Solution Manual for Financial Accounting: An Integrated Approach, 6th Edition
Solution Manual for Financial Accounting: An Integrated Approach, 6th Edition helps you tackle difficult exercises with expert guidance.
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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 2016
$
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 2016
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)
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 2016
$
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 2016
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)
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 2016
$
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 2016
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)
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 2016
$
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 2016
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 6e – Practice Problem Solutions
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
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 2016
$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
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 2016
$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
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Trotman: Financial Accounting 6e – Practice Problem Solutions
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 2016
$ $
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 2016
$ $
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
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 2016
$ $
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 2016
$ $
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
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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 2016
$
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 2016
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
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 2016
$
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 2016
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 6e – Practice Problem Solutions
Practice Problem B
1 $160,000.
2 $105,000.
3 $180,000.
4 $140,000.
Practice Problem B
1 $160,000.
2 $105,000.
3 $180,000.
4 $140,000.
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Trotman: Financial Accounting 6e – Practice Problem Solutions
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
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 6e – Practice Problem Solutions
Practice Problem C (cont’d)
2
Newcombe Ltd
Income Statement for the month ended 30 June 2016
$ $
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 2016
$
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 2016
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.
Practice Problem C (cont’d)
2
Newcombe Ltd
Income Statement for the month ended 30 June 2016
$ $
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 2016
$
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 2016
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 6e – Practice Problem Solutions
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
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
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
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Trotman: Financial Accounting 6e – Practice Problem Solutions
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
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
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
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 6e – Practice Problem Solutions
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
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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Trotman: Financial Accounting 6e – Practice Problem Solutions
Sales 26
6 Accounts receivable 90,000
Cost of Goods Sold 26
6 Inventory 40,000
Rent Expense 31
3 Cash 4,000
Advertising Expense 32
5 Expenses payable 1,000
Wages Expense 33
9 Cash 15,000
12 Expenses payable 2,000
17,000
Sales Commission 34
10 Cash 900
Sales 26
6 Accounts receivable 90,000
Cost of Goods Sold 26
6 Inventory 40,000
Rent Expense 31
3 Cash 4,000
Advertising Expense 32
5 Expenses payable 1,000
Wages Expense 33
9 Cash 15,000
12 Expenses payable 2,000
17,000
Sales Commission 34
10 Cash 900
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Trotman: Financial Accounting 6e – Practice Problem Solutions
3 Trial balance:
Hoad Ltd
Trial balance
as at 30 November 2016
Account Debit Credit
$ $
1 Cash 162,100
2 Accounts receivable 60,000
3 Inventory 10,000
6 Office equipment 6,000
11 Accounts payable—current 5,000
12 Expenses payable 3,000
16 Accounts payable noncurrent 3,000
21 Share capital 200,000
26 Sales 90,000
30 Cost of goods sold 40,000
31 Rent 4,000
32 Advertising 1,000
33 Wages 17,000
34 Sales commission 900
301,000 301,000
4 Closing entries:
DR Sales 90,000
CR P & L Summary 90,000
DR P & L Summary 62,900
CR Cost of goods sold 40,000
