Solution Manual for Financial Managerial Accounting, 4th edition

Struggling with assignments? Solution Manual for Financial Managerial Accounting, 4th edition has all the answers you need!

Alexander Wilson
Contributor
4.6
109
9 months ago
Preview (31 of 1470 Pages)
100%
Purchase to unlock

Page 1

Solution Manual for Financial Managerial Accounting, 4th edition - Page 1 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-1Chapter 1Introducing Accounting in BusinessQUESTIONS1.The purpose of accounting is to provide decision makers with relevant and reliableinformation to help them make better decisions. Examples include information forpeople making investments, loans, and business plans.2.Technology reduces the time, effort, and cost of recordkeeping. There is still ademand for people who can design accounting systems, supervise their operation,analyze complex transactions, and interpret reports. Demand also exists for peoplewho can effectively use computers to prepare and analyze accounting reports.Technology will never substitute for qualified people with abilities to prepare, use,analyze, and interpret accounting information.3.External users and their uses of accounting information include: (a) lenders, tomeasure the risk and return of loans; (b) shareholders, to assess whether to buy,sell, or hold their shares; (c) directors, to oversee their interests in the organization;(d) employees and labor unions, to judge the fairness of wages and assess futureemployment opportunities; and (e) regulators, to determine whether the organizationiscomplyingwithregulations.Otherusersarevoters,legislators,governmentofficials, contributors to nonprofits, suppliers and customers.4.Businessownersandmanagersuseaccountinginformationtohelpanswerquestions such as: What resources does an organization own? What debts areowed? How much income is earned? Are expenses reasonable for the level ofsales? Are customers’ accounts being promptly collected?5.Service businesses include:Standard and Poor’s, Dun & Bradstreet, Merrill Lynch,Southwest Airlines, CitiCorp, Humana, Charles Schwab, and Prudential.Businessesoffering products include Nike, Reebok, Gap, Apple Computer, Ford Motor Co.,Philip Morris, Coca-Cola, Best Buy, and Circuit City.6.The internal role of accounting is to serve the organization’s internal operatingfunctions.Itdoesthisbyprovidingusefulinformationforinternalusersincompleting their tasks more effectively and efficiently. By providing this information,accounting helps the organization reach its overall goals.7.Accountingprofessionalsoffermanyservicesincludingauditing,managementadvice, tax planning, business valuation, and money management.

Page 2

Solution Manual for Financial Managerial Accounting, 4th edition - Page 2 preview image

Loading page image...

Page 3

Solution Manual for Financial Managerial Accounting, 4th edition - Page 3 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-28.Marketing managers are likely interested ininformation such assales volume,advertisingcosts,promotioncosts,salariesofsalespersonnel,andsalescommissions.9.Accounting is described as a service activity because it serves decision makers byproviding information to help them make better business decisions.10.Someaccounting-relatedprofessionsincludeconsultant,financialanalyst,underwriter, financial planner, appraiser, FBI investigator, market researcher, andsystem designer.11.Ethics rules require that auditors avoid auditing clients in which they have a directinvestment, or if the auditor’s fee is dependent on the figures in the client’s reports.This willhelpprevent others from doubting the quality of the auditor’s report.12.In addition to preparing tax returns, tax accountants help companies and individualsplan future transactions to minimize the amount of tax to be paid.They are alsoactively involved in estate planning and in helping set up organizations. Some taxaccountants work for regulatory agencies such as the IRS or the various statedepartments of revenue. These tax accountants help to enforce tax laws.13.The objectivity concept means that financial statement information is supported byindependent, unbiased evidence other than someone’s opinion or imagination.Thisconcept increases the reliability and verifiability of financial statement information.14.Thistreatmentisjustifiedbyboththecostprincipleandthegoing-concernassumption.15.The revenue recognition principle provides guidance for managers and auditors sothey know when to recognize revenue.If revenue is recognized too early, thebusinesslooksmoreprofitablethanitis.Ontheotherhand,ifrevenueisrecognized too late the business looks less profitable than it is.This principledemands that revenuebe recognized whenitis both earned(when serviceorproduct provided)and can be measured reliably.The amount of revenue shouldequalthevalueoftheassetsreceivedorexpectedtobereceivedfromthebusiness’s operating activities covering a specific time period.16.Businessorganizationscanbeorganizedinoneofthreebasicforms:soleproprietorship, partnership, or corporation. These forms have implications for legalliability, taxation, continuity, number of owners, and legal status as follows:ProprietorshipPartnershipCorporationBusiness entityyesyesyesLegal entitynonoyesLimited liabilityno*no*yesUnlimited lifenonoyesBusiness taxednonoyesOne owner allowedyesnoyes*Proprietorships and partnerships that are set up as LLCs provide limited liability.17.(a) Assets are resources owned or controlled by a company that are expected toyieldfuturebenefits.(b)Liabilitiesarecreditors’claimsonassetsthatreflectobligations to provide assets, products or services to others. (c) Equity is theowner’s claim on assets and is equal to assets minus liabilities. (d) Net assets referto equity.

