Financial & Managerial Accounting, 5th Edition
72
Exercise 2-17 (15 minutes)
(a)
(b)
(c)
(d)
Answers
$(28,000)
$42,000
$73,000
$(45,000)
Computations:
Equity, Dec. 31, 2012 …………..
$ 0
$ 0
$ 0
$ 0
Owner’s investments …..……..
110,000
87,000
210,000
Dividends …………………………..
(28,000)
(47,000)
(10,000)
(55,000)
Net income (loss) ………..……..
22,000
90,000
(4,000)
(45,000)
Equity, Dec. 31, 2013 …………..
$104,000
$85,000
$73,000
$110,000
Exercise 2-18 (25 minutes)
a. Belle created a new business and invested $6,000 cash, $7,600 of
Exercise 2-19 (30 minutes)
a. Cash ………………………………………………………………… 6,000
Equipment ……………………………………………………….. 7,600
b. Prepaid Insurance …………………………………………….. 4,800
Cash ………………………………………………………….. 4,800
Purchased insurance coverage.
Exercise 2-20 (20 minutes)
Description
(1)
Difference
between
Debit and
Credit
Columns
(2)
Column
with the
Larger
Total
(3)
Identify
account(s)
incorrectly
stated
(4)
Amount that account(s)
is overstated or
understated
a.
$3,600 debit to Rent
Expense is posted as
a $1,340 debit.
$2,260
Credit
Rent Expense
Rent Expense is
understated by $2,260
b.
$6,500 credit to Cash
is posted twice as two
credits to Cash.
$6,500
Credit
Cash
Cash is understated by
$6,500
c.
$10,900 debit to the
Dividends account is
debited to Common
Stock
$0
––
Common
Stock
Dividends
Common Stock is
understated by $10,900
Dividends is
understated by $10,900
d.
$2,050 debit to
Prepaid Insurance is
posted as a debit to
Insurance Expense.
$0
––
Prepaid
Insurance
Insurance
Expense
Prepaid Insurance is
understated by $2,050
Insurance Expense is
overstated by $2,050
e.
$38,000 debit to
Machinery is posted
as a debit to Accounts
Payable.
$0
––
Machinery
Accounts
Payable
Machinery is
understated by $38,000
Accounts Payable is
understated by $38,000
f.
$5,850 credit to
Services Revenue is
posted as a $585
credit.
$5,265
Debit
Services
Revenue
Services Revenue is
understated by $5,265
g.
$1,390 debit to Store
Supplies is not
posted.
$1,390
Credit
Store
Supplies
Store Supplies is
understated by $1,390
Exercise 2-21 (15 minutes)
a. The debit column is correctly stated because the erroneous debit (to
Accounts Payable) is deducted from an account with a (larger assumed)
credit balance.
Exercise 2-22 (15 minutes)
a.
Co.
Liabilities
/
Assets
=
Debt
Ratio
Net
Income
/
Average
Assets
=
ROA
1
$11,765
$ 90,500
0.13
$20,000
$100,000
0.200
2
46,720
64,000
0.73
3,800
40,000
0.095
3
26,650
32,500
0.82
650
50,000
0.013
4
55,860
147,000
0.38
21,000
200,000
0.105
5
31,280
92,000
0.34
7,520
40,000
0.188
6
52,250
104,500
0.50
12,000
80,000
0.150
b. Company 3 relies most heavily on creditor (non-owner) financing with 82%
of its assets financed by liabilities.
c. Company 1 relies least on creditor (non–owner) financing at only 13%.
Financial & Managerial Accounting, 5th Edition
76
Exercise 2-23 (10 minutes)
BMW
Balance Sheet (in Euro millions)
December 31, 2011
Assets Equity and liabilities
Noncurrent assets …….. € 9,826 Total equity …………………….. € 8,222
PROBLEM SET A
Problem 2-1A (90 minutes)
Part 1
a. Cash……………………………………………………. 101 100,000
Office Equipment …………………………………. 163 5,000
Drafting Equipment ……………………………… 164 60,000
Common Stock …………………………….. 307 165,000
Owner invested cash and equipment for stock.
b. Land ……………………………………………………. 172 49,000
f. Drafting Equipment ……………………………… 164 20,000
Cash …………………………………………….. 101 9,500
Notes Payable ………………………………. 250 10,500
Purchased equipment with cash and notes
payable.
g. Accounts Receivable …………………………... 106 14,000
Financial & Managerial Accounting, 5th Edition
78
Problem 2-1A (Part 1 Continued)
i. Accounts Receivable …………………………... 106 22,000
Engineering Fees Earned ……………… 402 22,000
Billed client for completed work.
j. Equipment Rental Expense ………………….. 602 1,333
m. Accounts Payable ……………………………….. 201 1,150
Cash ………………………………………….. 101 1,150
Paid amount due on account.