CR Rent 4,000
CR Advertising 1,000
CR Wages 17,000
CR Sales commission 900
DR P & L Summary 27,100
CR Retained profits 27,100
3 Trial balance:
Hoad Ltd
Trial balance
as at 30 November 2016
Account Debit Credit
$ $
1 Cash 162,100
2 Accounts receivable 60,000
3 Inventory 10,000
6 Office equipment 6,000
11 Accounts payable—current 5,000
12 Expenses payable 3,000
16 Accounts payable noncurrent 3,000
21 Share capital 200,000
26 Sales 90,000
30 Cost of goods sold 40,000
31 Rent 4,000
32 Advertising 1,000
33 Wages 17,000
34 Sales commission 900
301,000 301,000
4 Closing entries:
DR Sales 90,000
CR P & L Summary 90,000
DR P & L Summary 62,900
CR Cost of goods sold 40,000
CR Rent 4,000
CR Advertising 1,000
CR Wages 17,000
CR Sales commission 900
DR P & L Summary 27,100
CR Retained profits 27,100
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Trotman: Financial Accounting 6e – Practice Problem Solutions
5
Hoad Ltd
Income statement
For the month of November 2016
$ $
Sales 90,000
Less Cost of goods sold 40,000
Gross profit 50,000
Less Operating Expenses
Rent 4,000
Advertising 1,000
Wages 17,000
Sales Commission 900 22,900
Net Profit 27,100
Hoad Ltd
Balance sheet
as at 30 November 2016
Current Assets $ Current Liabilities $
Cash 162,100 Accounts Payable 5,000
Accounts Receivable 60,000 Expenses Payable 3,000
Inventory 10,000 8,000
232,100 Noncurrent Liabilities
Noncurrent Assets Accounts Payable 3,000
Office Equipment 6,000 Total Liabilities 11,000
Shareholders’ equity
Share Capital 200,000
Retained Profits 27,100
227,100
Total Assets 238,100 Total Liabilities and Equity 238,100
Practice Problem C
DR CR
30/6 Sales Revenue 270,000
Investment Revenue 36,000
Cost of Goods Sold 121,000
Wages Expense 98,000
General Expense 7,000
P&L Summary 80,000
P&L Summary 80,000
Retained profits 80,000
2 (a) Sales Revenue: $0
(b) Retained Earnings= $125,000 (Opening balance) + $80,000= $205,000
5
Hoad Ltd
Income statement
For the month of November 2016
$ $
Sales 90,000
Less Cost of goods sold 40,000
Gross profit 50,000
Less Operating Expenses
Rent 4,000
Advertising 1,000
Wages 17,000
Sales Commission 900 22,900
Net Profit 27,100
Hoad Ltd
Balance sheet
as at 30 November 2016
Current Assets $ Current Liabilities $
Cash 162,100 Accounts Payable 5,000
Accounts Receivable 60,000 Expenses Payable 3,000
Inventory 10,000 8,000
232,100 Noncurrent Liabilities
Noncurrent Assets Accounts Payable 3,000
Office Equipment 6,000 Total Liabilities 11,000
Shareholders’ equity
Share Capital 200,000
Retained Profits 27,100
227,100
Total Assets 238,100 Total Liabilities and Equity 238,100
Practice Problem C
DR CR
30/6 Sales Revenue 270,000
Investment Revenue 36,000
Cost of Goods Sold 121,000
Wages Expense 98,000
General Expense 7,000
P&L Summary 80,000
P&L Summary 80,000
Retained profits 80,000
2 (a) Sales Revenue: $0
(b) Retained Earnings= $125,000 (Opening balance) + $80,000= $205,000
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Chapter 5
Accrual accounting adjustments
Practice Problems
Practice Problem A
Adjust? Journal entry $ $
a Y DR Accounts receivable 3,200
CR Revenue 3,200
b Y DR Cost of goods sold expense 1,900
CR Inventory 1,900
c Y DR Unearned revenue 3,900
CR Revenue 3,900
d Y DR Store building (asset) 62,320
CR Maintenance expense 62,320
e Y DR Audit expense 2,350
CR Accounts payable 2,350
f Y DR Automobile (asset) 17,220
CR Accounts payable 17,220
Practice Problem B
1 Revenues:
Sales $340,000
2 Expenses: $
COGS 120,000
Interest (200,000 x 10%) 20,000
Wages (180,000 + 40,000) 220,000
Electricity 22,000
Insurance (24,000 x 9/12) 18,000
3 600,000 – 56,000 + 220,000 – 60,000 + 200,000
– 8,000 – 180,000 + 80,000 – 24,000 = $772,000
Practice Problem C
1 18,000 (17,000 + 3,000 – 2,000)
2 8,000
3 5,000 (4,500 + 3,000 – 2,500)
Accrual accounting adjustments
Practice Problems
Practice Problem A
Adjust? Journal entry $ $
a Y DR Accounts receivable 3,200
CR Revenue 3,200
b Y DR Cost of goods sold expense 1,900
CR Inventory 1,900
c Y DR Unearned revenue 3,900
CR Revenue 3,900
d Y DR Store building (asset) 62,320
CR Maintenance expense 62,320
e Y DR Audit expense 2,350
CR Accounts payable 2,350
f Y DR Automobile (asset) 17,220
CR Accounts payable 17,220
Practice Problem B
1 Revenues:
Sales $340,000
2 Expenses: $
COGS 120,000
Interest (200,000 x 10%) 20,000
Wages (180,000 + 40,000) 220,000
Electricity 22,000
Insurance (24,000 x 9/12) 18,000
3 600,000 – 56,000 + 220,000 – 60,000 + 200,000
– 8,000 – 180,000 + 80,000 – 24,000 = $772,000
Practice Problem C
1 18,000 (17,000 + 3,000 – 2,000)
2 8,000
3 5,000 (4,500 + 3,000 – 2,500)
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Trotman: Financial Accounting 6e – Practice Problem Solutions
4 2,000 (0 + 2,000 – 0)
5 1,000 (2,000 ÷ 2)
6 1 January 2011, i.e. motor vehicle depreciation is $5,000 per year (change in
accumulated depreciation)
4 2,000 (0 + 2,000 – 0)
5 1,000 (2,000 ÷ 2)
6 1 January 2011, i.e. motor vehicle depreciation is $5,000 per year (change in
accumulated depreciation)
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Chapter 6
