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Suggested SolutionChapter 11. Effect on the accounting equation(1)(2)(3)(4)(5)(6)(a) Increase in one asset, decrease in another asset.(b) Increase in an asset, increase in a liability.(c) Increase in an asset, increase in capital.(d) Decrease in an asset, decrease in a liability.(e) Decrease in an asset, decrease in capital.2. TransactionsAssets+/-Liabilities+/-Owners equity+/-1+2+3-4+5+6-7-8+/-9-10-3. Describe each transaction based on the summary above.Transactions1Purchased land for cash, $6,000.2Investment for cash, $3,200.3Paid expense $1,200.4Purchased supplies on account, $800.5Paid owners personal use, $750.6Paid creditor, $1,5007Supplies used during the period, $630.4.AssetsLiabilitiesEquity Beginning275,00080,000195,000 Add. investment48,000 Add. Net income27,000 Less withdrawals-35,000Ending320,00085,000235,0005.(a)March 31, 20XXApril 30, 20XXAssets Cash 4,5005,400 Accounts receivable2,5604,100Supplies840450 Total assets7,9009,950Liabilities Accounts payable430690Equity Tina Pierce, Capital7,4709,260(b) net income = 9,260-7,470=1,790(c) net income = 1,790+2,500=4,290Chapter 21.a. To increase Notes Payable -CRb. To decrease Accounts Receivable-CRc. To increase Owner, Capital -CRd. To decrease Unearned Fees -DRe. To decrease Prepaid Insurance -CRf. To decrease Cash - CRg. To increase Utilities Expense -DRh. To increase Fees Earned -CRi. To increase Store Equipment -DRj. To increase Owner, Withdrawal -DR2.a.Cash1,800 Accounts payable1,800b.Revenue4,500 Accounts receivable 4,500c.Owners withdrawals1,500 Salaries Expense1,500d.Accounts Receivable750 Revenue 7503. Prepare adjusting journal entries at December 31, the end of the year.Advertising expense600 Prepaid advertising 600Insurance expense (2160/12*2)360 Prepaid insurance360Unearned revenue2,100 Service revenue2,100Consultant expense900 Prepaid consultant900Unearned revenue3,000 Service revenue3,0004. 1. $388,4002. $22,5203. $366,6004. $21,8005. 1.net loss for the year ended June 30, 2002: $60,0002.DR Jon Nissen, Capital 60,000 CR income summary 60,0003.post-closing balance in Jon Nissen, Capital at June 30, 2002: $54,000Chapter 31. Dundee Realty bank reconciliationOctober 31, 2009Reconciled balance $6,220Reconciled balance $6,2202. April 7Dr: Notes receivableA company5400Cr: Accounts receivableA company5400 12Dr: Cash5394.5Interest expense5.5Cr: Notes receivable5400June 6Dr: Accounts receivableA company5533Cr: Cash553318Dr: Cash5560.7Cr: Accounts receivableA company5533Interest revenue27.73. (a) As a whole: the ending inventory=685(b) applied separately to each product: the ending inventory=6254. The cost of goods available for sale=ending inventory + the cost of goods=80,000+200,000*500%=80,000+1,000,000=1,080,0005.(1) 24,000+60,000-90,000*0.8=12000(2) (60,000+24,000)/( 85,000+31,000)*( 85,000+31,000-90,000)=18828Chapter 41. (a) second-year depreciation = (114,000 5,700) / 5 = 21,660; (b) second-year depreciation = 8,600 * (114,000 5,700) / 36,100 = 25,800; (c) first-year depreciation = 114,000 * 40% = 45,600 second-year depreciation = (114,000 45,600) * 40% = 27,360; (d) second-year depreciation = (114,000 5,700) * 4/15 = 28,880.2. (a) weighted-average accumulated expenditures (2008) = 75,000 * 12/12 + 84,000 * 9/12 + 180,000 * 8/12 + 300,000 * 7/12 + 100,000 * 6/12 = 483,000 (b) interest capitalized during 2008 = 60,000 * 12% + ( 483,000 60,000) * 10% =49,5003. (1) depreciation expense = 30,000 (2) book value = 600,000 30,000 * 2=540,000 (3) depreciation expense = ( 600,000 30,000 * 8)/16 =22,500 (4) book value = 600,000 30,000 * 8 22,500 = 337,5004. Situation 1: Jan 1st, 2008 Investment in M 260,000 Cash 260,000 June 30 Cash 6000 Dividend revenue 6000Situation 