to the end of period salvage value, instead of $1,659.
If both methods were available for tax purposes, a company

would typically choose DDB because it records the depreciation more
quickly and reduces early tax payments. This provides an interest free
loan from the government.
8-48 (10 min.)

a.
b.
c.
d.
E
C
E
E
8-53 (10-20 min.)

1.
30
$3,000,000 2 = $1,500,000
e. C
f. C
g. E
2.
Company C must record the $6 million as an expense of 20X1,

whereas Company D must show the $6 million as an asset
Patents -- on its balance sheet of December 31, 20X1. Company
D must then amortize the $6 million on a straight-line basis over
the useful life of the patents. The useful life of an intangible asset
is the shorter of its economic life and lit legal life, if any.
3.
$420,000 4 = $105,000
4.
a)
b)
Goodwill
Assets
Liabilities
Cash
4,000,000
22,000,000
Yes. The journal entry is:

Impairment loss
1,000,000
Goodwill
16,000,000
10,000,000
1,000,000
31
Chapter 9
9-40 (20-35 min.)
1.
2.
Cash or accounts receivable

Sales
3,000,000
3,000,000
Warranty expense
Liability for warranties
.03 x $3,000,000 = $90,000
90,000
Liability for warranties

Cash, accounts payable,
accrued payroll, etc.
82,000
90,000
82,000
Cash
Deposits on bottles
To recognize a liability.
105,000
Deposits on bottles
Cash
To reduce the liability.
95,000
105,000
95,000
If you have time, you may wish to indicate that the deposits
are far less than the cost of a returnable container. For example,
the sturdy bottles placed on deposit might cost $500,000. (It is
not unusual to ask the customer for a deposit much smaller than
the cost of the container.) Containers are usually amortized over
their average useful lives.
32
9-40 (continued)
3.
Journal Entries
April 1
June 30
July 1
4.
(a)
Cash
Deposits
Interest expense
Deposits
(.04 x 4,000) x 3/12
Deposits
Cash
40
40
4,040
4,040
150,000
150,000
Unearned Sales Revenue would be less by $30,000, and

Stockholders' Equity would rise by $30,000:
Unearned sales revenue
Sales
5.
4,000
Cash and Unearned Sales Revenue would be higher by

$150,000:
Cash
Unearned sales revenue
(b)
4,000
30,000
30,000
The newspaper should show a definite liability and expense in

the amount of $600,000. An accompanying footnote could
indicate the details and the company's optimism regarding a
reversal.
9-44 (10-15 min.)

The general approach to these exercises centers on one
fundamental question: Which of the basic tables am I dealing with?
33
No calculations should be made until after this question is answered

with assurance.
1.
The $20,000 is a lump-sum amount of future worth. You

want the present value of that amount:
PV =
FV
(1 + i)n
The present value factors for n = 5, 1/(1 + i)5, for various values of
i, are on line 5 of Table 9A-2. Substituting:
PV @ 5% = $20,000(.7835) = $15,670
PV @ 10% = $20,000(.6209) = $12,418
PV @ 20% = $20,000(.4019) = $ 8,038
(a)
(b)
(c)
Note that the higher the interest rate, the lower the present
value.
2.
The $3,000 withdrawal is a uniform annual amount, an

annuity. You need to find the present value of an annuity
for five years using values from Table 9A-3:
PVA = Annual withdrawal x F, where F is the annuity present

value factor
PVA @ 5% = $3,000(4.3295) = $12,988.50
PVA @ 10% = $3,000(3.7908) = $11,372.40
PVA @ 20% = $3,000(2.9906) = $ 8,971.80
34
(a)
(b)
(c)
9-53 (25-40 min.)

