Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
CCC3 (Continued)
(a) (Continued)
Accounts Payable
Date
Explanation
Ref.
Debit
Credit
Balance
Nov. 30 J2 45 45
Interest Payable
Date
Explanation
Ref.
Debit
Credit
Balance
Unearned Service Revenue
Date
Explanation
Ref.
Debit
Credit
Balance
Nov. 30 Balance ✓ 30
Notes Payable
Date
Explanation
Ref.
Debit
Credit
Balance
Nov. 30 Balance ✓ 800
Service Revenue
Date
Explanation
Ref.
Debit
Credit
Balance
30 J2 300 425
CCC3 (Continued)
(a) (Continued)
Utilities Expense
Date
Explanation
Ref.
Debit
Credit
Balance
Nov. 30 J2 45 45
Advertising Expense
Date
Explanation
Ref.
Debit
Credit
Balance
Supplies Expense
Date
Explanation
Ref.
Debit
Credit
Balance
Depreciation Expense
Date
Explanation
Ref.
Debit
Credit
Balance
Nov. 30 J2 20 20
Interest Expense
Date
Explanation
Ref.
Debit
Credit
Balance
CCC3 (Continued)
(b)
COOKIE CREATIONS
Adjusted Trial Balance
November 30, 2016
Account Debit Credit
Cash .............................................................................. $ 245
Accounts Receivable ................................................... 300
Supplies ........................................................................ 90
Interest Payable ............................................................ 5
Unearned Service Revenue ......................................... 30
Notes Payable ............................................................... 2,000
Owner’s Capital ............................................................ 800
Service Revenue .......................................................... 425
Utilities Expense .......................................................... 45
Advertising Expense .................................................... 65
CCC3 (Continued)
(c)
Revenues
Service revenue ............................................................ $425
Expenses
Advertising expense..................................................... $65
Utilities expense ........................................................... 45
Yes, Cookie Creations has been profitable in November. It has a profit of
$255 which is more than one half of the revenue earned in November.
COOKIE CREATIONS
Owner’s Equity Statement
For the Month Ended November 30, 2016
Owner’s Capital, November 1, 2016 .................................... $ 0
Add: Investment .................................................................. 800
CCC3 (Continued)
(c) (Continued)
[Note: Balance Sheet is not required—shown for information purposes
only.]
COOKIE CREATIONS
Balance Sheet
November 30, 2016
Assets
Cash ................................................................................ $ 245
Accounts receivable ....................................................... 300
Supplies .......................................................................... 90
Liabilities and Owner’s Equity
Liabilities
Notes payable ............................................................ $2,000
Accounts payable ...................................................... 45
BYP 3-1 FINANCIAL REPORTING PROBLEM
(a) Items that may result in adjusting entries for prepayments are:
1. Other current assets (per balance sheet).
2. Property, plant and equipment, net (per balance sheet).
(b) Accrual adjusting entries were probably made for accounts payable,
accrued expenses, and income taxes payable.
BYP 3-2 COMPARATIVE ANALYSIS PROBLEM
PepsiCo
Coca-Cola
(a)
Net increase (decrease) in property,
plant, and equipment (net) from 2012 to
2013.
$(561,000,000)
$31,000,000
(c)
Increase (decrease) in long-term debt
(obligations) from 2012 to 2013.
$789,000,000
$861,000,000
BYP 3-3 COMPARATIVE ANALYSIS PROBLEM
1.
Amazon
Wal-mart
(a)
Increase (decrease) in interest
expense, from 2012 to 2013.
$49,000,000
$(96,000,000)
(b)
Increase (decrease) in net income
from 2012 to 2013.
$313,000,000
$1,369,000,000
BYP 3-4 REAL–WORLD FOCUS
Answers will vary depending on the company and article chosen by
the student.
BYP 3-5 DECISION MAKING ACROSS THE ORGANIZATION
(a) HAPPY CAMPER PARK
Income Statement
For the Quarter Ended March 31, 2017
Revenues
Rent revenue ($90,000 – $15,000) ................ $75,000
Expenses
Salaries and wages expense
[$29,800 + ($300 X 2)] ................................. $30,400
Advertising expense ($5,200 + $110) ........... 5,310
(b) The generally accepted accounting principles pertaining to the income
statement that were not recognized by Erica were the revenue recognition
principle and the expense recognition principle. The revenue recognition
principle states that revenue is recognized when the performance
obligation is satisfied. The $15,000 for summer rentals has not been
BYP 3-6 COMMUNICATION ACTIVITY
Dear Ms. Taylor:
Upon reviewing the accounts of your company at the end of the year,
I discovered that adjusting entries were not made.
Adjusting entries are made at the end of the accounting period to ensure
that the revenue recognition and expense recognition principles required
under generally accepted accounting principles are followed. The use of
Adjusting entries are needed because the trial balance may not contain an
up-to-date and complete record of transactions and events for the
following reasons:
1. Some events are not journalized daily because it is not efficient to
do so. Examples are the use of supplies and the earning of wages
by employees.
There are four types of adjusting entries:
1. Prepaid expenses—expenses paid in cash and recorded as assets
before they are used or consumed.
2. Unearned revenues—revenues received in cash and recorded as
liabilities before they are earned.
BYP 3-6 (Continued)
3. Accrued revenues—revenues earned but not yet received in cash
or recorded.
4. Accrued expenses—expenses incurred but not yet paid in cash or
recorded.
BYP 3-7 ETHICS CASE
(a) The stakeholders in this situation are:
Zoe Baas, controller.
The president of Russell Company.
Russell Company stockholders.
(b) 1. It is unethical for the president to place pressure on Zoe to misstate
net income by requesting her to prepare incorrect adjusting entries.
BYP 3-8 ALL ABOUT YOU
We address the issue of contingent liabilities in greater detail in Chapter
11. Our primary interest in this exercise is to engage students in a
discussion regarding the general nature of the financial statement
elements (assets, liabilities, equity, revenues and expenses).
(a) By taking out the bank loan your friend has incurred a liability. You do
not have a liability unless your friend defaults, or unless it becomes
clear that he will default. The loan application may, however, require you
to disclose any guarantees that you have signed, since they represent
potential liabilities.
(c) Losing your job would not create a financial liability, although it would
most certainly reduce your revenues. You are obviously concerned that
you might lose your job, but you don’t have specific information that
would suggest that it will happen. Therefore, you probably don’t have
an obligation to disclose this information to the bank. However, unless
BYP 3-9 CONSIDERING PEOPLE, PLANET, AND PROFIT
The balance sheet should provide a fair representation of what a company
owns and what it owes. If significant obligations of the company are not
reported on the balance sheet, the company’s net worth (its equity) will be
overstated. While it is true that it is not possible to estimate the exact
amount of future environmental cleanup costs, it is becoming clear that
companies will be held accountable.
BYP 3-10 FASB CODIFICATION ACTIVITY
(a) Revenues are inflows or other enhancements of assets of an entity or
settlements of its liabilities (or a combination of both) from delivering
or producing goods, rendering services, or other activities that
constitute the entity’s ongoing major or central operations.
IFRS 3-1 INTERNATIONAL FINANCIAL REPORTING PROBLEM
(a) Note 3.7 indicates that revenue is measured as the fair value of
consideration received or receivable by the Group for goods supplied
net of sales rebates and excluding VAT and trade discounts.
(b) Note 3.7 states that revenue from the sale of goods is recognized when
the Group has transferred to the buyer the significant risks and
rewards of ownership of the goods.
