Dec. 31 250
Accumulated Depreciation: Office Equip. 250
31 600
Prepaid Rent 600
31 3,000
Agency Fees Earned 3,000
31 370
Office Supplies 370
31 125
Unexpired Insurance Policies 125
31 45
Income Taxes Payable 700
(9)
Income Taxes Expense
Insurance Expense
To record interest expense accrued in December.
December.
Interest Expense
(8)
(7)
To record portion of insurance policies expired in
(6)
To record office supplies used in December.
Office Supply Expense
PROBLEM 5.6B
TOUCHTONE TALENT AGENCY
70 Minutes, Strong
December 31, Current Year
To record depreciation of office equipment in December.
(4)
To record revenue accrued at the end of
To record prepaid rent expired in December.
Fees Receivable
Rent Expense
(5)
December.
TOUCHTONE TALENT AGENCY
Depreciation Expense: Office Equipment
General Journal
(1)
(2)
31 2,500
Agency Fees Earned 2,500
31 1,360
Salaries Payable 1,360
To convert unearned revenue to earned revenue
Unearned Agency Fees
December.
(3)
in December.
To record salary expense accrued at the end of
Salaries Expense
a.
1.
$15,000 (office equipment per trial balance)/60 months = $250 per month.
(continued)
2.
3.
4.
5.
6.
7.
8.
9.
Salaries payable of $1,360 for salaries accrued at the end of December.
Unearned agency fees reduced by the $2,500 amount earned in December.
$1,800 initial prepayment/3 mo. = $600 rent expense incurred in December.
Fees receivable increased by the $3,000 of accrued revenue in December.
$3,900 total expense – $3,200 (per trial balance) = $700 accrued in December.
$6,000 (note payable per trial balance) x 9% x 1/12 = $45 int. expense per mo.
$750 initial prepayment/6 mo. = $125 ins. expense incurred in December.
$900 (supplies per trial balance) – $530 (at 12/31) = $370 used in December.
14,950$
38,300
600
250
530
15,000
12,250$
PROBLEM 5.6B
TOUCHTONE TALENT AGENCY (continued)
Unexpired insurance policies
Office supplies
TOUCHTONE TALENT AGENCY
December 31, Current Year
Adjusted Trial Balance
Fees receivable
a. (cont’d.)
Office equipment
Cash
Prepaid rent
Accumulated depreciation: office equipment
Interest payable
Capital stock
Accounts payable
Income taxes payable
Notes payable (Due 3/1/Next Year)
Unearned agency fees
Salaries payable
b.
52,000$
480$
1,500
10,800$
Add: Net income
Retained earnings (12/31/Current Year)
Less: Dividends
Agency fees earned
Income Statement
Telephone expense
PROBLEM 5.6B
TOUCHTONE TALENT AGENCY (continued)
Revenues:
TOUCHTONE TALENT AGENCY
For the Year Ended December 31, Current Year
Expenses:
Office supply expense
Retained earnings (1/1/Current Year)
TOUCHTONE TALENT AGENCY
For the Year Ended December 31, Current Year
Statement of Retained Earnings
3,000
6,700
1,300
Salaries expense
Insurance expense
Income before taxes
Net income
Depreciation expense: office equipment
Rent expense
Income taxes expense
Interest expense
b. (cont’d.)
Assets
14,950$
38,300
1,500$
6,000
3,900
5,500
1,360
18,305$
20,000$
19,075
39,075$
57,380$
Total liabilities and stockholders’ equity
Interest payable
Capital stock
Retained earnings
Stockholders’ Equity
Total liabilities
Total stockholders’ equity
Salaries payable
Unearned agency fees
Income taxes payable
Note payable (Due 3/1/Next Year)
Liabilities
PROBLEM 5.6B
TOUCHTONE TALENT AGENCY
Accounts payable
TOUCHTONE TALENT AGENCY (continued)
Fees receivable
Balance Sheet
Cash
December 31, Current Year
Unexpired insurance policies
Office supplies
Prepaid rent
Less: Accumulated depreciation: office equipment
Office equipment
Total assets
c.
Dec. 31 52,000
Income Summary 52,000
31 9,075
Retained Earnings 9,075
Retained Earnings
PROBLEM 5.6B
TOUCHTONE TALENT AGENCY
December 31, Current Year
(1)
General Journal
TOUCHTONE TALENT AGENCY (continued)
Agency Fees Earned
To close Agency Fees Earned.
(2)
Retained Earnings account ($52,000 -$42,925 =
Income Summary
(3)
To close all expense accounts.
To transfer net income earned in Current Yr. to the
$9,075).
(4)
Telephone Expense 480
Office Supply Expense 1,500
Depreciation Expense: Office Equipment 3,000
Rent Expense 6,700
Salaries Expense 26,000
Interest Expense 45
Income Taxes Expense 3,900
Income Summary
d.
14,950$
38,300
600
3,900
5,500
1,360
45
Capital stock
Retained earnings
e.
12,250$
Divided by monthly depreciation expense
Total months agency has been in operation
Salaries payable
Accumulated depr.: office equipment (12/31/Current Yr.)
Interest payable
Fees receivable
PROBLEM 5.6B
TOUCHTONE TALENT AGENCY (continued)
TOUCHTONE TALENT AGENCY
December 31, Current Year
After-Closing Trial Balance
Cash
Prepaid rent
Unearned agency payable
Income taxes payable
250
530
15,000
6,000
Note payable (Due 3/1/Next Year)
Accounts payable
Unexpired insurance policies
Office supplies
Office equipment
Accumulated depreciation: office equipment
f.
6,700$
1,200 (at $600/mo.)
