Chapter 03 – Adjusting Accounts for Financial Statements
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Solutions Manual, Chapter 3
99
Reporting in Action — BTN 3-1 (Concluded)
6. The balance of Income Summary before it is closed as of its fiscal year-
end September 29, 2012, equals the net income for Apple of $41,733 ($
7. Solution depends on the financial statements accessed.
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Financial Accounting, 7th Edition
100
1. Apple
Current year, profit margin = $41,733 / $156,508 = 26.7%
2. Apple is more successful on the basis of profit margin in the current
year relative to Google, but Google is more successful on the basis of
3. Apple’s current ratios: ($ in millions)
Current year …………………………. $57,653 / $38,542 = 1.50
4. In both years, Google has the higher current ratio (4.22 vs 1.50 for the
current year; 5.92 vs. 1.61 in the prior year), suggesting a better ability
5. Apple’s current ratio declined slightly, decreasing from 1.61 to 1.50.
6. 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
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Solutions Manual, Chapter 3
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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,
Boland is required to uphold the standards of her profession and, thus,
the decision is an ethical one for her.
Chapter 03 – Adjusting Accounts for Financial Statements
clearly.
Scoreboards are used to temporarily hold information that will allow us to
determine who won or lost in an athletic game or event. When the athletic
event is over, the result of the game is permanently recorded elsewhere—
probably in the team’s record book. If the scoreboard was not cleared before
the start of a new game, the scores from the second game would be combined
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.]
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Solutions Manual, Chapter 3
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1. The Gap’s main brands (stores) are The Gap, Old Navy, and Banana
2. The Gap’s fiscal year-end is January 28, 2012. It appears that The Gap’s
February.
3. Net sales for the year ended January 28, 2012, are $14,549 million.
4. Net income for the year ended January 28, 2012, is $833 million.
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
early February to have it be consistent with their natural year. For many
retailers, the highest amount of sales is in November and December
(with some residual in January including sales returns).
Chapter 03 – Adjusting Accounts for Financial Statements
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Solutions Manual, Chapter 3
105
1. a. To record the collection of cash from sale of future advertising
space in advance of delivery of that space to the customer:
2. If it carries inventory, the company can potentially sell the inventory
and increase its profits. This might further fuel increased sales as
additional customers might be attracted to its offerings. On the other
hand, carrying inventory has risks. An important risk for a company is
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McGraw-Hill Education.
Financial Accounting, 7th Edition
106
1. Samsung’s Note 2.24 (Summary of Significant Accounting Policies –
Revenue Recognition) reports that:
“Revenue mainly comprises the fair value of the consideration received or
Services.
2. (KRW in millions)
3. Current ratio (in millions KRW)
4. Analysis: Samsung’s current ratio improved (is better) for the current