Accounting Chapter 2 Wild And Shaw Financial And Managerial Accounting

Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 2

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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

Computer services revenue ……………………… 25,659

Wages expense ……………………………………….. 2,625

Advertising expense ………………………………… 1,728

Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 2

Company Analysis — AA 2-1 (20 minutes)

$ millions

1. (a) $248,028

(b) $258,578

4. 2019

Explanation: Apple has greater financial leverage when a greater

Comparative Analysis — AA 2-2 (25 minutes)

$ millions

1. Apple

2. Google

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.

Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 2

Extended Analysis — AA 2-3 (20 minutes)

$ millions

1. Samsung

2. Decreased financial leverage

3. (a) Less Risky

Explanation: Samsung’s debt ratio is lower than Apple’s debt ratio of

Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 2

DISCUSSION QUESTIONS

1. a. Common asset accounts: cash, accounts receivable, notes receivable, prepaid

expenses (rent, insurance, etc.), office supplies, store supplies, equipment,

2. A note payable is formal promise, usually denoted by signing a promissory note to

pay a future amount. An account payable also references an amount owed to an

3. There are several steps in processing transactions: (1) Identify and analyze the

transaction or event, including the source document(s), (2) apply double-entry

4. A general journal can be used to record any business transaction or event.

5. Debited accounts are commonly recorded first. The credited accounts are commonly

indented.

6. A transaction is first recorded in a journal to create a complete record of the

7. Expense accounts have debit balances because they are decreases to equity (and

equity has a credit balance).

8. The recordkeeper prepares a trial balance to summarize the contents of the ledger

9. The error should be corrected with a separate (subsequent) correcting entry. The

entry’s explanation should describe why the correction is necessary.

10. The four financial statements are: income statement, balance sheet, statement of

retained earnings, and statement of cash flows.

11. The balance sheet provides information that helps users understand a company’s

12. The income statement lists the types and amounts of revenues and expenses, and

reports whether the business earned a net income (also called profit or earnings) or

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13. An income statement user must know what time period is covered to judge whether

the company’s performance is satisfactory. For example, a statement user would

14. (a) Assets are probable future economic benefits obtained or controlled by a specific

entity as a result of past transactions or events. (b) Liabilities are probable future

15. The balance sheet is sometimes referred to as the statement of financial position.

Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 2

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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

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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.

These financial statements are linked to each other across time.

Specifically, a balance sheet reports an organization’s financial position at

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Taking It to the Net — BTN 2-3

1. The prior three years’ net income for Amazon are ($ millions):

2018 = $10,073 2017 = $3,033 2016 = $2,371

Teamwork in Action — BTN 2-4

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

d. Paid rent expense with $2,000 cash.

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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

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Entrepreneurial Decision — BTN 2-6

1.

MARTIN MUSIC SERVICES

Balance Sheet

December 31

Assets Liabilities

Cash ……………………………… $ 3,600 Accounts payable ………………. $ 2,200

2.

Debt ratio = Total liabilities / Total assets = $17,800 / $80,700 = 22.1%

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