Serial Problem, SP 3 (Continued)
Computer Services Revenue Acct. No. 403
Date Explanation PR Debit Credit Balance
Oct. 6 4,800 4,800
12 1,400 6,200
28 5,208 11,408
Depreciation Expense—Office Equipment Acct. No. 612
Date Explanation PR Debit Credit Balance
Dec. 31 400 400
Depreciation Expense—Computer Equipment Acct. No. 613
Date Explanation PR Debit Credit Balance
Dec. 31 1,250 1,250
Wages Expense Acct. No. 623
Date Explanation PR Debit Credit Balance
Insurance Expense Acct. No. 637
Date Explanation PR Debit Credit Balance
Dec. 31 555 555
Serial Problem, SP 3 (Concluded)
Rent Expense Acct. No. 640
Date Explanation PR Debit Credit Balance
Advertising Expense Acct. No. 655
Date Explanation PR Debit Credit Balance
Oct. 20 1,728 1,728
Dec. 2 1,025 2,753
Mileage Expense Acct. No. 676
Date Explanation PR Debit Credit Balance
Nov. 1 320 320
28 384 704
Dec. 29 192 896
Miscellaneous Expense Acct. No. 677
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):
$37,037 / $170,910 = 0.217 = 21.7%
4. Solution depends on the financial statements accessed.
Comparative Analysis — BTN 3-2
($ in millions)
1. Apple
Current year, profit margin = $37,037 / $170,910 = 21.7%
Prior year, profit margin = $41,733 / $156,508 = 26.7%
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
Ethics Challenge — BTN 3-3
1. GAAP requires that annual deprecation be accumulated in a contra-
asset account, called Accumulated Depreciation. While property, plant,
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
balance sheet, GAAP requires Boland’s approach. As a professional,
Communicating in Practice — BTN 3-4
This communication activity has no set solution. A class discussion of the
ratios can be conducted with emphasis on (1) return and profitability by
industries and (2) a contrast of debt financing between industries.
Taking It to the Net — BTN 3-5
1. The Gap’s main brands (stores) are The Gap, Old Navy, and Banana
Republic. It also has Piperlime and Athleta brands.
5. Profit margin = $833 million / $14,549 million = 5.73%
6. The company probably chose a fiscal year-end as the end of January or
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*
* 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:
Cash…………………………………………………………… 300
Unearned Revenue……………………………….. 300
2. Carrying less inventory would allow the company to save the costs of
keeping and maintaining that added inventory; such as warehousing
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
Global Decision — BTN 3-9
1. Samsung (KRW in millions)
Current year, profit margin = ₩30,474,764/ ₩228,692,667= 13.3%
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
relative to Samsung. Samsung earned an average of 13.3 jeons on each