2:January 1, 2008 Investment in S 81,000 Cash 81,000June 15 Cash 10,800 Investment in S 10,800December 31 Investment in S 25,500 Investment Revenue 25,5005. a. December 31, 2008 Investment in K 1,200,000 Cash 1,200,000 June 30, 2009 Dividend Receivable 42,500 Dividend Revenue 42,500 December 31, 2009 Cash 42,500 Dividend Receivable 42,500 b. December 31, 2008 Investment in K 1,200,000 Cash 1,200,000 December 31, 2009 Cash 42,500 Investment in K 42,500 Investment in K 146,000 Investment revenue 146,000c. In a, the investment amount is 1,200,000 net income reposed is 42,500 In b, the investment amount is 1,303,500 Net income reposed is 146,000Chapter 51. a. June 1: Dr: Inventory 198,000 Cr: Accounts Payable 198,000June 11: Dr: Accounts Payable 198,000 Cr: Notes Payable 198,000June 12: Dr: Cash 300,000 Cr: Notes Payable 300,000b. Dr: Interest Expenses (for notes on June 11) 12,100 Cr: Interest Payable 12,100Dr: Interest Expenses (for notes on June 12) 8,175 Cr: Interest Payable 8,175c. Balance sheet presentation:Notes Payable 498,000Accrued Interest on Notes Payable 20,275d. For Green:Dr: Notes Payable 198,000Interest Payable 12,100Interest Expense 7,700 Cr: Cash 217,800For Western:Dr: Notes Payable 300,000Interest Payable 8,175Interest Expense 18,825 Cr: Cash 327,0002. (1) 208 Deferred income tax is a liability 2,400 Income tax payable 21,600 209 Deferred income tax is an asset 600 Income tax payable 26,100(2) 208: Dr: Tax expense 24,000 Cr: Income tax payable 21,600 Deferred income tax 2,400209: Dr: Tax expense 25,500 Deferred income tax 600 Cr: Income tax payable 26,100(3) 208: Income statement: tax expense 24,000 Balance sheet: income tax payable 21,600209: Income statement: tax expense 25,500 Balance sheet: income tax payable 26,1003. a. 1,560,000 (20000000*12 %* (1-35%)b. 7.8% (20000000*12 %* (1-35%)/20000000)4.maturity valuenumber of interest periodsstated rate per interest-periodeffective interest rate per interest-periodpayment amount per periodpresent value of bonds at date of issue1$10403.75%3%$0.375$11.732201010%12%217.74325100%12%08.055. Notes Payable 14,400Interest Payable 1,296Accounts Payable 60,000+Unearned Rent Revenue 7,200Current Liabilities 82,896Chapter 61. Mar. 1 Cash 1,200,000 Common Stock 1,000,000 Paid-in Capital in Excess of Par Value 200,000Mar. 15 Organization Expense 50,000 Common Stock 50,000 Mar. 23 Patent 120,000 Common Stock 100,000 Paid-in Capital in Excess of Par Value 20,000The value of the patent is not easily determinable, so use the issue price of $12 per share on March 1 which is the issuing price of common stock.2. July.1 Treasury Stock 180,000 Cash 180,000The cost of treasury purchased is 180,000/30,000=60 per share.Nov. 1 Cash 70,000 Treasury Stock 60,000 Paid-in Capital from Treasury Stock 10,000Sell the treasury at the cost of $60 per share, and selling price is $70 per share. The treasury stock is sold above the cost.Dec. 20 Cash 75,000 Paid-in Capital from Treasury Stock 15,000 Treasury Stock 90,000The cost of treasury is $60 per share while the selling price is $50 which is lower than the cost.3. a. July 1Retained Earnings 24,000 Dividends PayablePreferred Stock 24,000 Dividends PayablePreferred Stock 24,000 Cash 24,000c. Dec.1 Retained Earnings 80,000 Dividends PayableCommon Stock 80,000d. Dec.31 Income Summary 350,000 Retained Earnings 350,000 4. a. Preferred stock gives its owner certain advantages over common stockholders. These benefits include the right to receive dividends before the common stockholders and the right to receive assets before the common stockholders if the corporation liquidates. Corporation pay a fixed amount of dividends on preferred stock.The 7% cumulative term indicates that the investors earn 7% fixed