Problem 2-1A (Continued)
Part 2
Cash No. 101
Accounts Payable No. 201
Date
PR
Debit
Credit
Balance
Date
PR
Debit
Credit
Balance
(a)
100,000
100,000
(h)
1,150
1,150
(b)
6,300
93,700
(j)
1,333
2,483
(c)
55,000
38,700
(m)
1,150
1,333
(d)
3,000
35,700
(e)
6,200
41,900
Notes Payable No. 250
(f)
9,500
32,400
Date
PR
Debit
Credit
Balance
(k)
7,000
39,400
(b)
42,700
42,700
(l)
1,200
38,200
(f)
10,500
53,200
(m)
1,150
37,050
(n)
925
36,125
(o)
9,480
26,645
Common Stock No. 307
(p)
1,200
25,445
Date
PR
Debit
Credit
Balance
(q)
2,500
22,945
(a)
165,000
165,000
Accounts Receivable No. 106
Dividends No. 319
Date
PR
Debit
Credit
Balance
Date
PR
Debit
Credit
Balance
(g)
14,000
14,000
(o)
9,480
9,480
(i)
22,000
36,000
(k)
7,000
29,000
Engineering Fees Earned No. 402
Date
PR
Debit
Credit
Balance
Prepaid Insurance No. 108
(e)
6,200
6,200
Date
PR
Debit
Credit
Balance
(g)
14,000
20,200
(d)
3,000
3,000
(i)
22,000
42,200
Office Equipment No. 163
Wages Expense No. 601
Date
PR
Debit
Credit
Balance
Date
PR
Debit
Credit
Balance
(a)
5,000
5,000
(l)
1,200
1,200
(h)
1,150
6,150
(p)
1,200
2,400
Drafting Equipment No. 164
Equipment Rental Expense No. 602
Date
PR
Debit
Credit
Balance
Date
PR
Debit
Credit
Balance
(a)
60,000
60,000
(j)
1,333
1,333
(f)
20,000
80,000
Building No. 170
Advertising Expense No. 603
Date
PR
Debit
Credit
Balance
Date
PR
Debit
Credit
Balance
(c)
55,000
55,000
(q)
2,500
2,500
Land No. 172
Repairs Expense No. 604
Date
PR
Debit
Credit
Balance
Date
PR
Debit
Credit
Balance
(b)
49,000
49,000
(n)
925
925
Problem 2-1A (Concluded)
Part 3
ARACEL ENGINEERING
Trial Balance
June 30
Debit Credit
Cash ……………………………………………………. $ 22,945
Accounts receivable ……………………………. 29,000
Prepaid insurance ……………………………….. 3,000
Office equipment …………………………………. 6,150
Common stock ……………………………………. 165,000
Dividends ……………………………………………. 9,480
Engineering fees earned ………………………. 42,200
Problem 2-2A (90 minutes)
Part 1
Mar. 1 Cash……………………………………………………. 101 150,000
Office Equipment …………………………………. 163 22,000
Common Stock …………………………….. 307 172,000
Owner invested cash and equipment for stock.
2 Prepaid Rent ……………………………………….. 131 6,000
Cash …………………………………………….. 101 6,000
Prepaid six months’ rent.
3 Office Equipment …………………………………. 163 3,000
Office Supplies ……………………………………. 124 1,200
Paid premium for insurance.
22 Cash……………………………………………………. 101 3,500
Accounts Receivable ……………………. 106 3,500
Collected part of amount owed by client.
25 Accounts Receivable …………………………... 106 3,820
Problem 2-2A (Continued)
Part 2
Cash
Acct. No. 101
Date
Explanation
PR
Debit
Credit
Balance
Mar.
