Problem 2-4B (Concluded)
Part 3
NUNCIO CONSULTING
Trial Balance
June 30
Debit Credit
Cash …………………………………………………… $17,860
Accounts receivable ……………………………. 2,000
Land ……………………………………………………. 7,500
Accounts payable ………………………………… $ 1,200
Notes payable ……………………………………… 32,500
Common stock ……………………………………. 54,000
Dividends ……………………………………………. 1,100
Problem 2-5B (60 minutes)
Part 1
TAMA CO.
Balance Sheet
December 31, 2018
Assets
Liabilities
Cash ……………………………..
$ 30,000
Accounts payable …………………………..
$ 4,000
Accounts receivable ………
35,000
Office supplies ………………
8,000
Machinery ……………………..
Total equity …………………………..
TAMA CO.
Balance Sheet
December 31, 2019
Assets
Liabilities
Cash ……………………………..
$ 5,000
Accounts payable …………………………..
$ 12,000
Accounts receivable ………
25,000
Note payable …………………………..
250,000
Office supplies ………………
13,500
Total liabilities …………………………..
262,000
Office equipment……………
40,000
50,000
Total equity …………………………..
150,000
Part 2
Computation of 2019 net income:
Owner investment ………………………………………………………………..
5,000
Add net income ……………………………………………………………………
?
Deduct dividends …………………………………………………………………
(3,000)
Increase in equity during the year …………………………………………
$ 13,000*
Thus, net income = ($13,000 + $3,000 – $5,000) = $ 11,000
Problem 2-6B (35 minutes)
Part 1
GOULD SOLUTIONS
Trial Balance
April 30
Debit Credit
Cash …………………………………………………………….. $20,000
Office supplies ……………………………………………… 750
Prepaid rent …………………………………………………. 1,800
Office equipment ………………………………………….. 12,250
Accounts payable …………………………………………. $12,250
Part 2
Cash
(a)
15,000
(b)
1,800
(f)
20,400
(c)
7,650
(d)
750
(g)
5,200
Balance
20,000
Problem 2-7B (40 minutes)
Part 1
PRISEK
Income Statement
For Month Ended July 31
Revenues
Consulting revenue …………………………. $36,000
Rental revenue ………………………………… 1,500
Total revenues ………………………………… $37,500
Part 2
PRISEK
Statement of Retained Earnings
For Month Ended July 31
Retained earnings, July 1 …………………….. $ 0
Add: Net income (from Income Statement) .. 20,700
20,700
Problem 2-7B (Concluded)
Part 3
PRISEK
Balance Sheet
July 31
Assets Liabilities
Cash …………………………. $24,000 Accounts payable ……………. $ 3,900
Accounts receivable …. 10,500 Note payable …………………… 7,200
Prepaid insurance …….. 3,000 Unearned revenue …………… 900
Retained earnings* ………….. 14,700
______ Total equity …………………….. 49,500
Total assets ………………. $61,500 Total liabilities & equity …… $61,500
* Amount from part 2 statement.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2
Serial Problem — SP 2
Part 1 (120 minutes) Serial Problem, Business Solutions
2019
Oct. 1 Cash …………………………………………………. 101 45,000
Office Equipment ………………………………. 163 8,000
Computer Equipment ………………………… 167 20,000
Common Stock…………………………... 307 73,000
Owner investment in exchange for stock.
5 Prepaid Insurance …………………………….. 128 2,220
Cash ………………………………………….. 101 2,220
Paid 12 months’ premium in advance.
6 Accounts Receivable ……………………….. 106 4,800
Computer Services Revenue ………. 403 4,800
Billed customer for services.
8 Accounts Payable ……………………………. 201 1,420
Cash ………………………………………….. 101 1,420
Paid balance due on account payable.
10 No entry necessary in the journal.
20 Advertising Expense …………………………. 655 1,728
Cash ………………………………………….. 101 1,728
Purchased ads in local newspaper.
22 Cash …………………………………………………. 101 1,400
Accounts Receivable …………………. 106 1,400
Collected accounts receivable.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2
Serial Problem, Business Solutions (Continued)
28 Accounts Receivable ……………………….. 106 5,208
Computer Services Revenue ……… 403 5,208
Billed customer for services.