1.
Proceeds equal the present values of interest and maturity

payments at the market rate:
Interest payment = 1/2 x 6% x $10,000,000 = $300,000
PV of interest payments, $300,000 x 8.1109*
$2,433,270
PV of maturity payment, $10,000,000 x .6756*
6,756,000
Proceeds
$9,189,270
* From Tables 9A-3 and 9-A2, respectively, 4% column, 10-period row
Using a computer to avoid rounding errors, the present value is
PV of interest payments
PV of maturity payment
Proceeds
$2,433,268.73
6,755,641.69
$9,188,910.42
For the remainder of this problem we will use the numbers

derived from the tables. If you used the more precise calculation,
your numbers will be just slightly different.
2.
First semi-annual interest expense,

4% x $9,189,270
Semi-annual interest payment
Amortization of bond discount
$367,571
300,000
$ 67,571
Analysis of Bond Transactions

A
=
=
Cash
a. Issuance
b. First semi-annual
interest
L
Bonds
Payable
+
Discount on
Bonds
Payable
SE
Retained Earnings
+9,189,270 = +10,000,000 810,730

300,000 =
c. Maturity value
10,000,000 = 10,000,000
Bond related totals* 3,810,730
+ 67,571
Increase
367,571 Interest
Expense
3,810,730
35
* Bond totals include 10 semi-annual payments of $300,000 plus repayment

of $810,730 in excess of the original borrowing.
9-53 (continued)
3.
a.
Cash
9,189,270
Discount on bonds payable
810,730
Bonds payable
10,000,000
To record proceeds upon issuance
of 6% bonds maturing on
January 1, 2009.
b.
Interest expense
Discount on bonds payable
Cash
To record amortization of discount
and payment of interest.
c.
4.
67,571
300,000
Bonds payable
10,000,000
Cash
10,000,000
To record payment of maturity
value of bonds and their retirement.
When presented on balance sheets, unamortized discounts are

deducted from the face value of the related bonds:
Bonds payable, 6% due January 1, 2009

Deduct: Discount on bonds payable
Net Liability
* 810,730 67,571 = 743,159
36
367,571
January 1, 2004
$10,000,000
810,730
$ 9,189,270
July 1, 2004
$10,000,000
743,159*
$ 9,256,841
9-57 (25-35 min.)

Proceeds were $11,359,150.
1.
Analysis of Bond Transactions

A
Cash
+11,359 =
a. Issuance
b. First semi-annual interest
c. Maturity value
Bond related totals***
L
+
SE
Premium
Bonds on Bonds
Payable Payable
Retained Earnings
+10,000
+1,359
500* =
10,000 =
8,641 =
46
10,000
0
Increase
454** Interest
Expense
8,641
* $10,000,000 x 10% x 1/2

** $11,359,000 x 8% x 1/2
*** Bond related totals represent 20 semi-annual payments of $500 less
repayment of $1,359 less than the proceeds at issue.
2.
Journal Entries
a.
b.
Cash
Bonds payable
Premium on bonds payable
To record proceeds upon issuance
of 10% bonds maturing on
December 31, 20Y4.
11,359
Interest expense
Premium on bonds payable
Cash
To record amortization of premium
and payment of interest.
454
46
10,000
1,359
500
37
9-57 (continued)
c.
3.
Bonds payable
Cash
To record payment of maturity value
of bonds and their retirement.
10,000
10,000
When presented on balance sheets, unamortized premiums are

added to the face value of the related bonds (in thousands):
December 31, 20X4
Bonds payable, 10% due December 31, 20Y4

Add: Premium on bonds payable
Net liability
$10,000
1,359
$11,359
June 30, 20X5
$10,000
1,313*
$11,313
* 1,359 46 = 1,313
9-63 (20-30 min.)

