(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.
(f)
3,700
(h)
200
(j)
1,700
(k)
1,500
Supplies
Bal.
66,800
(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.
600
2-62
(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
Building ………………………………….
106,000
Music equipment …………………….
44,000
Accounts payable ……………………
$ 610
Note payable …………………………..
Common stock ………………………..
Service revenue ………………………
Salary expense ……………………….
Rent expense ………………………….
Utilities expense ……………………..
Advertising expense ………………..
300
Total ……………………………………….
$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. 31 Bal.
b. Cash collections from customers during December:
Accounts Receivable
Nov 30 Bal.
23,000
Dec. sales
on account
42,000
Dec. collections
X
= $44,000
21,000
= $21,000
= $44,000
c. Cash paid on notes payable during December:
Notes Payable
Nov. 30 Bal.
11,500
X = $23,000
Dec. note payments
X
Dec. new borrowing
31,000
Dec. 31 Bal.
19,500
= $19,500
= $23,000
2-64
(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…………………
5,900
Common stock………………
Retained earnings…………..
Service revenue……………..
9,400
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.
(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
$18,000
Understated
$18,000
Understated
$18,000
5
Correct
Understated
$2,800
Understated
$2,800
Req. 2
Correct cash balance, $24,500 ($6,400 + $100 + $18,000)
Req. 3
Req. 4
Correct net income, $23,100 ($8,000 – $100 + $2,800 – $5,600 + $18,000)
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)
(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
Common Stock
(a)
7,000
Service Revenue
Salary Expense
(g)
8,000
2,000
Bal.
Advertising Expense
Rent Expense
(d)
1,800
(f)
1,200
(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
Furniture …………………………………….
5,400
Accounts payable ……………………….
$ 4,400
Notes payable …………………………….
6,000
Common stock …………………………..
7,000
Service revenue ………………………….
Salary expense …………………………..
2,000
Advertising expense …………………..
1,800
Rent expense ……………………………..
Total …………………………..………………
Req. 4 (net income or loss for first month of operations)
Revenues:
Service revenue …………………
$10,500
Expenses:
Salary expense …………………..
$2,000
Advertising expense …………..
Rent expense ……………………..
Total expenses …………………………...
$5,500
Recommendation: Barlow’s criteria for remaining in operation was to
earn net income of $5,000. His actual result was just over this goal. Yes, I
would recommend that he stay in business.
(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 …………….
2-70
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
Option 2 represents “window dressing” (making the company look like an
entity that it is not). Although it might be legal in the strictest sense of the
(continued) Ethical Issue 1
4. The best option to take is definitely Option 1. The decision maker can
walk away from this transaction confident that he or she told the truth.
2-72
Ethical Issue 2
Part a.
1. The ethical issue is whether you should question your grade, which is
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
2, 3. Like part a, the stakeholders are you, the professor, the other students
(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.
2-74
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
16,597
30,196
j.
4,027
20,624
c.
112,605
a.
182,795
Cost of Sales
182,795
d.
112,258
112,258
f.
18,034
Other Income/(Expense), net
18,034
g.
980
980
Provision for Income Taxes
h.
13,973
13,973
(continued) Apple Inc.
Req. 2
(Millions)
a.
Accounts Receivable, net ………………………….
182,795
Net Sales (Revenue) ……………………………..
182,795
b.
Cash ………………………………………………………….
178,437
Accounts Receivable, net ……………………..
178,437
c.
Inventories …………………………………………………
112,605
Accounts Payable …………………………………
112,605
d.
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
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.
2-76
(continued) Apple Inc.
Req. 5
Revenue:
(Millions)
Net sales ………………………………………………..
$182,795
Other Income/(Expense), net ……………………
980
Total revenue ………………………………………………
183,775
Expenses:
Cost of sales …………………………………………..
$112,258
Operating expenses…………………………………
18,034
Provision for income taxes ………………………
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:
Net receivables:
(Thousands)
Balance at the end of fiscal 2013 ………………………………..
$ 209,952
+
Net revenues during fiscal 2014 (from consolidated
statements of income) ………………………………………………
3,084,370
Collections from customers during fiscal 2014 …………..
2-78
(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.
2014
2013
2012
$ change
Percentage change
Net income (thousands)
$208,042
$162,330
$128,778
$ change
Percentage change
Group Projects
Student responses will vary.