Financial reporting, principles,
accounting standards and
auditing
Practice Problems
Practice Problem A
1 Investments $8500
2 Deposit on equipment, $5000
3 Inventory, $900
4 Nil, past transaction has not occurred
5 Nil, past transaction has not occurred
6 Inventory, 98% x $1200 = $1176
Practice Problem B
1 No liability, no present obligation
2 Liability – unearned revenue (also called ‘revenue received in advance’) $240
3 Unearned revenue $200 000
4 Wages payable $24 500
Payroll tax payables $1 960
5 Nil, at this point. Potentially a contingent liability
Financial reporting, principles,
accounting standards and
auditing
Practice Problems
Practice Problem A
1 Investments $8500
2 Deposit on equipment, $5000
3 Inventory, $900
4 Nil, past transaction has not occurred
5 Nil, past transaction has not occurred
6 Inventory, 98% x $1200 = $1176
Practice Problem B
1 No liability, no present obligation
2 Liability – unearned revenue (also called ‘revenue received in advance’) $240
3 Unearned revenue $200 000
4 Wages payable $24 500
Payroll tax payables $1 960
5 Nil, at this point. Potentially a contingent liability
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Chapter 7
Internal control and cash
Practice Problems
Practice Problem A
The answer to this problem could be quite wide-ranging. One approach is to say that
internal control involves managing and safeguarding assets and that managers such
as Janet, should care about internal control because they are responsible for these
management and safeguarding activities, on behalf of the owners. Some details that
might be included would be to list particular components of internal control and note
management’s responsibility for each. Some such components are as follows:
• Keeping control over the company is part of management’s general objective and
so internal control is consistent with and helpful to managers’ general purposes.
• Some specific aspects of internal control Janet may want to think about:
− physical protection of assets (fences, safes, locks, passwords on computers)
− economic protection of assets (avoiding obsolescence, keeping assets
maintained and so on)
− insurance against loss (probably cheaper the better the control is)
− generally staying aware of the location, condition, economic value and other
important features of assets.
• Some techniques that are helpful to managers like Janet:
− segregation of duties
− good, reliable records
− timely reports on assets’ use and condition
− periodic verification of records
− cost-effective physical protection
− proper motivation and monitoring of employees, customers and others with
access to assets.
Internal control and cash
Practice Problems
Practice Problem A
The answer to this problem could be quite wide-ranging. One approach is to say that
internal control involves managing and safeguarding assets and that managers such
as Janet, should care about internal control because they are responsible for these
management and safeguarding activities, on behalf of the owners. Some details that
might be included would be to list particular components of internal control and note
management’s responsibility for each. Some such components are as follows:
• Keeping control over the company is part of management’s general objective and
so internal control is consistent with and helpful to managers’ general purposes.
• Some specific aspects of internal control Janet may want to think about:
− physical protection of assets (fences, safes, locks, passwords on computers)
− economic protection of assets (avoiding obsolescence, keeping assets
maintained and so on)
− insurance against loss (probably cheaper the better the control is)
− generally staying aware of the location, condition, economic value and other
important features of assets.
• Some techniques that are helpful to managers like Janet:
− segregation of duties
− good, reliable records
− timely reports on assets’ use and condition
− periodic verification of records
− cost-effective physical protection
− proper motivation and monitoring of employees, customers and others with
access to assets.
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Trotman: Financial Accounting 6e – Practice Problem Solutions
Practice Problem B
1 Bank reconciliation statement:
Johnson Ltd
Bank reconciliation statement
30 September 2016
$ $
Ending Balance as per bank statement 8,401 CR
Add: Deposit not credit by bank 430
8,831
Less: Outstanding cheques
No 597 260
No 613 214
No 615 357
No 616 262 1,093
Adjusted:Balance as per Cash at Bank account 7,738 DR
Ending Balance per company records 8,061 DR
Add: Increase reported bank statement but not
entered in company records:
Error in recording Cheque 610 27
8,088
Deduct: Decreases reported on bank statement but
not entered in company records:
Accounts receivable—dishonoured cheque 335
Bank charges 15 350
Adjusted: Balance as per Cash at Bank account 7,738 DR
2 General journal entries:
Date Description Debit Credit
2016
Sep 30 Cash at bank 27
Repairs expense 27
To correct error in recording $258 cheque as $285.
