College Accounting (Chapters 1-24) 14th Edition Solution Manual

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Chapter Opener: Thinking CriticallyFast Facts••••Managerial Implications: Thinking CriticallyDiscussion Questions1.2.3.4.5.6.7.8.9.10.11.12.CHAPTER 1ACCOUNTING: THE LANGUAGE OF BUSINESSGoogle’s mission is to organize the world’s information and make it universally accessible and useful.“Googol” is the mathematical term for a 1 followed by 100 zeros. Google’s play on the term reflectsthe company’s mission to organize the immense amount of information available on the web.Google’s interface can be customized into more than 100 languages.The purpose of the Public Company Accounting Oversight Board is to oversee the accountingprofession through its investigative and enforcement powers and to discipline corrupt accountants andauditors.SEC, AICPA, AAA.The Public Company Accounting Reform and Investor Protection Act of 2002 was passed in responseto the wave of corporate accounting scandals starting with the demise of Enron Corporation in 2001,the arrest of top executives at WorldCom and Adelphia Communications Corporations, andultimately, the demise of Arthur Andersen, an international public accounting firm.Managers use financial information to make decisions about adding new products and services, offeringcurrent products and services, and choosing vendors.Statements of Financial Accounting Standards.Google’s culture is unlike any in corporate America—lava lamps and large rubber balls dot companyheadquarters and the company’s chef used to cook for the Grateful Dead. Google Inc. puts employeesfirst when it comes to daily life in all of their offices.Owners and managers: evaluate operations. Suppliers: assess ability of a firm to pay debts. Banks:ability to repay loans. Tax authorities: determine a tax base. Governmental agencies: legalcompliance. Employees: wage levels and profit-sharing plans.Auditing, tax, and management advisory services.Measure business performance; separate entity.Sole proprietorship (owned by one person). Partnership (owned by two or more people). Corporation(can be owned by one person or many).Public, managerial, and governmental.Advice on how to structure financial affairs in order to reduce taxes without violating tax laws.Establish accounting policies, direct the accounting system, prepare and interpret financial statements,provide financial advice, prepare tax forms.Note to instructor:These questions are designed to check students’ understanding of new terms, concepts,and procedures presented in the chapter.Regulation of financial reporting by publicly owned corporations.Stockholders, the IRS, SEC, banks, lenders and creditors are all examples of organizations that would beinterested in how Google is performing.1-1

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CRITICAL THINKING PROBLEM 1.1Sole proprietorship:Advantage—Heidi would be her own boss and could direct the business as she wants.Partnership:Corporation:Student answers will vary. The student’s reasons for choosing one form of ownership over anotherare more important than the specific choice made. Generate a discussion on the proposed name ofthe business. Ask the students if they think the name is creative.Disadvantages—A corporation is a more complicated form of ownership and is usually moreexpensive to form. There is also more government regulation and, consequently, more paperworkwith a corporation.Disadvantages—Heidi would be responsible for the debts and taxes of the business and may belimited in the amount of capital she could borrow to finance the business.Advantage—Heidi would have one or more partners to assist with business operations and tocontribute capital.Disadvantages—Heidi would have to share control of the business, as well as its profits. Heidicould be liable for the debts of the partnership.Advantages—The business would be a separate entity. Capital would be easier to raise andliability would be limited to the assets of the business.1-2

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SOLUTIONS TO BUSINESS CONNECTIONSManagerial Focus:1.2.3.4.5.6.7.8.Ethical Dilemma:Yes. Ethics and accounting are intertwined.Financial Statement Analysis:Analyze Online:1.Clothing, accessories, outerwear and footwear.2.Investors, suppliers, and banks. To assist the users when making financial decisions.3.15 to 25 year-olds.4.Economic entity because it is a business for profit.Teamwork:Internet Connection:The bank will ask for information to assess the firm's finanacial position. Questions such as how muchproperty does the firm own?; how much debt does the firm owe?; how much cash does the firm have?Anticipated cost of expansion and future income projections may also be requested. Banks might alsorequire a list of your customers and vendors. There is no requirement to indicate to the bank problems youare having with certain customers and vendors.Yes. The firm’s financial records need to be separate from the owner’s personal financial records in orderto evaluate and measure the performance of the business.The manager makes financial decisions based upon the financial information provided by the accountant.The number of Accounting Standards Update used will vary from year to year. Accounting StandardsUpdate are cited as “ASU2016-1 (year) (standard number in chronological order).These standards are important to management because they enhance comparability of reporting practices.Questions asked might include: What is the profit or loss?, How much cash does the business have?, Howmuch money do customers owe the business?.How much money is owed to suppliers?, What is the changein sales volume?, and what is the cost of merchandise sold?Financial information is used to evaluate performance and make decisions about a business or a nonprofitKeep your employees, creditors, and investors happy. Yes, financial information is a tool for makingbusiness decisions that will yield the above results.Inaccurate accounting records and poor business decisions.Every business needs an efficient accounting system which accumulates financial data, classifies andsummarizes the information. Without an accounting system, suppliers, lenders, investors, and governmentaltax authorities would not be able to accurately make decisions based on the financial information of thecompany.1-3