31 Wages Expense ………………………………… 623 875
Cash …………………………………………. 101 875
Paid employee for part-time work.
5 Computer Supplies …………………………... 126 1,125
Cash …………………………………………. 101 1,125
Purchased computer supplies for cash.
8 Accounts Receivable ……………………….. 106 5,668
Computer Services Revenue ……… 403 5,668
Billed customer for services.
13 No entry necessary. (No revenue recognized until work performed.)
25 No entry necessary.
28 Mileage Expense ………………………………. 676 384
Cash ………………………………………….. 101 384
Reimbursed Rey for mileage.
30 Wages Expense ………………………………… 623 1,750
Cash ………………………………………….. 101 1,750
Paid employee for part-time work.
30 Dividends …………………………………………. 319 2,000
Cash ………………………………………….. 101 2,000
Paid cash dividends.
Serial Problem, Business Solutions (Continued)
Part 2
General Ledger accounts
Cash Acct. No. 101
Date
Explanation
PR
Debit
Credit
Balance
Oct. 1 45,000 45,000
2 3,300 41,700
5 2,220 39,480
8 1,420 38,060
15 4,800 42,860
17 805 42,055
31 3,600 37,252
Nov. 1 320 36,932
2 4,633 41,565
5 1,125 40,440
18 2,208 42,648
Accounts Receivable Acct. No.106
Date
Explanation
PR
Debit
Credit
Balance
Oct. 6 4,800 4,800
12 1,400 6,200
15 4,800 1,400
22 1,400 0
28 5,208 5,208
Nov. 8 5,668 10,876
18 2,208 8,668
24 3,950 12,618
Computer Supplies Acct. No. 126
Date
Explanation
PR
Debit
Credit
Balance
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2
Serial Problem, Business Solutions (Continued)
Prepaid Insurance Acct. No. 128
Date
Explanation
PR
Debit
Credit
Balance
Oct. 5 2,220 2,220
Prepaid Rent Acct. No. 131
Date
Explanation
PR
Debit
Credit
Balance
Office Equipment Acct. No. 163
Date
Explanation
PR
Debit
Credit
Balance
Oct. 1 8,000 8,000
Computer Equipment Acct. No. 167
Date
Explanation
PR
Debit
Credit
Balance
Accounts Payable Acct. No. 201
Date
Explanation
PR
Debit
Credit
Balance
Common Stock Acct. No. 307
Date
Explanation
PR
Debit
Credit
Balance
Oct. 1 73,000 73,000
Dividends Acct. No. 319
Date
Explanation
PR
Debit
Credit
Balance
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2
Serial Problem, Business Solutions (Concluded)
Computer Services Revenue Acct. No. 403
Date
Explanation
PR
Debit
Credit
Balance
Wages Expense Acct. No. 623
Date
Explanation
PR
Debit
Credit
Balance
Oct. 31 875 875
Nov. 30 1,750 2,625
Advertising Expense Acct. No. 655
Date
Explanation
PR
Debit
Credit
Balance
Oct. 20 1,728 1,728
Mileage Expense Acct. No. 676
Date
Explanation
PR
Debit
Credit
Balance
Miscellaneous Expenses Acct. No. 677
Date
Explanation
PR
Debit
Credit
Balance
Repairs Expense—Computer Acct. No. 684
Date
Explanation
PR
Debit
Credit
Balance
Serial Problem, Business Solutions (Continued)
Part 3
BUSINESS SOLUTIONS
Trial Balance
November 30
Debit Credit
Cash ………………………………………………………… $38,264
Accounts receivable ………………………………… 12,618
Computer supplies …………………………………… 2,545
Prepaid insurance ……………………………………. 2,220
Prepaid rent …………………………………………….. 3,300
Office equipment ……………………………………… 8,000
Computer equipment ……………………………….. 20,000
Accounts payable …………………………………….. $ 0
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2
Company Analysis — AA 2-1 (20 minutes)
$ millions
1. (a) $241,272
(b) $193,437
2. (a) $375,319
(b) $321,686
Comparative Analysis — AA 2-2 (25 minutes)
$ millions
1. Apple
2. Google
Current year debt ratio: $44,793/$197,295 = 22.7%
Prior year debt ratio: $28,461/$167,497 = 17.0%
3. Apple
Explanation: Apple has the higher degree of financial leverage. Apple’s
debt ratio is markedly higher for the current year than that of Google.
