solution manual chapter 1

CHAPTER 1 Accounting in Action ASSIGNMENT CLASSIFICATION TABL E Brief Exercises

Study Objectives

Questions

Do It!

Exercises

1.

Explainwhat accounting is.

1, 2, 5

1, 2, 4

1

2.

Identifythe users and uses of accounting .

3, 4

1

2

3.

Understand why ethics is a fundamental business concept.

4.

Explainaccountin g 6, 7 standards and the measurement principles.

5.

Explainthe monetary unit assumption and the economic entity assumption.

8, 9, 10, 11

6.

Statethe accounting equation, and define its components.

12, 13, 14

7.

8.

A Problems

B Problems

1A, 2A, 4A

1B, 2B, 4B

3

1

4

4

1, 2, 3, 4, 5

2

Analyzethe effects of 15, 16, business transactions on 17, 19 the accounting equation.

6, 7, 8, 9

3

6, 7, 8, 11

1A, 2A, 4A, 5A

1B, 2B, 4B, 5B

Understandthe four financial statements and how they are prepared.

10, 11

4

9, 10, 12, 13, 14, 15, 16, 17

2A, 3A, 4A, 5A

2B, 3B, 4B, 5B

18, 20, 21 22, 23

Copyright©2011 J ohn Wiley & Sons, Inc.

5, 6, 7, 11

Weygandt ,IFRS, 1/e, SolutionsManual

(For Instruct or Use Only)

1-1

ASSIGNMENT CHARACTERISTICS TABL E Problem Number

1-2

Difficulty Level

Description

Time A llo tted (min.)

1A

Analyze transactionsand comput e net income.

2A

Analyze transactionsand prepareincomestatem ent, Moderate retained earnings statement, and statement of financial position.

50–60

3A

Prepareincomestatement , retainedearningsstatem ent, and statement of financial position.

50–60

4A

Analyzetransaction s and prepare financialstatements.

5A

Determinefinancia l statementamount s and prepare retained earnings statement.

1B

Analyze transactionsand comput e net income.

2B

Analyze transactionsand prepareincomestatem ent, Moderate retained earnings statement, and statement of financial position.

50–60

3B

Prepareincomestatement , retainedearningsstatem ent, and statement of financial position.

50–60

4B

Analyzetransaction s and prepare financialstatements.

5B

Determinefinancia l statementamount s and prepare retained earnings statement.


Moderate

Moderate

Moderate Moderate

Moderate

Moderate

Moderate Moderate


40–50

40–50 40–50

40–50

40–50 40–50


WEYGANDT IFRS 1E CHAPTER 1 ACCOUNTING IN ACTION Number

SO

BT

Difficul ty

BE1

6

AP

Simple

Time (min.)

2–4

BE2

6

AP

Simple

3–5

BE3

6

AP

Moderate

4–6

BE4

6

AP

Moderate

4–6

BE5

6

C

Simple

2–4

BE6 BE7

7 7

C C

Simple Simple

2–4 2–4

BE8

7

C

Simple

2–4

BE9

7

C

Simple

1–2

BE10

8

AP

Simple

3–5 2–4

BE11

8

C

Simple

DI1

1, 2, 4

K

Simple

2–4

DI2

6

K

Simple

2–4

DI3

7

AP

Simple

6–8

DI4

8

AP

Moderate

8–10

EX1

1

C

Moderate

5–7

EX2

2

C

Simple

6–8

EX3 EX4

3 4, 5

C C

Moderate Moderate

6–8 6–8

EX5

6

C

Simple

4–6

EX6

6, 7

C

Simple

6–8

EX7

6, 7

C

Simple

EX8

7

AP

Moderate

12–15

EX9

8

AP

Simple

12–15

EX10

8

AP

Moderate

8–10

EX11

6, 7

AP

Moderate

6–8

EX12

8

AP

Simple

8–10

EX13

8

AN

Simple

8–10

EX14

8

AP

Simple

10–12

EX15

8

AP

Simple

6–8

EX16

8

AP

Moderate

6–8

EX17

8

AP

Moderate

8–10



4–6


1-3

ACCOUNTING IN ACTION (Cont inu ed) Number

SO

P1A

6, 7

AP

Moderate

40–50

P2A

6–8

AP

Moderate

50–60

P3A

8

AP

Moderate

50–60

P4A

6–8

AP

Moderate

40–50

P5A

7, 8

AP

Moderate

40–50

P1B

6, 7

AP

Moderate

40–50

P2B P3B

6–8 8

AP AP

Moderate Moderate

50–60 50–60

P4B

6–8

AP

Moderate

40–50

P5B

7, 8

AP

Moderate

40–50

BYP1

8

AN

Simple

10–15

BYP2

8

AN, E

Simple

10–15

BYP3

9

C, AN

Simple

15–20

BYP4

8

E

Moderate

15–20

BYP5

8

E

Simple

12–15

BYP6

3

E

Simple

10–12

1-4

BT


Difficul ty

Time (min.)