Page 4

Solution Manual for Financial Managerial Accounting, 4th edition - Page 4 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-318.Equity is increased by investments from the owner and by net income(which is theexcess of revenues over expenses).It is decreased bydividends tothe owner andby a net loss (which is the excess of expenses over revenues).19.Accounting principles consist of (a)generaland (b)specificprinciples. Generalprinciples are the basic assumptions, concepts, and guidelines for preparingfinancial statements. They stem from long-used accounting practices. Specificprinciples are detailed rules used in reporting on business transactions and events.They usually arise from the rulings of authoritative and regulatory groups such asthe Financial Accounting Standards Board or the Securities and ExchangeCommission.20.Revenue (or sales) is the amount received from selling products and services.21.Net income (also called income, profit or earnings) equals revenues minus expenses(if revenues exceed expenses). Net income increases equity. If expenses exceedrevenues, the company has a net loss. Net loss decreases equity.22.The four basic financial statements are: income statement, statement ofretainedearnings, balance sheet, and statement of cash flows.23.An income statement reports a company’s revenues and expenses along with theresulting net income or loss over a period of time.24.Rent expense, utilities expense, administrative expenses, advertising and promotionexpenses,maintenanceexpense,andsalariesandwagesexpensesaresomeexamples of business expenses.25.The statement ofretained earningsexplains the changes inretained earningsfromnet income or loss, and from anydividendsover a period of time.26.The balance sheet describes a company’s financial position (types and amounts ofassets, liabilities, and equity) at a point in time.27.The statement of cash flows reports on the cash inflows and outflows from acompany’s operating, investing, and financing activities.28.Return on assets, also called return on investment, is a profitability measure that isuseful in evaluating management, analyzing and forecasting profits, and planningactivities. It is computed as net income divided by the average total assets. Forexample, if we have an average annual balance of $100 in a bank account and itearns interest of $5 for the year, then our return on assets is $5 / $100 or 5%. Thereturn on assets is a popular measure for analysis because it allows us to comparecompanies of different sizes and in different industries.29A.Return refers to income, and risk is the uncertainty about the return we expect tomake. The lower the risk of an investment, the lower the expected return. Forexample, savings accounts pay a low return because of the low risk of a bank notreturning the principal with interest. Higher risk implies higher, but riskier, expectedreturns.

Page 5

Solution Manual for Financial Managerial Accounting, 4th edition - Page 5 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-430B. Organizations carry out three major activities: financing, investing, and operating.Financing provides the means used to pay for resources. Investing refers to theacquisition and disposing of resources necessary to carry out the organization’splans. Operating activities are the actual carrying out of these plans.(Planning is theglue that connects these activities, including the organization’s ideas, goals andstrategies.)31B.Anorganization’sfinancingactivities(liabilitiesandequity)payforinvestingactivities(assets).Anorganizationcannothavemoreorlessassetsthanitsliabilities and equity combined and, similarly, it cannot have more or less liabilitiesand equity than its total assets. This means: assets = liabilities + equity. Thisrelation is called the accounting equation (also called thebalance sheet equation),and it applies to organizations at all times.32.The dollar amounts in Research In Motion’s financial statements are rounded to thenearest thousand ($1,000). Research In Motion’s consolidated statement of earnings(orincomestatement)coversthefiscalyear(consistingof52weeks)endedFebruary 27, 2010. Research In Motion also reports comparative income statementsfor the previous two years (consisting of 52 weeks).33.At September 26, 2009, Apple had ($ in millions) assets of $47,501, liabilities of$15,861, and equity of $31,640.34.Confirmation of Nokia’s accounting equation follows (numbers in EUR millions):Assets=Liabilities+Equity35,738=20,989+14,74935.The independent auditor for Palm, Inc., is Deloitte and Touché LLP. The auditorexpresslystatesthat“ourresponsibilityistoexpressanopinionontheseconsolidated financial statements and financial statement schedule based on ouraudits.” The auditor also states that “these consolidated financial statements andfinancial statement schedule are the responsibility of the Company’s management.”