30 Accounts receivable—D Lewis 335
Cash at bank 335
To record dishonoured cheque.
30 Bank charges 15
Cash at bank 15
To record bank service charge.
3 Points to note:
● A business could dispense with its own cash records and rely entirely on bank
statements but, in most cases, such an arrangement would fail to provide
information that would be adequate for internal control purposes.
● Bank errors are rare, but possible, due to the rigid internal checks in force so
that the bank statements provided would generally be accurate records.
Problems would arise in respect of lack of detail and absence of an up-to-date
record.
● The bank statement furnishes adequate details of charges levied by the bank.
However, it provides a minimum of information concerning cheques that have
Practice Problem B
1 Bank reconciliation statement:
Johnson Ltd
Bank reconciliation statement
30 September 2016
$ $
Ending Balance as per bank statement 8,401 CR
Add: Deposit not credit by bank 430
8,831
Less: Outstanding cheques
No 597 260
No 613 214
No 615 357
No 616 262 1,093
Adjusted:Balance as per Cash at Bank account 7,738 DR
Ending Balance per company records 8,061 DR
Add: Increase reported bank statement but not
entered in company records:
Error in recording Cheque 610 27
8,088
Deduct: Decreases reported on bank statement but
not entered in company records:
Accounts receivable—dishonoured cheque 335
Bank charges 15 350
Adjusted: Balance as per Cash at Bank account 7,738 DR
2 General journal entries:
Date Description Debit Credit
2016
Sep 30 Cash at bank 27
Repairs expense 27
To correct error in recording $258 cheque as $285.
30 Accounts receivable—D Lewis 335
Cash at bank 335
To record dishonoured cheque.
30 Bank charges 15
Cash at bank 15
To record bank service charge.
3 Points to note:
● A business could dispense with its own cash records and rely entirely on bank
statements but, in most cases, such an arrangement would fail to provide
information that would be adequate for internal control purposes.
● Bank errors are rare, but possible, due to the rigid internal checks in force so
that the bank statements provided would generally be accurate records.
Problems would arise in respect of lack of detail and absence of an up-to-date
record.
● The bank statement furnishes adequate details of charges levied by the bank.
However, it provides a minimum of information concerning cheques that have
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Trotman: Financial Accounting 6e – Practice Problem Solutions
been cleared and deposits that have been made. Businesses require details
of other parties involved in transactions, and about the accounts affected by
these transactions, and these are not forthcoming from the bank.
● The information shown on the bank statement may not be sufficiently up-to-
date for internal control purposes. Such statements are normally obtained
from the bank on a weekly or monthly basis but if they constituted a firm’s
sole cash record it would be necessary to arrange for them to be furnished
more frequently.
● Sums deposited are normally recorded by the bank very promptly. However,
cheques that are written by the customer can only be debited to his or her
account when presented for payment. Delay in presentation will inevitably
lead to an overstatement of cash at bank and could mislead management.
Decisions could be made on the assumption that ample funds were available;
this could lead to financial problems when all cheques had been cleared.
● In general, most businesses prefer to maintain their own cash records. This is
so that the records will:
• be in a form that is useful to the enterprise
• be in sufficient detail
• be kept up-to-date
• as a form of control.
been cleared and deposits that have been made. Businesses require details
of other parties involved in transactions, and about the accounts affected by
these transactions, and these are not forthcoming from the bank.
● The information shown on the bank statement may not be sufficiently up-to-
date for internal control purposes. Such statements are normally obtained
from the bank on a weekly or monthly basis but if they constituted a firm’s
sole cash record it would be necessary to arrange for them to be furnished
more frequently.
● Sums deposited are normally recorded by the bank very promptly. However,
cheques that are written by the customer can only be debited to his or her
account when presented for payment. Delay in presentation will inevitably
lead to an overstatement of cash at bank and could mislead management.
Decisions could be made on the assumption that ample funds were available;
this could lead to financial problems when all cheques had been cleared.
● In general, most businesses prefer to maintain their own cash records. This is
so that the records will:
• be in a form that is useful to the enterprise
• be in sufficient detail
• be kept up-to-date
• as a form of control.