Some instructors may prefer to (a) ask students to prepare
entries for two years only here and (b) also assign the next problem.
1.
PVA = $40,000 x Annuity Factor for 3 years at 18%

= $40,000 x 2.1743
= $86,972
2.
Equipment leasehold
Lease liability, current*
Lease liability, long-term
To record capital lease.
38
86,972
24,345
62,627
Analysis of first installment:

Total amount
Interest, .18 x $86,972
Principal portion, current liability
Total liability
Current liability
Long-term liability
$40,000
15,655
$24,345
$86,972
24,345
$62,627
Entry for straight-line amortization of the asset for each of

three years:
Amortization of equipment leasehold
Equipment leasehold
To record straight-line amortization:
$86,972 3 = $28,991.
28,991
28,991
Lease Payments and Liability Reclassifications

End of Year One
Interest expense
Lease liability, current
Cash
To record interest expense and
reduction of liability.
15,655
24,345
Lease liability, long term

To reclassify next installment of
long-term debt as short-term debt.
28,727
40,000
28,727
Analysis of second installment:
39
Total
Interest portion:
.18 x ($86,972 $24,345)
= .18 x $62,627 =
Principal portion, current liability
Total liability
Current liability
Long-term liability
$40,000
11,273
$28,727
$62,627
28,727
$33,900
End of Year Two

Interest expense
Cash
To record interest expense and
reduction of liability.
11,273
28,727
Lease liability, long-term

To reclassify next installment
of long-term debt as short-term debt.
33,900
40,000
33,900
End of Year Three

Interest expense
Cash
6,100
33,900
40,000
Analysis of third installment:

Total amount
Interest, .18 x $33,900
Principal
40
$40,000
6,102
$33,898*
* Rounding causes this amount to differ from the $33,900 liability. These
rounding errors occur because the present value tables are carried to four
places only rather than to five or more places. This rounding causes the
present value of the lease to be rounded at its inception.
41
9-64 (30-40 min.)

Amounts are in dollars. Note how the capital lease shows higher
expenses in the first two years.
Operating Lease
Capital Lease
Difference
Total expenses:
Year 1
Year 2
Two years together
40,000
40,000
80,000
44,646 a
40,264 a
84,910
4,646
264
4,910
End of Year 1:
Total assets
Total liabilities
Retained earnings
40,000
57,981 b
62,627 c
44,646
57,981
62,627
4,646
End of year 2:
Total assets
Total liabilities
Retained earnings
80,000
28,990 b
33,900 c
84,910
28,990
33,900
4,910
a.
Amortization
Interest
Total expenses
b.
Yr. 1
Yr. 2
Yr. 3
Year 1
28,991
15,655
44,646
Equipment Leasehold
86,972
28,991
57,981
28,991
28,990
Year 2
28,991
11,273
40,264
c.
Total Lease Liabilities

24,345 86,972
28,727 62,627
33,900
Some instructors may wish to point out that you can also
compute the differences between the operating lease and the
capital lease in pretax income by analyzing the changes in the
asset and liability during a given year. Consider year 2:
42
9-64 (continued)
Beginning balance
Ending balance
Change
Asset
57,981
28,990
28,991
Lease
Liabilities
62,627
33,900
28,727
Difference
264
Similarly, the difference in retained earnings can be measured by

the difference in the leasehold asset and lease liabilities.
For the end of the second year, $28,990 $33,900 = $4,910.
9-66 (15-20 min.) Amounts are in millions.

1.
Each quarterly payment is $40 4 = $10

First quarter:
Total
Interest is .02 x $127
Principal
$10.00
2.54
$ 7.46
Second quarter:
Total
Interest is .02 x ($127 $7.46)
Principal
$10.00
2.39
$ 7.61
2.
Interest expense
Lease liability
Cash
First Quarter
2.54
7.46
10.00
Second Quarter
2.39
7.61
10.00
43
3.
This is a 15-year annuity at 8%. From Table 9A-3 the factor is

8.5595. The present value of these commitments is 8.5595
$1,000 million = $8,559.5 million
Delta acquires far more of its aircraft and other leased assets
under operating leases than under capital leases. Under
reasonable assumptions making these leases capital leases,
Delta's debt level and assets could each be about $8.5 billion
higher.
44
CHAPTER 10
10-35 (5-10 min.)
This preferred stock is cumulative, so all missed preferred stock
dividends must be paid before paying any common stock dividends.
Preferred dividends for 20X5, 20X6, and 20X7 are:
.07 x $4,000,000 x 3 = $840,000
After paying $840,000 in preferred dividends, $160,000 is left for
common stock dividends: $1,000,000 $840,000 = $160,000
10-36 (10 min.) Amounts are in thousands.

