Quick Study 3-18 (10 minutes)
a. Under IFRS, financial statements normally present assets from least
liquid to most liquid.
b. Under IFRS, financial statements normally present liabilities from
Interpretation: For each dollar that the company records as revenue, it earns
11.3 cents in net income. The company’s profit margin of 11.3% is markedly
lower than competitors’ average profit margin of 15%—it must improve
performance.
Quick Study 3-20A (5 minutes)
The answer is a.
EXERCISES
Exercise 3-1 (20 minutes)
Balance Sheet Insurance Asset using Insurance Expense using
Accrual
Basis*
Cash
Basis
Accrual
Basis**
Cash
Basis
Dec. 31, 2013………..…..$13,000 $0 2013………………………….$ 5,000 $18,000
Explanations:
*Accrual asset balance equals months left in the policy x $500 per month (monthly
cost is computed as $18,000 / 36 months).
Months Left Balance
12/31/2013… 26 $13,000
**Accrual insurance expense equals months covered in the year x $500 per month.
Months Covered Expense
2013…………………………….10 $ 5,000
Exercise 3-2 (10 minutes)
1. E 4. D
Exercise 3-3 (15 minutes)
a. Adjusting entry:
2015
Dec. 31 Wages Expense……………………………………………………
1,250
b. Payday entry:
2016
Jan. 4 Wages Expense……………………………………………………3,750
Wages Payable……………………………………………………..1,250
Exercise 3-4 (15 minutes)
a. Supplies expense for current year: $2,550
Proof:
(a) (b) (c) (d)
Supplies available – prior year-end……... $ 400 $1,200 $ 1,260 $2,288
Supplies purchased in current year........ 2,800 6,500 8,490 3,000
Exercise 3-5 (25 minutes)
a.
Apr. 30 Legal Fees Expense……………………………………. 3,500
Legal Fees Payable……………………………… 3,500
To record accrued legal fees.
b.
Apr. 30 Interest Expense………………………………………… 3,000
Interest Payable…………………………………… 3,000
c.
Apr. 30 Salaries Expense……………………………………….. 4,000
Salaries Payable………………………………….. 4,000
To record accrued salaries ($10,000 x 2/5 week).
Exercise 3-6 (25 minutes)
a. Depreciation Expense—Equipment…………………………… 18,000
b. Insurance Expense…………………………………………………… 4,900
c. Office Supplies Expense………………………………………….. 3,880
d. Unearned Fee Revenue…………………………………………….. 10,000
e. Insurance Expense…………………………………………………… 5,800
f. Wages Expense……………………………………………………….. 3,200
Notes:
Prepaid Insurance*Office Supplies**
Exercise 3-7 (30 minutes)
a. Unearned Fee Revenue…………………………………………….. 5,000
b. Wages Expense……………………………………………………….. 8,000
c. Depreciation Expense—Equipment…………………………… 18,000
d. Office Supplies Expense………………………………………….. 5,000
e. Insurance Expense…………………………………………………… 2,800
f. Interest Receivable……………………………………………….. 1,050
g. Interest Expense…………………………………………………… 2,500
Notes:
Prepaid Insurance†Office Supplies*
Beg. Bal. 4,000 Beg. Bal. 240
? Used ? Used
Exercise 3-8 (25 minutes)
Dec. 31 Accounts Receivable…………………………………….. 2,100
31 Unearned Fees………………………………………………. 4,900
31 Depreciation Expense—Computers…………….….. 1,600
31 Depreciation Expense—Office Furniture.…....…… 1,850
31 Salaries Expense…………………………………………… 2,250
31 Insurance Expense…………………………………………. 1,400
31 Office Supplies Expense…………………………………. 580
31 Utilities Expense…………………………………………….. 90
Exercise 3-9 (20 minutes)
adidas AG
Balance Sheet
December 31, 2013
(Euros in millions)
Assets
Noncurrent assets
Intangible assets…………………………………………… € 148
Tangible and other assets……………………………… 304
Other noncurrent assets………………………………. 3 ,476
Equity
Total equity…………………………………………………….. € 2,489
Liabilities
Total noncurrent liabilities………………………………. 3,411
Exercise 3-10 (10 minutes)
a. $ 4,361 / $ 44,500 = 9.8%
Analysis and Interpretation: Company c has the highest profitability
according to the profit margin ratio. Company c earns 43.3 cents in net
income for every one dollar of net sales earned.
Exercise 3-11A (30 minutes)
a.
Dec. 1 Supplies Expense………………………………………….. 2,000
b.
Dec. 2 Insurance Expense………………………………………… 1,540
c.
Dec. 15 Cash…………………………………………………………….. 13,000
d.
Dec. 28 Cash…………………………………………………………….. 3,700
e.
Dec. 31 Supplies……………………………………………………….. 1,840
f.
Dec. 31 Prepaid Insurance…………………………………………. 1,200
g.
Dec. 31 Remodeling Fees Earned ………………………………. 11,130
Google (in millions)
2. Apple is slightly more successful on the basis of profit margin in the
current year relative to Google. However, both Apple and Google are
more successful on the basis of profit margin in the current year