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Chapter 8
Accounts receivable and further
record-keeping
Practice Problem
Practice Problem A
1 To determine the desired closing amount of the Allowance for Doubtful
Debts, the CFO prepares a schedule as follows:
Age Category Amount Percentage Estimated
Uncollectable
Not yet due $95,000 1% 950
1-30 days overdue $25,000 3% 750
31-60 days overdue $11,000 10% 1,100
61-90 days overdue $4,000 25% 1,000
Over 90 days overdue $2,000 50% 1,000
Total $137,000 $4,800
2 Don’t forget that the Allowance for Doubtful Debts has an opening
balance of $1,000 CR (in the question). As the calculated desired closing
balance for the Allowance for Doubtful Debts is $,4800, an additional
$,3800 will need to be added to this account using the following journal
entry:
DR Bad debts expense $3,800
CR Allowance for Doubtful Debts $3,800
Accounts receivable and further
record-keeping
Practice Problem
Practice Problem A
1 To determine the desired closing amount of the Allowance for Doubtful
Debts, the CFO prepares a schedule as follows:
Age Category Amount Percentage Estimated
Uncollectable
Not yet due $95,000 1% 950
1-30 days overdue $25,000 3% 750
31-60 days overdue $11,000 10% 1,100
61-90 days overdue $4,000 25% 1,000
Over 90 days overdue $2,000 50% 1,000
Total $137,000 $4,800
2 Don’t forget that the Allowance for Doubtful Debts has an opening
balance of $1,000 CR (in the question). As the calculated desired closing
balance for the Allowance for Doubtful Debts is $,4800, an additional
$,3800 will need to be added to this account using the following journal
entry:
DR Bad debts expense $3,800
CR Allowance for Doubtful Debts $3,800
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Practice Problem B
1 Postings to general ledger and subsidiary ledgers:
GENERAL LEDGER
Debtors
Balance 2,100 Bank 1,500
Sales 1,600
Balance b/d 2,200
Creditors
Bank 1,400 Balance 1,800
Purchases 6,600
Balance b/d 7,000
DEBTORS LEDGER
Xavier
Balance 400 Bank 400
Sales 700
Young
Balance 800 Bank 800
Sales 300
Zoeller
Balance 900 Bank 300
Sales 600
Balance b/d 1,200
CREDITORS LEDGER
Adler
Bank 600 Balance 1,000
Purchases 5,000
Balance b/d 5,400
Barnes
Bank 800 Balance 800
Purchases 1,600
Balance b/d 1,600
2 Supporting schedules:
Schedule of debtors at 31 January 2016
$
Xavier 700
Young 300
Zoeller 1,200
2,200
Schedule of creditors at 31 January 2016
$
Adler 5,400
Barnes 1,600
7,000
1 Postings to general ledger and subsidiary ledgers:
GENERAL LEDGER
Debtors
Balance 2,100 Bank 1,500
Sales 1,600
Balance b/d 2,200
Creditors
Bank 1,400 Balance 1,800
Purchases 6,600
Balance b/d 7,000
DEBTORS LEDGER
Xavier
Balance 400 Bank 400
Sales 700
Young
Balance 800 Bank 800
Sales 300
Zoeller
Balance 900 Bank 300
Sales 600
Balance b/d 1,200
CREDITORS LEDGER
Adler
Bank 600 Balance 1,000
Purchases 5,000
Balance b/d 5,400
Barnes
Bank 800 Balance 800
Purchases 1,600
Balance b/d 1,600
2 Supporting schedules:
Schedule of debtors at 31 January 2016
$
Xavier 700
Young 300
Zoeller 1,200
2,200
Schedule of creditors at 31 January 2016
$
Adler 5,400
Barnes 1,600
7,000
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Chapter 9
Inventory
Practice Problems
Practice Problem A
1 Cost of goods sold:
$
= Beginning inventory 246 720
+ Purchases 1 690 000
– Ending inventory (324 800)
1 611 920
2 If the correct COGS is $1 548 325, this means that some of what appeared to
have been sold was not. It was lost or stolen, or it strayed! The amount lost is
$63 595, which could be left in the COGS expense or could be shown
separately, so that the COGS expense would be the accurate, smaller
amount. Total expense would not be different; the perpetual method just
allows it to be split into $1 548 325 COGS and $63 595 loss, which were
lumped together under the periodic method. The need for the $63 595
adjustment indicates that the company has what seems a serious problem
somewhere: there are errors in the records, inventories are being lost
somehow or there are more sinister things going on, such as employee theft.