November 15: Dividends declared
Dividends payable
To record dividends of $.07
per share.
52,710
December 15: Dividends payable

52,710
Cash
To record payment of cash dividends.
52,710
52,710
10-43 (10 min.)

Rate of return on common equity:
Net income - Preferreddividends

Average of (total stockholde rs' equity - Liquidatin g value of preferred equity)
$2,400,000 $400,000
1 / 2 [($18,400,000 4,400,000) ($20,000,000 4,400,000)]
45
$2,000,000
1 / 2 ($14,000,000 15,600,000)
$2,000,000
13.5%
$14,800,000
Earnings per share of common stock:
Net income Pr eferred dividends

Average number of shares outs tan ding
$2,000,000
$0.50
4,000,000
Price-earnings ratio:
46
Market price per share of common stock

Earnings per share of common stock
$10.00
20
$0.50
10-43 (continued)
Dividend payout ratio
Common dividends per share

Common earnings per share
$.20
40%
$.50
Dividend-yield ratio:
Common dividends per share

Market price per share of common stock
$.20
2.0%
$10.00
Book value per share of common stock
Stockholders' equity Liquidating value of preferred stock

Number of common shares outs tan ding
$20,000,000 $4,400,000
3.90
4,000,000
Note that the book value is lower than the market value. This is
typical. The shareholders are paying for earning power rather than for
assets.
47
10-57 (15-20 min.) Account balances and entries in millions.

1.
Treasury stock
Cash
To acquire 7.9 million shares
942
942
2.
$4,633 million + $942 million $4,767 million = $808 million.
3.
Treasury stock
Cash
6.5
6.5
1/1/03 Stockholders equity = $5,993 $6.5 = $5,986.5

4.
Cash
Treasury stock
Capital in excess of par
9.0
6.5
2.5
3M might maintain an internal separation of its paid-in-capital

and distinguish this as capital from a treasury stock transaction.
The journal entry assumes this is not true.
Many companies adopt a LIFO or FIFO cost flow assumption for
treasury shares, most often FIFO. The problem could be read to
imply specific identification, but this is rare.
48
10-57 (continued)
5.
Cash
Capital in excess of par
Treasury stock
5.0
1.5
6.5
Some companies divide Additional Paid-in Capital into several

separate accounts that identify different sources of capital, for
example:
Additional paid-in capital -- preferred stock
Additional paid-in capital -- common stock
Additional paid-in capital -- treasury stock
transactions
A consistent accounting treatment would call for debiting only
Additional Paid-in Capital-Treasury Stock Transactions (and no
other paid-in capital account) for the excess of the cost over the
resale price of treasury shares. If there is no balance in such a
paid-in capital account, the debit should be made to Retained
Earnings.
49
CHAPTER 11
1.
Original cost on January 1, $160.
Market values
1
150
Balance Sheet Presentation:

Trading securities (at market)
150
1
Income Statement Presentation:
Unrealized gain (loss) on portfolio
of trading securities
(10)
End of Period
2
3
4
140 152 160
140
152
160
For Period
2
3
(10)
12
Current accounting rules require that changes in the market

values of trading securities must affect income in the period
when the market value changes.
2.
50
Journal entries for Periods 1, 2, 3, and 4 follow:

Unrealized loss in trading portfolio
Trading portfolio
To record unrealized loss in portfolio.
10
Unrealized loss in trading portfolio

Trading portfolio
10
10
10
Trading portfolio
Unrealized gain on trading portfolio
To record unrealized gain.
12
Trading portfolio
Unrealized gain on trading portfolio
12

1.
Original cost on January 1, $160.

End of Period
2
3
4
140 152 160
Market values
1
150
Balance sheet presentation:

