Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
Financial Accounting, 8/e 4-21
E4–12.
Balance Sheet
Income Statement
Date
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Note 1:
April 1, 2014
+30,000/
–30,000
NE
NE
NE
NE
December 31, 2014a
+ 2,250
NE
+ 2,250
+ 2,250
NE
March 31, 2015b
+33,000/
–32,250
NE
+ 750
+750
NE
Note 2:
August 1, 2014
+ 30,000
+ 30,000
NE
NE
NE
December 31, 2014c
NE
+ 1,500
– 1,500
NE
+ 1,500
January 31, 2015d
– 31,800
– 31,500
– 300
NE
+ 300
(a) $30,000 principal x .10 annual interest rate x 9/12 of a year = $2,250
(b) Additional interest revenue in 2015: $30,000 x .10 x 3/12 = $750. Cash
received was $33,000 ($30,000 principal + $3,000 interest for 12 months);
receivables decreased by the $30,000 note receivable and $2,250 interest
receivable accrued in 2014.
(c) $30,000 principal x .12 annual interest rate x 5/12 of a year = $1,500
(d) Additional interest expense in 2015: $30,000 x .12 x 1/12 = $300. Cash paid
was $31,800 ($30,000 principal + $1,800 interest for 6 months); payables
decreased by the $30,000 note payable and $1,500 interest payable accrued in
2014.
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
E4–13.
Req. 1 (a) Cash paid on accrued income taxes payable.
(b) Accrual of additional income tax expense.
(c) Cash paid on dividends payable.
(d) Amount of dividends declared for the period.
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
E4–14.
Req. 1 Adjusting entries that were or should have been made at December 31:
(a) No entry was made. Entry that should have been made:
Rent receivable (+A) …………………………………………… 1,400
Rent revenue (+R, +SE) ……………………………. 1,400
Fee revenue (+R, +SE) ……………………………… 1,500
(d) Entry that was already made:
Interest expense (+E, −SE) ………………………………… 1,530
Interest payable (+L) ………………………………… 1,530
($17,000 x .09 x 12/12 months)
Insurance expense (+E, −SE) ………………………………. 650
Prepaid insurance (−A) ……………………………… 650
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
(a)
U 1,400
NE
U 1,400
U 1,400
NE
U 1,400
(b)
O 15,000
NE
O 15,000
NE
U 15,000
O 15,000
(c)
NE
O 1,500
U 1,500
U 1,500
NE
U 1,500
(d)
NE
O 1,275
U 1,275
NE
O 1,275
U 1,275
(e)
O 650
NE
O 650
NE
U 650
O 650
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
E4–16.
Req. 1
a.
Rent receivable (+A) ……………………………..
2,500
Revenues (rent) (+R, +SE) ………………
2,500
b.
Expenses (depreciation) (+E, −SE) …………
4,500
Accumulated depreciation (+XA, −A) …
4,500
c.
Income tax expense (+E, −SE) ……………….
5,100
Income taxes payable (+L) ………………
5,100
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
E4–17. (continued)
Req. 2
JAY, INC.
Income Statement
For the Year Ended December 31, 2014
Operating Revenue:
Rental revenue
$109,000
Operating Expenses:
Salaries and wages ($26,500 + $730)
$27,230
Maintenance expense ($12,000 + $1,100)
13,100
Rent expense
8,800
Utilities expense ($4,300 + $440)
4,740
Gas and oil expense
3,000
Depreciation expense
24,000
Miscellaneous expenses
1,000
Total expenses
81,870
Operating Income
27,130
Other Item:
Interest expense ($15,000 x .08 x 3/12)
300
Pretax income
26,830
Income tax expense
5,800
Net income
$ 21,030
Earnings per share: $21,030 ÷ 7,000 shares
$3.00
Req. 3
Total asset turnover ratio = Sales (or Operating) Revenues Average Total Assets
= $109,000 [($58,020 + $65,180)/2]
= $109,000 $61,600 = 1.77
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
E4–19.
GREEN VALLEY COMPANY
Income Statement
For the Year Ended December 31, 2014
(in thousands of dollars)
Revenues (not detailed)
$82
Expenses ($32 + $7 + $9 + $4)
52
Pretax income
30
Income tax expense
11
Net income
$19
EPS ($19,000 ÷ 4,000 shares)
$4.75
GREEN VALLEY COMPANY
Statement of Stockholders’ Equity
For the Year Ended December 31, 2014
(in thousands of dollars)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders‘
Equity
Beginning balances, 1/1/2014
$ 0
$ 0
$ 0
$ 0
Stock issuance
4
67
71
Net income
19
19
Dividends declared
(6) *
(6)
Ending balances, 12/31/2014
$ 4
$ 67
$ 13
$ 84
* The amount of dividends declared can be inferred because the unadjusted trial
balance amount for retained earnings is a negative $6. Since this is the first year of
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$ 20
Accounts payable
$ 11
Accounts receivable
13
Wages payable
4
Prepaid insurance ($8 – $7)
1
Income taxes payable
11
Total current assets
34
Total current liabilities
26
Machinery
85
Stockholders’ Equity:
Accumulated depreciation
(9)
Common stock
4
Additional paid-in capital
67
Retained earnings
13
Total assets
$110
Total liabilities and
stockholders’ equity
$110
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
PROBLEMS
P4–1.
Req. 1
Dell Inc.
Adjusted Trial Balance
At January 31, 2015
(in millions of dollars)
Debit
Credit
Cash
$ 13,852
Marketable securities
966
Accounts receivable
9,803
Inventories
1,404
Property, plant, and equipment
4,934
Accumulated depreciation
$ 2,810
Other assets
16,384
Accounts payable
11,656
Accrued expenses payable
3,934
Long-term debt
6,387
Other liabilities
13,639
Common stock and additional paid-in capital
187
Retained earnings
5,238
Sales revenue
62,071
Other expenses
191
Cost of sales
48,260
Selling, general, and administrative expenses
8,524
Research and development expense
856
Income tax expense
748
Totals
$ 105,922
$ 105,922
Req. 2
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
P4–3.