C o p ry i g h t © 2 0 1 1 Jo h n W il e y & S o n ,s In c . W y e g a n d ,t

Correlation Chart between Bloom Study Objective

DI1-1

Q1-1 Q1-2

Q1-5 E1-1

2. Identify the users a nd uses of accounting.

DI1-1

Q1-3 Q1-4

E1-2

1 -5

End-of-Cha pter Exercises and Problems

Application

Analysis

Synthesis

Evaluation

E1-3

3. Understand why ethics is a fundamental business concept. 4. Explain accounting standards and the measurement principles.

Q1-7 DI1-1

Q1-6 E1-4

5. Explain the monetary unit assumption and the economic entity assumption.

Q1-8 Q1-9 Q1-10

Q1-11 E1-4

6. State the accounting e quation, and define its components.

Q1-11 Q1-12 Q1-13 DI1-2 BE1-5

Q1-14 E1-5 E1-6 E1-7

S

(F o r In st ru c to r U se O n ly )

Comprehension

1. Explain what accounting is.

IF R

, 1 /e , S o lu tio n s M a n u a l

Knowledge

’s Taxonomy, Study Objectives and

7. Analyze the effects of business transactions on the accounting equation.

Q1-15 Q1-16 Q1-17 Q1-19 BE1-6 BE1-7

BE1-8 BE1-9 E1-6 E1-7

8. Understand the four financial statements and how they are prepared.

Q1-18 Q1-20 BE1-11

Broadening Your Perspective

Exploring the Web

BE1-1 BE1-2 BE1-3 BE1-4 E1-11 P1-1A

P1-2A P1-4A P1-1B P1-2B P1-4B

DI1-3 E1-8 E1-11 P1-1A P1-2A P1-4A

P1-5A P1-1B P1-2B P1-4B P1-5B

Q1-21 Q1-22 Q1-23 BE1-10 DI1-4 E1-9 E1-10 E1-12 E1-14 E1-15

E1-16 E1-17 P1-2A P1-3A P1-4A P1-5A P1-2B P1-3B P1-4B P1-5B

E1-13

Financial Reporting Comparative Analysis

Comparative Analysis Decision Making Across the Organization Communication Activity Ethics Case

B L O O M ’S T A X O N O M Y T A B L E

ANSWERS TO QUESTIONS 1.

Yes, this is correct. Virtually every organization and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not-for-profit organizations must use accounting information to operate effectively.

2.

Accounting is the process of identifying, recording, and communicating the economic events of an organization to interested users of the information. The first step of the accounting process is therefore to identify economic events that are relevant to a particular business. Once identified and measured, the events are recorded to provide a history of the financial activities of the organization. Recording consists of keeping a chronological diary of these measured events in an orderly and systematic manner. The information is communicated through the preparation and distribution of accounting reports, the most common which are called statements. A vital element in the communication process is the of accountant’s ability financial and responsibility to analyze and interpret the reported information.

3.

(a) Internal u sers are those who p lan, organize, and nruthe business and th erefore are fficers o and other decision makers. (b) To assist management, accountingprovides internal rep orts. Examples include financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year.

4.

(a) Investors (owners) use accountin g informationto makedecisions tobuy, hold, orsell shares . (b) Creditors use acco untinginformation to evaluatehe t risks of grant ing creditor lendingmoney.

5.

Bookkeeping usually involves only the recording of economic events and therefore is just one part of the entire accounting process. Accounting, on the other hand, involves the entire process of identifying, recording, and communicating economic events.

6.

Karen Sommers Travelposition. Agency An should reportconcept the land ataccountants $90,000 onfollow its December 31, 2011 statement of financial important that is the cost principle. The cost principle states that assets should be recorded at their cost. Cost has an important advantage over other valuations: it is reliable. Cost can be objectively measured and can be verified.

7.

Fair value is defined as the price received to sell an asset or settle a liability.

8.

The monetary unit assumption requires that only transaction data capable of being expressed in terms of money be included in the accounting records. This assumption enables accounting to quantify (measure) economic events.

9.

The economic entity assumption requires that the activities of the entity be kept separate and distinct from the activities of its owners and all other economic entities.

10.

1-6

The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and (3) corporation.




