Wild and Shaw, FinMan 8e Solutions Manual: Chapter 3
230
Copyright © 2019 by McGraw-Hill Education.
All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Serial Problem, SP 3 (Continued)
Computer Equipment
Acct. No. 167
Date
Explanation
PR
Debit
Credit
Balance
Oct.
1
20,000
20,000
Acct. No. 168
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
1,250
1,250
Accounts Payable
Acct. No. 201
Date
Explanation
PR
Debit
Credit
Balance
Oct.
3
1,420
1,420
8
1,420
0
Dec.
15
1,100
1,100
Wages Payable
Acct. No. 210
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
Unearned Computer Services Revenue
Acct. No. 236
Date
Explanation
PR
Debit
Credit
Balance
Dec.
14
1,500
1,500
Acct. No. 307
Date
Explanation
PR
Debit
Credit
Balance
Oct.
1
73,000
73,000
Acct. No. 318
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
Closing
14,460
14,460
31
Closing
7,100
7,360
Dividends
Acct. No. 319
Date
Explanation
PR
Debit
Credit
Balance
31
3,600
3,600
Nov.
30
2,000
5,600
Dec.
31
1,500
7,100
31
Closing
7,100
0
Wild and Shaw, FinMan 8e Solutions Manual: Chapter 3
Serial Problem, SP 3 (Continued)
Computer Services Revenue
Acct. No. 403
Date
Explanation
PR
Debit
Credit
Balance
Oct.
6
4,800
4,800
12
1,400
6,200
28
5,208
11,408
Nov.
2
4,633
16,041
8
5,668
21,709
24
3,950
25,659
Dec.
20
5,625
31,284
31
Closing
31,284
0
Acct. No. 612
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
400
400
31
Closing
400
0
Acct. No. 613
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
1,250
1,250
31
Closing
1,250
0
Wages Expense
Acct. No. 623
Date
Explanation
PR
Debit
Credit
Balance
Oct.
31
875
875
Nov.
30
1,750
2,625
Dec.
10
750
3,375
31
500
3,875
31
Closing
3,875
0
Insurance Expense
Acct. No. 637
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
555
555
31
Closing
555
0
Rent Expense
Acct. No. 640
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
2,475
2,475
31
Closing
2,475
0
Wild and Shaw, FinMan 8e Solutions Manual: Chapter 3
Serial Problem, SP 3 (Concluded)
Computer Supplies Expense
Acct. No. 652
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
3,065
3,065
31
Closing
3,065
0
Advertising Expense
Acct. No. 655
Date
Explanation
PR
Debit
Credit
Balance
20
1,728
1,728
Dec.
2
1,025
2,753
31
Closing
2,753
0
Mileage Expense
Acct. No. 676
Date
Explanation
PR
Debit
Credit
Balance
Nov.
1
320
320
28
384
704
Dec.
29
192
896
31
Closing
896
0
Miscellaneous Expense
Acct. No. 677
Date
Explanation
PR
Debit
Credit
Balance
Nov.
22
250
250
Dec.
31
Closing
250
0
Repairs Expense—Computer
Acct. No. 684
Date
Explanation
PR
Debit
Credit
Balance
17
805
805
Dec.
3
500
1,305
31
Closing
1,305
0
Income Summary
Acct. No. 901
Date
Explanation
PR
Debit
Credit
Balance
Dec.
31
Closing
31
Closing
31
Closing
0
Wild and Shaw, FinMan 8e Solutions Manual: Chapter 3
Company Analysis — AA 3-1 (20 minutes)
($ millions)
1. (a) $48,351 / $229,234 = 21.1%
(b) $45,687 / $215,639 = 21.2%
2. Unfavorable
3. Outperform
4. $48,351
Explanation: The balance of Income Summary before it is closed as of
its most recent fiscal year-end equals net income. This can also be
computed from taking all revenues and subtracting all expenses.
Wild and Shaw, FinMan 8e Solutions Manual: Chapter 3
Comparative Analysis — AA 3-2 (25 minutes)
($ millions)
1. (a) Apple
2. Apple
Explanation: In the current year, Apple’s profit margin exceeded
Google’s profit margin.
3. (a) Apple
4. Google
Explanation: In the current year, Google has the higher current ratio,
suggesting a better ability to pay short-term obligations. Overall,
neither company is in immediate danger of failing to make payment on
short–term obligations. Students might comment that Google’s ratio is
quite high suggesting that it has idle cash or current assets that could
be invested (this would be an accurate observation).
