Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
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
Service Revenue
44,500
Sales Revenue
100,000
Interest Revenue
120
Sales Discounts
350
7-54 Financial Accounting, 5e
Additional Perspective 7-1 (in General Ledger, continued)
Jul. 1, 2022
Debit
Credit
Equipment
17,000
Dec. 31, 2022
Depreciation Expense
1,250
Accumulated Depreciation
1,250
(Depreciate vehicle)
[$1,250 = ($17,000−$4,500)/5 × 6/12]
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
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
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
Long-term assets:
Equipment
62,000
Stockholders’ Equity
Accumulated depreciation
(25,250)
Common stock
20,000
Additional Perspective 7-1 (in General Ledger, concluded)
Dec. 31, 2022
Debit
Credit
Service Revenue
44,500
Sales Revenue
100,000
(Close revenue accounts)
Dec. 31, 2022
Retained Earnings
107,450
Cost of Goods Sold
38,500
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
÷
($1,816,313 + 1,782,660)/2
=
11.3%
1,782,660)/2
Requirement 2
Buckle ($ in thousands)
Net
Income
÷
Average
Total Assets
=
Return
on Assets
$89,707
÷
($538,116 + $579,847)/2
=
16.0%
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