Page 6

Solution Manual for Financial Managerial Accounting, 4th edition - Page 6 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-5QUICK STUDIESQuick Study 1-1(a) and (b)GAAP:Generally Accepted Accounting PrinciplesImportance:GAAP are the rules that specify acceptable accountingpractices.SEC:Securities and Exchange CommissionImportance:The SEC is charged by Congress to set reporting rules fororganizations that sell ownership shares to the public.TheSEC delegates part of this responsibility to the FASB.FASB:Financial Accounting Standards BoardImportance:FASB is an independent group of full-time members who areresponsible for setting accounting rules.IASB:International Accounting Standards Board.Importance:Itspurposeistoissuestandardsthatidentifypreferredpractices in the desire of harmonizing accounting practicesacross different countries.The vast majority of countries andfinancial exchanges support its activities and objectives.IFRS:International Financial Reporting Standards.Importance:A global set of accounting standards issued by the IASB.Many countries require or permit companies to comply withIFRS in preparing their financial statements.The FASB isundergoing a process with the IASB to converge GAAP andIFRS and to create a single set of accounting standards forglobal use.Quick Study 1-2Internal controls serve several purposes:Theyinvolvemonitoringanorganization’sactivitiestopromoteefficiency and to prevent wrongful use of its resources.They help ensure the validity and credibility of accounting reports.They are often crucial to effective operations and reliable reporting.More generally, the absence of internal controls can adversely affect theeffectiveness of domestic and global financial markets.Examples of internal controls include cash registers with internal tapes ordrives, scanners at doorways to identify tagged products, overhead videocameras, security guards, and many others.

Page 7

Solution Manual for Financial Managerial Accounting, 4th edition - Page 7 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-6Quick Study 1-3a.Eg.Eb.Ih.Ec.Ei.Ed.Ij.Ie.Ek.Ef.El.EQuick Study 1-4Accounting professionals practice in at least four main areas. These fourareas, along with a listing of some work opportunities in each, are:1.Financial accountingPreparationAnalysisAuditing (external)ConsultingInvestigation2.Managerial accountingCost accountingBudgetingAuditing (internal)Consulting3.Tax accountingPreparationPlanningRegulatoryConsultingInvestigation4.Accounting-relatedLendingConsultingAnalystInvestigatorAppraiser

Page 8

Solution Manual for Financial Managerial Accounting, 4th edition - Page 8 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-7Quick Study 1-5Thechoiceofanaccountingmethodwhenmorethanonealternativemethodisacceptableoftenhasethicalimplications.Thisisbecauseaccounting information can have major impacts on individuals’ (and firms’)well-being.To illustrate, many companies base compensation of managers on theamount of reported income. When the choice of an accounting methodaffects the amount of reported income, the amount of compensation is alsoaffected. Similarly, if workers in a division receive bonuses based on thedivision’sincome,itscomputationhasdirect financialimplicationsforthese individuals.Quick Study 1-6a.Cost principle (also called historical cost)b.Business entity assumptionc.Revenue recognition principleQuick Study 1-7Assets=Liabilities+Equity$40,000(a)$30,000$10,000$55,000(b)$27,500(b)$27,500Quick Study 1-8Assets=Liabilities+Equity$30,000(a)$10,000$20,000(b)$80,000$ 50,000$30,000$90,000$ 10,000(c)$80,000

Page 9

Solution Manual for Financial Managerial Accounting, 4th edition - Page 9 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-8Quick Study 1-9(a)Examples of business transactions that are measurable include:Selling products and services.Collecting funds from dues, taxes, contributions, or investments.Borrowing money.Purchasing products and services.(b)Examples of business events that are measurable include:Decreases in the value of securities (assets).Bankruptcy of a customer owing money.Technological advances rendering patents (or other assets)worthless.An “act of God” (casualty) that destroys assets.Quick Study 1-10a.For September 26, 2009, the account and its dollar amount (in millions)for Apple are:(1)Assets=$47,501(2)Liabilities=$ 15,861(3)Equity=$ 31,640b.Using Apple’s amounts from (a) we verify that (in millions):Assets=Liabilities+Equity$47,501=$ 15,861+$ 31,640Quick Study 1-11Return on assets ===5.3%Interpretation: Its return of 5.3% is slightly above the 5% of its competitors.Home Depot’s performance can be rated as above average.$2,260$42,744Net incomeAverage total assets

Page 10

Solution Manual for Financial Managerial Accounting, 4th edition - Page 10 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-9Quick Study 1-12[Code:Income statement (I), Balance sheet (B), Statement ofretained earnings(RE), orStatement of cash flows (CF).]a.Bd.Bg.Bb.Ie.RE(and CF*)h.CFc.Bf.Ii.CF*The more advanced student might know that this item would also appear in CF.Quick Study 1-13 (10 minutes)a.International Financial Reporting Standards (IFRS)b.Convergence desires to achieve a single set of accounting standardsfor global use.c.The SEC roadmap proposes that large U.S. companies adopt IFRS by2014.

