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CHAPTER 2 Analyzing Transactions
2-54
Continuing Problem (Continued)
1. and 3.
Account:
Cash
Account No.
11
Date
Item
Post.
Ref.
Debit
Balance
Credit
Debit
Credit
20Y5
July
1
Balance
✓
3,920
1
1
5,000
8,920
1
1
1,750
7,170
1
1
2,700
4,470
2
1
1,000
5,470
3
1
7,200
12,670
3
1
250
12,420
4
1
900
11,520
8
1
200
11,320
11
1
1,000
12,320
13
1
700
11,620
14
1
1,200
10,420
16
2
2,000
12,420
21
2
620
11,800
22
2
800
11,000
23
2
750
11,750
27
2
915
10,835
28
2
1,200
9,635
29
2
540
9,095
30
2
500
9,595
31
2
3,000
12,595
31
2
1,400
11,195
31
2
1,250
9,945
Account:
Accounts Receivable
Account No.
12
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
1
Balance
✓
1,000
2
1
1,000
—
—
23
2
1,750
1,750
30
2
1,000
2,750
CHAPTER 2 Analyzing Transactions
2-55
Continuing Problem (Continued)
Account:
Supplies
Account No.
14
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
1
Balance
✓
170
18
2
850
1,020
Account:
Prepaid Insurance
Account No.
15
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
1
1
2,700
2,700
Account:
Office Equipment
Account No.
17
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
5
1
7,500
7,500
Account:
Accounts Payable
Account No.
21
Date
Item
Post.
Ref.
Debit
Balance
Credit
Debit
Credit
20Y5
July
1
Balance
✓
250
3
1
250
—
—
5
1
7,500
7,500
18
2
850
8,350
Account:
Unearned Revenue
Account No.
23
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
3
1
7,200
7,200
Account:
Common Stock
Account No.
31
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
1
Balance
✓
4,000
1
1
5,000
9,000
CHAPTER 2 Analyzing Transactions
2-56
Continuing Problem (Continued)
Account:
Dividends
Account No.
33
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
1
Balance
✓
500
31
2
1,250
1,750
Account:
Fees Earned
Account No.
41
Date
Item
Post.
Ref.
Debit
Credit
Balance
Debit
Credit
20Y5
July
1
Balance
✓
6,200
11
1
1,000
7,200
16
2
2,000
9,200
23
2
2,500
11,700
30
2
1,500
13,200
31
2
3,000
16,200
Account:
Wages Expense
Account No.
50
Date
Item
Post.
Ref.
Debit
Credit
Balance
Debit
Credit
20Y5
July
1
Balance
✓
400
14
1
1,200
1,600
28
2
1,200
2,800
Account:
Office Rent Expense
Account No.
51
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
1
Balance
✓
800
1
1
1,750
2,550
Account:
Equipment Rent Expense
Account No.
52
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
1
Balance
✓
675
13
1
700
1,375
CHAPTER 2 Analyzing Transactions
2-57
Continuing Problem (Continued)
Account:
Utilities Expense
Account No.
53
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
1
Balance
✓
300
27
2
915
1,215
Account:
Music Expense
Account No.
54
Date
Item
Post.
Ref.
Debit
Credit
Balance
Debit
Credit
20Y5
July
1
Balance
✓
1,590
21
2
620
2,210
31
2
1,400
3,610
Account:
Advertising Expense
Account No.
55
Date
Item
Post.
Ref.
Debit
Credit
Balance
Debit
Credit
20Y5
July
1
Balance
✓
500
8
1
200
700
22
2
800
1,500
Account:
Supplies Expense
Account No.
56
Post.
Balance
Date
Item
Ref.
Debit
Credit
Debit
Credit
20Y5
July
1
Balance
✓
180
Account:
Miscellaneous Expense
Account No.
59
Date
Item
Post.
Ref.
Debit
Credit
Balance
Debit
Credit
20Y5
July
1
Balance
✓
415
4
1
900
1,315
29
2
540
1,855
CHAPTER 2 Analyzing Transactions
2-58
Continuing Problem (Concluded)
4.
PS Music
Unadjusted Trial Balance
July 31, 20Y5
Account
Debit
Credit
No.
Balances
Balances
Cash
11
9,945
Accounts Receivable
12
2,750
Supplies
14
1,020
Prepaid Insurance
15
2,700
Office Equipment
17
7,500
Accounts Payable
21
8,350
Unearned Revenue
23
7,200
Common Stock
31
9,000
Dividends
33
1,750
Fees Earned
41
16,200
Wages Expense
50
2,800
Office Rent Expense
51
2,550
Equipment Rent Expense
52
1,375
Utilities Expense
53
1,215
Music Expense
54
3,610
Advertising Expense
55
1,500
Supplies Expense
56
180
Miscellaneous Expense
59
1,855
40,750
40,750
CHAPTER 2 Analyzing Transactions
MAKE A DECISION
MAD 2–1
a.
Amazon.com, Inc.
