697
Problem 11-6BA (Concluded)
July 15
FICA⎯Social Security Taxes Payable ……………….
992
15
State Unemployment Taxes Payable …………………
440
31
31
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
698
Serial Problem — SP 11
Serial Problem — SP 11, Business Solutions (30 minutes)
1.
3. 2018
4. 2018
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
699
Comprehensive Problem
Bug-Off Exterminators (100 minutes)
Part 1
a. Correct ending balance of cash and the amount of the omitted check
b. Allowance for doubtful accounts
credit
Revised unadjusted balance ……………
credit
Necessary adjustment ……………………..
credit
c. Depreciation expense on the truck
Less salvage value …………………………..
Depreciable cost …………………………..
d. Depreciation expense on the equipment
Sprayer
Injector
Less salvage value ………………………….
Balance per bank …………………………..
Plus deposit in transit ……………………..
Reconciled balance …………………………
Balance per books …………………………..
Less service charges ………………………
Balance before omitted check ………….
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
700
Comprehensive Problem (Continued)
e. Adjusted revenue and unearned revenue balances
Extermination Services Revenue account
Overstatement ……………………………………………….
Unearned Services Revenue account
Adjustment ……………………………………………………
f. Warranty expense
Warranty percent ………………………………………….
Warranty expense (estimated) ……………………….
Estimated warranty liability
g. Note payable and interest accrual
Total advance received ………………………………….
Revenue per month ……………………………………….
Months of services provided ………………………….
Total earned ($320 x 5 months) ………………………
Overstatement of revenue ($3,840 – $1,600) ……
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
701
Comprehensive Problem (Continued)
Part 2
BUG-OFF EXTERMINATORS
December 31, 2017
Unadjusted
Trial Balance
Adjustments .
Adjusted
Trial Balance
Cash …………………………………….
$ 17,000
(a)
$1,250
$ 15,750
Interest payable ……………………
0
0
15,000
D. Buggs, Capital ………………….
59,700
D. Buggs, Withdrawals …………
10,000
10,000
Interest revenue ……………………
(a)
Sales ……………………………………..
71,026
Cost of goods sold ……………….
46,300
46,300
Deprec. expense–Trucks ………
0
(c)
6,000
6,000
Deprec. expense–Equip ………..
0
6,100
6,100
Wages expense …………………….
35,000
35,000
Interest expense ……………………
0
Rent expense ………………………..
9,000
Bad debts expense ……………….
0
Miscellaneous expense ………..
(a)
1,241
Repairs expense …………………..
8,000
Utilities expense ……………………
6,800
Warranty expense …………………
0
_______
Accounts receivable ……………..
3,321
Allowance for
Merchandise inventory …………
11,700
11,700
Trucks …………………………………..
32,000
32,000
Accum. deprec.–Trucks ………..
0
(c)
Equipment …………………………..
45,000
45,000
Accum. deprec.–Equip …………
12,200
Accounts payable …………………
(a)
1,287
Estim. warranty liability …………
(f)
Unearned services rev ………….
0
(e)
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
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Comprehensive Problem (Continued)
Part 3
2017
(a)
Miscellaneous Expenses ……………………………………..
15
(b1)
Allowance for Doubtful Accounts ………………………….
679
(b2)
Bad Debts Expense ………………………………………………
551
(c)
Depreciation Expense—Trucks ……………………………..
Depreciation Expense—Equipment ……………………….
(e)
Extermination Services Revenue …………………………..
Warranty Expense ………………………………………………..
Accounts Payable …………………………..……………………
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
703
Comprehensive Problem (Continued)
Part 4
BUG-OFF EXTERMINATORS
Income Statement
For Year Ended December 31, 2017
Revenues
Extermination services revenue ……………
$57,760
BUG-OFF EXTERMINATORS
Statement of Owner’s Equity
For Year Ended December 31, 2017
D. Buggs, Capital, December 31, 2016 …………………….
$ 59,700
D. Buggs, Capital, December 31, 2017 ……………………
$ 58,974
Sales ……………………………………………………
Interest revenue …………………………………..
Total revenues……………………………………..
Expenses
Cost of goods sold …………………………..….
Depreciation expense—Trucks …………….
Depreciation expense—Equipment ………
Wages expense ……………………………………
Interest expense…………………………………..
Rent expense……………………………………….
Bad debts expense ………………………………
Miscellaneous expenses ………………………
Repairs expense ………………………………….
Utilities expense…………………………………..
Warranty expense ………………………………..
