(20-30 min.) E 2-66
Req. 1
3 PT, Inc.
Trial Balance
October 31, 2014
Cash…………………………...
$ 3,900
Accounts receivable………..
7,400
Land……………………………
34,400
Accounts payable…………..
$ 6,000
Note payable…………………
5,500
Common stock………………
20,100
Retained earnings…………..
7,500
Service revenue……………..
9,500
Salary expense………………
3,300
Advertising expense……….
1,100
_______
Totals………………………….
$50,100
$48,600
Out of balance by $1,500
The correct balance of Accounts Receivable is $5,900* ($7,400 −
$1,500). After this correction, total debits will be $48,600 ($50,100 −
$1,500), the same as total credits.
Req. 2
a. Total assets = $44,200 ($3,900 + $5,900* + $34,400)
(10-15 min.) E 2-67
Req 1
Burlington Co.:
Income statement
December
Employee medical exp. .
$ -0-
Balance sheet
Dec. 31
Cash ………………………….
$23,000*
Accounts payable ………
14,000**
Gardner Hospital:
Income statement
December
Service revenue …………
$ -0-
Balance sheet
Dec. 31
Cash ………………………….
$30,000
Accounts receivable …..
14,000**
Req 2
Explanation:
(20 min.) P 2-68
Req. 1
Date
Effect
on Cash
Effect on Total
Assets
Effect on
Net Income
May 1
Understated $300
Overstated $300
Overstated $300
2
Understated
$4,500
Understated
$4,500
Understated
$4,500
5
Correct
Understated
$1,000
Understated
$1,000
10
Correct
Correct
Correct
16
Correct
Correct
Overstated $2,000
25
Correct
Overstated
$1,500
Correct
Req. 2
Decision Cases
(40-50 min.) Decision Case 1
Reqs. 1 and 2
Cash
Accounts Receivable
(a)
5,000
(c)
1,300
(g)
7,000
(i)
1,200
(b)
5,000
(d)
1,800
Bal.
5,800
(h)
2,500
(f)
2,000
(i)
1,200
(f)
1,200
(j)
1,000
Bal.
6,400
(c)
1,300
(e)
4,400
Accounts Payable
(j)
1,000
(e)
4,400
(b)
5,000
3,400
(a)
5,000
Bal.
9,500
Advertising Expense
(continued) Decision Case 1
Req. 3
Barlow Networks, Inc.
Trial Balance
Current Date
ACCOUNT
DEBIT
CREDIT
Cash …………………………………………..
$ 6,400
Accounts receivable …………………..
5,800
Supplies …………………………………….
1,300
Furniture …………………………………….
4,400
Accounts payable ……………………….
$ 3,400
Notes payable …………………………….
5,000
Common stock …………………………..
5,000
Service revenue ………………………….
9,500
Salary expense …………………………..
2,000
Advertising expense …………………..
1,800
Rent expense ……………………………..
1,200
Total …………………………………………..
$22,900
$22,900
Req. 4 (net income or loss for first month of operations)
Revenues:
Service revenue …………………
$9,500
Expenses:
Salary expense …………………..
$2,000
Advertising expense …………..
1,800
Rent expense ……………………..
1,200
Total expenses …………………………...
5,000
Net income for month …………………
$4,500
Recommendation: Barlow may want to review his criteria for keeping the
business open. His criteria for remaining in operation was net income of
(20-30 min.) Decision Case 2
Little Italy, Inc.
Income Statement
Month Ended December 31, 2014
Sales revenue ……………………………………………….
$42,000
Cost of goods sold (expense) ………………………..
22,000
Rent expense ……………………………………………….
6,000
Advertising expense ……………………………………..
5,000
Total expenses ………………………………………….
33,000
Net income …………………………………………………..
$ 9,000
Little Italy, Inc.
Balance Sheet
December 31, 2014
ASSETS
LIABILITIES
Cash …………………………
$ 12,000
Accounts payable …………….
$ 8,000
Food inventory ………….
5,000
STOCKHOLDERS’ EQUITY
Furniture …………………..
10,000
Common stock …………………
10,000
Retained earnings …………….
