(40-50 min.) P 2-69B
Req. 1
Cash
Accounts Receivable
(a)
50,000
(c)
44,000
(g)
(j)
1,700
(b)
63,000
(e)
5,900
Bal.
(h)
(j)
(k)
Bal.
(d)
Bal.
(c)
Bal.
(a)
Bal.
Note Payable
(b)
63,000
Accounts Payable
Bal.
63,000
(h)
(d)
210
(i)
600
Common Stock
Bal.
610
(a)
156,000
Bal.
156,000
(e)
(g)
Bal.
Bal.
(k)
Bal.
(i)
Bal.
(continued) P 2-69B
Req. 2
Spahr Music Corporation
Trial Balance
May 31, 2016
ACCOUNT
DEBIT
CREDIT
Cash……………………………………….
$ 66,800
Accounts receivable ………………..
11,400
Supplies …………………………………
210
Service revenue ………………………
300
$236,410
Challenge Exercises and Problem
(20-40 min.) E 2-70
Req. 1
a. Total cash paid during December:
Cash
Nov. 30 Bal.
16,500
Dec. receipts
91,000
Dec. payments
X
= $99,250
Dec. 31 Bal.
8,250
$16,500 + $91,000 − X
= $ 8,250
X
= $99,250
b. Cash collections from customers during December:
Accounts Receivable
Nov 30 Bal.
23,000
Dec. sales
on account
Dec. collections
= $44,000
21,000
= $21,000
= $44,000
= $19,500
= $23,000
(20-30 min.) E 2-71
Req. 1
4AC, Inc.
Trial Balance
October 31, 2016
Cash……………………………
$ 3,900
Accounts receivable………..
7,100
Land……………………………
30,100
Accounts payable…………..
$ 6,200
Note payable…………………
Common stock………………
Retained earnings…………..
Service revenue……………..
Salary expense………………
2,900
Totals………………………….
Out of balance by $1,900
The correct balance of Accounts Receivable is $9,000* ($7,100 +
$1,900). After this correction, total debits will be $47,300 ($45,400 +
$1,900), the same as total credits.
Req. 2
(10-15 min.) E 2-72
Req. 1
Henderson Co.:
Income statement
November
December
Employee medical exp. .
$38,000
$ -0-
Balance sheet
Nov. 30
Dec. 31
Cash ………………………….
$57,000
$30,000*
Accounts payable ………
38,000
11,000**
Goodland Hospital:
Income statement
November
December
Service revenue …………
$38,000
$ -0-
Balance sheet
Nov. 30
Dec. 31
Cash ………………………….
Accounts receivable …..
38,000
11,000**
Req. 2
Explanation:
Henderson’s $38,000 expense is Goodland’s revenue.
Henderson’s $27,000 cash payment is Goodland’s cash receipt.
Henderson’s $11,000 account payable is Goodland’s account
receivable.
(20 min.) P 2-73
Req. 1
Date
Effect
on Cash
Effect on Total
Assets
Effect on
Net Income
May 1
Understated $100
Overstated $100
Overstated $100
2
Understated
Understated
Understated
$5,400
Req. 2
Correct cash balance, $24,500 ($6,400 + $100 + $18,000)
Req. 3
Decision Cases
(40-50 min.) Decision Case 1
Reqs. 1 and 2
Cash
Accounts Receivable
(a)
7,000
(c)
1,300
(g)
8,000
(i)
1,200
(b)
6,000
(d)
1,800
Bal.
6,800
(h)
2,000
(i)
1,200
1,200
(j)
1,000
Bal.
9,400
Supplies
Furniture
(c)
1,300
(e)
5,400
Accounts Payable
Notes Payable
(j)
1,000
(e)
5,400
(b)
6,000
Bal.
4,400
Common Stock
(a)
7,000
(g)
8,000
2,000
(h)
Bal.
(continued) Decision Case 1
Req. 3
Barlow Networks, Inc.
Trial Balance
Current Date
ACCOUNT
DEBIT
CREDIT
Cash …………………………………………..
$ 9,400
Accounts receivable …………………..
6,800
Supplies …………………………………….
1,300
5,400
Accounts payable ……………………….
Notes payable …………………………….
6,000
Common stock …………………………..
7,000
Service revenue ………………………….
10,500
Salary expense …………………………..
2,000
Advertising expense …………………..
1,800
Rent expense ……………………………..
1,200
Total …………………………..………………
$27,900
$27,900
Req. 4 (net income or loss for first month of operations)
Revenues:
Service revenue …………………
$10,500
Expenses:
Salary expense …………………..
Advertising expense …………..
Rent expense ……………………..
Total expenses …………………………...
(20-30 min.) Decision Case 2
Little Italy, Inc.
Income Statement
Month Ended December 31, 2016
Sales revenue ……………………………………………….
$42,000
Expenses:
Cost of sales (expense) …………………………………
22,000
Rent expense ……………………………………………….
Advertising expense ……………………………………..