5,500$
g.
1,300$
500
PROBLEM 5.6B
TOUCHTONE TALENT AGENCY (concluded)
Rent expense incurred in Current Year
Total rent expense incurred in January through October
Less: Total rent expense for November and December
through December (at $125 per month)
Less: Total insurance expense for September
Insurance expense incurred in Current Year
Monthly increase starting in November ($600-$550)
Monthly rent expense in January through October
50 Minutes, Strong
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Balance sheet accounts:
Cash 20,000 20,000 20,000
Unearned admission revenue
(YMCA) 1,000
(5)
500 500 500
Income taxes payable 4,740 (8) 4,200 8,940 8,940
Capital stock 40,000 40,000 40,000
Retained earnings 46,610 46,610 46,610
Dividends 15,000 15,000 15,000
Interest payable (4) 1,500 1,500 1,500
Concessions revenue receivable
(6)
2,250 2,250 2,250
Salaries payable (7) 1,700 1,700 1,700
Income statement accounts:
Admissions revenue 305,200 (5) 500 305,700 305,700
Concessions revenue 14,350 (6) 2,250 16,600 16,600
Salaries expense 68,500
(7)
1,700 70,200 70,200
Film rental expense 94,500
(1)
Utilities expense 9,500 9,500 9,500
Depreciation expense: building 4,900
(2)
700 5,600 5,600
Depreciation expense: fixtures
(3)
600 4,800 4,800
Interest expense 10,500
(4)
1,500 12,000 12,000
Trial Balance
Adjustments *
Adjusted Trial Balance
WORKSHEET
For the Month Ended August 31, Current Year
CAMPUS THEATER
Income Statement
Balance Sheet
PROBLEM 5.7B
CAMPUS THEATER
Prepaid film rental 31,200 (1) 15,200 16,000 16,000
Land 120,000 120,000 120,000
Building 168,000 168,000 168,000
Accum. Depreciation: building 14,000 (2) 700 14,700 14,700
Fixtures and equipment 36,000 36,000 36,000
Accumulated depreciation:
Notes payable 180,000 180,000 180,000
Accounts payable 4,400 4,400 4,400
15 Minutes, Medium
7.9%
c.
PROBLEM 5.8B
THE GAP, INC.
a.
$1.3 billion ÷ $16.4 billion =
Net income percentage: Net Income/Total Revenue
The company was profitable, given its net income of $1.3 billion. Its net income
percentage and its return on equity are both excellent, indicating that the company is
Beginning of year: $4.4 billion – $2.4 billion
Beginning of year: $4.4 billion ÷ $2.4 billion
End of year: $4.3 billion – $2.2 billion
Return on equity: Net Income/Average Stockholders’ Equity
$1.3 billion ÷ $3.05 billion*
Current ratio: Current Assets/Current Liabilities
End of year: $4.3 billion ÷ $2.2 billion
25 Minutes, Strong
a.
b.
c.
d.
e.
Normally, pending litigation should be disclosed in notes to the financial statements. But a
SOLUTIONS TO CRITICAL THINKING CASES
ADEQUATE DISCLOSURE
CASE 5.1
Mandella Construction Co. should disclose the accounting method that it is using in the
Generally accepted accounting principles do not require disclosure of changes in
The fact that one of the company’s two processing plants will be out of service for at least
No disclosure is required under generally accepted accounting principles, because any
Group assignment:
No time estimate
a.
•
b.
•
c.
An accountant has access to much information about a company’s business
affect a CPA’s objectivity.
During the interview (part b), the accountant probably described the ethical concept of
Accountants, like doctors, develop greater proficiency through specialization. By
Arguments for an accountant serving clients who are direct competitors include:
The principal argument against an accountant serving clients who are direct competitors is:
CASE 5.2
We do not provide comprehensive solutions for group problems. It is the nature of these problems
that solutions should reflect the collective experiences of the group. But the following observations
may be useful in stimulating class discussion:
WORKING FOR THE COMPETITION
ETHICS, FRAUD & CORPORATE GOVERNANCE
serving numerous clients in the same industry, accountants develop greater expertise in
industry problems and accounting practices.
In many cases, it is impractical to define “direct competitors.” Is a video rental business
a direct competitor of a movie theater? A television station? A miniature golf course?
5 Minutes, Easy
The purpose of the personal certification process is to make CEOs and CFOs more accountable
and personally responsible for the contents in the annual reports issued by their companies.
CASE 5.3
CEOs AND CFOs
CERTIFICATIONS BY
15 Minutes, Easy
CASE 5.4
Other Income/(Loss)
Share-Based Employee Compensation
ANNUAL REPORT DISCLOSURES
Listed below are the headings of the major disclosure items presented in Ford’s most recent financial statement footnotes.
Students are to discuss the general nature and content of the various topics. The advanced nature of some of these topics goes
beyond the scope of an introductory course.
Fair Value Measurements
Accumulated Other Comprehensive Income/(Loss)
Summary of Significant Accounting Policies
New Accounting Standards
INTERNET
Capital Stock and Earnings Per Share
Employee Separation Actions and Exit and Disposal Activities
Income Taxes
Redeemable Noncontrolling Interest
Variable Interest Entities
Retirement Benefits
Debt and Commitments
Equity in Net Assets of Affiliated Companies
Net Property and Lease Commitments
Other Liabilities and Deferred Revenue
Commitments and Contingencies
Selected Quarterly Financial Data
Segment Information
Geographic Information
Financial Services Sector Finance Receivables
Net Investment in Operating Leases
Financial Services Sector Allowance for Credit Losses
Changes in Investments in Affiliates