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Suggested SolutionChapter 11.Effect on the accounting equation(1)(2)(3)(4)(5)(6)(a) Increase in one asset, decrease inanother 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 aliability.(e) Decrease in an asset, decrease in capital.2.TransactionsAssetsLiabilitiesOwner sequity+/-+/-+/-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 owner spersonal use, $750.6Paid creditor, $1,5007Supplies used during the period, $630.4.BeginningAssets275,000Liabilities80,000Equity195,000Add. investment48,000Add. Net income27,000Less withdrawals-35,000Ending320,00085,000235,0005.(a)March 31, 20XXApril 30, 20XXAssetsCash4,5005,400Accounts receivable2,5604,100Supplies840450Total assets7,9009,950LiabilitiesAccounts payable430690EquityTina 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.Cash1,800Accounts payable .1,800b.Revenue .4,500Accounts receivable.4,500c.Owner swithdrawals .1,500Salaries Expense .1,500d.Accounts Receivable750Revenue7503.Prepare adjusting journal entries at December 31, the end of the year.Advertising expense600Prepaid advertising600Insurance expense (2160/12*2)360Prepaid insurance360Unearned revenue2,100Service revenue2,100Consultant expense900Prepaid consultant900Unearned revenue3,000Service 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, Capital60,000CR income summary60,0003. 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 receivable A company5400Cr: Accounts receivable A company540012Dr: Cash5394.5Interest expense5.5Cr: Notes receivable5400June 6Dr: Accounts receivable A company5533Cr: Cash553318Dr: Cash5560.7Cr: Accounts receivable A 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 = (114,0005,700) / 5 = 21,660;(b) second-year depreciation = 8,600 * (114,0005,700) / 36,100 = 25,800;(c) first-year depreciation = 114,000 * 40% = 45,600second-year depreciation = (114,00045,600) * 40% = 27,360;(d) second-year depreciation = (114,0005,700) * 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 capitalizedduring 2008= 60,000*12%+( 483,000 60,000) * 10%=49,5003. (1) depreciation expense = 30,000(2) book value = 600,00030,000 * 2=540,000(3) depreciation expense = ( 600,00030,000 * 8)/16 =22,500(4) book value = 600,00030,000 * 822,500 = 337,5004. Situation 1:Jan 1 st , 2008Investment in M260,000Cash260,000June 30Cash6000Dividend revenue6000Situation 2:January 1, 2008Investment in S81,000Cash81,000June 15Cash10,800Investment in S10,800December 31Investment in S25,500Investment Revenue25,5005. a. December 31, 2008Investment in K1,200,000Cash1,200,000June 30, 2009Dividend Receivable42,500Dividend Revenue42,500December 31, 2009Cash42,500Dividend Receivable42,500b. December 31, 2008Investment in K1,200,000Cash1,200,000December 31, 2009Cash42,500Investment in K42,500Investment in K146,000Investment revenue146,000c. In a, the investment amount is 1,200,000net income reposed is 42,500In b, the investment amount is 1,303,500Net income reposed is 146,000Chapter 51.a. June 1: Dr: Inventory198,000Cr: Accounts Payable198,000June 11: Dr: Accounts Payable198,000Cr: Notes Payable198,000June 12: Dr: Cash300,000Cr: Notes Payable300,000b. Dr: Interest Expenses (for notes on June 11)12,100Cr: Interest Payable12,100Dr: Interest Expenses (for notes on June 12)8,175Cr: Interest Payable8,175c. Balance sheet presentation:Notes Payable498,000Accrued Interest on Notes Payable20,275d. For Green:Dr: Notes Payable198,000Interest Payable12,100Interest Expense7,700Cr: Cash217,800For Western:Dr: Notes Payable300,000Interest Payable8,175Interest Expense18,825Cr: Cash327,0002.(1) 208 Deferred income tax is a liability2,400Income tax payable21,600209 Deferred income tax is an asset600Income tax payable26,100(2) 208: Dr: Tax expense24,000Cr: Income tax payable21,600Deferred income tax2,400209: Dr: Tax expense25,500Deferred income tax600Cr: Income tax payable26,100(3) 208: Income statement: tax expense24,000Balance sheet: income tax payable21,600209: Income statement: tax expense25,500Balance sheet: income tax payable26,1003.a. 1,560,000 (20000000*12 %* (1-35%)b. 7.8% (20000000*12 %* (1-35%)/20000000)4.maturitynumberstated rate pereffective interestpaymentpresentvalueofinterest-periodrateperamountvalueofinterestinterest-periodper periodbondsatperiodsdateofissue1$10403.75%3%$0.375$11.732201010%12%217.74325100%12%08.055.Notes Payable14,400Interest Payable1,296Accounts Payable60,000+Unearned Rent Revenue7,200Current Liabilities82,896Chapter 61. Mar. 1Cash1,200,000Common Stock1,000,000Paid-in