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Reporting in Action — BTN 4-1
1. The revenue items from its income statement must be identified, and
those would be credited to Income Summary as step 1 in the closing
2. The total expenses that would be debited to Income Summary as step 2
in the closing entry process must be computed. Apple’s total expenses
for the fiscal year-end September 28, 2013, are (in millions):
3. The balance of Income Summary before it is closed as of its fiscal year-
4. Solution depends on the financial statements accessed.
Comparative Analysis — BTN 4-2
1. Apple’s current ratios: ($ in millions)
Current year............................... $73,286 / $43,658 = 1.68
Prior year.................................... $57,653 / $38,542 = 1.50
2. In both years, Google has the higher current ratio (4.58 vs 1.68 for the
current year; 4.22 vs. 1.50 in the prior year), suggesting a better ability
3. Apple’s current ratio increased from 1.50 to 1.68. Google’s current ratio
also increased from 4.22 to 4.58.
4. Google’s current ratio is above (better than) the industry average for
both years, and Apple’s is below (worse than) the industry average for
1. There are several courses of action that Tamira could have taken. Two
possibilities follow:
a. She could have consulted with the president and told him that
finalized financial statements would not be ready by the time of the
b. The estimation decision was not a bad choice in itself, but she
should have informed the president. Tamira probably should have
2. Students may offer one of the above alternatives or another response
they may think of, given the situation. Try to generate a discussion of
Communicating in Practice — BTN 4-4
TO: _____________________
FROM: _____________________
DATE: ______________________
SUBJECT: CLARIFICATIONS—OBJECTIVE OF THE CLOSING PROCESS
[Following is a sample of what the memorandum’s contents might include.]
When we speak of “closing the books” or the closing process we are not
talking about ending or closing the business nor doing anything that reflects
this thinking in the financial statements. Let me use an analogy to explain the
concept of the closing process and then you will see the distinction more
clearly.
with scores from the first game. As a result, the scoreboard would reflect data
or scores that were not relevant to either game. You can see that the
scoreboard must be zeroed-out to prepare it for accumulating data to
determine the outcome of the next game.
The revenue and expense accounts temporarily hold the information to
income or loss, in the permanent recordbook or the capital account. A win, or
net income, increases capital and a loss, or net loss, decreases capital.
I hope this memo clarifies the objective of the closing process.
[Note: The memorandum need not discuss the income summary account since the assignment
requires explaining the concept, not the procedure.]
1. The Motley Fool states that a benchmark of 1.5 is generally regarded as
sufficient to meet near-term operating needs.
2. One should always check a company’s current ratio (as well as any
3. A current ratio that is too high can suggest that a company is hoarding
Teamwork in Action — BTN 4-6
[Note: Each team member will be working on a different component of the solution and will
ultimately combine information and verify the final check figures using the accounting equation.]
1. Accounts and adjusted balances to be extended to Balance Sheet columns
Trial Balance Adjustments Balance Sheet
Account Title Debit Credit Debit Credit Debit Credit
Cash...................................$16,000 $16,000
Accounts receivable......... (d) 800 800
Supplies............................. 12,000 (c) 7,000 5,000
D. Noseworthy,
Withdrawals..................... 6,000 6,000
Teamwork in Action (Continued)
2. Adjusted revenue account balance
Trial Balance Adjustments
Income
Statement
Title Debit Credit Debit Credit Debit Credit
Investigation Fees
Earned..................................... 33,000 (d) 800 33,800
Closing entry
Account Titles and Explanation Debit Credit
3. Adjusted balances of expense accounts
Title Trial Balance Adjustments
Income
Statement
Debit Credit Debit Credit Debit Credit
Rent Expense.....................15,000 15,000
Insurance Expense............ (a) 2,200 2,200
Closing entry
Account Titles and Explanation Debit Credit
Income Summary................................................................... 28,200
Rent Expense......................................................... 15,000
Insurance Expense................................................ 2,200
Teamwork in Action (Concluded)
4.
D. Noseworthy, Capital Income Summary
(4) 6,000 34,000 (2) 28,200 33,800 (1)
Third and Fourth closing entries
Account Titles and Explanation Debit Credit
Income Summary................................................................... 5,600
D. Noseworthy, Capital.......................................... 5,600
To close Income Summary to Capital.
5. Proving the Accounting Equation
1. A classified balance sheet classifies liabilities into current and non-
current. The current liabilities are those that are due in the short-term,
2. To better understand the company’s operations, she must make sure
that all revenues earned in a particular accounting period are included
in that period’s income statement. In addition, she must match
3. Closing procedures will accomplish two objectives for the owner. First,
the temporary accounts will be reset to zero and be readied for use in
the next accounting period. Second, the profitability of the period will
be updated to the company’s equity account.
Hitting the Road — BTN 4-8
Global Decision — BTN 4-9
1. Current ratio (in millions KRW)
2. Analysis: Samsung’s current ratio improved (is better) for the current
