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DQ1.
DQ2.
DQ3.
FOUNDATIONS OF FINANCIAL REPORTING
AND THE CLASSIFIED BALANCE SHEET
Discussion Questions
earned.
CHAPTER 5—Solutions
Consistency in accounting applies only to the use of the accounting principles for
The balance sheet provides information about a company's resources (assets) and
To record depreciation expense, it is necessary to estimate the useful life of the
5-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
a.
e.
1.
2.
4.
5.
6.
7.
1.
2.
4.
5.
6.
8.
9.
Short Exercises
SE1. Objectives and Qualitative Characteristics
O
O
SE2. Enhancing Qualitative Characteristics and Accounting Conventions
Verifiabiltiy
Conservatism
Comparability and consistency
Full disclosure
Materiality
Current liability
Owner's equity
Not on balance sheet
Property, plant, and equipment
Investment
Current asset
Timeliness
Current asset
SE3. Classification of Accounts: Balance Sheet
5-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
$ 400
$7,200
Current assets:
Owner's capital
Cash
SE4. Classified Balance Sheet
Owner's Equity
Balance Sheet
Assets
May 31, 2014
*
5-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
=–
*$260,000 – $140,000 – $80,000 = $40,000
Owner's Equity
=
Total Liabilities
=Profit Margin Net Income
=
SE5. Liquidity Ratios
3.
Debt to
Average Total Assets
Return on Assets
=
Working Capital
1. Net Sales
Current Assets
$60,000
==
Current Liabilities
$220,000 18.2%
15.4%
**
**
5-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1. 12.
2. 13.
7. 15.
8. 16.
Exercises: Set A
E1A. Financial Accounting Concepts
a
g
f
cb
e
c
h
5-5
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
$12,480
6,560
$20,400
$95,280
Y. Wagoner, capital
Liabilities
Current liabilities:
Accounts payable
Owner's Equity
Wagoner Company
Current assets:
E4A. Classified Balance Sheet Preparation
Balance Sheet
December 31, 2014
Assets
Short-term investments
Cash
5-6
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1.
$ 1,200
10,080
$12,000
13,280
Accounts Payable
Current Assets:
Current Liabilities:
Cash
Marketable Securities
Notes Payable (90 days)
*Rounded
E5A. Liquidity Ratios
5-7
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
= 54.9%
$118,000
$215,000
Net Income
Net Sales
Average Total Assets
Net Sales
=
2.
E6A. Profitability Ratios
1. Profit Margin =
**Rounded
Asset Turnover
=
=
*$782,000 – $486,000 – $178,000 = $118,000
*$254,000 – $118,000 + $40,000 = $176,000
**
5-8
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1. a.
times*
=
Profit Margin
=
$ 50,000
E7A. Liquidity and Profitability Ratios
2.
Net Sales
=$25,000
$ 30,000
Net Sales
=
=
Current Assets
Working Capital
a. =
=
Current Assets
=Asset Turnover Average Total Assets
Net Income
b. Current Ratio
=
2.5
= 6.1%
$410,000
$50,000
b.
*Rounded
$410,000
*
5-9
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
