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(a), (c) & (e)
Cash
11/1 Bal. 9,000
11/10 1,900
11/8 3,550
11/20 7,546
Accounts Receivable
11/1 Bal. 2,240
11/12 5,500
11/10 1,900
11/19 5,500
Inventory
11/11 8,000
11/12 4,000
11/15 300
11/20 154
11/30 3,546
Accumulated Depreciation—
Equipment
Accounts Payable
11/15 300
11/20 7,700
11/1 Bal. 3,400
11/11 8,000
Unearned
Service Revenue
adj 4,025
11/1 Bal. 4,000
Salaries and Wages Payable
11/8 1,700
11/1 Bal. 1,700
adj 500
11/30 Bal. 500
ACR5-2 (Continued)
Service Revenue
11/22 2,300
11/29 700
Depreciation Expense
adj 250
Close 250
11/30 Bal. 0
11/30 Bal. 0
Income Summary
11/30 9,345
11/30 12,525
Salaries and Wages Expense
11/8 1,850
11/29 1,300
Rent Expense
11/29 375
Close 375
11/30 Bal. 0
Sales Revenue
Cost of Goods Sold
11/12 4,000
Close 4,000
11/30 Bal. 0
ACR 5-2 (Continued)
(d) IKONK, INC.
Adjusted Trial Balance
November 30, 2017
DR.
CR.
Cash ................................................................
$3,494
Accounts Receivable .........................................
1,040
Retained Earnings .............................................
7,000
Service Revenue ................................................
7,025
Sales Revenue ....................................................
5,500
Sales Discounts .................................................
110
Cost of Goods Sold ...........................................
4,000
ACR5-2 (Continued)
(f) IKONK, INC.
Income Statement
For the Month Ended November 30, 2017
Sales
Sales revenue .................................................. ($5,500
Less Sales discounts ...................................... 110
Net sales .............................................. $5,390
Service revenue ............................................... 7,025
Total revenues ........................................ 12,415
IKONK, INC.
Retained Earnings Statement
For the Month Ended November 30, 2017
Retained earnings, November 1 ............................. $7,000
ACR5-2 (Continued)
IKONK, INC.
Balance Sheet
November 30, 2017
Assets
Current assets
Cash ................................................................ $ 3,494
Accounts receivable ...................................... 1,040
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable .............................................. $ 7,100
Salaries and wages payable .............................. 500
CT 5-1 FINANCIAL REPORTING PROBLEM
(a) Percentage change in total revenue:
2013 to 2014 ($182,795 – $170,910) ÷ $170,910 = 7.0%
(b) Profit margin:
2012 $41,733 ÷ $156,508 = 26.7%
(c) Gross profit rates:
2012 $68,662 ÷ $156,508 = 43.9%
2013 $64,304 ÷ $170,910 = 37.6%
CT 5-2 COMPARATIVE ANALYSIS PROBLEM
(a)
Columbia Sportswear
VFC
(1)
Profit margin
$141,859
$2,100,590
= 6.8.%
$1,047,505
$12,282,161
= 8.5%
(4)
Operating income
(000’s)
$198,844
$1,437,724
(b) VFC’s higher profit margin suggests that it was better at turning sales
dollars into net income. Its gross profit rate suggests that VFC can
command a higher markup on its goods or that it is better at
CT 5-3 COMPARATIVE ANALYSIS PROBLEM
(a)
Amazon.com
Wal-Mart stores
(1)
Profit margin
($241)
$88,988
= (0.3%)
$16, 363 3.4%
$485, 651
=
(4)
Operating income
(000’s)
$178
$27,147
(b) Wal-Mart’s higher profit margin suggests that it was better at turning
sales dollars into net income. Amazon’s gross profit rate suggests that
CT 5-4 INTERPRETING FINANCIAL STATEMENTS
(a)
Carrefour
(Euros)
Wal-Mart
(Dollars)
(b)
Profit margin
€1,738 ÷ €70,486 = 2.5%
$9,054 ÷ $256,329 = 3.5%
(c)
Current ratio
€14,521 ÷ €13,660 = 1.06:1
$34,421 ÷ $37,418 = .92:1
CT 5-4 (Continued)
(d) Ratios improve our ability to compare these two companies that report
financial information using different currencies. However, other factors
can still reduce our ability to compare them. Different accounting stan-
CT 5-5 REAL-WORLD FOCUS
Answers will vary depending on the company and article chosen by the
CT 5-6 DECISION MAKING ACROSS THE ORGANIZATION
(a) (1) GIGASALES DEPARTMENT STORE
Projected Income Statement
For the Year Ended December 31, 2018
Net sales [$700,000 + ($700,000 X 4%)] .... $728,000
Cost of goods sold ($728,000 X 75%)* ...... 546,000
Gross profit ($728,000 X 25%)** ................ 182,000
(2) GIGASALES DEPARTMENT STORE
Projected Income Statement
For the Year Ended December 31, 2018
Net sales ...................................................... $700,000
(b) Karen’s proposed changes will increase net income by $42,000. Reece’s
proposed changes will reduce operating expenses by $32,000 and result
in a corresponding increase in net income. Thus, if the choice is between
CT 5-6 (Continued)
(c) GIGASALES DEPARTMENT STORE
Projected Income Statement
For the Year Ended December 31, 2018
Net sales .............................................................. $728,000
Cost of goods sold ............................................. 546,000
Gross profit ......................................................... 182,000
Operating expenses
(d) A variety of factors might be presented by the student. For example,
increasing the quantity of inventory purchased will increase warehousing
and other costs of inventory. It will also increase the risk of holding
CT 5-7 COMMUNICATION ACTIVITY
(a), (b)
President
Surfing Hawaii Co.