Total expenses …………………………………….
120,436
Net income ……………………………………………
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
704
Comprehensive Problem
Part 4 (concluded)
BUG-OFF EXTERMINATORS
Balance Sheet
December 31, 2017
Assets
Current assets
Cash ……………………………………………………….
$15,750
Liabilities
Current liabilities
Total liabilities …………………………………………..
D. Buggs, Capital ………………………………………
Total liabilities and equity ………………………….
Total assets ………………………………………………
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
705
Reporting in Action — BTN 11-1
1. Times interest earned
($ millions)
2015
2014
2013
Analysis comment: Apple reports interest expense of $733 million for
2015. Considering Apple had interest expense of $384 million for 2014
2. Total accrued expenses for 2015 equal $25,181 million.
(Historically, six components make up Apple’s accrued expenses: Accrued warranty and
3. The solution depends on the financial statement information accessed.
1. Apple—Times interest earned
($ millions)
Current
Year
One Year
Prior
Two Years
Prior
Net income …………………………………………..
$53,394
$39,510
$37,037
Google—Times interest earned
($ millions)
Current
Year
One Year
Prior
Two Years
Prior
Add income taxes …………………………..……
2. Google appears stronger in its ability to pay interest obligations
compared to Apple. Google’s times interest earned ratio of 189.95 in the
current year is higher than Apple’s ratio of 99.93, which suggests a
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
707
Ethics Challenge — BTN 11-3
1. It is in Bly’s self-interest to maximize the amount of revenues less
warranty expenses so as to maximize his personal bonus. Since Bly
2. Although Bly might be able to affect the amount of revenues less
warranty expenses via the warranty expense accrual in the short run,
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
708
Communicating in Practice — BTN 11-4
MEMORANDUM
To:
Tom Pretti, General Manager
From:
Dusty Johnson, Manager⎯Accounting and Finance
Date:
Subject:
Reporting warranties in financial statements
This memorandum is in response to your comment on my proposal for the
treatment of a contingency in our financial statements. You specifically
object to the proposed recognition of an expense and liability for
warranties. The purpose of this memorandum is to respond to your
objection.
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
709
Taking It to the Net — BTN 11-5
1. McDonald’s 2015 current liabilities include the following:
• Accounts payable
2. The portion of long–term debt maturing in the next 12 months ($
millions) is:
3. Times interest earned for McDonald’s as of 12/31/2015
($ millions)
12/31/2015
Net Income ………………………………………………………
$ 4,529.3
Income before interest and taxes ……………………..
$ 7,194.0
Times interest earned ………………………………………
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
710
Teamwork in Action — BTN 11-6
1. Option A: Interest Expense = $6,000 x 10% x 90/360 = $150
2. Entries:
2a. Issue date, Option A
June 1
Cash ………………………………………………………………..
6,000
6,000
Cash ………………………………………………………………..
6,000
6,000
6,150
6,160
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
711
Teamwork in Action (Concluded)
4. Entries:
4a. Adjusting entry, Option A (Dec. 31)
Dec. 31
Interest Expense ………………………………………………
50
4b. Adjusting entry, Option B (Dec. 31)
Dec. 31
Interest Expense ………………………………………………
Interest Payable ………………………………………….
Interest Expense ………………………………………………
Interest Payable ……………………………………………….
Notes Payable ………………………………………………….
Interest Expense ………………………………………………
Interest Payable ……………………………………………….
Notes Payable ………………………………………………….
Cash ……………………………………………………….
Interest Payable ………………………………………….
50
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
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Entrepreneurial Decision — BTN 11-7
1.
Hello Alfred
Income Statement (Prospective)
Current
Operations
European
Total
Sales ………………………………………
$1,000,000
$ 250,000
$1,250,000
3.
Hello Alfred
Income Statement (Prospective)
Current
Operations
European
Total
Sales ………………………………………
$1,000,000
$ 400,000
$1,400,000
713
4.
Hello Alfred
Income Statement (Prospective)
Current
Operations
European
Total
Sales ………………………………………
$1,000,000
$ 100,000
$1,100,000
5. In each of these cases, the company’s times interest earned is at least
Hitting the Road — BTN 11-8
There is no formal solution to this problem. A discussion of the
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 11
714
Global Decision — BTN 11-9
1. Samsung— Times interest earned
(KRW in millions)
Current Year
Prior Year
Net income ………………………………………….
₩ 19,060,144
₩ 23,394,358
2. Of these three companies, Apple and Google both have superior
Add interest expense …………………………..