Wild and Shaw, FinMan 8e Solutions Manual: Chapter 3
Global Analysis — AA 3-3 (20 minutes)
1. Samsung (KRW in millions)
Current year, profit margin = ₩42,186,747 / ₩239,575,376 = 17.6%
2. Apple
Ethics Challenge — BTN 3-1
1. There are several courses of action that Tamira could have taken. Two
possibilities follow:
a. She could have consulted with the president and told him that
finalized financial statements would not be ready by the time of the
meeting. She could explain that delay in financial statement
preparation is a normal event given the need to wait for final
information to prepare accurate adjustments. Possibly the meeting
could be rescheduled or Tamira could have asked how the
president preferred her to proceed.
2. Students may offer one of the above alternatives or another response
they may think of, given the situation. Try to generate a discussion of
ethical concerns and the impact of her decisions on the well-being of
users (such as the bankers and the investors in the banks).
Wild and Shaw, FinMan 8e Solutions Manual: Chapter 3
Communicating in Practice — BTN 3-2
TO: _____________________
FROM: _____________________
DATE: ______________________
SUBJECT: CLARIFICATIONS—OBJECTIVE OF THE CLOSING PROCESS
[Following is a sample of what the memorandum’s contents might include.]
When we speak of “closing the books” or the closing process we are not
talking about ending or closing the business nor doing anything that reflects
this thinking in the financial statements. Let me use an analogy to explain the
concept of the closing process and then you will see the distinction more
clearly.
The revenue and expense accounts temporarily hold the information to
determine if the owner(s) won or lost in the game of business. Each fiscal
period should be viewed as a separate game. After the data in these accounts
has allowed us to determine if the owner(s) won or lost, in other words, the net
income or loss, these accounts must be cleared to accumulate data for the
next game or period. We record the score for the game of business, or the net
income or loss, in the permanent recordbook or the Retained Earnings
account. A win, or net income, increases Retained Earnings and a loss, or net
loss, decreases Retained Earnings.
Wild and Shaw, FinMan 8e Solutions Manual: Chapter 3
Taking It to the Net — BTN 3-3
1. The Gap’s main brands (stores) are The Gap, Old Navy, and Banana
Republic. It also has Intermix and Athleta brands.
3. Net sales for the year ended January 28, 2017, are $15,516 million.
6. The company probably chose a fiscal year-end as the end of January or
early February to have it be consistent with their natural year. For many
retailers, the highest amount of sales is in November and December
(with some residual in January including sales returns).
Wild and Shaw, FinMan 8e Solutions Manual: Chapter 3
Teamwork in Action — BTN 3-4
Note that there is no specific solution to this activity. Still, the presentation
of each expert team should reflect the following summary points.
Before Adjusting
Balance Sheet Income Statement
Type Account Account Adjusting Entry
Prepaid expenses Asset overstated Expense understated Dr. Expense
Cr. Asset*
Unearned revenues Liability overstated Revenue understated Dr. Liability
Cr. Revenue
Some implementation notes: This activity allows all students to be actively
involved in the learning process. Encourage students to take the opportunity
to ask questions in the small group environment the learning team provides.
Encourage the better students to serve as experts on unearned revenues. The
instructor’s observation of and reactions to expert teams’ development of
presentation material as well as the delivery to learning teams will have a
significant impact on the effectiveness of this activity.
Entrepreneurial Decision — BTN 3-5
1. A classified balance sheet classifies liabilities into current and non–
current. The current liabilities are those that are due in the short-term,
and must be paid soon. In addition, some assets are also classified as
current. These assets are those that can be used to satisfy the current
liabilities. The entrepreneur in this case can use this information to
calculate the current ratio. This will provide some idea of how liquid
the company is and how easy/difficult it will be to satisfy short-term
liabilities.
2. To better understand the company’s operations, the entrepreneur must
make sure that all revenues earned in a particular accounting period are
included in that period’s income statement. In addition, they must
match expenses to revenues. Without closing entries, revenues and
Hitting the Road — BTN 3-6
There is no formal solution to this field activity. The instructor may wish to
tally students’ findings to show results across companies as to use of work
sheets, software preferences, and time it takes to prepare finalized annual
financial statements.