Dear Sir:
As you know, the financial statements for Surfing Hawaii Co. are prepared
in accordance with generally accepted accounting principles. One of these
principles is the revenue recognition principle, which provides that revenues
should be recognized when the performance obligation is satisfied.
The circumstances pertaining to this sale may seem to you to be atypical
because Aiken has ordered a specific kind of surfboard. From an accounting
standpoint, this would be true only if you could not reasonably expect to sell
this surfboard to another customer. In such case, it would be proper under
generally accepted accounting principles to recognize sales revenue when
you have completed the surfboard for Aiken.
CT 5-8 ETHICS CASE
(a) Tabitha Andes, as a new employee, is placed in a position of respon-
sibility and is pressured by her supervisor to continue an unethical
practice previously performed by him. The unethical practice is taking
(b) The stakeholders (affected parties) are:
Tabitha Andes, the assistant treasurer.
Pete Wilson, the treasurer.
Southside Stores, the company.
Creditors of Southside Stores (suppliers).
Mail room employees (those assigned the blame).
(c) Tabitha’s alternatives:
1. Tell the treasurer (her boss) that she will attempt to take every
allowable cash discount by preparing and mailing checks within
the discount period—the ethical thing to do. This will offend her
boss and may jeopardize her continued employment.
3. Go over her boss’s head and take the chance of receiving just and
reasonable treatment from an officer superior to Pete. The
company may not condone this practice. Tabitha definitely has a
choice, but probably not without consequence. To continue the
CT 5-9 ALL ABOUT YOU ACTIVITY
In order for revenue to be recognized the performance obligation must be
CT 5-10 FASB CODIFICATION ACTIVITY
(a) 1. Inventory is the aggregate of those items of tangible personal
property that have any of the following characteristics:
a. Held for sale in the ordinary course of business
b. In process of production for such sale
c. To be currently consumed in the production of goods or services
to be available for sale.
The term inventory embraces goods awaiting sale (the merchandise
of a trading concern and the finished goods of a manufacturer),
goods in the course of production (work in process), and goods to
be consumed directly or indirectly in production (raw materials and
supplies). This definition of inventories excludes long-term assets
subject to depreciation accounting, or goods which, when put into
use, will be so classified. The fact that a depreciable asset is retired
2. A customer is a reseller or a consumer, either an individual or a
business that purchases a vendor’s products or services for end use
rather than for resale. This definition is consistent with paragraph
280-10-50-42, which states that a group of entities known to a report-
ing entity to be under common control shall be considered as a
single customer, and the federal government, a state government, a
CT 5-10 (Continued)
(b) 330-10-35-15 Only in exceptional cases may inventories properly be
stated above cost. For example, precious metals having a fixed
IFRS CONCEPTS AND APPLICATION
IFRS5-1
Expenses may be classified by “nature” or by “function”. The “nature-of-
expense” classification organizes expenses by type of expense, such as
salaries, depreciation, rent, or supplies. The “function-of-expense” classifica-
tion presents expenses by type of business activity. Examples would include
cost of goods sold, selling, administrative, operating, and non-operating.
LO 4 BT: K Difficulty: Easy TOT: 5 min. AACSB: Diversity AICPA FC: Measurement
IFRS5-2
By function
Cost of goods sold
By nature
Depreciation expense
IFRS5-3
MATILDA COMPANY
Comprehensive Income Statement
For the Year Ended 2017
(in thousands of euros)
Net income ................................................................................ €150
IFRS5-4 INTERNATIONAL FINANCIAL REPORTING PROBLEM
(a) Vuitton uses a multiple step format. The income statement isolates
gross margin, profit from recurring operations and operating profit
(b) Vuitton uses Cost of Net Financial Debt rather than Interest Expense on
its income statement.
(c) Inventory is composed of:
Wines and eaux-de-vie in process of aging
