Financial Accounting: An Integrated Approach, 5th Edition Solution Manual

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Chapter 1
Introduction to financial
accounting
Practice Problems
Practice Problem A
1
Account Classification
Cash at bank Asset
Inventory Asset
Sales Revenue
Wages Expense
Cost of goods sold Expense
Share capital Equity
Accounts payable Liability
2
Income Statement
For the year ending 30 June 2012
$
Sales 210,000
Cost of goods sold (70,000)
Gross profit 140,000
Wages (40,000)
Net Profit 100,000
3
Balance Sheet
As at 30 June 2012
Assets Liabilities and shareholders’ equity
$ $
Cash at bank 210,000 Accounts payable 30,000
Inventory 60,000 Share capital 140,000
Retained profits 100,000 *
270,000 270,000
*Opening retained profit + profit –dividend = closing balance retained profit (0 + 100,000 – 0 = 100,000)

Trotman: Financial Accounting 5e – Practice Problem Solutions
2
Practice Problem B
1 Accrual profit = total sales – total expenses
= $750,000 + 260,000 – 580,000 – 240,000
= $190,000
2 Sales revenue = 2,000 x $8
= $16,000
Cost of goods sold = 2,000 x $5
= $10,000
Practice Problem C
Shareholders’ equity = Assets – Liabilities
= (Property, Plant and Equipment $1,500,000 + Accounts Receivable
$400,000 + Cash $100,000 + Inventory $500,000)
– (Bank loan $250,000 + Wages Payable $90,000)
= $2,500,000 – 340,000
= $2,160,000

Chapter 2
Measuring and evaluating
financial position and financial
performance
Practice Problems
Practice Problem A
$
Sales (300,000 + 100,000) 400,000
COGS (70,000)
Other operating expenses (80,000 + 30,000) (110,000)
Net profit before tax 220,000
Practice Problem B
PSM Limited
Balance sheet
as at 30 June 2012
$000
Current assets
Cash 11,636
Accounts receivable 47,515
Inventory 66,479
Prepayments 3,958
Investments 3,371
132,959
Non-current assets
Other receivable 361
Investments 2,087
Property, plant and equipment 67,760
Other long term assets 42,742
112,950
Total assets 245,909
Current liabilities
Accounts payable 43,091
Provisions for employee entitlements 30,919
74,010
Non-current liabilities
Long-term borrowings 30,866
Provisions for employee entitlements 3,969
34,835
Total liabilities 108,845
Net assets 137,064
Shareholders’ equity
Share capital 108,518
Retained profits 28,546
Total shareholders’ equity 137,064

Trotman: Financial Accounting 5e – Practice Problem Solutions
2
Practice Problem C
1 NE
2 +Revenue, +Net Profit
3 +Expense, –Net Profit
4 NE
5 NE
6 NE
7 NE
8 +Revenue, +Expense, +Net Profit
9 +Expense, –Net Profit
10 NE
11 +Expense, –Net Profit
12 NE
Practice Problem D
Income Statement
for the Month of September 2011
$ $
Sales 30,000
Expenses:
Wages 7,000
Cleaning 1,000
Rent 2,000 10,000
Net Profit 20,000
Balance Sheet
as at 30 September 2011
$ $
Cash 1 102,000 Accounts Payable 1,000
Accounts Receivable 2 19,000 1,000
Shareholders’ equity
Share capital 100,000
Retained profits 3 20,000
120,000
121,000 121,000
1 100,000 – 2,000 + 11,000 – 7,000 = 102,000
2 30,000 – 11,000 = 19,000
3 As there is no opening retained profits and no dividends, it is profit figure from the income statement

