Quick Study 3-18 (10 minutes)
a. Under IFRS, financial statements normally present assets from least
liquid to most liquid.
Quick Study 3-19 (10 minutes)
Quick Study 3-20A (5 minutes)
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
2014…….……………..….…....12 6,000
Exercise 3-2 (10 minutes)
Exercise 3-3 (15 minutes)
a. Adjusting entry:
2015
Dec. 31 Wages Expense………………………………….……..…………..
1,250
Wages Payable…………………………………………..….. 1,250
To record accrued wages for one day.
(5 workers x $250)
b. Payday entry:
2016
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.
May 12 Legal Fees Payable……………………………...……… 3,500
May 20 Interest Payable…………………………………………… 3,000
Interest Expense*………………………………………… 6,000
Cash…………………………………………..………... 9,000
To record payment of accrued and current
interest. *($9,000 monthly interest x 20/30)
c.
Apr. 30 Salaries Expense…………………………………………. 4,000
Exercise 3-6 (25 minutes)
($6,000 – $1,100).
c. Office Supplies Expense…….………........................…....... 3,880
Office Supplies**………………..……….......................…..... 3,880
To record office supplies used ($700 + $3,480 – $300).
e. Insurance Expense…………………………………………………… 5,800
Prepaid Insurance………………………………………..…….... 5,800
To record insurance coverage that expired.
Notes:
Prepaid Insurance*Office Supplies**
? Used ? Used
End. Bal. 1,100 End. Bal. 300
Exercise 3-7 (30 minutes)
a. Unearned Fee Revenue…………………………………………….. 5,000
Fee Revenue………………………………………………..…..….. 5,000
To record earned portion of fee received in advance
($15,000 x 1/3).
d. Office Supplies Expense…..………..…....…........................ 5,000
Office Supplies*……………………………………..……..…..…. 5,000
To record office supplies used ($240 + $5,200 – $440).
g. Interest Expense……………………………………………….……. 2,500
Interest Payable…………………………………….…..……….. 2,500
To record interest incurred but not yet paid.
Notes:
Prepaid Insurance†Office Supplies*
Exercise 3-8 (25 minutes)
Dec. 31 Accounts Receivable………………………………………. 2,100
Fees Earned…………………………………..………… 2,100
To record earned but unbilled fees (30% x $7,000).
To record depreciation on office furniture.
31 Salaries Expense……………………………..…………….. 2,250
Salaries Payable………………………..…………….. 2,250
To record accrued salaries.
31 Insurance Expense…………………………..…..…………. 1,400
Prepaid Insurance……………….…………..………. 1,400
To record expired prepaid insurance.
To record incurred and unpaid utility costs.
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
Cash and cash equivalents…………………………….. 736
Total current assets…………………………..…………… 2 ,766
Total assets……………………………………………………... € 6 ,694
Equity
Total equity……………………………………………..………. € 2,489
Liabilities
Exercise 3-10 (10 minutes)
a. $ 4,361 / $ 44,500 = 9.8%
b. $ 97,706 / $ 398,800 = 24.5%
Analysis and Interpretation: Company c has the highest profitability