Additional Perspective 7-1 (in General Ledger)
Students will be given the following existing trial balance.
Great Adventures, Inc.
Trial Balance
December 31, 2022
Accounts
Debit
Credit
Cash
$ 83,270
Accounts Receivable
50,000
Allowance for Uncollectible Accounts
$ 2,400
Inventory
7,000
Equipment
Accumulated Depreciation
Interest Payable
Income Tax Payable
14,500
Notes Payable
30,000
Common Stock
20,000
Service Revenue
44,500
Sales Revenue
100,000
Interest Revenue
120
Sales Discounts
350
Depreciation Expense
Insurance Expense
Rent Expense
Salaries Expense
Repairs and Maintenance Expense
Interest Expense
1,800
Income Tax Expense
$290,520
$290,520
7-54 Financial Accounting, 5e
Additional Perspective 7-1 (in General Ledger, continued)
Jul. 1, 2022
Credit
Equipment
Prepaid Insurance
Oct. 22, 2022
Repairs and Maintenance Expense
Cash
Dec. 31, 2022
Depreciation Expense
Accumulated Depreciation
1,250
(Depreciate vehicle)
[$1,250 = ($17,000−$4,500)/5 × 6/12]
Insurance Expense
Prepaid Insurance
(Expiration of prepaid insurance)
Additional Perspective 7-1 (in General Ledger, continued)
Great Adventures, Inc.
Income Statement
For the period ended December 31, 2022
Service revenue
$ 44,500
Sales revenue
100,000
Sales discounts
Cost of goods sold
Depreciation Expense
17,250
Insurance Expense
Rent Expense
Salaries Expense
24,000
Supplies Expense
500
Bad Debt Expense
2,400
Repairs and Maintenance Expense
400
Total operating expenses
52,650
Operating income (loss)
53,000
Interest revenue
Interest expense
Income tax expense
14,500
7-56 Financial Accounting, 5e
Additional Perspective 7-1 (in General Ledger, continued)
Great Adventures, Inc.
Balance Sheet
December 31, 2022
Assets
Liabilities
Current assets:
Current liabilities:
Cash
$ 64,070
Accounts payable
$ 20,800
Accounts receivable
50,000
Interest payable
750
Allow for Uncoll Accts
Income tax payable
Inventory
Prepaid Insurance
Total current assets
Long-term assets:
Equipment
62,000
Stockholders’ Equity
Accumulated depreciation
(25,250)
Common stock
20,000
Retained earnings
70,270
Total assets
Additional Perspective 7-1 (in General Ledger, concluded)
Dec. 31, 2022
Debit
Credit
Service Revenue
44,500
Sales Revenue
100,000
Interest Revenue
(Close revenue accounts)
Dec. 31, 2022
Retained Earnings
107,450
Cost of Goods Sold
38,500
Supplies Expense
Financial Analysis: American Eagle
AP7-2
($ in thousands)
Requirement 1
The straight-line method is used. The estimated useful lives are as follows:
Requirement 2
The cost of property and equipment is $2,023,875 and the book value is $724,239.
Requirement 3
Financial Analysis: The Buckle
AP7-3
($ in thousands)
Requirement 1
Requirement 2
Requirement 3
7-60 Financial Accounting, 5e
Comparative Analysis: American Eagle vs. The Buckle
AP7-4
Requirement 1
American Eagle ($ in thousands)
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$204,163
÷
($1,816,313 + 1,782,660)/2
=
11.3%
Net
Profit
÷
Asset
1,782,660)/2
Requirement 2
Buckle ($ in thousands)
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$89,707
÷
($538,116 + $579,847)/2
=
16.0%
$89,707
÷
=
=
Turnover
=
Requirement 3
Buckle has a higher return on assets and profit margin. American Eagle has a higher
asset turnover.
Ethics
AP7-5
1. Yes.
Depreciation is affected by management’s choice of depreciation method (such as
2.
(a) Straight-line.
A company could increase earnings by changing from double-declining-balance to
straight-line in the early years of an asset’s life. Double-declining-balance
3. Yes.
Many amounts reported in financial statements are based on estimates by
4. No.
Even though Wall Street analysts place extensive pressure on companies to meet
7-62 Financial Accounting, 5e
Internet Research
AP7-6
This case provides an opportunity for students to learn how to locate annual reports
Written Communication
AP7-7
The dictionary definition of depreciation is a decrease in value of an asset. The
accounting concept of depreciation is different. Depreciation in accounting is the
Earnings Management
AP7-8
Requirement 1
Requirement 2
Option 1:
Depreciation expense = ($4,200,000 − $600,000) / 6 years = $600,000. The higher
amount of depreciation expense would lower net income in the current year.
Requirement 3