Practice Problem B
1 a Flows of physical units:
Date Purchases Sales Balance
$ $ $
Apr 1 150
2 100 250
6 70 180
13 120 60
15 200 260
18 200 60
23 50 110
350 390
Available cost: (150 × $4) + (100 × $5) + (200 × $6) + (50 × $7) = $2650
Cost of goods sold (periodic basis):
LIFO = most recently purchased 390 units
= (50 × $7) = (200 × $6) + (100 × $5) + (40 × $4)
= $2 210
Inventory
Practice Problems
Practice Problem A
1 Cost of goods sold:
$
= Beginning inventory 246 720
+ Purchases 1 690 000
– Ending inventory (324 800)
1 611 920
2 If the correct COGS is $1 548 325, this means that some of what appeared to
have been sold was not. It was lost or stolen, or it strayed! The amount lost is
$63 595, which could be left in the COGS expense or could be shown
separately, so that the COGS expense would be the accurate, smaller
amount. Total expense would not be different; the perpetual method just
allows it to be split into $1 548 325 COGS and $63 595 loss, which were
lumped together under the periodic method. The need for the $63 595
adjustment indicates that the company has what seems a serious problem
somewhere: there are errors in the records, inventories are being lost
somehow or there are more sinister things going on, such as employee theft.
Practice Problem B
1 a Flows of physical units:
Date Purchases Sales Balance
$ $ $
Apr 1 150
2 100 250
6 70 180
13 120 60
15 200 260
18 200 60
23 50 110
350 390
Available cost: (150 × $4) + (100 × $5) + (200 × $6) + (50 × $7) = $2650
Cost of goods sold (periodic basis):
LIFO = most recently purchased 390 units
= (50 × $7) = (200 × $6) + (100 × $5) + (40 × $4)
= $2 210
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Trotman: Financial Accounting 6e – Practice Problem Solutions
(or = $2 650 – ending inventory
= $2 650 – (110 × $4)
= $2 210)
b
FIFO = earliest purchased 390 units
= (150 × $4) + (100 × $5) + (140 × $6)
= $1 940
(or = $2 650 – ending inventory
= $2 650 – [(50 × $7) + (60 × $66]
= $1 940
c
Weighted average = average of available cost
= 390 × ($2 650 ÷ 500 units)
= $390 × $5.30
= $2 067
(or = $2 650 – ending inventory
= $2 650 – (110 × $5.30)
= $2 067)
2 a Ending inventories (calculated in part 1):
LIFO = 110 × 4 = $440
b FIFO = (50 × $7) + (60 × $6) = $710
c Average = (110 × $5.30) = $583
3 a Using lower of cost or market: LIFO would not be affected, because its
unit cost of $4 is already below market.
b FIFO cost is above market, so the inventory value would be reduced
to $5 per unit, or $550. The $160 difference would be transferred to an
expense account.
c Average cost is also above market, so the inventory value would also
be reduced to $550. The $33 difference would be transferred to an
expense account (This would leave profit under FIFO and average
cost the same, since both begin with the same inventory value (150 ×
$4) and end with the same value ($550).)
4
Ending
inventory
COGS
a LIFO:
Ending = (60 × $4) + (50 × $7) $590
COGS = $ 2650 – ending $2 060
b FIFO:
Same as 1 and 2 $710 $1 940
c Moving average:
First average: $4
Second average:150 $4( ) 100 $5( )+
150 100+
--------------------------------------------------------- $4.40=
Third average:60 $4.40( ) 200 $6( )+
60 200+
-------------------------------------------------------------- $5.63=
Fourth average:60 $5.63( ) 50 $7( )+
60 50+
----------------------------------------------------------- $6.25=
(or = $2 650 – ending inventory
= $2 650 – (110 × $4)
= $2 210)
b
FIFO = earliest purchased 390 units
= (150 × $4) + (100 × $5) + (140 × $6)
= $1 940
(or = $2 650 – ending inventory
= $2 650 – [(50 × $7) + (60 × $66]
= $1 940
c
Weighted average = average of available cost
= 390 × ($2 650 ÷ 500 units)
= $390 × $5.30
= $2 067
(or = $2 650 – ending inventory
= $2 650 – (110 × $5.30)
= $2 067)
2 a Ending inventories (calculated in part 1):
LIFO = 110 × 4 = $440
b FIFO = (50 × $7) + (60 × $6) = $710
c Average = (110 × $5.30) = $583
3 a Using lower of cost or market: LIFO would not be affected, because its
unit cost of $4 is already below market.
b FIFO cost is above market, so the inventory value would be reduced
to $5 per unit, or $550. The $160 difference would be transferred to an
expense account.
c Average cost is also above market, so the inventory value would also
be reduced to $550. The $33 difference would be transferred to an
expense account (This would leave profit under FIFO and average
cost the same, since both begin with the same inventory value (150 ×
$4) and end with the same value ($550).)