Available-for-sale securities (at market)
150
140
152
160
Stockholders' Equity:
Unrealized loss on available-for-sale securities*
(10)
* Part of Accumulated other comprehensive income.
(20)
(8)
Income Statement Presentation:

No effect
Current accounting rules require that changes in the market

values of available-for-sale securities do not affect income.
Increases in market value are added to and decreases in market
value are deducted from an account in stockholders equity.
This might be called something like Unrealized gain (loss) on
available-for-sale securities and is part of comprehensive
income.
2.
Journal entries for Periods 1, 2, 3, and 4 follow:

51
10
Unrealized loss on available-for-sale securities
Available-for-sale securities
10
10
Unrealized loss on available-for-sale securities
10
12
12
Unrealized gain on available-for-sale securities

8
8
Unrealized gain on available-for-sale securities
11-31 (15-20 min.)

1.
Answers are in millions of dollars.

Equity Method
Market Method
Liabilities &
Liabilities &
= Stock Equity
= Stock Equity
Assets
Assets
InvestLiabil Stock.
InvestLiabil- Stock.
Cash ments
-ities Equity Cash ments
ities Equity
a.
b.
c.
Acquisition
50
Net income of
Bearpaw
Dividends from + 3
Bearpaw
Effects for year 47
+50
+7
3
+54
=
=
50
+7
=
=
+50
+3
+7
47
+50
+3
+3
The journal entries that would accompany this table are:
52
11-31 (continued)
Equity Method
a.
b.
c.
Market Method
Investment in Bearpaw
Cash
50
Investment revenue*
a.
50
Cash
3
Investment in Bearpaw 50
Cash
50
b. No entry
7
c.
3
Cash
Dividend revenue**
3
3
* More frequently called "Equity in earnings of affiliates"

** Frequently called "dividend income"
Under the equity method, income is recognized by Yukon as it is

earned by Bearpaw rather than when dividends are received.
Cash dividends do not affect net income; they increase Cash
and decrease the Investment balance. In a sense, the dividend is
a partial liquidation of the investor's "claim" against the investee.
The receipt of a dividend is similar to the collection of an account
receivable. The revenue from a sale of merchandise on account
is recognized when the receivable is created; to include the
collection also as revenue would be double-counting. Similarly,
it would be double-counting to include the $3 million of
dividends as income after the $7 million of income is already
recognized as it is earned.
2.
Yukon should account for the investment in Bearpaw

Snowshoes using the equity method. The market method is
generally not used for ownership interests in excess of 20%.
53
11-32 (15 min.)

The year-end balance in Investment in Y is $102 million under the
equity method:
Assets
= Liabilities and Stockholders' Equity
Cash + Investment = Liabilities + Stockholders' Equity
Equity Method
1.
Acquisition
90
2.
Net income of Y
3.
Dividends from Y + 8
Effects for year
82
+
+
90
20
8
+ 102
=
=
=
=
20
20
11-46 (20-25 min.)

1.
(in millions)
As accounts:
Before acquisition
After acquiring B
Bs accounts
Intercompany
eliminations
Consolidated
Cash
Assets
Plant
Assets,
Net
Inventories
150
100
15
+60
+25
30
65
+ 85
20*
110*
Goodwill
=
Stockholders Equity
InvestCommon
ment
Stock Etc.
Retained
in B =
+ Earnings
60
100
+10
+10
100
0
=
=
=
70
200
30
40
=
=
30
70
40
200
* The $20 million would appear as an integral part of the plant assets
because they would be carried at $20 million higher in the consolidated
balance sheet than the carrying amount on the B books. Therefore, plant
assets would appear on the consolidated balance sheet as ($60 + $30) +
$20 = $110.
2.
54
The B plant assets would be carried in the consolidated balance

sheet at $60 million instead of $50 million, and no goodwill would
appear as a separate intangible asset.
3.
Consolidated cash would be $20 million less, and a goodwill

account of $20 million would be created. Note in requirement 2
that all of the cost in excess of book value was linked to specific
plant assets. The balance in the Investment in B account would
be $120 million instead of $100 million on As books before
consolidation.
11-47 (15 min.)