Chapter 3
The double-entry system
Practice Problems
Practice Problem A
1 ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY
Cash Accounts
receivable
Inventory Accounts
payable
Rent
payable
Tax
payable
Retained
profits
Revenue Expenses
$ $ $ $ $ $ $ $ $
1 +10,000 +10,000
2 +9,600 -9,600
3 +6,100 +6,100
4 -6,300 -6,300
5 -6,400 -6,400
6 2,400 -2,400
7 -2,900 -2,900
8 350 -350
9 -450 -450
Total -50 400 -300 -200 -500 350 -450 10,000 -9,150
50 = 50
NB. Increases in expenses have been entered as minus figures.
2
Flashy Fashions Ltd
Income statement
For the year ended 30 September 2012
$
Sales 10,000
Less Cost of goods sold 6,400
Gross profit 3,600
Less Operating Expenses
Rent 2,400
Profit before tax 1,200
Less tax expense 350
Net Profit 850
Flashy Fashions Ltd
Balance sheet
as at 30 September 2012
Current Assets $ Current Liabilities $
Cash 750 Accounts Payable 400
Accounts Receivable 800 Tax Payable 350
Inventory 600
Prepaid rent 200 Shareholders’ equity
Share Capital 500
Retained Profits 1,100
2,350 2,350

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Trotman: Financial Accounting 5e – Practice Problem Solutions
3
Practice Problem C
1
Assets = Liabilities + Shareholders’ equity
Cash A/R Inventory Pre-
payments
Equip Accum. Dep A/P Loan Share Capital Opening
Retained
Profits
Revenues Expenses Dividends
90,000 106,000 118,000 45,000 400,000 –125,000 110,000 240,000 200,000 84,000
1 +23,000 –23,000
2 +80,000 +80,000
3 +76,000 –32,000 +76,000 –32,000
4 –4,000 –4,000
5 –60,000 –60,000
6 –7,000 –7,000
7 –9,000 –9,000
8 –13,000 –13,000
9 –28,000 +28,000
10 –6,000 –6,000
11 –36,000 –36,000
43,000 159,000 114,000 36,000 400,000 –129,000 74,000 180,000 280,000 84,000 76,000 –65,000 –6,000

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Trotman: Financial Accounting 5e – Practice Problem Solutions
Practice Problem C (cont’d)
2
Newcombe Ltd
Income Statement for the month ended 30 June 2012
$ $
Sales 76,000
Cost of goods sold (32,000)
Gross profit 44,000
Operating expenses
Wages 13,000
Prepaid expenses 9,000
Administrative 7,000
Depreciation 4,000 (33,000)
Net profit 11,000
Newcombe Ltd
Statement of retained profits for the month ended 30 June 2012
$
Opening retained profits 84,000
Add net profit for the month 11,000
95,000
Less dividends declared (6,000)
Closing retained profits 89,000
Newcombe Ltd
Balance Sheet as at 30 June 2012
Current assets $ Current liabilities $
Cash 43,000 Accounts payable 74,000
Accounts receivable 159,000
Inventory 114,000 Noncurrent liabilities
Prepayments 36,000 Long-term loan 180,000
352,000 254,000
Noncurrent assets Shareholders’ equity
Equipment 400,000 Share capital* 280,000
Accumulated depreciation (129,000) Retained profits 89,000
271,000 369,000
Total assets 623,000 Total liabilities and equity 623,000
3
Net Profit Total Assets Total Liabilities Shareholders’ Equity
1 No effect No effect No effect No effect
2 No effect Increase No effect Increase
3 Increase Increase No Effect Increase
4 Decrease Decrease No Effect Decrease
5 No Effect Decrease Decrease No Effect
6 Decrease Decrease No Effect Decrease
7 Decrease Decrease No Effect Decrease
8 Decrease Decrease No Effect Decrease
9 No Effect No Effect No Effect No Effect
10 No Effect Decrease No Effect Decrease
11 No Effect Decrease Decrease No Effect
NB: If Net Profit increases it increases to Retained Profits and therefore Shareholders’ Equity increases.