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Part A True-False1.TRUE2.TRUE3.FALSE3.FALSE4.TRUE5.FALSE6.FALSE7.FALSE8.TRUE9.TRUE10.TRUE11.FALSE12.FALSEPart B Completion1.language of business2.international accounting3.FBI4.governmental accounting5.AAA6.AICPA7.generally accepted accounting principles8.SEC9.IRS10.stockholders or shareholders11.shares of stock12.partnerships13.social entity14.recording, classifying15.financial statementsSOLUTIONS TO PRACTICE TEST1-4

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Chapter Opener: Thinking CriticallyFast Facts•••Managerial Implications: Thinking CriticallyDiscussion Questions1.2.3.4.5.6.7.8.9.For the fiscal year 2012, the company’s net income was $421 million while its total operatingrevenue was $17.09 billion.Assets = Liabilities + Owner’s EquityAssets: property owned. Liabilities: debts. Owners’ equity: owner’s financial interest.Assets, liabilities, and owner’s equity.Outflow of money/assets for costs used to produce revenue.withdrawals ending capital balance.Beginning-of-period capital balance, additional investments, net income/loss for period, lessRevenue and expenses; net income or lossNote to instructor:These questions are designed to check students’ understanding of new terms,concepts, and procedures presented in the chapter.Inflow of money/assets resulting from sales or use of property.Balance sheet shows position at particular date; increase of operations for a period of timeFirm name, title of statement, date of statement or the period of time coveredCHAPTER 2ANALYZING BUSINESS TRANSACTIONSIn 2012 Southwest served 63.3 million cans of soda, juices, and water; 14.1 million alcoholicbeverages; 37.2 million bags of pretzels; 88.3 million bags of peanuts; 22.9 million Select-A-Snacks; and 45.5million other snacks.Answers will vary. Students should mention total assets and the type of assets, the liabilities the businesswould be responsible for, and whether the business is making a profit.The individuals in charge of keeping track of these transactions at Southwest as well as in othercompanies, are known as accountants. When recording the transactions, accountants are required tofollow a set of rules and regulations known as GAAP.For every financial transaction that Southwest has, their accountants determine the accounts that wereaffected and then they record, report and then analyze these transactions. By doing so they can, at aspecific point in time and over a stipulated period, be able to assess the company’s financial performanceincluding profitability of the airline, assets owned by the company and of course the amount owed tocreditors and owners.Southwest Airlines opened in 1971 with three planes flying between Houston, Dallas, and SanAntonio. Southwest Airlines currently flies over 100 million passengers a year to 97 cities allacross the country.2-1

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Discussion Questions (continued)10.11.12.EXERCISE 2.1Assets:Liabilities:Owners’ EquityEXERCISE 2.21.$22,2402.$19,0203.$5,6754.$36,7255.$8,875EXERCISE 2.3Assets=Liabilities+1.II = Increase (-)2.IID = Decrease (+)3.I/D4.I/D5.I6.D7.I8.I/D9.D10.DDEXERCISE 2.4=+1.Cash$13,500Accounts Payable$23,180+David Malone, Capital$28,5202.Dental Supplies3,650=+3.Dental Equipment26,550=+4.Office Furniture8,000=+5.Total$51,700=$23,180+$28,520$99,675Db.one asset increase and another decrease; no change in total assetsc.assets decrease, liabilities decreased.assets increase, owner’s equity increasee.assets decrease, owner’s equity decreaseIIf.assets decrease, owner’s equity decreaseTransaction$125,900$26,225Owners’ EquityISubtract total expenses from revenueIncreases owner's equitya.assets increase, owner’s equity increaseOwner’s EquityLiabilitiesAssetsD2-2