9,000*
Total stockholders’ equity
19,000
Total liabilities
Total assets …………….
$27,000
and stockholders’ equity .
$27,000
_____
*Must solve for this amount. It is also the amount of net income, which is the only
Ethical Issue 1
1. The ethical issue is whether these alternatives of financing the
business are proper from an economic, legal, and ethical standpoint.
2. The stakeholders are Scruffy Murphy, the bank, potential new
3.
Option 1:
Cash ………………………………………
100,000
Common Stock ………………..
100,000
Option 2:
Land ………………………………………
100,000
Common Stock ………………..
100,000
Common Stock ………………………
100,000
Land ………………………………..
100,000
Option 1 is economically sound, perfectly legal, and also ethical because the
sale of the stock is a valid transaction between the business and a
Option 2 represents “window dressing” (making the company look like an
entity that it is not). Although it might be legal in the strictest sense of the
(continued) Ethical Issue 1
4.
Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
2-66
Ethical Issue 2
Part A.
1. The ethical issue is whether you should question your grade, which is
2, 3. Stakeholders are you, the professor, the other students in the class, and
the university. The possible consequences to you of discussing the grade
with the professor is that it may lead to the discovery that the professor
4. Student opinions will vary on this part.
Part B.
1. The ethical issue in this case is whether you should question your grade,
2, 3. Like part a, the stakeholders are you, the professor, the other students
in the class, and the university. The possible consequences to you of
(continued) Ethical Issue 2
4. Most students would probably respond “take it to the professor.” But
shouldn’t we be just as concerned about knowing the true grade either way?
The author recommends discussing the grade with the professor one way or
Focus on Financials: Amazon.com, Inc.
(20-30 min.)
Reqs. 1 and 3
(All amounts in millions)
Cash
Accounts Receivable, net and
other
5,269
e.
44,837
2,571
b.
60,300
b.
60,300
f.
14,446
a.
61,093
g.
132
3,364
h.
428
j.
2,934
Other Assets
2,792
1,388
i.
155
Inventories
j.
291
4,992
d.
45,971
1,524
c.
47,010
6,031
Accounts Payable
e.
44,837
11,145
Property and Equipment, net
c.
47,010
4,417
13,318
j.
2,643
7,060
Net Sales
a.
61,093
Cost of Sales
61,093
d.
45,971
45,971
Operating Expenses
f.
14,446
Non-operating Income (expense),
net
14,446
g.
132
132
Provision for Income Taxes
h.
428
Equity Method Investment Activity,
net of tax
428
i.
155
155
(continued) Amazon.com, Inc.
Req. 2
(Millions)
a.
Accounts Receivable, net and other …………….
61,093
Net Sales (Revenue) ………………………………
61,093
b.
Cash ………………………………………………………….
60,300
Accounts Receivable, net and other ……….
60,300
c.
Inventories …………………………………………………
47,010
Accounts Payable. …………………………………
47,010
d.
Cost of Sales ……………………………………………..
45,971
Inventories ……………………………………………
45,971
e.
Accounts Payable ………………………………………
44,837
Cash ……………………………………………………..
44,837
f.
Operating Expenses …………………………………..
14,446
Cash ……………………………………………………..
14,446
g.
Non-operating Expense, net ………………………..
132
Cash ……………………………………………………..
132
h.
Provision for Income Taxes ………………………..
428
Cash ……………………………………………………..
428
i.
Equity Method Investment Activity, net ……….
155
Other Assets …………………………………………
155
j.
Property and Equipment, net ………………………
2,643
Other Assets ………………………………………………
291
Cash ……………………………………………………..
2,934
(continued) Amazon.com, Inc.
Req. 4
Focus on Analysis: Yum! Brands, Inc.
(20-30 min.)
Req. 1
(continued) Yum! Brands, Inc.
2012
2011
2010
Sales (millions)
$11,833
$10,893
$9,783
$ change
940
1,110
Percentage change
8.63%
11.35%
Net income (millions)
$1,597
$1,319
$1,158
$ change
278
161
Percentage change
21.08%
13.90%
Copyright © 2015 Pearson Education Inc. Chapter 2 Transaction Analysis
2-73
Group Projects
Student responses will vary.