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Trotman: Financial Accounting 5e – Practice Problem Solutions
5
4
1 DR Cash $23,000
CR Accounts receivable $23,000
2 DR Cash 80,000
CR Share capital 80,000
3 DR Cost of Goods Sold 32,000
CR Inventory 32,000
DR Accounts receivable 76,000
CR Sales revenue 76,000
4 DR Depreciation expense 4,000
CR Accumulated depreciation 4,000
5 DR Long-term loan 60,000
CR Cash 60,000
6 DR Administrative expense 7,000
CR Cash 7,000
7 DR Prepayments 9,000
CR Expense 9,000
8 DR Wages 13,000
CR Cash 13,000
9 DR Inventory 28,000
CR Cash 28,000
10 DR Retained profits 6,000
CR Cash 6,000
11 DR Accounts payable 36,000
CR Cash 36,000

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Chapter 4
Record-keeping
Practice Problems
Practice Problem A
1 No transaction since no exchange yet.
2 Yes, an exchange of money for advice.
3 No transaction for Bartlett as the exchanges that changed share price were between
investors, not involving Bartlett.
4 Yes, an exchange of advertising received for a promise to pay, so a credit transaction.
5 Yes, for same reason as 4 – work received in exchange for a promise to pay for it.
6 Yes, an exchange of a sort. The teenager received cash and the company got some benefit
(e.g. avoided a later lawsuit or other problem).
7 Yes, goods received in exchange for a combination of cash and promise to pay.
8 Yes, an exchange of cash for a removal of the promise to pay.
9 Yes, an exchange of cash for political benefit. The illegality doesn’t change the fact that a
transaction happened.
10 Yes, an exchange of cash for a promise to repay it.
Practice Problem B
1 Journal entries:
Hoad Ltd
General journal
No Description Post ref Debits Credits
$ $
1 Cash 1 200,000
Share capital 21 200,000
2 Inventory 3 20,000
Cash 1 20,000
3 Rent expense 31 4,000
Cash 1 4,000
4 Inventory 3 30,000
Accounts payable 11 30,000
5 Advertising expense 32 1,000
Expenses payable 12 1,000
6 Accounts receivable 2 90,000
Sales 26 90,000
Cost of goods sold 30 40,000
Inventory 3 40,000
7 Accounts payable (current) 11 25,000
Cash 1 25,000

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Trotman: Financial Accounting 5e – Practice Problem Solutions
2
8 Cash 1 30,000
Accounts receivable 2 30,000
9 Wages expense 33 15,000
Cash 1 15,000
10 Sales commission 34 900
Cash 1 900
11 Office equipment 6 6,000
Cash 1 3,000
Accounts payable (noncurrent) 16 3,000
12 Wages expense 33 2,000
Expenses payable 12 2,000
2 General ledger postings:
Hoad Ltd
General Ledger
Cash 1
1 Share capital 200,000 2 Inventory 20,000
8 Accounts receivable 30,000 3 Rent 4,000
7 Accounts payable 25,000
9 Wages 15,000
10 Sales commission 900
11 Office equipment 3,000
Balance c/d 162,100
230,000 230,000
Balance b/d 162,100
Accounts Receivable 2
6 Sales 90,000 8 Cash 30,000
Balance c/d 60,000
90,000 90,000
Balance b/d 60,000

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Trotman: Financial Accounting 5e – Practice Problem Solutions
3
Inventory 3
2 Cash 20,000 6 Cost of goods sold 40,000
4 Accounts payable 30,000 Balance c/d 10,000
50,000 50,000
Balance b/d 10,000
Office Equipment 6
11 Cash 3,000
Accounts payable
(noncurrent) 3,000
6,000
Accounts Payable—Current 11
7 Cash 25,000 4 Inventory 30,000
Balance c/d 5,000
30,000 30,000
Balance b/d 5,000
Expenses Payable 12
5 Advertising 1,000
12 Wages 2,000
3,000
Accounts Payable—Noncurrent 16
11 Office equipment 3,000
Share Capital 21
1 Cash 200,000

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