2-1 Solutions
CHAPTER 2
THE BASICS OF RECORD KEEPING AND
FINANCIAL STATEMENT PREPARATION
Questions, Exercises, and Problems: Answers and Solutions
2.1 See the text or the glossary at the end of the book.
2.2 Accounting is governed by the balance sheet equation, which shows the
2.3 A T-account is used to record the effects of events and transactions that
2.4 Temporary accounts are for recording revenues and expenses. These
accounts are temporary in the sense that once they have served their
Solutions 2-2
2-3 Solutions
2.4 continued.
2.5 The distinction is based on time. Current assets are expected to be
2.6 The balance sheet and the income statement are linked (that is, they
articulate) through the shareholders’ equity account, Retained Earnings.
2.7 The purpose of the income statement is to show the user of the financial
2.8 An adjusting entry is used to record the effects of an event or transaction
that was not previously recorded. Many adjusting entries result from the
2.9 Contra accounts provide disaggregated information concerning the net
amount of an asset, liability, or shareholders’ equity item. For example,
the account, Property, Plant and Equipment net of Accumulated
Solutions 2-4
2-5 Solutions
2.10 The key difference is in the presentation of Cash from Operations. The
2.12 (Cement Plus; dual effects on balance sheet equation.) (Amounts in
Millions)
Shareholders’
Transaction Assets = Liabilities + Equity
2.13 (Braskem S.A.; analyzing changes in accounts receivable.) (Amounts in
Millions)
2.14 (Boeing Company; analyzing changes in inventory.) (Amounts in Millions)
Solutions 2-6
2-7 Solutions
2.15 (Ericsson; analyzing changes in inventory and accounts payable.)
(Amounts in Millions)
Inventory, End of 2007 ………………………………………………….. SEK 22,475
2.16 (Kajima Corporation; analyzing changes in income taxes payable.)
(Amounts in Millions of Yen)
2.17 (Eaton Corporation; analyzing changes in retained earnings.) (Amounts in
Millions)
Retained Earnings, Beginning of 2007 ………………………………… $ 2,796
2.18 (Bayer Group; relations between financial statements.) (Amounts in
Millions)
Solutions 2-8
2.19 (Beyond Petroleum; relations between financial statements.) (Amounts in
Millions)
a. a + $288,951 – $289,623 = $38,020; a = $38,692.
2.20 (Fujitsu Limited; journal entries for inventories and accounts payable.)
(Amounts in Millions of Yen)
Merchandise Inventories ………………………………………… 1,456,412
Accounts Payable ……………………………………………….. 1,456,412
Solutions 2-10
2-11 Solutions
2.21 continued.
June 1, 2008
June 30, 2008
Solutions 2-12
2.22 (ABB Group; journal entries for prepaid rent.) (Amounts in Millions)
a. Journal Entries for January, 2007:
January 31, 2007
January 31, 2007
2.23 (Sappi Limited; journal entries for borrowing.) (Amounts in Millions)
Solutions 2-14
2.23 b. continued.
Fiscal Year 2008:
September 30, 2008
Fiscal Year 2009:
March 31, 2009
To record payment of interest for the second year.
March 31, 2009
2-15 Solutions
2.24 (Toyota Motor Company; journal entries related to the income statement.)
(Amounts in Millions)
2007
2.25 continued.
=
Liabilities
+
Shareholders’
Equity
(Class.)
–6,531
IncSt → RE
=
Liabilities
+
Shareholders’
Equity
(Class.)
To record the cash collected on sales made on account.
2.26 (Bostick Enterprises; journal entries to correct recording error.) (Amounts
in Millions)
Entry Made:
IncSt → RE
Shareholders’
Solutions 2-18
=
Liabilities
+
Shareholders’
Equity
(Class.)
–12,000
IncSt → RE
2.26 continued.
Solutions 2-20