1.
Goodwill = $5.6 billion - $1.7 billion = $3.9 billion
2.
Goodwill amortization was not tax deductible therefore the

entire difference in amortization would affect net earnings.
Amortization dropped by $1,097 so earnings would have been
$11,102 - $1,097 = $10,005 if amortization had continued at
prior levels and earnings would have increased by ($10,005 $8,500) $8,500 or 18%. This is still a very strong increase,
but only 60% as large as it first appeared.
3.
The after tax effect of the Miller transaction would be $2,631

less $900 of taxes or $1,731 so we estimate net earnings to be
$10,005 - $1,731 or $8,274 on a comparable basis to 2001.
This changes the apparent 30% increase to a decline of
($8,274 - $8,500) $8,500 = (2.7%). Note that prior to the sale of
Miller, Millers net earnings were included in Altrias income
via consolidation. Post-sale a similar net earnings
contribution can be expected via the equity interest in SAB, so
it is only the one-time recognition of gain on the sale that
needs to be taken into account.
55
11-53 (15 min.)

1.
If there are no new investments or sales of existing investments

then we would expect the asset account to change as follows:
Beginning Balance + Equity in Earnings Dividends = Ending Balance
To isolate any additional items we can rearrange this equation:

Other items = Beg. Bal. + Equity in Earn. Divs. End. Bal. or
$5,128 + $384 - $128 - $4,737 = $647.
The T-account would show:
Equity-Method Investments
Beg. Bal.
5,128 Dividends received
Equity in income 384 Other decreases
End. Bal.
4,737
128
647
The ending balance is smaller than expected by $647 million.

This suggests that Coca-Cola disposed of some equity
investees that had a cost of $647 million. If true, there would be a
gain or loss on the transaction included in the income statement
and explained in the notes. Alternatively, Coca-Cola might have
purchased additional amounts of an equity investee sufficient to
change it to a consolidated company. The actual notes to CocaColas 2002 report reveal a complex combination of such
transactions.
2.
56
Net earnings includes $384 million but only $128 million was
received in dividends. Thus there should be an amount
subtracted from net earnings labeled Equity in earnings in
excess of dividends received equal to $256 million. Coca-Cola
actually labels this number Equity income or loss, net of
dividends and subtracts it from net income in its indirectmethod cash flow statement.
CHAPTER 12
12-31 (20 min.)
Common Size Income Statements
Lowes and The Home Depot
Total revenues
Cost of sales
Gross profit
SGA and store operating expenses*
Store opening costs
Operating income
Other income
Interest expense
Income before income taxes
Provision for income taxes
Net income
Lowes
The
Home Depot
100.0%
69.7
30.3
20.2
0.5
9.6
0.0
0.7
8.9
3.4
5.5%
100.0%
68.9
31.1
20.9
0.2
10.0
0.1
0.0**
10.1
3.8
6.3%
* Consists of SGA plus Depreciation for Lowes. Consists of Selling

and Store Operating Expenses plus G & A for The Home Depot.
** 0.1%
Lowes and The Home Depot are remarkably similar in terms of
their common-size income statements. This is despite the fact that
The Home Depot has more than twice the sales revenue and almost
two and a half times the net income. The Home Depots gross profit
margin is slightly higher than Lowes. The two companies are almost
identical in their SGA and store operating costs. Lowes store opening
costs are higher but they make up a very small portion of the total cost
structure of either company. Lowes interest expense is also higher
as a percent of sales. Net income as a percent of sales is higher for
The Home Depot than for Lowes.
57
12-32 (20-30 min.)

