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Exercise 2-21 (15 minutes)
a. The debit column is correctly stated because the erroneous debit (to
Accounts Payable) is deducted from an account with a (larger assumed)
credit balance.
c. The Automobiles account balance is correctly stated.
e. The credit column is $37,900 less than the debit column, or $162,100 in
total ($200,000 - $37,900).
Exercise 2-22 (10 minutes)
HEINEKEN N.V.
Balance Sheet (in Euro millions)
December 31, 2013
Assets Equity and liabilities
Noncurrent assets........ € 27,842 Total equity........................... € 12,356
Current assets.............. 5,495 Noncurrent liabilities........... 12,978
Exercise 2-23 (15 minutes)
a.
Co. Liabilities / Assets =
Debt
Ratio
Net
Income /
Average
Assets = ROA
1 $11,765 $ 90,500 0.13 $20,000 $100,000 0.200
2 46,720 64,000 0.73 3,800 40,000 0.095
3 26,650 32,500 0.82 650 50,000 0.013
b. Company 3 relies most heavily on creditor (non-owner) financing with 82%
of its assets financed by liabilities.
This implies that 87% of the assets are financed by equity (owners).
d. The companies with the highest debt ratios indicate the greatest risk. The
two companies with the highest debt ratios are 2 and 3.
f. As an investor, one prefers high returns at low risk. Company 1 is the
preferred investment since it yields the lowest risk (debt ratio is 13%) and
highest return on assets (20%).
PROBLEM SET A
Problem 2-1A (90 minutes)
Part 1
April 1 Cash............................................................101 80,000
Office Equipment.......................................163 26,000
2 Prepaid Rent...............................................131 9,000
3 Office Equipment.......................................163 8,000
Office Supplies...........................................124 3,600
6 Cash............................................................101 4,000
9 Accounts Receivable.................................106 6,000
Billed client for completed work.
13 Accounts Payable......................................201 11,600
19 Prepaid Insurance......................................128 2,400
22 Cash............................................................101 4,400
25 Accounts Receivable.................................106 2,890
28 Dividends....................................................319 5,500
29 Office Supplies...........................................124 600
Purchased supplies on account.
30 Utilities Expense........................................690 435
Cash....................................................101 435
Paid monthly utility bill.
Problem 2-1A (Continued)
Part 2
Cash Acct. No. 101
Date Explanation PR Debit Credit Balance
April 1 G1 80,000 80,000
2 G1 9,000 71,000
6 G1 4,000 75,000
13 G1 11,600 63,400
Accounts Receivable Acct. No. 106
Date Explanation PR Debit Credit Balance
April 9 G1 6,000 6,000
Office Supplies Acct. No. 124
Date Explanation PR Debit Credit Balance
April 3 G1 3,600 3,600
Prepaid Insurance Acct. No. 128
Date Explanation PR Debit Credit Balance
April 19 G1 2,400 2,400
Prepaid Rent Acct. No. 131
Date Explanation PR Debit Credit Balance
April 2 G1 9,000 9,000
Office Equipment Acct. No. 163
Date Explanation PR Debit Credit Balance
April 1 G1 26,000 26,000
Problem 2-1A (Continued)
Accounts Payable Acct. No. 201
Date Explanation PR Debit Credit Balance
April 3 G1 11,600 11,600
Common Stock Acct. No. 307
Date Explanation PR Debit Credit Balance
April 1 G1 106,000 106,000
Dividends Acct. No. 319
Date Explanation PR Debit Credit Balance
April 28 G1 5,500 5,500
Services Revenue Acct. No. 403
Date Explanation PR Debit Credit Balance
April 6 G1 4,000 4,000
Utilities Expense Acct. No. 690
Date Explanation PR Debit Credit Balance
April 30 G1 435 435
Problem 2-1A (Continued)
Part 3
LINKWORKS
Trial Balance
April 30
Debit Credit
Cash....................................................................... $ 59,465
Accounts receivable............................................ 4,490
Office supplies...................................................... 4,200
Prepaid insurance................................................ 2,400
Prepaid rent.......................................................... 9,000
Problem 2-2A (90 minutes)
Part 1
c. Building.......................................................170 55,000
Cash....................................................101 55,000
Purchased building.
d. Prepaid Insurance......................................108 3,000
Cash....................................................101 3,000
Purchased 18-month insurance policy.
e. Cash............................................................101 6,200
Engineering Fees Earned..................402 6,200
Collected cash for completed work.
f. Drafting Equipment....................................164 20,000
Cash....................................................101 9,500
Notes Payable.....................................250 10,500
Purchased equipment with cash and note
payable.
Problem 2-2A (Part 1 Continued)
i. Accounts Receivable.................................106 22,000
Engineering Fees Earned..................402 22,000
Billed client for completed work.
j. Equipment Rental Expense.......................602 1,333
Accounts Payable..............................201 1,333
Incurred equipment rental expense.
k. Cash............................................................101 7,000
Accounts Receivable.........................106 7,000
Collected cash on account.
l. Wages Expense..........................................601 1,200
Cash....................................................101 1,200
Paid assistant’s wages.
m. Accounts Payable......................................201 1,150
Cash...................................................101 1,150
Paid amount due on account.
Problem 2-2A (Continued)
Part 2
Cash No. 101 Accounts Payable No. 201
Date PR Debit Credit Balance Date PR Debit Credit Balance
(a) 100,000 100,000 (h) 1,150 1,150
(b) 6,300 93,700 (j) 1,333 2,483
(c) 55,000 38,700 (m) 1,150 1,333
(d) 3,000 35,700
(e) 6,200 41,900 Notes Payable No. 250
(f) 9,500 32,400 Date PR Debit Credit Balance
(k) 7,000 39,400 (b) 42,700 42,700
(l) 1,200 38,200 (f) 10,500 53,200
(m) 1,150 37,050
(n) 925 36,125
Drafting Equipment No. 164 Equipment Rental Expense No. 602
Date PR Debit Credit Balance Date PR Debit Credit Balance
(a) 60,000 60,000 (j) 1,333 1,333
(f) 20,000 80,000
Building No. 170 Advertising Expense No. 603
Date PR Debit Credit Balance Date PR Debit Credit Balance
(c) 55,000 55,000 (q) 2,500 2,500
Land No. 172 Repairs Expense No. 604
Date PR Debit Credit Balance Date PR Debit Credit Balance
(b) 49,000 49,000 (n) 925 925