Page 11

Solution Manual for Financial Managerial Accounting, 4th edition - Page 11 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-10EXERCISESExercise 1-1 (10 minutes)I1.Determining employee tasks behind a serviceI2.Establishing revenues generated from a productR3.Maintaining a log of service costsR4.Measuring the costs of a productC5.Preparing financial statementsC6.Analyzing and interpreting reportsC7.Presenting financial informationExercise 1-2 (20 minutes)Part A.1.E5.I2.E6.I3.E7.I4.I8.IPart B.1.I5.I2.E6.E3.I7.I4.EExercise 1-3 (10 minutes)1.B5.A2.C6.A3.C7.B4.B8.A

Page 12

Solution Manual for Financial Managerial Accounting, 4th edition - Page 12 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-11Exercise 1-4 (20 minutes)a.Situations involving ethical decision making in coursework includeperformingindependentworkonexaminationsandindividuallycompletingassignments/projects.Itcanalsoextendtopromptlyreturningreferencematerialssootherscanenjoythem,andtoproperly preparing for class to efficiently use the time and questionperiod to not detract from others’ instructional benefits.b.Auditing professionals with competing audit clients are likely to learnvaluable information about each client that the other clients wouldbenefit from knowing. In this situation the auditor must take care tomaintain the confidential nature of information about each client.c.Accounting professionals who prepare tax returns can face situationswhere clients wish to claim deductions they cannot substantiate. Also,clientssometimesexertpressuretousemethodsnotallowedorquestionable under the law. Issues of confidentiality also arise whenthese professionals have access to clients’ personal records.d.Managers face several situations demanding ethical decision makingintheirdealingswithemployees.Examplesincludefairnessinperformanceevaluations,salaryadjustments,andpromotionrecommendations. They can also include avoiding any perceived orreal harassment of employees by the manager or any other employees.Itcanalsoincludeissuesofconfidentialityregardingpersonalinformation known to managers.Exercise 1-5 (10 minutes)1.G4.F2.A5.D3.C

Page 13

Solution Manual for Financial Managerial Accounting, 4th edition - Page 13 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-12Exercise 1-6 (10 minutes)CodeDescriptionPrinciple or AssumptionG1.Revenue is recorded only when the earningsprocess is complete.Revenue recognitionprincipleA2.Information is based on actual costs incurred intransactions.Cost principleC3.Usually created by a pronouncement from anauthoritative body.Specific accountingprincipleH4.Financial statements reflect the assumption thatthe business continues operating.Going-concernassumptionD5.A company reports details behind financialstatements that would impactusers' decisions.Full disclosureprincipleB6.A company records the expenses incurred togenerate the revenuesreported.Matching(expenserecognition)principleE7.Derived from long-used and generally acceptedaccounting practices.General accountingprincipleF8.Every business is accounted for separately fromits owner or owners.Business entityassumption`Exercise 1-7 (10 minutes)a.Corporatione.Partnershipb.Corporationf.Sole proprietorshipc.Sole proprietorshipg.Sole proprietorshipd.Corporation

Page 14

Solution Manual for Financial Managerial Accounting, 4th edition - Page 14 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-13Exercise 1-8 (20 minutes)a.Using the accounting equation:Assets=Liabilities+Equity$123,000=$53,000+?Thus, equity = $70,000b.Using the accounting equation at thebeginningof the year:Assets=Liabilities+Equity$200,000=?+$150,000Thus,beginningliabilities = $50,000Using the accounting equation at theendof the year:Assets=Liabilities+Equity$200,000 + $70,000=$50,000 + $30,000+?$270,000=$80,000+?Thus,endingequity = $190,000Alternative approach to solving part (b):Assets($70,000) =Liabilities($30,000) +Equity(?)where “” refers to “change in.”Thus:EndingEquity = $150,000 + $40,000 = $190,000c.Using the accounting equation at theendof the year:Assets=Liabilities+Equity$180,000=$60,000-$10,000+?$180,000=$50,000+$130,000Using the accounting equation at thebeginningof the year:Assets=Liabilities+Equity$180,000-$80,000=$60,000+?$100,000=$60,000+?Thus:BeginningEquity=$40,000

Page 15

Solution Manual for Financial Managerial Accounting, 4th edition - Page 15 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-14Exercise 1-9 (10 minutes)Assets=Liabilities+Equity(a)$95,000=$30,000+$65,000$89,000=$22,000+(b)67,000$132,000=(c)$112,000+$20,000Exercise 1-10 (15 minutes)Examples of transactions that fit each case include:a.Business acquiresoffice supplies (or some other asset) for cash (orsomeotherasset).Anotherexampleiscollectionofcashfromareceivable.b.Business pays an account payable (or some other liability) with cash(or some other asset).c.Business signs a note payable to extend the due date on an accountpayable; OR, a business substitutes one note with better terms foranother note with poorer terms.d.Business purchases equipment (or some other asset) on credit; OR, abusiness takes out a cash loan.e.Cashdividends(orsomeotherasset)paidtotheowner(s)ofthebusiness; OR, the business incurs an expense paid in cash.f.Business incurs an expense that is not yet paid (for example, whenemployees earn wages that are not yet paid).g.Owner(s) invest cash (or some other asset) in the business; OR, thebusiness earns revenue and accepts cash (or another asset).