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EXERCISE 2.5=Liabilities+Cash+AccountsReceivable+Equipment=AccountsPayable+John AmosCapital+Revenue-Expenses1.+$60,000+$60,0002.+22,000+22,0003.+3,100+3,1004.-4,600+4,6005.+5,050+5,0506.-4,4504,4507.+3,200-3,2008.-13,000-13,000Totals$44,250+$,1,850+$26,600=$9,000+$60,000+$8,150-$4,450EXERCISE 2.6Net income of $23,000RevenueRepair Fees …………………………………………..$51,150ExpensesAdvertising Expense …………………………………………..$6,300Salaries Expense …………………………………………..19,100Telephone Expense …………………………………………..1,150Utilities Expense …………………………………………..1,600Total Expenses …………………………………………..$28,150Net Income …………………………………………..$23,000EXERCISE 2.71.Services were performed for cash.2.Equipment was purchased for cash.3.A payment was made on the amount owed to a creditor.4.An expense was paid in cash.5.Cash was received from charge customer.6.Services were performed on credit.7.An expense was paid in cash.Owner’s EquityAssets2-3

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RevenueFees Income7790000ExpensesAdvertising Expense650000Salaries Expense1600000Telephone Expense80000Total Expenses2330000Net Income5460000EXERCISE 2.9Net Loss of $1,150RevenueService Revenue …………………………………………..ExpensesAdvertising Expense…………………………………………..$3,100Telephone Expense…………………………………………..800Salaries Expense …………………………………………..2,600Cleaning Expense …………………………………………..450Total Expense …………………………………………..Net Loss ………………………………………………..EXERCISE 2.10Alexandria Perez, Capital, September 1, 20162670000Net Income for September5460000Less Withdrawals for September900000Increase in Capital4560000Alexandria Perez, Capital, September 30, 20167230000Statement of Owner’s EquityMonth Ended September 30, 2016$5,800$6,950-$1,150Perez Investment ServicesPerez Investment ServicesIncome StatementMonth Ended September 30, 2016EXERCISE 2.82-4

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AssetsLiabilitiesCash3310000Accounts Payable570000Accounts Receivable400000Office Supplies340000Owner's EquityOffice Equipment3750000Alexandria Perez, Capital7230000Total Assets7800000Total Liabilities and Owner's Equity7800000EXERCISE 2.10 (continued)Perez Investment ServicesBalance SheetSeptember 30, 20162-5

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PROBLEM 2.1A=Liabilities+Owner's EquityCash+AccountsReceivable+Supplies+Equipment=AccountsPayable+Owner’sCapital1.+$97,000+$97,0002.-$19,750+$19,7503.+$14,400+$14,4004.-$11,800-$11,8005.+$30,000+$30,0006.+$8,200+$8,2007.+$6,300+$6,3008.-$4,000-$4,0009.+$3,500-$3,50010.-$6,460+ $6,46011.-$9,000-$9,000Totals$87,690+$2,800+$6,460+$34,150=$2,600+$128,500Analyze: The ending balance in the Cash account is $87,690.PROBLEM 2.2A=Liabilities+Cash+AccountsReceivable+OfficeFurniture+Auto=AccountsPayable+M. DickeyCapital+Revenue-Expenses$61,000+$16,600+$35,800+$23,500=$11,200+$91,500+$58,600-$24,4001.+6,680+6,68061,000+23,280+35,800+$23,500=11,200+91,500+65,280-24,4002.-1,700+1,70059,300+23,280+37,500+$23,500=11,200+91,500+65,280-24,4003.+11,200-11,200AssetsNewBalancesNewBalancesAssetsOwner’s EquityBeginningBalances2-6

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PROBLEM 2.2A (continued)=Liabilities+Cash+AccountsReceivable+OfficeFurniture+Auto=AccountsPayable+M. DickeyCapital+Revenue-Expenses70,500+12,080+37,500+$23,500=11,200+91,500+65,280-24,4004.-880+88069,620+12,080+37,500+$23,500=11,200+91,500+65,280-25,2805.-4,500-4,50065,120+12,080+37,500+$23,500=6,700+91,500+65,280-25,2806.-9,700+9,70055,420+12,080+37,500+$23,500=6,700+91,500+65,280-34,9807.-1,120+1,12054,300+12,080+37,500+$23,500=6,700+91,500+65,280-36,1008.+10,500+10,50064,800+12,080+37,500+$23,500=6,700+91,500+75,780-36,1009.-2,350+2,35062,450+12,080+37,500+$23,500=6,700+91,500+75,780-38,45010.++12,500+12,500$62,450+$24,580+$37,500+$23,500=$6,700+$91,500+$88,280-$38,450Analyze: Total assets equal $148,030.NewBalancesNewBalancesNewBalancesNewBalancesAssetsOwner’s EquityNewBalancesNewBalancesNewBalancesNewBalances2-7