1
G1
150,000
150,000
2
G1
6,000
144,000
6
G1
4,000
148,000
12
G1
4,200
143,800
19
G1
5,000
138,800
22
G1
3,500
142,300
29
G1
5,100
137,200
31
G1
500
136,700
Accounts Receivable
Acct. No. 106
Date
Explanation
PR
Debit
Credit
Balance
Mar.
9
G1
7,500
7,500
22
G1
3,500
4,000
25
G1
3,820
7,820
Office Supplies
Acct. No. 124
Date
Explanation
PR
Debit
Credit
Balance
Mar.
3
G1
1,200
1,200
30
G1
600
1,800
Prepaid Insurance
Acct. No. 128
Date
Explanation
PR
Debit
Credit
Balance
Mar.
19
G1
5,000
5,000
Prepaid Rent
Acct. No. 131
Date
Explanation
PR
Debit
Credit
Balance
Mar.
2
G1
6,000
6,000
Office Equipment
Acct. No. 163
Date
Explanation
PR
Debit
Credit
Balance
Mar.
1
G1
22,000
22,000
3
G1
3,000
25,000
Problem 2-2A (Continued)
Part 2 (Continued)
Accounts Payable
Acct. No. 201
Date
Explanation
PR
Debit
Credit
Balance
Mar.
3
G1
4,200
4,200
12
G1
4,200
0
30
G1
600
600
Common Stock
Acct. No. 307
Date
Explanation
PR
Debit
Credit
Balance
Mar.
1
G1
172,000
172,000
Dividends
Acct. No. 319
Date
Explanation
PR
Debit
Credit
Balance
Mar.
29
G1
5,100
5,100
Services Revenue
Acct. No. 403
Date
Explanation
PR
Debit
Credit
Balance
Mar.
6
G1
4,000
4,000
9
G1
7,500
11,500
25
G1
3,820
15,320
Utilities Expense
Acct. No. 690
Date
Explanation
PR
Debit
Credit
Balance
Mar.
31
G1
500
500
Financial & Managerial Accounting, 5th Edition
84
Problem 2-2A (Concluded)
Part 3
VENTURE CONSULTANTS
Trial Balance
March 31
Debit Credit
Cash ……………………………………………………………. $136,700
Accounts receivable …………………………………….. 7,820
Office supplies ……………………………………………… 1,800
Prepaid insurance ………………………………………… 5,000
Problem 2-3A (90 minutes)
Part 1
April 1 Cash……………………………………………………. 101 80,000
Office Equipment …………………………………. 163 26,000
Common Stock …………………………….. 307 106,000
Owner invested cash and equipment for stock.
2 Prepaid Rent ……………………………………….. 131 9,000
Cash …………………………………………….. 101 9,000
Prepaid twelve months’ rent.
3 Office Equipment …………………………………. 163 8,000
Office Supplies ……………………………………. 124 3,600
22 Cash……………………………………………………. 101 4,400
Accounts Receivable ……………………. 106 4,400
Collected part of amount owed by client.
25 Accounts Receivable …………………………... 106 2,890
Services Revenue …………………………. 403 2,890
Billed client for completed work.
Problem 2-3A (Continued)
Part 2
Cash
Acct. No. 101
Date
Explanation
PR
Debit
Credit
Balance
April
1
G1
80,000
80,000
2
G1
9,000
71,000
6
G1
4,000
75,000
13
G1
11,600
63,400
19
G1
2,400
61,000
22
G1
4,400
65,400
28
G1
5,500
59,900
30
G1
435
59,465
Accounts Receivable
Acct. No. 106
Date
Explanation
PR
Debit
Credit
Balance
April
9
G1
6,000
6,000
22
G1
4,400
1,600
25
G1
2,890
4,490
Office Supplies
Acct. No. 124
Date
Explanation
PR
Debit
Credit
Balance
April
3
G1
3,600
3,600
29
G1
600
4,200
Prepaid Insurance
Acct. No. 128
Date
Explanation
PR
Debit
Credit
Balance
April
19
G1
2,400
2,400
Prepaid Rent
Acct. No. 131
Date
Explanation
PR
Debit
Credit
Balance
April
2
G1
9,000
9,000
Office Equipment
Acct. No. 163
Date
Explanation
PR
Debit
Credit
Balance
April
1
G1
26,000
26,000
3
G1
8,000
34,000