5,000
Total expenses ………………………………………….
Net income …………………………………………………..
Little Italy, Inc.
Balance Sheet
December 31, 2016
ASSETS
LIABILITIES
Cash …………………………
$ 12,000
Accounts payable …………….
$ 8,000
Food inventory ………….
5,000
STOCKHOLDERS’ EQUITY
Furniture …………………..
10,000
Common stock …………………
10,000
Retained earnings …………….
9,000*
Total stockholders’ equity
19,000
Total liabilities
Total assets …………….
Ethical Issue 1
1. The ethical issue is whether these alternatives of financing the
business are proper from an economic, legal, and ethical standpoint.
2. The stakeholders are Scruffy Murphy, the bank, potential new and
existing creditors, and the friend who may become a stockholder.
3.
Option 1:
Cash ………………………………………
200,000
Common Stock ………………..
200,000
Option 2:
Land ………………………………………
200,000
Common Stock ………………..
200,000
Common Stock ………………………
200,000
Land ………………………………..
200,000
Option 1 is economically sound, perfectly legal, and also ethical because the
sale of the stock is a valid transaction between the business and a
stockholder. The consequences of this decision are that Murphy obtains
additional financing at a cost (he now shares ownership of the business with
(continued) Ethical Issue 1
Murphy means that the business never actually has the land for its use. It
violates the rights of the bank and future creditors to give them
information that is inaccurate and that does not faithfully represent
Ethical Issue 2
Part a.
1. The ethical issue is whether you should question your grade, which is
higher than you expected. Your choices are (a) discuss the grade with the
professor; and (b) do not discuss the grade with the professor.
2, 3. Stakeholders are you, the professor, the other students in the class, and
the university. The possible consequences to you of discussing the grade
with the professor is that it may lead to the discovery that the professor
4. Student opinions will vary on this part.
Part b.
1. The ethical issue in this case is whether you should question your grade,
which is now lower than you expected. Your choices are (a) discuss the
grade with the professor; and (b) do not discuss the grade with the
professor.
(continued) Ethical Issue 2
4. Most students would probably respond “take it to the professor.” But
shouldn’t we be just as concerned about knowing the true grade either way?
The author recommends discussing the grade with the professor one way or
the other.
Part c.
Focus on Financials: Apple Inc.
(20-30 min.)
Reqs. 1 and 3
(All amounts in millions)
Cash
Accounts Receivable, net
0
13,102
b.
178,437
b.
178,437
e.
104,776
17,460
39,989
5,146
a.
182,795
i.
1,382
Inventories
3,764
1,764
d.
112,258
c.
112,605
2,111
Accounts Payable
e.
104,776
22,367
Property, Plant and Equipment,
net
c.
112,605
16,597
30,196
j.
4,027
20,624
a.
182,795
182,795
d.
112,258
112,258
18,034
18,034
13,973
13,973
(continued) Apple Inc.
Req. 2
(Millions)
a.
Accounts Receivable, net ………………………….
182,795
Net Sales (Revenue) ……………………………..
182,795
Cash ………………………………………………………….
178,437
Accounts Receivable, net ……………………..
178,437
c.
Inventories …………………………………………………
112,605
Accounts Payable …………………………………
112,605
Cost of Sales …………………………………………….
112,258
Inventories ……………………………………………
112,258
e.
Accounts Payable ……………………………………..
104,776
Cash ……………………………………………………..
104,776
f.
Operating Expenses …………………………………..
18,034
Cash ……………………………………………………..
18,034
g.
Cash ………………………………………………………….
980
Other Income/(Expense), net …………………
980
h.
Provision for Income Taxes ………………………..
13,973
Cash ……………………………………………………..
13,973
Cash …………………………………………………………
Other Assets ………………………………………..
Property, Plant, and Equipment, net
Cash …………………………………………………….
Req. 4
All the selected account balances agree with Apple Inc.’s actual figures
on the income statement or the balance sheet.
(continued) Apple Inc.
Req. 5
Revenue:
(Millions)
Net sales ………………………………………………..
$182,795
Other Income/(Expense), net ……………………
980
Total revenue ………………………………………………
183,775
Operating expenses…………………………………
Net Income ……………………………………………..
Focus on Analysis: Under Armour, Inc.
(20-30 min.)
Req. 1
During fiscal 2014, Under Armour, Inc. had more net revenues than
cash collections. This is determined by analyzing net receivables, as
follows:
(continued) Under Armour, Inc.
Req. 2
Net revenues increased 32.26% in 2014, which is better than in 2013
(27.09%) perhaps due to a better strategic alignment. Net income
increased more in 2014 (28.16%) than in 2013 (26.05%). Net income
grew slower than net revenues during the two year period due to a
larger tax bill and additional sources of expenses due to expansion.
For example, interest expense increased 81.90% in 2014 and selling,
general and administrative expenses increased 32.89% in 2014.
Group Projects
Student responses will vary.