dividends.b. 7%*120%*20,000=504,000c. If corporation issued debt, it has obligation to repay principald. The date of declaration decrease the stockholders equity; the date of record and the date of payment have no effect on stockholders.5.a. Jan. 15Retained Earnings 35,000 Accumulated Depreciation 35,000To correct error in prior years depreciation.b. Mar. 20Loss from Earthquake 70,000 Building 70,000c. Mar. 31Retained Earnings 12,500 Dividends Payable 12,500d. Apirl.15Dividends Payable 12,500 Cash 12,500e. June 30Retained Earnings 37,500 Common Stock 25,000 Additional Paid-in Capital 12,500 To record issuance of 10% stock dividend: 10%*25,000=2,500 shares; 2500*$15=$37,500f. Dec. 31 Depreciation Expense 14,000Accumulated Depreciation 14,000 Original depreciation: $40,000/40=$10,000 per year. Book value on Jan.1, 2009 is $350,000(=$400,000-5*$10,000). Deprecation for 2009 is $14,000(=$350,000/25).g. The company does not need to make entry in the accounting records. But the amount of Common Stock ($10 par value) decreases 275,000, while the amount of Common Stock ($5 par value) increases 275,000.Chapter 71.Requirement 1If revenue is recognized at the date of delivery, the following journal entries would be used to record the transactions for the two years:Year 1Inventory480,000Cash/Accounts payable480,000To record purchase of inventoryInventory124,000Cash/Accounts payable124,000To record refurbishment of inventoryAccounts receivable310,000Sales revenue310,000To record sale of goods on accountCost of goods sold220,000Inventory220,000To record the cost of the goods sold as an expenseSales returns (I/S)15,500*Allowance for sales returns (B/S)15,500To record provision for return of goods sold under 30-day return period* 5% of $310,000Warranty expense31,000*Provision for warranties (B/S)31,000To record provision, at time of sale, for warranty expenditures* 10% of $310,000Allowance for sales returns12,400Accounts receivable12,400To record return of goods within 30-day return period. It is assumed the returned goods have no value and are disposed of.Provision for warranties (B/S)18,600Cash/Accounts payable18,600To record expenditures in year 1 for warranty workCash297,600*Accounts receivable297,600To record collection of Accounts Receivable* $310,000 $12,400Year 2Provision for warranties (B/S)8,400Cash/Accounts payable8,400To record expenditures in year 2 for warranty workRequirement 2If revenue is recognized only when the warranty period has expired, the following journal entries would be used to record the transactions for the two years:Year 1Inventory480,000Cash/Accounts payable480,000To record purchase of inventoryInventory124,000Cash/Accounts payable124,000To record refurbishment of inventoryAccounts receivable310,000Inventory220,000Deferred gross margin90,000To record sale of goods on accountDeferred gross margin12,400Accounts receivable12,400To record return of goods within the 30-day return period. It is assumed the goods have no value and are disposed of.Deferred warranty costs (B/S)18,600Cash/Accounts payable18,600To record expenditures for warranty work in year 1. The warranty costs incurred are deferred because the related revenue has not yet been recognizedCash297,600*Accounts receivable297,600To record collection of Accounts receivable* $310,000 $12,400Year 2Deferred warranty costs8,400Cash/Accounts payable8,400To record warranty costs incurred in year 2 related to year 1 sales. The warranty costs incurred are deferred because the related revenue has not yet been recognized.Deferred gross margin*77,600Cost of goods sold220,000Sales revenue297,600*To record recognition of sales revenue from year 1 sales and related cost of goods sold at expiry of warranty period* $310,000 $12,400* ($90,000 $12,400)Warranty expense27,000*Deferred warranty costs27,000To record recognition of warranty expense at same time as related sales revenue recognition* $18,600 + $8,400Requirement 3Allied Auto Parts Inc. might choose to recognize revenue only after the warranty period has expired if they are not able to make a good estimate, at the time of sale, of the amount of warranty work that will be required under the terms of the one-year warranty. If Allied is not able, at the time of sale, to make a good estimate of the warranty work that will be required, then the measurability criterion of revenue recognition is not met at the time of sale. The measurability criterion means that the amount of revenue can be reliably measured. If the seller is not able to estimate the amount of work that will have to be done under the warranty agreement, then it is not able to reasonably measure the profit that it will eventually earn on the sales. The performance criteria might also be invoked here. The performance criterion means that the seller has transferred the significant risks and rewards of ownership to the buyer. As long as there is warranty work to be performed after the sale that is the responsibility of the seller, you might argue that performance is not substantially complete. However, if the seller was able to reliably estimate the amount of warranty work, then performance would be satisfied on the assumption that we could measure the risk that remains with the seller, and make a provision for it.2. Percentage-of-completion method:The first step in applying revenue recognition using the percentage-of-completion method (using costs incurred to date compared to estimated total costs to determine the percentage of completion) is to estimate the percentage of completion of the project at the end of each year. This is done in the following table (in $000s):End of 2005End of 2006End of 2007Total costs incurred$5,400$12,950$18,800Total estimated costs18,00018,50018,800% completed 30%70%100%Once the percentage of completion at the end of each year has been calculated as above, the next step is to allocate the appropriate amount of revenue to each year, based on the percentage completed to date, less what has previously been recorded in revenue. This is done in the following table (in $000s):2005200620072005 $20,000 30%$6,0002006 $20,000 70%$14,0002007 $20,000 100%$20,000Less: Revenue recognized in prior years(0)(6,000)(14,000)Revenue for year$6,000$8,000$6,000Therefore, the profit to be recognized each year on the construction project would be:200520062007TotalRevenue recognized$6,000$8,000$6,000$20,000Construction costs incurred (expenses)(5,400)(7,550)(5,850)(18,800)Gross profit for the year$600$450$150$1,200The following journal entries are used to record the transactions under the percentage-of-completion method of revenue recognition:2005200620071.Costs of construction:Construction in progress5,4007,5505,850Cash, payables, etc.5,4007,5505,8502.Progress billings:Accounts receivable3,1004,90012,000Progress billings3,1004,90012,0003.Collections on billings:Cash2,4004,00012,400Accounts receivable2,4004,00012,4004.Recognition of profit:Construction in progress600450150Construction expense5,4007,5505,850Revenue from long-termcontract6,0008,0006,0005.To close construction in progress:Progress billings20,000Construction in progress 20,000200520062007Balance sheetCurrent assets:Accounts receivable$700$1,600$1,200Inventory:Construction in process6,00014,000Less: Progress billings(3,100)(8,000)Costs in excess of billings2,9006,000Income statementRevenue from long-term contracts$6,000$8,000$6,000Construction expense(5,400)(7,550)(5,850)Gro
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