This indicates that Apple carries more debt financing than Google. This
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2
Global Analysis — AA 2-3 (20 minutes)
₩ and $ in millions
1. Samsung
Current year debt ratio: ₩87,260,662 / ₩301,752,090 = 28.9%
Prior year debt ratio: ₩69,211,291 / ₩262,174,324 = 26.4%
3. (a) Less Risky Explanation: Samsung’s debt ratio of 28.9% is lower
than Apple’s debt ratio of 64.3% ($241,272/$375,319).
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2
Ethics Challenge — BTN 2-1
This case involves a conflict between the need for efficiency and the need
for control. While it makes sense to take and process lunch orders quickly,
this efficiency is being accomplished by a shortcut that greatly weakens
control over cash receipts. Cash could be received and lost or stolen
because there would be no initial record of how much was received.
It is possible that the assistant manager does not understand the potential
for fraud and abuse if this shortcut is used. If the relationship between you
and the assistant manager is such that you feel you can do so, you should
explain your understanding of how the shortcut could lead to the problems
of inaccurate records for tax purposes, gathering inaccurate marketing
information, and abuse by other employees who might not be as honest as
you and the assistant manager.
Communicating in Practice — BTN 2-2
MEMORANDUM
To: Lila Corentine
From:
Subject: Financial statements explanation
Date:
The four major financial statements and their purposes are:
• Income statement describes a company’s revenues and expenses along
with the resulting net income or loss over a period of time. It helps
explain how equity changes during a period due to earnings activities.
• Statement of cash flows identifies cash inflows (receipts) and outflows
(payments) over a period of time. It also explains how the cash balance
on the balance sheet changed from the beginning to the end of a period.
These financial statements are linked to each other across time.
Taking It to the Net — BTN 2-3
1. The prior three years’ net income or (loss) for Amazon are ($ millions):
2016 = $2,371 2015 = $596 2014 = $(241)
3. The reason its cash balance only increased by $3,444 million in 2016
was because of net cash outflows of $9,876 million for its investing
activities and $2,911 million for its financing activities (and further
reduced by $212 million related to foreign currency effects). Those uses
of cash absorbed much of the cash generated by its operating activities.
Teamwork in Action — BTN 2-4
<Instructor note: There is no specific solution to this activity.>
The following sample solution gives a summary outline of what a minimum report
needs to include. Assume a team member selects assets:
Category: Assets
a. Increases (decreases) in assets are debits (credits) to asset accounts.
Debit means left side, credit means right side. The normal side of an
account refers to the side where increases are recorded. For assets, this
is the debit, or left, side.
b. Owner investment of $10,000 cash in exchange for stock.
Entrepreneurial Decision — BTN 2-5
There are several issues that ownership should consider. Those
considerations include the following three issues (among others).
• If ownership chooses to contribute personal funds for the expansion,
ownership money will be at risk (not business loans); in this case, the
business will not have the expense of interest payments, nor will the
business have the risk of the inability to repay a loan.
Entrepreneurial Decision — BTN 2-6
1.
MARTIN MUSIC SERVICES
Balance Sheet
December 31
Assets Liabilities
Cash ……………………………… $ 3,600 Accounts payable ………………. $ 2,200
Accounts receivable …….. 9,600 Unearned lesson fees ……….. 15,600
Prepaid insurance …………. 1,500 Total liabilities …………………… 17,800
2.
Debt ratio = Total liabilities / Total assets = $17,800 / $80,700 = 22.1%
Return on assets = Net income/Average assets = $40,000/$80,700*= 49.6%
*Ending balance is used per instructions (”assume average assets equal its ending balance”).
3. The prospects of a bank loan are likely to be good. (i) The debt ratio
indicates that 78% of the company’s funding is from equity. Also, there
are no debt obligations requiring periodic payments. This implies low
risk. (ii) The level of return on assets is very high. This implies good
return.
Wild, Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 2
Hitting the Road — BTN 2-7
Findings will vary. It is advisable that the instructor obtain a few classified
sections from newspapers that were published over the period of the
assignment. If student reports lack responses for question 2, it is
informative and motivating to bring these (accounting-related job
opportunities) sections to class when discussing or returning student
reports as many students are not accounting majors.