Capital in Excess of Par Value200,000Mar. 15Organization Expense50,000Common Stock50,000Mar. 23Patent120,000Common Stock100,000Paid-in Capital in Excess of Par Value20,000The 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.1Treasury Stock180,000Cash180,000Cash70,000Treasury Stock60,000Paid-in Capital from Treasury Stock10,000Sell the treasury at the cost of $60 per share, and selling price is $70 per share. Thetreasury stock is sold above the cost.Dec. 20Cash75,000Paid-in Capital from Treasury Stock15,000Treasury Stock90,000The cost of treasury is $60 per share while the selling price is $50 which is lower than the cost.3. a. July 1Retained Earnings24,000Dividends Payable Preferred Stock24,000b.Sept.1Dividends Payable Preferred Stock24,000Cash24,000c. Dec.1Retained Earnings80,000Dividends Payable Common Stock80,000d. Dec.31Income Summary350,000Retained Earnings350,0004.a. Preferred stock gives its owner certain advantages over common stockholders. These benefits include the right to receive dividends before the common stockholders and therightto receiveassetsbeforethe commonstockholdersif the corporationliquidates.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 stockholdersequity; the date of record and thedate of payment have no effect on stockholders.5.a. Jan. 15Retained Earnings35,000Accumulated Depreciation35,000To correct error in prior year s depreciation.b. Mar. 20Loss from Earthquake70,000Building70,000c. Mar. 31Retained Earnings12,500Dividends Payable12,500d. Apirl.15Dividends Payable12,500Cash12,500e. June 30Retained Earnings37,500Common Stock25,000Additional Paid-in Capital12,500To record issuance of 10% stock dividend: 10%*25,000=2,500 shares; 2500*$15=$37,500f. Dec. 31Depreciation Expense14,000Accumulated Depreciation14,000Originaldepreciation:$40,000/40=$10,000peryear.Bookvalueon Jan.1,2009is$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 amountof CommonStock($10par value)decreases275,000,whilethe amountof CommonStock ($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 1Inventory .480,000Cash/Accounts payable .480,000To record purchase of inventoryInventory .124,000Cash/Accounts payable .124,000To record refurbishment of inventoryAccounts receivable .310,000Sales revenue .310,000To record sale of goods on accountCost of goods sold .220,000Inventory .220,000To 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 expense .31,000*Provision for warranties (B/S) .31,000To record provision, at time of sale, for warranty expenditures* 10% of $310,000Allowance for sales returns .12,400Accounts receivable .12,400To 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 payable .18,600To record expenditures in year 1 for warranty workCash .297,600*Accounts receivable .297,600To record collection of Accounts Receivable* $310,000 $12,400 Year 2Provision for warranties (B/S) .8,400Cash/Accounts payable .8,400To 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 1Inventory .480,000Cash/Accounts payable .480,000To record purchase of inventoryInventory .124,000Cash/Accounts payable .124,000To record refurbishment of inventoryAccounts receivable .310,000Inventory .220,000Deferred gross margin .90,000To record sale of goods on accountDeferred gross margin .12,400Accounts receivable .12,400To record return of goods within the 30-day return period. It is assumed the goods haveno value and are disposed of.Deferred warranty costs (B/S) .18,600Cash/Accounts payable .18,600To record expenditures for warranty work in year 1. The warranty costs incurred are deferred because the related revenue has not yet been recognizedCash .297,600*Accounts receivable .297,600To record collection of Accounts receivable* $310,000$12,400Year 2Deferred warranty costs .8,400Cash/Accounts payable .8,400To 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 sold .220,000Sales revenue .297,600*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 expense .27,000*Deferred warranty costs .27,000To 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% completed30%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$20,00030%$ 6,0002006$20,00070%$ 14,0002007$20,000100%$ 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 progress .5,4007,5505,850Cash, payables, etc. .5,4007,5505,8502.Progress billings:Accounts receivable .3,1004,90012,000Progress billings .3,1004,90012,0003.Collections on billings:Cash .2,4004,00012,400Accounts receivable .2,4004,00012,4004.Recognition of profit:
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