Income Statements
For the Years Ended December 31
(in millions)
Increase/(Decrease)
Year 2
Year 1
Amount
Percent
Revenues:
Product sales
$ 94,665
$ 79,268
$ 15,397
19.4%
Service sales
41,322
27,738
13,584
49.0%
Total revenues
$ 135,987
$ 107,006
$ 28,981
27.1%
Operating expenses:
Cost of sales
$ (88,265)
$ (71,651)
16,614
23.2%
Fulfillment
(17,619)
(13,410)
4,209
31.4%
Marketing
(7,233)
(5,254)
1,979
37.7%
Technology and content
(16,085)
(12,540)
3,545
28.3%
General and administrative
(2,432)
(1,747)
685
39.2%
Other operating expense
(income), net
(167)
(171)
(4)
(2.3)%
Total operating expenses
$(131,801)
$(104,773)
$ 27,028
25.8%
Operating income
$ 4,186
$ 2,233
$ 1,953
87.5%
b. The horizontal analysis shows that total revenues increased by 27.1% between the two
years, with a strong increase in service sales. Service sales are revenues earned from
2-60
MAD 2–3
a.
Chipotle Mexican Grill, Inc.
Income Statements
For the Years Ended December 31
(in thousands)
Year 2
Year 1
Increase/(Decrease)
Amount
Percent
Revenue
$ 3,904,384
$ 4,501,223
$(596,839)
(13.3)%
Expenses:
Food, beverage, packing
$(1,365,580)
$(1,503,835)
$(138,255)
(9.2)%
Labor
(1,105,001)
(1,045,726)
59,275
5.7%
Rent (occupancy)
(293,636)
(262,412)
31,224
11.9%
General and administrative
(641,953)
(514,963)
126,990
24.7%
Other
(463,647)
(410,698)
52,949
12.9%
Total expenses
$(3,869,817)
$(3,737,634)
$ 132,183
3.5%
Operating income
$ 34,567
$ 763,589
$(729,022)
(95.5)%
b. Revenue decreased by 13.3% in Year 2, while total expenses increased 3.5%. Food,
c. The significant decrease in revenue and operating income in Year 2 was caused by
CHAPTER 2 Analyzing Transactions
2-61
MAD 2–4
a.
Vera Bradley, Inc.
Income Statements
For the Years Ended January 31
(in millions)
Year 2
Year 1
Increase/(Decrease)
Amount
Percent
Revenue
$ 502.6
$ 509.0
$ (6.4)
(1.3)%
Expenses:
Cost of merchandise sold
$(221.4)
$(240.0)
$(18.6)
(7.8)%
Selling, general, admin. expenses
(236.8)
(208.7)
28.1
13.5%
Other expenses
(16.8)
(21.9)
(5.1)
(23.3)%
Total expenses
$(475.0)
$(470.6)
$ 4.4
0.9%
Operating income
$ 27.6
$ 38.4
$(10.8)
(28.1)%
b. Operating income decreased $10.8 million or 28.1% in Year 2. This is a significant
MAD 2–4
a. 1. Revenue: $73,785 – $72,618 = $1,167
1.6%
$72,618
$1,167 =
2. Operating expenses: $68,875 – $68,083 = $792
1.2%
$68,083
$792 =
3. Operating income: $4,910 – $4,535 = $375
8.3%
$4,535
$375 =
b. The revenue increased by 1.6% between the two years, while the operating expenses grew
CHAPTER 2 Analyzing Transactions
2-62
MAD 2–5
a. 1. Revenue: $482,130 – $485,651 = $(3,521)
(0.7)%
$485,651
$(3,521) =
2. Operating expenses: $458,025 – $458,504 = $(479)
(0.1)%
$458,504
$(479) =
3. Operating income: $24,105 – $27,147 = $(3,042)
(11.2)%
$27,147
$(3,042) =
b. Revenue decreased by 0.7%, while operating expenses decreased only 0.1%. As a result,
MAD 2–6
CHAPTER 2 Analyzing Transactions
2-63
TAKE IT FURTHER
TIF 2–1
1. No. For financial accounting information to be useful, it must accurately reflect an entity’s
3. Buddy should have discussed the issue with his supervisor and asked for more time to
find the error.
TIF 2–2
A sample solution based on Apple Inc.’s Form 10-K for the fiscal year ended
September 24, 2016, follows:
1. $321,686 million
CHAPTER 2 Analyzing Transactions
TIF 2–3
Note to Instructors: The purpose of this activity is to familiarize students with the job
opportunities available in accounting, and allow them to demonstrate their ability to
communicate the role of accounting in the context of a specific position that requires
knowledge of accounting. An example of an advertisement for such a position is shown
below. Individual student answers will vary depending on the specific scenario they select.
ABOUT THE COMPANY
Our client is looking to add a Financial Analyst. With a large and growing finance team, there
is significant opportunity for growth and advancement within the department.
RESPONSIBILITIES OF THE FINANCIAL ANALYST
The Financial Analyst will:
• Conduct special studies to analyze complex financial actions and prepare
2-65
TIF 2–4
The following general journal entry should be used to record the receipt of tuition payments
received in advance of classes:
TIF 2–5
The journal is called the book of original entry. It provides a time-ordered history of the
transactions that have occurred for the firm. This time-ordered history is very important
because it allows one to trace ledger account balances back to the original transactions that
CHAPTER 2 Analyzing Transactions
2-66
TIF 2–6
1. The rules of debit and credit must be memorized. Dot is correct in that the rules of
debit and credit could be reversed as long as everyone accepted and abided by the
rules. However, the important point is that everyone accepts the rules as the way in
which transactions should be recorded. This generates uniformity across the
2. The accounting system may be designed to capture information about the buying
habits of various customers or vendors, such as the quantity normally ordered,
