Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Chapter 9 Solution Manual Part 4

March 26, 2020
Comprehensive Problem (Continued)
Part 3
2015
(a)
Miscellaneous Expenses ............................................
15
(b1)
Allowance for Doubtful Accounts ...............................
679
(b2)
Bad Debts Expense ......................................................
551
Allowance for Doubtful Accounts .........................
551
Recognize bad debts expense.
(c)
Depreciation ExpenseTrucks ...................................
6,000
Accumulated DepreciationTrucks .....................
6,000
Unearned Services Revenue ................................
2,240
Adjust for unearned revenues.
(f)
Warranty Expense ........................................................
1,444
Estimated Warranty Liability ................................
1,444
Estimate warranty expense.
Comprehensive Problem (Continued)
Part 4
BUG-OFF EXTERMINATORS
Income Statement
For Year Ended December 31, 2015
$57,760
71,026
924
35,000
0
9,000
BUG-OFF EXTERMINATORS
Statement of Retained Earnings
For Year Ended December 31, 2015
Retained earnings, December 31, 2014 .......................
$ 49,700
Comprehensive Problem
Part 4 (concluded)
BUG-OFF EXTERMINATORS
Balance Sheet
December 31, 2015
Assets
Current assets
Cash ................................................................
$15,750
Accounts receivable ......................................
$ 3,321
Allowance for doubtful accounts .................
(700)
2,621
Merchandise inventory ................................
11,700
Total current assets ......................................
30,071
Plant assets
Liabilities
Current liabilities
Accounts payable ..........................................
$ 3,713
Estimated warranty liability ..........................
2,844
Unearned services revenue ..........................
2,240
Equity
Reporting in Action BTN 9-1
1. Times interest earned
($ millions)
2013
2012
2011
Net income ..................................................
$37,037
$41,733
$25,922
Add income taxes ................................
13,118
14,030
8,283
Analysis comment: Apple reports interest expense of $136 million for
2013. Assuming Apple had interest expense of $100 million for 2012
and 2011, Apple’s risk of not being able to cover its interest expense
2. Loyalty reward liabilities arise when a customer makes a purchase
under a frequent purchase program. It is an estimated liability as the
3. Total accrued expenses for 2013 equal $13,856. The six components
that make up accrued expenses are: Accrued warranty and related
4. The solution depends on the financial statement information accessed.
Comparative Analysis BTN 9-2
1. AppleTimes interest earned
($ millions)
Current
Year
One Year
Prior
Two Years
Prior
Net income ..................................................
$37,037
$41,733
$25,922
GoogleTimes interest earned
($ millions)
Current
Year
One Year
Prior
Two Years
Prior
Net income (loss) ................................
$ 12,920
$ 10,737
$ 9,737
2. Apple reports interest expense of $136 million for 2013. This problem
assumes that Apple reports interest expense of $100 million for 2012
and 2011. Apple and Google both are in strong positions in their ability
Ethics Challenge BTN 9-3
1. It is in Bly’s self-interest to maximize the amount of revenues less
warranty expenses so as to maximize his personal bonus. Since Bly
2. Although Bly might be able to affect the amount of revenues less
warranty expenses via the warranty expense accrual in the short run,
over several years the amounts should even out. The dealership
Communicating in Practice BTN 9-4
MEMORANDUM
To:
Tom Pretti, General Manager
From:
Dusty Johnson, ManagerAccounting and Finance
Date:
Subject:
Reporting warranties in financial statements
This memorandum is in response to your comment on my proposal for the
treatment of a contingency in our financial statements. You specifically
object to the proposed recognition of an expense and liability for
warranties. The purpose of this memorandum is to respond to your
objection.
Taking It to the Net BTN 9-5
1. McDonald’s 2013 current liabilities include the following:
Accounts payable
2. The portion of long-term debt maturing in the next 12 months ($
millions) is:
3. Times interest earned for McDonald’s as of 12/31/2013
($ millions)
12/31/2013
Net Income ...............................................................
$ 5,586.0
Teamwork in Action BTN 9-6
1. Option A: Interest Expense = $6,000 x 10% x 90/360 = $150
Option B: Interest Expense = $6,000 x 8% x 120/360 = $160
2. Entries:
2a. Issue date, Option A
June 1
Cash ..........................................................................
6,000
Notes Payable ....................................................
6,000
Repaid note plus interest.
Teamwork in Action (Concluded)
4. Entries:
4a. Adjusting entry, Option A (Dec. 31)
Dec. 31
Interest Expense ......................................................
50
Interest Payable .................................................
50
Entrepreneurial Decision BTN 9-7
1.
Uncharted Play
Income Statement (Prospective)
Current
Operations
European
Total
Sales .............................................
$1,000,000
$ 250,000
$1,250,000
3.
Uncharted Play
Income Statement (Prospective)
Current
Operations
European
Total
Sales .............................................
$1,000,000
$ 400,000
$1,400,000
Entrepreneurial Decision (concluded)
4.
Uncharted Play
Income Statement (Prospective)
Current
Operations
European
Total
Sales .............................................
$1,000,000
$ 100,000
$1,100,000
5. In each of these cases, the company’s times interest earned is at least
Hitting the Road BTN 9-8
There is no formal solution to this problem. A discussion of the
importance of safeguarding social security information would be
appropriate especially with respect to the Administration’s decision to no
longer transfer benefit information online.
Global Decision BTN 9-9
1. Samsung Times interest earned
(KRW in millions)
Current Year
Prior Year
Net income .................................................
30,474,764
23,845,285
* Interest expense is labeled “Finance expense” on Samsung’s consolidated statements of income.
a 46,119,251 / 7,754,972
b 37,849,467 / 7,934,450
2. Of these three companies, Apple and Google both have superior
coverage of interest expense for the two years analyzed. Specifically,

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