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AssetsCash34300002400000Supplies638000Accounts Receivable1320000Equipment780000010788000Total Assets1318800013188000RevenueFees Income788000ExpensesUtilities Expense98000Salaries Expense890000Telephone Expense31400Total Expenses1019400Net Loss(231400)Taylor Cotton, Capital, May 1, 20165060000Net Loss for May(231400)Less Withdrawal for May300000Decrease in Capital531400)Taylor Cotton, Capital, May 31, 20164528600Total Liabilities and Owner's EquityFebruary 29, 2016LiabilitiesAccounts PayablePROBLEM 2.3ABrown Equipment Repair ServiceOwner's EquityJames Brown, CapitalAnalyze: Owner's Equity is $107,880 at February 29, 2016.Balance SheetStatement of Owner's EquityMonth Ended May 31, 2016Cotton Cleaning ServiceIncome StatementMonth Ended May 31, 2016PROBLEM 2.4ACotton Cleaning Service2-8

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PROBLEM 2.4A (continued)AssetsCash468600490000Accounts Receivable590000Supplies580000Equipment33800004528600Total Assets50186005018600Analyze: The amount of $45,286 (Taylor Cotton, Capital) was transferred to the balance sheet.Cotton Cleaning ServiceBalance SheetMay 31, 2016LiabilitiesAccounts PayableOwner's EquityTaylor Cotton, CapitalTotal Liabilities and Owner's Equity2-9

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PROBLEM 2.1B=Liabilities+Owner's EquityCash+AccountsReceivable+Supplies+Equipment=AccountsPayable+Owner’sCapital1.+$72,000+$72,0002.-$32,000+$32,0003.+$12,000+$12,0004.-$6,000-$6,0005.+$12,000+$12,0006.+$8,400+$8,4007.+$7,300+$7,3008.-$5,200-$5,2009.+$5,000-$5,00010.-$6,300+ $6,30011.-$10,000-$10,000Totals$37,900+$2,300+$6,300+$44,000=$6,000+$84,500Analyze: Transaction 3 increased the Company's debt by $12,000.PROBLEM 2.2B=Liabilities+Cash+AccountsReceivable+Supplies+OfficeFurniture=AccountsPayable+S. CravensCapital+Revenue-Expenses$38,000+$12,000+$12,800+$24,000=$10,000+$49,800+$52,000-$25,0001.+8,000+8,00038,000+20,000+12,800+24,000=10,000+49,800+60,000-25,0002.-2,880+2,88035,120+20,000+12,800+24,000=10,000+49,800+60,000-27,8803.+10,000+10,000AssetsAssetsOwner’s EquityBeginningBalancesNewBalancesNewBalances2-10

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PROBLEM 2.2B (continued)=Liabilities+Cash+AccountsReceivable+Supplies+OfficeFurniture=AccountsPayable+S. CravensCapital+Revenue-Expenses45,120+20,000+12,800+24,000=10,000+49,800+70,000-27,8804.-1,600+1,60043,520+20,000+12,800+24,000=10,000+49,800+70,000-29,4805.-4,800-4,80038,720+20,000+12,800+24,000=5,200+49,800+70,000-29,4806.-1,920+1,92036,800+20,000+12,800+24,000=5,200+49,800+70,000-31,4007.-14,000+14,00022,800+20,000+12,800+24,000=5,200+49,800+70,000-45,4008.+11,200+11,20034,000+20,000+12,800+24,000=5,200+49,800+81,200-45,4009.+2,000+2,00034,000+20,000+14,800+24,000=7,200+49,800+81,200-45,40010.+6,000+-6,000$40,000+$14,000+$14,800+$24,000=$7,200+$49,800+$81,200-$45,400Analyze: Owner's Equity balance is $85,600; $49,800 + ($81,200 - $45,400).NewBalancesNewBalancesNewBalancesNewBalancesAssetsOwner’s EquityNewBalancesNewBalancesNewBalancesNewBalances2-11

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