Page 16

Solution Manual for Financial Managerial Accounting, 4th edition - Page 16 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-15Exercise 1-11 (30 minutes)Cash+AccountsReceivable+Equip-ment=AccountsPayable+CommonStockDividends+RevenuesExpensesa.+$50,000+$10,000=+$60,000b.1,600____________$1,600Bal.48,400++10,000=+60,0001,600c._______+12,000+$12,000___________Bal.48,400++22,000=12,000+60,0001,600d.+2,000___________________+$2,000_____Bal.50,400++22,000=12,000+60,000+2,0001,600e._______+$7,000___________________+7,000_____Bal.50,400+7,000+22,000=12,000+60,000+9,0001,600f.8,000______+8,000_______________________Bal.42,400+7,000+30,000=12,000+60,000+9,0001,600g.2,400______________________________2,400Bal.40,000+7,000+30,000=12,000+60,000+9,0004,000h.+5,000-5,000_____________________________Bal.45,000+2,000+30,000=12,000+60,000+9,0004,000i.12,000____________12,000________________Bal.33,000+2,000+30,000=0+60,000+9,0004,000j.500_________________________$500__________Bal.$32,500+$2,000+$30,000=$0+$60,000$500+$9,000$4,000Exercise 1-12 (20 minutes)a.Started the business with the owner investing $20,000 cashinexchange for common stock.b.Purchased office supplies for $1,500 by paying $1,000 cash and puttingthe remaining $500 balance on credit.c.Purchased office furniture by paying $8,000 cash.d.Billed a customer $3,000 for services earned.e.Provided services for $500 cash.

Page 17

Solution Manual for Financial Managerial Accounting, 4th edition - Page 17 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-16Exercise 1-13 (15 minutes)a.Purchased land for $2,000 cash.b.Purchased $500 of office supplies on credit.c.Billed a client $950 for services provided.d.Paid the $500 account payable created by the credit purchase of officesupplies in transactionb.e.Collected $950 cash for the billing in transactionc.Exercise 1-14 (15 minutes)REAL SOLUTIONSIncome StatementFor Month Ended October 31Revenues:Consulting fees earned....................$15,000Expenses:Salaries expense..............................$6,000Rent expense....................................2,550Miscellaneous expenses.................680Telephoneexpense..........................660Total expenses.................................9,890Net income..................................................$ 5,110Exercise 1-15 (15 minutes)REAL SOLUTIONSStatement ofRetained EarningsFor Month Ended October 31Retained earnings,Oct. 1................................$0Add:Net income(from Exercise 1-14).............5,1105,110Less:Cash dividends......................................3,360Retained earnings, Oct. 31..............................$1,750

Page 18

Solution Manual for Financial Managerial Accounting, 4th edition - Page 18 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-17Exercise 1-16 (15 minutes)REAL SOLUTIONSBalance SheetOctober 31AssetsLiabilitiesCash...............................$ 2,000Accounts payable.................$7,500Accounts receivable....13,000EquityOffice supplies..............4,250Common stock......................74,000Office equipment..........28,000Retained earnings*...............1,750Land...............................36,000Total equity............................75,750Total assets...................$83,250Total liabilities and equity....$83,250* Computation of amount from Exercise 1-15.Exercise 1-17 (15 minutes)REAL SOLUTIONSStatement of Cash FlowsFor Month Ended October 31Cashflows from operating activitiesCash received from customers............................................$ 2,000Cash paid to employees.......................................................(2,750)Cash paid for rent..................................................................(2,550)Cash paid for telephone expenses......................................(660)Cash paid for miscellaneous expenses..............................(680)Net cash used by operating activities.................................(4,640)Cashflows from investing activitiesPurchase of office equipment..............................................(28,000)Net cash used by investing activities.................................(28,000)Cash flows from financing activitiesInvestmentsby stockholders for stock...............................38,000Dividends to stockholders...................................................(3,360)Net cash provided by financing activities..........................34,640Net increase in cash..............................................................$ 2,000Cash balance, October 1......................................................0Cash balance, October 31....................................................$ 2,000