Req. 1
a.
Deferred expense
e.
Accrued revenue
b.
Deferred expense
f.
Deferred expense
c.
Accrued expense
g.
Accrued expense
d.
Accrued expense
h.
Accrued expense
Req. 2
a.
Depreciation expense (+E, −SE) …………………………….
3,500
Accumulated depreciation (+XA, −A) ………………
3,500
b.
Supplies expense (+E, −SE) ………………………………….
1,350
Supplies (−A) ………………………………………………
1,350
(Beg. Inventory of $500 + Purchases $1,000 – Ending Inventory $150)
c.
Repairs expense (+E, −SE) ……………………………………
2,600
Accounts payable (+L) …………………………………
2,600
d.
Property tax expense (+E, −SE) ……………………………..
1,800
Property tax payable (+L) ……………………………….
1,800
e.
Accounts receivable (+A) ………………………………………
4,000
Service revenue (+R, +SE) …………………………..
4,000
f.
Insurance expense (+E, −SE) ………………………………..
150
Prepaid insurance (−A)………………………………..
150
($900 ÷ 36 months x 6 months of coverage)
g.
Interest expense (+E, −SE) ……………………………………
390
Interest payable (+L) ……………………………………..
390
($13,000 x .12 x 3/12)
h.
Income tax expense (+E, −SE) ………………………………
7,263
Income tax payable (+L) …………………………………
7,263
To accrue income tax expense incurred but not paid:
Income before adjustments (given) $30,000
Effect of adjustments (a) through (g) (5,790) (–$3,500–$1,350–$2,600
Income before income taxes 24,210 –$1,800+$4,000–$150–$390)
Income tax rate x 30%
Income tax expense $ 7,263
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
P4–5.
Req. 1
a.
Deferred expense
e.
Accrued revenue
b.
Deferred expense
f.
Deferred expense
c.
Accrued expense
g.
Accrued expense
d.
Accrued expense
h.
Accrued expense
Req. 2
Balance Sheet
Income Statement
Transaction
Assets
Liabilities
Stockholders’
Equity
Revenues
Expenses
Net
Income
a.
− 3,500
NE
− 3,500
NE
+ 3,500
− 3,500
b.
− 1,350
NE
− 1,350
NE
+ 1,350
– 1,350
c.
NE
+ 2,600
− 2,600
NE
+ 2,600
− 2,600
d.
NE
+ 1,800
− 1,800
NE
+ 1,800
− 1,800
e.
+ 4,000
NE
+ 4,000
+ 4,000
NE
+ 4,000
f.
− 150
NE
− 150
NE
+ 150
− 150
g.
NE
+ 390
− 390
NE
+ 390
− 390
h.
NE
+7,263
− 7,263
NE
+ 7,263
− 7,263
Computations:
a.
Amount is given.
b.
Beg. inventory, $500 + Purchases, $1,000 – Ending inventory, $150 = $1,350 used
c.
Amount is given.
d.
Amount is given.
e.
Amount is given.
f.
$900 x 6/36 = $150 used
g.
$13,000 x 12% x 3/12 = $390 interest expense for the period
h.
Adjusted income = $30,000 – $3,500 – $1,350 – $2,600 – $1,800 + $4,000 – $150 –
$390 = $24,210 x 30% tax rate = $7,263 income tax expense.
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
P4–6. (continued)
Req. 4
Total asset turnover ratio = Sales (or Operating) Revenue Average Total Assets
= $66,220 [($110,000 + $136,220)/2]
= $66,220 $123,110 = 0.538
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
P4–7. (continued)
Req. 2 (continued)
TUNSTALL, INC.
Balance Sheet
At December 31, 2014
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$42,000
Accounts payable
$ 3,000
Accounts receivable
11,600
Wages payable
640
Supplies
300
Income taxes payable
5,540
Total current assets
53,900
Total current liabilities
9,180
Service trucks
19,000
Note payable, long term
17,000
Accumulated depreciation
(12,900)
Total liabilities
26,180
Other assets (not detailed)
8,300
Stockholders’ Equity
Common stock
400
Additional paid-in capital
19,000
Retained earnings*
22,720
Total stockholders’ equity
42,120
Total assets
$68,300
Total liabilities and
stockholders’ equity
$68,300
*Unadjusted balance, $6,000 + Net income, $16,720 = Ending balance, $22,720.
Req. 3
December 31, 2014, Closing Entry:
Service revenue (−R) ………………………………………….. 61,360
Retained earnings (+SE) ………………………….. 16,720
Income tax expense (−E) ………………………….. 5,540
4-40 Solutions Manual
© 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
AP4–1.
Req. 1
Starbucks Corporation
Adjusted Trial Balance
At September 30, 2015
(in millions)
Debit
Credit
Cash
$ 1,148
Short-term investments
903
Accounts receivable
387
Inventories
966
Prepaid expenses
162
Other current assets
230
Long-term investments
479
Property, plant, and equipment
6,163
Accumulated depreciation
$ 3,808
Other long-lived assets
730
Accounts payable
540
Accrued liabilities
1,536
Long-term liabilities
897
Common stock
2
Additional paid-in capital
39
Retained earnings
3,098
Net revenues
11,903
Interest income
116
Cost of sales
4,949
Store operating expenses
3,665
Other operating expenses
402
Depreciation expense
523
General and administrative expenses
636
Interest expense
33
Income tax expense
563
Totals
$ 21,939
$ 21,939
Req. 2