4
Ending
inventory
COGS
a LIFO:
Ending = (60 × $4) + (50 × $7) $590
COGS = $ 2650 – ending $2 060
b FIFO:
Same as 1 and 2 $710 $1 940
c Moving average:
First average: $4
Second average:150 $4( ) 100 $5( )+
150 100+
--------------------------------------------------------- $4.40=
Third average:60 $4.40( ) 200 $6( )+
60 200+
-------------------------------------------------------------- $5.63=
Fourth average:60 $5.63( ) 50 $7( )+
60 50+
----------------------------------------------------------- $6.25=
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Trotman: Financial Accounting 6e – Practice Problem Solutions
Ending: 110 × $6.25 $688
COGS = $2 650 – ending $1 962
Regarding lower of cost or market, there would now be no difference in profit
for any of the methods, because all have ending inventory costs higher than
market ($550) and all ending inventories would therefore be reduced to that
$550.
Ending: 110 × $6.25 $688
COGS = $2 650 – ending $1 962
Regarding lower of cost or market, there would now be no difference in profit
for any of the methods, because all have ending inventory costs higher than
market ($550) and all ending inventories would therefore be reduced to that
$550.
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Chapter 10
Noncurrent assets
Practice Problems
Practice Problem A
1 Depreciation would be 10 per cent of cost per year: $10,000 in 2015 and 2016.
The entry would debit depreciation expense and credit accumulated depreciation
with the $10,000.
2 Depreciation for 2015 would be 20 per cent of $100,000 = $20,000
Depreciation for 2016 would be 20 per cent of ($100,000 - $20,000) = $16,000
3 (a) Accumulated depreciation increases by $10,000.
Retained profits decreases by $6,000 ($10,000 - $4,000 tax).
(b) Depreciation expense under SL = $10,000
Depreciation expense under reducing balance =
($100,000 - $20,000) x 20% = $16,000. Therefore difference is $6,000
before tax and $3,600 after tax.
(c) Accumulated depreciation increases by $16,000; retained profits decreases
by $9,600.
Practice Problem B
1 Schedules:
$
Land
At cost 320,000
Building
At cost 180,000
Demolition 1,200
Construction costs 40,000
Architects fees 4,000
Legal fees 500
225,700
Less salvage 200
225,500
Machinery
At cost 200,000
New machinery 50,000
Sales tax (4%) 2,000
Freight and installation 750
Improvement to existing machine 500
253,250
2 Shareholders’ equity would decline by $400, being repairs to machinery damaged
during demolition.
Noncurrent assets
Practice Problems
Practice Problem A
1 Depreciation would be 10 per cent of cost per year: $10,000 in 2015 and 2016.
The entry would debit depreciation expense and credit accumulated depreciation
with the $10,000.
2 Depreciation for 2015 would be 20 per cent of $100,000 = $20,000
Depreciation for 2016 would be 20 per cent of ($100,000 - $20,000) = $16,000
3 (a) Accumulated depreciation increases by $10,000.
Retained profits decreases by $6,000 ($10,000 - $4,000 tax).
(b) Depreciation expense under SL = $10,000
Depreciation expense under reducing balance =
($100,000 - $20,000) x 20% = $16,000. Therefore difference is $6,000
before tax and $3,600 after tax.
(c) Accumulated depreciation increases by $16,000; retained profits decreases
by $9,600.
Practice Problem B
1 Schedules:
$
Land
At cost 320,000
Building
At cost 180,000
Demolition 1,200
Construction costs 40,000
Architects fees 4,000
Legal fees 500
225,700
Less salvage 200
225,500
Machinery
At cost 200,000
New machinery 50,000
Sales tax (4%) 2,000
Freight and installation 750
Improvement to existing machine 500
253,250
2 Shareholders’ equity would decline by $400, being repairs to machinery damaged
during demolition.
