978-0077862275 Chapter 3 Solution Manual Part 15

Reporting in Action — BTN 3-1

1. The revenue recognition principle requires that revenue be recorded

2. Apple provides information on revenue recognition in its Note 1 titled

“Summary of Significant Accounting Policies.” It reports that “The

3. For fiscal year-end September 28, 2013, the profit margin is ($ millions):

For fiscal year-end September 29, 2012, the profit margin is ($ millions):

4. Solution depends on the financial statements accessed.

Comparative Analysis — BTN 3-2

($ in millions)

1. Apple

Google

2. Apple and Google have a comparable profit margin in the current year,

but Apple is more successful on the basis of profit margin in the prior

year, Apple earned an average of 21.7 cents on each dollar while Google

earned 21.6 cents on each dollar.

Ethics Challenge — BTN 3-3

1. GAAP requires that annual deprecation be accumulated in a

contra-asset account, called Accumulated Depreciation. While property,

2. One strength of Smith’s method would be the ease of preparing the

balance sheet. The property, plant, and equipment balance in the

3. While both approaches would lead to the same total assets on the

Communicating in Practice — BTN 3-4

This communication activity has no set solution. A class discussion of the

Taking It to the Net — BTN 3-5

1. The Gap’s main brands (stores) are The Gap, Old Navy, and Banana

2. The Gap’s fiscal year-end is January 28, 2012. It appears that The Gap’s

3. Net sales for the year ended January 28, 2012, are $14,549 million.

6. The company probably chose a fiscal year-end as the end of January or

early February to have it be consistent with their natural year. For many

Teamwork in Action — BTN 3-6

Note that there is no specific solution to this activity. Still, the presentation

of each expert team should reflect the following summary points:

Before Adjusting

Balance Sheet Income Statement

Type Account Account Adjusting Entry

Prepaid expenses Asset overstated Expense understated Dr. Expense

Cr. Asset*

Cr. Revenue

* For depreciation, one would Credit the Accumulated Depreciation contra account.

Some implementation notes: This activity allows all students to be actively

involved in the learning process. Encourage students to take the opportunity

Entrepreneurial Decision — BTN 3-7

1. a.To record the collection of cash from sale of the gift certificate in

advance of delivery of merchandise to the customer:

b. To record the delivery of merchandise to the customer when he/she

uses the gift certificate:

2. Carrying less inventory would allow the company to save the costs of

3. If the company carries additional inventory, it can potentially sell more

merchandise and increase its profits. This might further fuel increased

sales as additional customers might be attracted to its products. On

Hitting the Road — BTN 3-8

There is no formal solution to this field activity. The instructor may wish to

tally students’ findings to see what companies were selected, who

responded, what was the response time, etc. The instructor can also

periodically ask students to bring in examples from their selected

companies at certain times, and then compare and contrast them with the

examples in the book.

Global Decision — BTN 3-9

1. Samsung (KRW in millions)