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CHAPTER 4 The Accounting Cycle
4–114
Comp. Prob. 1 (Continued)
7.
Kelly Consulting
Adjusted Trial Balance
May 31, 20Y8
Account
Debit
Credit
No.
Balances
Balances
Cash
11
44,195
Accounts Receivable
12
8,080
Supplies
14
715
Prepaid Rent
15
1,600
Prepaid Insurance
16
1,225
Office Equipment
18
14,500
Accumulated Depreciation
19
660
Accounts Payable
21
895
Salaries Payable
22
325
Unearned Fees
23
3,210
Common Stock
31
30,000
Retained Earnings
32
12,300
Dividends
33
10,500
Fees Earned
41
40,000
Salary Expense
51
1,705
Rent Expense
52
1,600
Supplies Expense
53
1,370
Depreciation Expense
54
330
Insurance Expense
55
275
Miscellaneous Expense
59
1,295
87,390
87,390
CHAPTER 4 The Accounting Cycle
4–115
Comp. Prob. 1 (Continued)
8.
Kelly Consulting
Income Statement
For the Month Ended May 31, 20Y8
Fees earned
$ 40,000
Expenses:
Salary expense
$1,705
Rent expense
1,600
Supplies expense
1,370
Depreciation expense
330
Insurance expense
275
Miscellaneous expense
1,295
Total expenses
(6,575)
Net income
$ 33,425
Kelly Consulting
Statement of Stockholders’ Equity
For the Month Ended May 31, 20Y8
Common
Stock
Retained
Earnings
Total
Balances, May 1, 20Y8
$30,000
$ 12,300
$ 42,300
Net income
33,425
33,425
Dividends
(10,500)
(10,500)
Balances, May 31, 20Y8
$30,000
$ 35,225
$ 65,225
CHAPTER 4 The Accounting Cycle
4–116
Comp. Prob. 1 (Continued)
Kelly Consulting
Balance Sheet
May 31, 20Y8
Assets
Current assets:
Cash
$44,195
Accounts receivable
8,080
Supplies
715
Prepaid rent
1,600
Prepaid insurance
1,225
Total current assets
$55,815
Property, plant, and equipment:
Office equipment
$14,500
Accumulated depreciation
(660)
Total property, plant, and equipment
13,840
Total assets
$69,655
Liabilities
Current liabilities:
Accounts payable
$ 895
Salaries payable
325
Unearned fees
3,210
Total liabilities
$ 4,430
Stockholders’ Equity
Common stock
$30,000
Retained earnings
35,225
Total stockholders’ equity
65,225
Total liabilities and stockholders’ equity
$69,655
CHAPTER 4 The Accounting Cycle
4–117
Comp. Prob. 1 (Concluded)
9. JOURNAL Page _____ 8_
Date
Post.
Ref.
Debit
Credit
20Y8
Closing Entries
May
31
Fees Earned
41
40,000
Salary Expense
51
1,705
Rent Expense
52
1,600
Supplies Expense
53
1,370
Depreciation Expense
54
330
Insurance Expense
55
275
Miscellaneous Expense
59
1,295
Retained Earnings
32
33,425
31
Retained Earnings
32
10,500
Dividends
33
10,500
10.
Kelly Consulting
Post-Closing Trial Balance
May 31, 20Y8
Account
Debit
Credit
No.
Balances
Balances
Cash
11
44,195
Accounts Receivable
12
8,080
Supplies
14
715
Prepaid Rent
15
1,600
Prepaid Insurance
16
1,225
Office Equipment
18
14,500
Accumulated Depreciation
19
660
Accounts Payable
21
895
Salaries Payable
22
325
Unearned Fees
23
3,210
Common Stock
31
30,000
Retained Earnings
32
35,225
70,315
70,315
CHAPTER 4 The Accounting Cycle
MAKE A DECISION
MAD 4–1
a. Amazon Best Buy
Working capital $1,965 $ 2,961
b. Best Buy has a larger working capital balance than does Amazon ($2,961 million
c. Working capital is a poor measure for comparing liquidity across firms. Amazon has
d.
(rounded)1.0
$43,816
$45,871
:Amazon
sLiabilitieCurrent
setsCurrent As
RatioCurrent
=
=
4–119
MAD 4–2 (Concluded)
d. Based upon the current ratio for Year 2, Zynga is the most liquid company followed by
Electronic Arts and Take-Two, as follows:
Ranking
Current Ratio for Year 2
1
Zynga
4.0
2
Electronic Arts
1.8
3
Take-Two
1.7
MAD 4–3
a.
Foot Locker
The Finish Line
Year 2
Year 1
Year 2
Year 1
Current assets
$2,606
$2,456
$ 521
$ 531
Current liabilities
(700)
(696)
(221)
(191)
Working capital
$1,906
$1,760
$ 300
$ 340
b.