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Chapter 11
Liabilities
Practice Problems
Practice Problem A
1 Estimated Expense = $78,500 + $62,000 = $140,500
Liability = $50,000 + $140,500 – ($84,000 + $78,000) = $28,500
2 DR Warranty expense $140,500
CR Provision for warranty $140,500
DR Provision for warranty $162,000
CR Inventory $78,000
CR Cash (or Wages payable) $84,000
Practice Problem B
6 Apr Dr. Cash 4,400
Cr. GST payable 400
Cr. Consulting revenue 4,000
8 Apr Dr. Cash 4,950
Cr. GST payable 450
Cr. Consulting revenue 4,500
15 Apr Dr. GST payable 256
Cr. Cash 256
Practice Problem C
$
1 Accrued salaries: 10,000 + 630,000 – 600,000 40,000
2 Bill payable 48,000
Interest payable 960
[$48,000 2/12 12/100]
3 Unearned rental revenue 3,000
[1
3
1
2 $6,000]
4 GST payable 21,200
[$212,000 10%]
5 Electricity payable 40,000
Liabilities
Practice Problems
Practice Problem A
1 Estimated Expense = $78,500 + $62,000 = $140,500
Liability = $50,000 + $140,500 – ($84,000 + $78,000) = $28,500
2 DR Warranty expense $140,500
CR Provision for warranty $140,500
DR Provision for warranty $162,000
CR Inventory $78,000
CR Cash (or Wages payable) $84,000
Practice Problem B
6 Apr Dr. Cash 4,400
Cr. GST payable 400
Cr. Consulting revenue 4,000
8 Apr Dr. Cash 4,950
Cr. GST payable 450
Cr. Consulting revenue 4,500
15 Apr Dr. GST payable 256
Cr. Cash 256
Practice Problem C
$
1 Accrued salaries: 10,000 + 630,000 – 600,000 40,000
2 Bill payable 48,000
Interest payable 960
[$48,000 2/12 12/100]
3 Unearned rental revenue 3,000
[1
3
1
2 $6,000]
4 GST payable 21,200
[$212,000 10%]
5 Electricity payable 40,000
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Trotman: Financial Accounting 6e – Practice Problem Solutions
6 Portion of long-term debt due within 1 year 22,000
[110 000
5
, ]
7 Provision for warranties 17,100
Provision for warranties
$ $
Cash payments 25,200 Opening balance 10,600
Closing balance 17,100 Expense 31,700
42,300 42,300
Balance 17,100
Practice Problem D
Expense = $147,600. Liability = $42,000 + $147,600 - $157,400 = $32,200
6 Portion of long-term debt due within 1 year 22,000
[110 000
5
, ]
7 Provision for warranties 17,100
Provision for warranties
$ $
Cash payments 25,200 Opening balance 10,600
Closing balance 17,100 Expense 31,700
42,300 42,300
Balance 17,100
Practice Problem D
Expense = $147,600. Liability = $42,000 + $147,600 - $157,400 = $32,200
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Chapter 12
Completing the balance sheet
Practice Problems
Practice Problem A
1 a Revenue = dividends received
= 23% $160,000
= $36,800
b Investment account would remain unchanged at $1,500,000.
2 a Revenue since acquisition = $400,000 23% = $92,000.
b Present balance in balance sheet investment account:
$
Initial investment 1,500,000
Share of profit (above) 92,000
Less dividends ($160,000 23%) (36,800)
Present balance 1,555,200
Practice Problem B
1 $900,000
2 100,000 x 1.20 = $120,000
3 No record would have been made.
4 $1,130,000, i.e. 900,000 + (2.00 – 1.20 + 1.50) x 100,000
5 Would show revenue under the equity method, i.e. $3.50 x 100,000 (but it would
not be called dividend revenue)
6 Increases investment in P Ltd by $150,000 ($1.50 x 100,000)
Completing the balance sheet
Practice Problems
Practice Problem A
1 a Revenue = dividends received
= 23% $160,000
= $36,800
b Investment account would remain unchanged at $1,500,000.
2 a Revenue since acquisition = $400,000 23% = $92,000.
b Present balance in balance sheet investment account:
$
Initial investment 1,500,000
Share of profit (above) 92,000
Less dividends ($160,000 23%) (36,800)
Present balance 1,555,200
Practice Problem B
1 $900,000
2 100,000 x 1.20 = $120,000
3 No record would have been made.
4 $1,130,000, i.e. 900,000 + (2.00 – 1.20 + 1.50) x 100,000
5 Would show revenue under the equity method, i.e. $3.50 x 100,000 (but it would
not be called dividend revenue)
6 Increases investment in P Ltd by $150,000 ($1.50 x 100,000)
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