Page 19

Solution Manual for Financial Managerial Accounting, 4th edition - Page 19 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-18Exercise 1-18 (10 minutes)Return on assets=Net income / Average total assets=$20,000 / [($100,000 + $150,000)/2]=16%Interpretation: Geneva Group’s return on assets of 16% is markedly abovethe 10% return of its competitors. Accordingly, its performance isassessed as superior to its competitors.Exercise 1-19 (10 minutes)A1.Cash paid for wagesA5.Cash paid on an account payableC2. Cashpaid for dividendsC6. Cashreceived from stock issuedB3. Cash purchase of equipmentA7. Cash received from clientsA4. Cash paid for advertisingA8. Cash paid for rentExercise 1-20B(10 minutes)1.FFinancing*2.IInvesting3.OOperating4.FFinancing5.IInvesting*Would also be listed as “investing” if resources contributed by owner were in theform of non-financial resources(assets other than cash).

Page 20

Solution Manual for Financial Managerial Accounting, 4th edition - Page 20 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-19Exercise 1-21 (20 minutes)NINTENDOIncome StatementFor Year Ended March 31, 2009Net sales......................................................................¥ 1,838,622ExpensesCost of sales............................................................¥1,044,981Selling, general and administrative expenses......238,378Other expenses........................................................276,174Total expenses.........................................................1,559,533Net income....................................................................¥279,089

Page 21

Solution Manual for Financial Managerial Accounting, 4th edition - Page 21 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-20PROBLEM SET AProblem 1-1A (25 minutes)Balance SheetIncomeStatementStatement ofCash FlowsTransactionTotalAssetsTotalLiab.TotalEquityNetIncomeOperatingActivitiesFinancingActivitiesInvestingActivities1Owner investscashfor stock+++2Incurs legalcosts on credit+3Pays cash foremployee wages4Borrows cashby signing L-Tnote payable+++5Receives cashfor servicesprovided++++6Buys land bysigning notepayable++7Buys officeequipmentfor cash+/8Provides ser-vices on credit+++9Collects cashon receivablefrom (8)+/+10Payscashdividend

Page 22

Solution Manual for Financial Managerial Accounting, 4th edition - Page 22 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-21Problem 1-2A (40 minutes)Part 1Company A:(a)Equity on December 31, 2010:Assets..........................................................$45,000Liabilities.....................................................(23,500)Equity..........................................................$21,500(b)Equity on December 31, 2011:Equity, December 31, 2010........................$21,500Plus stock issuances.................................5,000Plus net income..........................................7,500Lesscash dividends..................................(2,500)Equity, December 31, 2011........................$31,500(c)Amount of liabilities on December 31, 2011:Assets..........................................................$48,000Equity..........................................................(31,500)Liabilities.....................................................$16,500Part 2Company B:(a) and (b)Equity:12/31/201012/31/2011Assets...................................$35,000$41,000Liabilities..............................(22,500)(27,500)Equity...................................$12,500$13,500(c)Net income for 2011:Equity, December 31, 2010.....................$12,500Plusstock issuances..............................1,500Plus net income.......................................?Less cash dividends...............................(3,000)Equity, December 31, 2011.....................$13,500Therefore, net income must have been$ 2,500.

Page 23

Solution Manual for Financial Managerial Accounting, 4th edition - Page 23 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-22Problem 1-2A(continued)Part 3Company C:First, calculate the beginning balance of equity:Dec. 31, 2010Assets..........................................................$29,000Liabilities.....................................................(14,000)Equity..........................................................$15,000Next, find the ending balance of equity by completing this table:Equity, December 31, 2010........................$15,000Plus stock issuances.................................7,750Plus net income..........................................9,000Less cash dividends..................................(3,875)Equity, December 31, 2011........................$27,875Finally, find the ending amount of assets by adding the ending balance ofequity to the ending balance of liabilities:Dec. 31, 2011Liabilities.....................................................$19,000Equity..........................................................27,875Assets..........................................................$46,875Part 4Company D:First, calculate the beginning and ending equity balances:12/31/201012/31/2011Assets......................................$80,000$125,000Liabilities.................................(38,000)(64,000)Equity......................................$42,000$ 61,000Then, find the amount of stock issuancesduring 2011:Equity, December 31, 2010..........................$42,000Plus stock issuances...................................?Plus net income............................................12,000Less cash dividends....................................0Equity, December 31, 2011..........................$61,000Thus,stock issuancesmust have been:$ 7,000