Foot Locker
The Finish Line
Year 2
Year 1
Year 2
Year 1
Current Ratio =
Current Assets _
=
$2,606
$2,456
$521
$531
Current Liabilities
$700
$696
$221
$191
=
3.7
3.5
2.4
2.8
c. For both years, it appears that Foot Locker has the greater relative liquidity, as measured
d. Foot Locker’s current ratio increased from 3.5 to 3.7. In contrast, The Finish Line’s
CHAPTER 4 The Accounting Cycle
MAD 4–4
a.
Dec. 31,
Dec. 31,
Year 2
Year 1
Current assets
$1,965.2
$1,498.8
Current liabilities
(685.8)
(478.8)
Working capital
$1,279.4
$1,020.0
CHAPTER 4 The Accounting Cycle
4–121
MAD 4–6
a.
Microsoft
Alphabet
Year 2
Year 1
Year 2
Year 1
Current assets
$139,660
$122,797
$105,408
$ 90,114
Current liabilities
(59,357)
(49,647)
(16,756)
(19,310)
Working capital
$ 80,303
$ 73,150
$ 88,652
$ 70,804
b. Microsoft and Alphabet have similar amounts of working capital. Alphabet had slightly
more at the end of Year 2, but slightly less at the end of Year 1.
c. Working capital does not measure the “relative” liquidity between two companies. Size
d.
(rounded)6.3
$16,756
$105,408
:2 Year
(rounded)4.7
$19,310
$90,114
:1 Year :Alphabet
(rounded)2.4
$59,357
$139,660
:2 Year
(rounded)2.5
$49,647
$122,797
:1 Year:Microsoft
sLiabilitieCurrent
setsCurrent As
RatioCurrent
=
=
=
=
=
e. Alphabet has greater short-term liquidity as measured by the current ratio than does
CHAPTER 4 The Accounting Cycle
4–122
TAKE IT FURTHER
TIF 4–1
1. No. By knowingly recording a personal loan as a trade account receivable, Manny is
reporting financial information that does not accurately reflect the company’s financial
2. The users who rely upon this financial information, such as potential investors and
TIF 4–2
2. Cash (and cash equivalents)
Accounts receivable
3. Inventory is the primary balance sheet account that is different. Wal-Mart reports over $40
billion in inventory, while Zynga doesn’t report any inventory. This difference is due to the
TIF 4–3
To: Daniel Nat
From: A+ Student
Re: Balance Sheet Presentation
The balance sheet describes the financial condition of the company as of a given date and is
CHAPTER 4 The Accounting Cycle
TIF 4–3 (Concluded)
The “Assets” section of the balance sheet should have separate sections for current assets
and property, plant, and equipment, and assets should be presented in the order in which
Presuming that the amounts recorded in the accounts are accurately reported, a correctly
presented balance sheet would appear as follows:
Asheville Company
Balance Sheet
December 31, 20Y5
Assets
Current assets:
Cash
$ 10,000
Accounts receivable
12,500
Total current assets
$ 22,500
Property, plant, and equipment:
Land
$100,000
Equipment
125,000
Total property, plant, and equipment
225,000
Total assets
$247,500
Liabilities
Current liabilities:
Accounts payable
$ 10,000
Wages payable
2,500
Total liabilities
$ 12,500
Stockholders’ Equity
Common stock
$115,000
Retained earnings
120,000
Total stockholders’ equity
235,000
Total liabilities and stockholders’ equity
$247,500
CHAPTER 4 The Accounting Cycle
4–124
TIF 4–4
1. a. With the decreasing cost of computers and related software, Main Street Co. may find
accounting function.
b. A computerized accounting system would allow for eliminating the end-of- period
c. In designing a computerized financial reporting (accounting) system, proper
accounting principles, concepts, and procedures must be followed. At a minimum,
basic controls such as the use of the double-entry accounting system should be
2. Supplies cannot have a credit balance, because the supplies account is an asset account.
CHAPTER 4 The Accounting Cycle
4–125
TIF 4–5
1. A set of financial statements provides useful information concerning the economic
condition of a company. For example, the balance sheet describes the financial condition
2. The following adjustments might be necessary before an accurate set of financial
statements could be prepared:
• No supplies expense is shown. The supplies account should be adjusted for the
supplies used during the year.
• No depreciation expense or accumulated depreciation is shown for the building or
Accounts.”
The following items should be relabeled for greater clarity:
• Billings Due from Others—Accounts Receivable
Note to Instructors: The preceding items are not intended to include all adjustments
that might need to be made to the accounts. The possible adjustments listed include
only items that have been covered in Chapters 1–4. For example, uncollectible
accounts expense (discussed in a later chapter) is not mentioned.
CHAPTER 4 The Accounting Cycle
4–126
© 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TIF 4–5 (Concluded)
3. In general, the decision to extend a loan is based on an assessment of the profitability and
riskiness of the loan. Although the financial statements provide useful data for this
purpose, other factors such as the following might also be significant:
