Financial Accounting, 10/e 4-61
COMP4-2. (continued)
Req. 2
a.
Cash (+A) ………………………………………………….
20,000
Notes payable (+L) …………………………….
20,000
b.
Equipment (+A) ………………………………………….
18,000
Cash (−A) …………………………………………
c.
Cash (+A) ………………………………………………….
5,000
Common stock (+SE) …………………………
1,000
Additional paid-in capital (+SE)…………..
4,000
d.
Cash (+A) ………………………………………………….
56,000
Accounts receivable (+A) ……………………………..
14,000
Service revenue (+R, +SE) ………………….
70,000
e.
Wages expense (+E, −SE) …………………………..
27,000
Miscellaneous expenses (+E, −SE) ……………….
8,000
Accounts payable (+L) ………………………..
7,000
Cash (−A) …………………………………………
28,000
f.
Small tools (+A) ………………………………………….
3,000
Cash (−A) …………………………………………
3,000
g.
Cash (+A) ………………………………………………….
8,000
Accounts receivable (−A) …………………….
Accounts payable (−L) …………………………………
Cash (−A) ………………………………………..
11,000
Supplies (+A) ……………………………………………..
10,000
Accounts payable (+L) ………………………..
10,000
Cash (+A) ………………………………………………….
3,000
Unearned revenue (+L) ……………………..
3,000
k.
(1) Retained earnings (−SE) …………………………
Dividends payable (+L) ……………………….
10,000
k.
(2) Dividends payable (−L)…………………………...
Cash (−A) …………………………………………
COMP4-2. (continued)
Req. 3
l.
Miscellaneous expenses (+E, −SE) ……………….
9,000
Supplies (−A) ……………………………………..
8,000
Small tools (−A) ………………………………….
1,000
[Supplies used ($12,000 – 4,000) and small
tools used ($9,000 – 8,000)]
2,000
Accumulated depreciation (+XA, −A) ……..
2,000
1,000
Interest payable (+L) …………………………...
($20,000 principal x .10 x 6/12)
Wages expense (+E, −SE) …………………………..
3,000
Wages payable (+L) …………………………...
4,000
Income taxes payable (+L) …………………..
Req. 4
FURNITURE REFINISHERS, INC.
Income Statement
For the Year Ended December 31, 2020
Operating Revenues:
Service revenue
$70 000
Operating Expenses:
Depreciation expense
Miscellaneous expenses
Total operating expenses
Operating Income
Other Item:
Interest expense
Pretax income
Income tax expense
Net Income
Financial Accounting, 10/e 4-63
COMP4-2. (continued)
FURNITURE REFINISHERS, INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2020
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders’
Equity
$6,000
$ 9,000
$ 4,000
$19,000
$7,000
$13,000
$30,000
FURNITURE REFINISHERS, INC.
Balance Sheet
At December 31, 2020
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$27,000
Accounts payable
$13,000
Accounts receivable
10,000
Notes payable
20,000
Supplies
4,000
Wages payable
3,000
Small tools
8,000
Interest payable
1,000
Total current assets
Income taxes payable
4,000
Unearned revenue
3,000
Equipment
Total current liabilities
Less: Accum. deprec.
7,000
Other noncurrent assets
9,000
Total stockholders’ equity
COMP4-2. (continued)
Req. 5
Transaction
Type of Effect on
Cash Flows
Direction and
Amount of Effect
a.
F
+20,000
b.
I
-18,000
c.
F
+5,000
d.
+56,000
e.
-28,000
-3,000
g.
+8,000
h.
-11,000
+3,000
F
-10,000
Req. 6
December 31, 2020, Closing Entry
Service revenue (−R) …………………………………..
70,000
Interest expense (−E) …………………………
Miscellaneous expenses (−E) ………………
17,000
Financial Accounting, 10/e 4-65
COMP4-2. (continued)
Req. 7
(a) Current ratio = Current assets Current liabilities
This suggests that Furniture Refinishers, Inc., generates $1.40 of revenue for
every dollar of assets.
(c) Net profit margin = Net income Sales (or Operating Revenue)
CASES AND PROJECTS
ANNUAL REPORT CASES
CP4–1. (dollars in thousands)
1. American Eagle accrued more rent that it paid for rent during the fiscal year ending
2. The quarter ended February 3, 2018, was its best quarter in terms of sales at
$1,228,723. This quarter covered the holiday shopping season, the biggest part of
3. Other (expense) income, net is an aggregate of many accounts, but a summary
4. As disclosed in Note 6, Accounts Receivable, net consists of the following:
February 3,
January 28,
(In thousands)
2018
2017
Franchise and license receivable
$
32,930
$
35,983
Merchandise sell-offs and vendor receivables
15,742
20,089
Credit card program receivable
11,869
Tax refunds
Landlord construction allowances
Gift card receivable
Other items
$
78,304
$
86,634
5. Total asset turnover ratio:
Fiscal
Year
Total Net
Revenue
Average
Total Assets*
=
Total Asset
Turnover
2017
$3,795,549
($1,816,313 + $1,782,660)/2
$1,799,487
=
2.11
Financial Accounting, 10/e 4-67
CP4–2 (dollars in thousands)
1. At the end of the most recent year, Prepaid minimum rent was $30,779. This
information is disclosed in the current assets section of the balance sheet.
4. Interest expense is the cost of borrowing funds. For Express, Inc., interest expense
is related to the company’s debt (a Revolving Credit Facility and Standby Letters of
Credit) discussed in Note 8.
8. Total asset turnover:
Fiscal
Year
Net
Sales
Average
Total Assets*
=
Total Asset
Turnover
2017
$2,138,030
($1,187,607 + $1,185,189)/2
$1,186,398
=
1.80
2016
$2,192,547
=
1.86
2015
$2,350,129
=
1.91
CP4–3. (dollars in thousands)
1. For fiscal year 2017, American Eagle Outfitters reported advertising expense of
2.
American Eagle Outfitters
Express, Inc.
Fiscal
Year
Advertising Expense /
Total Net Revenue
Advertising Expense /
Net Sales
2017
$129,800 / $3,795,549
3.42%
$112,800 / $2,138,030
5.28%
2016
$124,500 / $3,609,865
3.45%
$113,200 / $2,192,547
5.16%
2015
2.96%
4.70%
3. Both accounting policies are similar and indicate that advertising costs are expensed
when the marketing campaigns become publicly available. American Eagle Outfitters
4. Total Asset Turnover = Net Sales (or Operating Revenues) / Average Total Assets
Fiscal Year
American Eagle Outfitters
Express, Inc.
2017
$3,795,549 /
$1,799,486.5
= 2.11
$2,138,030 /
$1,186,398
= 1.80
$2,350,129 /
$1,228,397
suggesting more efficiency in asset utilization over its competitor.
CP4–3. (continued)
Financial Accounting, 10/e 4-69
b.
Industry
Average
American Eagle
Outfitters
Express,
Inc.
Total Asset Turnover Ratio =
(for fiscal year 2017)
1.93
2.11
1.80
American Eagle Outfitters has a higher Total Asset Turnover Ratio for fiscal year
2017 and Express, Inc., has a lower Total Asset Turnover ratio than the average
FINANCIAL REPORTING AND ANALYSIS CASES
CP4–4.
Account
Current
Year
Balance
Financial
Statement
Effect on
Cash Flows
1. Rent revenue
$510,000
Income statement
+ $500,000
2. Salary expense
73,000
Income statement
− 70,000
3. Maintenance supplies expense
Income statement
4. Rent receivable
5. Receivables from employees
6. Maintenance supplies
7. Unearned rent revenue
14,000
8. Salaries payable
(1)
Rent Revenue
(2)
Salary Expense
(3) Maintenance
Supplies Expense
500,000 (a)
(e) 70,000
Used 13,000
10,000 (b)
(f) 3,000
510,000
73,000
13,000
(4)
Rent Receivable
(5) Receivables
from Employees
(6) Maintenance
Supplies
(b) 10,000
(g) 2,000
(h) 7,000
13,000 used
10,000
Rent Revenue
(8)
14,000 (c)
6,000 Bal.
3,000 (f)
14,000
3,000
6,000 (d) to employees
70,000 (e) to employees
2,000 (g) to employees
Financial Accounting, 10/e 4-71
CP4–5.
Req. 1
Unadjusted
Trial Balance
Adjusted
Trial Balance
Post-Closing
Trial Balance
Account
Debit
Credit
Debit
Credit
Debit
Credit
Cash
25,000
25,000
25,000
Maintenance supplies
800
300
300
Service equipment
90,000
90,000
90,000
service equipment
Remaining assets
Note payable, 6%
Interest payable
Income taxes payable
13,020
13,020
Wages payable
400
400
Unearned revenue
Common stock
Additional paid-in capital
Retained earnings
Service revenue
Expenses
Totals
Accumulated depreciation,
Req. 2
(a) To record the amount of supplies used during the current year, $500, and to
reduce the supplies account to the amount remaining on hand at the end of the
current year.