Page 24

Solution Manual for Financial Managerial Accounting, 4th edition - Page 24 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-23Problem 1-2A (Concluded)Part 5Company E:First, compute the balance of equity as of December 31, 2011:Assets..........................................................$112,500Liabilities.....................................................(75,000)Equity..........................................................$ 37,500Next, find the beginning balance of equity as follows:Equity, December 31, 2010........................$?Plus stock issuances.................................4,500Plus net income..........................................18,000Less cash dividends..................................(9,000)Equity, December 31, 2011........................$37,500Thus, the beginning balance of equity was$24,000.Finally, find the beginning amount of liabilities by subtracting thebeginning balance of equity from the beginning balance of assets:Dec. 31, 2010Assets..........................................................$123,000Equity..........................................................(24,000)Liabilities.....................................................$ 99,000Problem 1-3A (15 minutes)Affiliated CompanyBalance SheetDecember 31, 2011Assets..............................$ 90,000Liabilities..................................$ 34,000Equity........................................56,000Total assets.....................$ 90,000Total liabilities and equity.......$ 90,000

Page 25

Solution Manual for Financial Managerial Accounting, 4th edition - Page 25 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-24Problem 1-4A (15 minutes)Sun Energy CompanyIncome StatementFor Year Ended December 31, 2011Revenues.................................................$65,000Expenses..................................................50,000Net income................................................$15,000Problem 1-5A (15 minutes)BoardwalkStatement ofRetained EarningsFor Year Ended December 31, 2011Retained earnings, Dec. 31, 2010....................$ 8,000Add: Net income................................................9,00017,000Less: Cash dividends.......................................(2,000)Retained earnings, Dec. 31, 2011.....................$15,000Problem 1-6A (15 minutes)TrimarkStatement of Cash FlowsFor Year Ended December 31, 2011Cash from operating activities........................$ 7,000Cash used by investing activities....................(3,000)Cash used by financing activities....................(3,800)Net increase in cash..........................................200Cash, December 31, 2010.................................3,300Cash, December 31, 2011.................................$ 3,500

Page 26

Solution Manual for Financial Managerial Accounting, 4th edition - Page 26 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-25Problem 1-7A (60 minutes) Parts 1 and 2Assets=Liabilities+EquityCash+AccountsReceivable+OfficeSupplies+OfficeEquipment+Building=AccountsPayable+NotesPayable+CommonStock-Dividends+Reve-nues-Expen-sesa.+$60,000+$30,000+$90,000b.-50,000+$300,000+$250,000Bal.10,000+30,000+300,000=+250,000+90,000c.-6,000+6,000Bal.4,000+36,000+300,000=+250,000+90,000d.+$4,000+1,000+$5,000Bal.4,000+4,000+37,000+300,000=5,000+250,000+90,000e.-1,000-$1,000Bal.3,000+4,000+37,000+300,000=5,000+250,000+90,000-1,000f.+$4,000+$4,000Bal.3,000+4,000+4,000+37,000+300,000=5,000+250,000+90,000+4,000-1,000g.+8,000+8,000Bal.11,000+4,000+4,000+37,000+300,000=5,000+250,000+90,000+12,000-1000h.-1,800-$1,800Bal.9,200+4,000+4,000+37,000+300,000=5,000+250,000+90,000-1,800+12,000-1,000i.+3,000-3,000Bal.12,200+1,000+4,000+37,000+300,000=5,000+250,000+90,000-1,800+12,000-1,000j.-500-500Bal.11,700+1,000+4,000+37,000+300,000=4,500+250,000+90,000-1,800+12,000-1,000k.-2,500-2,500Bal.$9,200+$1,000+$4,000+$37,000+$300,000=$4,500+$250,000+$90,000-$1,800+$12,000-$3,500Part 3Right Consulting’s net income = $12,000-$3,500 = $8,500

Page 27

Solution Manual for Financial Managerial Accounting, 4th edition - Page 27 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-26Problem 1-8A (60 minutes)Parts 1 and 2Assets=Liabilities+EquityDateCash+AccountsReceivable+OfficeEquipment=AccountsPayable+CommonStockDividends+RevenuesExpensesMay1+$60,000=+$60,0001-3,200=$3,2003+$1,680=+ $1,6805-800=8008+4,600=+$4,60012+$3,000=+3,00015-850=85020+3,0003,000=22+2,800=+2,80025+2,8002,800=26-1,680=1,68027=+606028-850=85030-200=20030-480=48031-1,200=$1,200$61,140+$0+$1,680=$60+$60,000$1,200+$10,400$6,440