1.
Current ratio = $15,220 $12,358 = 1.23
2.
Quick ratio = ($15,220 - $3,640) $12,358 = 0.94
3.
Average collection period = 365 ($43,377 [($3,038 + $3,090)

2] ) = 25.8 days
4.
Total-debt-to-total-assets = $27,520 $43,706 = 0.63
5.
Total-debt-to-total-equity = $27,520 $16,186 = 1.70
6.
Interest coverage = ($7,530 + $561) $561 = 14.4
7.
Return on common stockholders equity = ($5,186 - $125)

[($16,186 - $1,580 + $13,706 - $1,634) 2] = 37.9%*
8.
Gross profit rate = ($43,377 $22,141) $43,377 = 49.0%
9.
Return on sales = $5,186 $43,377 = 12.0%
10. Asset turnover = $43,377 [($43,706 + $40,776) 2] = 1.03

11. Return on assets = ($7,530 + $561) [($43,706 + $40,776) 2] =
19.2%
12. Earnings per share ($5,186 - $125) 1,296 = $3.90**
13. Price-earnings ratio = $88.30 $3.90 = 22.64
14. Dividend-yield = $1.64 $88.30 = 1.9%
15. Dividend-payout = $1.64 $3.90 = 42.1%
16. Market to book value = $88.30 ($16,186 - $1,580) 1,297.2 =
7.84***
* Preferred dividends deducted from net income in the numerator.
Preferred stock deducted from total stockholders equity in the
denominator.
** Preferred dividends deducted from net income in numerator.
58
*** Preferred stock deducted from total stockholders equity in the

denominator.
59

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CHAPTER 1

1-27 (10-20 min.)

LaPaz purchased $2,500 of store fixtures on account.

Owner or owners withdrew $3,000 cash.

LaPaz returned $5,000 of computers for $5,000 credit

Computers (inventory) valued at $7,000 were invested in

LaPaz paid $500 on accounts payable.

LaPaz purchased $3,000 of store fixtures, paying $500

LaPaz returned $300 of store fixtures for credit against

1-33 (20-35 min.)

See Exhibit 1-33.

1-42 (10 min.)

The par value line would increase by 500,000,000 x $.01 =

IBM shows all of its paid-in capital as a one-line item. Therefore,

Note in both Requirements 1 and 2 that the ownership equity is

Retained earnings is part of stockholders' equity. Even though

The same explanation applies here as in Requirement 3.

The meaning of retained earnings was explained above.

See Exhibit 2-52 on the following page.

FUNCO SUPPLIES COMPANY

(In Thousands of Dollars)

28 (increase rent expense)

+1,700 (increase sales revenue)

Liabilities and Stockholders' Equity

200 (increase wages

*$40,000 for first 8 months plus $28,000 for next 4 months =

FUNCO SUPPLIES COMPANY

Only the balance sheet would be affected. Cash would be

4-25 (10 min.)

Wage expense (or vacation pay expense)

4-31 (40-50 min.)

Machinery & equipment

Prepaid repairs & maintenance

Unearned subscription revenue

Accrued interest receivable

4-35 (15-20 min.)

Supplies used, $2,000 $900 = $1,100.

Four months of services rendered, 4 x $3,000 = $12,000.

Interest earned, $8,000 x .12 x 3/12 = $240.

Wages earned but unpaid

Cash flows from investing activities:

To suppliers ($165 + $20 $14)

Rosenbergs stress may be reduced but not eliminated. The

If there is a significant chance that payment on the contract will

Revenue should be recognized as it is earned:

6-42 (10-15 min.)

15, EOM means the gross amount should be received by the

6-48 (15 min.)

Bad debt expense

Allowance for bad debts

* $90,000 + $600,000 $560,000 10,000

6-58 (20 min.)

Bad debt write-offs as a percentage of sales provides the amount to

The percentage of ending accounts receivable method provides the

Beginning + bad debt bad debt

+ bad debt $17,600

Bad debt expense = $16,500 + $17,600 $15,900 = $18,200

7-34 (10-15 min.)

= 2.14 per unit

Cost of Goods Sold Calculation:

Cost of goods available

7-85 (15-20 min.)

Raw material used