Page 28

Solution Manual for Financial Managerial Accounting, 4th edition - Page 28 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-27Problem 1-8A(Continued)Part 3THE SIMPSON CO.Income StatementFor Month Ended May 31Revenues:Consulting services revenue............$10,400Expenses:Rent expense.......................................$3,200Salaries expense.................................1,700Advertising expense...........................60Cleaning expense...............................800Telephone expense.............................200Utilities expense..................................480Total expenses....................................6,440Net income..................................................$ 3,960THE SIMPSON CO.Statement ofRetained EarningsFor Month Ended May 31Retained earnings,May1..........................................$0Plus:Net income.......................................................3,9603,960Less:Cash dividends................................................1,200Retained earnings, May 31........................................$2,760THE SIMPSON CO.Balance SheetMay 31AssetsLiabilitiesCash...............................$61,140Accounts payable................$60Office equipment..........1,680EquityCommon stock....................60,000Retained earnings...............2,760Total equity..........................62,760Total assets...................$62,820Total liabilities and equity..$62,820

Page 29

Solution Manual for Financial Managerial Accounting, 4th edition - Page 29 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-28Problem 1-8A (Concluded)Part 3continuedTHE SIMPSON CO.Statement of Cash FlowsFor Month Ended May 31Cash flows from operating activitiesCash received from customers................................$10,400Cash paid for rent......................................................(3,200)Cash paid for cleaning..............................................(800)Cash paid for telephone............................................(200)Cash paid for utilities................................................(480)Cash paid to employees...........................................(1,700)Net cash provided by operating activities..............$ 4,020Cash flows from investing activitiesPurchase of equipment.............................................(1,680)Net cash used by investing activities......................(1,680)Cash flows from financing activitiesInvestments bystockholder.....................................60,000Dividends to stockholder..........................................(1,200)Net cash provided by financing activities...............58,800Net increase in cash..................................................$61,140Cash balance, May 1.................................................0Cash balance, May 31...............................................$61,140

Page 30

Solution Manual for Financial Managerial Accounting, 4th edition - Page 30 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-29Problem 1-9A (60 minutes) Parts 1 and 2Assets=Liabilities+EquityDateCash+AccountsReceivable+OfficeSupplies+OfficeEquipment+ElectricalEquipment=AccountsPayable+CommonStock-Dividends+Revenues-ExpensesDec.1+$56,000=+$56,0002-800-$800Bal.55,200=56,000-8003-3,200+$14,000+ $10,800Bal.52,000+14,000=10,800+56,000-8005-900+$ 900Bal.51,100+900+14,000=10,800+56,000-8006+1,000+$1,000Bal.52,100+900+14,000=10,800+56,000+1,000-8008+$3,800+3,800Bal.52,100+900+3,800+14,000=14,600+56,000+1,000-80015+$4,000+4,000Bal.52,100+4,000+900+3,800+14,000=14,600+56,000+5,000-80018+500+500Bal.52,100+4,000+1,400+3,800+14,000=15,100+56,000+5,000-80020-3,800-3,800Bal.48,300+4,000+1,400+3,800+14,000=11,300+56,000+5,000-80024+600+600Bal.48,300+4,600+1,400+3,800+14,000=11,300+56,000+5,600-80028+4,000-4,000Bal.52,300+600+1,400+3,800+14,000=11,300+56,000+5,600-80029-1,200-1,200Bal.51,100+600+1,400+3,800+14,000=11,300+56,000+5,600-2,00030-440-440Bal.50,660+600+1,400+3,800+14,000=11,300+56,000+5,600-2,44031-700-$700Bal.$49,960+$ 600+$1,400+$3,800+$14,000=$11,300+$56,000-$700+$5,600-$2,440

Page 31

Solution Manual for Financial Managerial Accounting, 4th edition - Page 31 preview image

Loading page image...

Chapter01Introducing Accounting in Business1-30Problem 1-9A(Continued)Part 3HAMILTON ELECTRICIncome StatementFor Month Ended December 31Revenues:Electrical fees earned......................$5,600Expenses:Rent expense....................................$ 800Salaries expense..............................1,200Utilities expense..............................440Total expenses.................................2,440Net income..................................................$3,160HAMILTON ELECTRICStatement ofRetained EarningsFor Month Ended December 31Retained earnings,December1................$0Plus: Net income.......................................3,1603,160Less:Cash dividends................................700Retained earnings, December 31..............$2,460HAMILTON ELECTRICBalance SheetDecember 31AssetsLiabilitiesCash.................................$49,960Accounts payable....................$11,300Accounts receivable......600EquityOffice supplies................1,400Common stock........................56,000Office equipment............3,800Retained earnings...................2,460Electrical equipment......14,000Total equity..............................58,460Total assets.....................$69,760Total liabilities and equity......$69,760
Preview Mode

This document has 1470 pages. Sign in to access the full document!

Study Now!

XY-Copilot AI
Unlimited Access
Secure Payment
Instant Access
24/7 Support
Document Chat

Document Details

Subject
Accounting

Related Documents

View all