Questions Chapter 1 (Continued) 11.

One of the advantages Maria Gonzalez would enjoy is that ownership of a corporation is represented by transferable shares. This would allow Maria to raise money easily by selling a part of her ownership in the company. Another advantage is that because holders of the shares (shareholders’) enjoy limited liability, they are not personally liable for the debts of the corporate entity. Also, because ownership can be transferred without dissolving the corporation, the corporation enjoys an unlimited life.

12.

The basic accounting equation is Assets = Liabilities + Equity.

13.

(a) Assets are resources ow ned by a business. Liabilit ies are claim s againstassets. Put more simply, liabilities are existing debts and obligations. Equity is the ownership claim on total assets. (b) Equity is affectedby shareholders’ inv estments, dividend s, revenues, and ex penses.

14.

The liabilities are: (b) Accounts payable and (g) Salaries payable.

15.

Yes, a business can enter into a transaction in which only the left side of the accounting equation is affected. An example would be a transaction where an increase in one asset is offset by a decrease in another asset. An increase in the Equipment account which is offset by a decrease in the Cash account is a specific example.

16.

Business transactions are the economic events of the enterprise recorded by accountants because they affect the basic equation. (a) No, the deathof the president of the companyis not a business transaction as does it not affect the basic equation. (b) Yes, supplies u prchased onaccountis a business transaction as itaffects he t basic equation . (c) No, an em ployee beingfired is nota businesstransaction as it does notaffect the basic equation.

17.

(a) Decrease assets and decreaseequity. (b) Increase assets and increase decreaseequit assets. (c) y. (d) Decreaseassets and decreaseliabilit ies.

18.

(a) Income statem ent. (b) Statement of financia l position. (c) Income statem ent.

(d) Statement of financia l position. (e) Statement of financia l positionand retained earningsstatem ent. (f) Statement of financia l position.

19.

No, this treatment is not proper. While the transaction does involve a receipt of cash, it does not represent revenues. Revenues are the gross increase in equity resulting from business activities entered into for the purpose of earning income. This transaction is simply an additional investment made by one of the owners of the business.

20.

Yes. Net income does appear on the income statement—it is the result of subtracting expenses from revenues. In addition, net income appears in the retained earnings statement—it is shown as an addition to the beginning-of-period retained earnings. Indirectly, the net income of a company is also included in the statement of financial position. It is included in the Retained Earnings account which appears in the equity section of the statement of financial position.




1-7

Questions Chapter 1 (Continued) 21.

(a) Ending equity balance...................................................................................... $198,000 Beginning equity balance................................................................................. 168,000 Net income....................................................................................................... $ 30,000 (b) Ending equity balance...................................................................................... Beginning equity balance.................................................................................

$198,000 168,000 30,000 Deduct: Investment......................................................................................... 13,000 Net income....................................................................................................... $ 17,000

22.

(a) Total revenues (£20,000 + £70,000) ................................................................

£90,000

(b) Total expenses (£26,000 +£40,000)................................................................

£66,000

(c) Total revenues ................................................................................................. £90,000 Total expenses................................................................................................. 66,000 Net income....................................................................................................... £24,000 23.

1-8

Nestlé’s accounting equation (in millions of Swiss Francs) at December 31, 2008 was CHF106,215 = CHF51,299 +CHF54,916.




SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 1-1 (a) ¥90,000 – ¥50,000 = ¥40,000 (Equity). (b) ¥40,000 + ¥70,000 = ¥110,000 (As set s). (c) ¥94,000 – ¥60,000 = ¥34,000 (Liabili ties). BRIEF EXERCISE 1-2 (a) $120,000 + $232,000 = $352,000 (Total ass ets ). (b) $190,000 – $80,000 = $110,000 (Tot al li abili ti es). (c) $800,000 – 0.5($800,000) = $400,000 (Equity). BRIEF EXERCISE 1-3 (a) (€800,000 + €150,000) – (€500,000 – €80,000) = €530,000 (Equity). (b) ( €500,000 + €100,000) + (€800,000 – €500,000 – €70,000) = €830,000 (Assets). (c) ( €800,000 – €80,000) – (€800,000 – €500,000 + €120,000) = €300,000 (Liabilities). BRIEF EXERCISE 1-4

Assets

=

Liabilities £ 90,000 £ 90,000 £330,000

+

Share Capital

(a)

X X X

= = =

(b)

$57,000 $57,000 X

= X + $25,000 = X + $33,000 = $24,000 ($57,000 – $33,000)

(c)

€600,000

= (€600,000 X 2/3) + X (Equ it y) = €400,000 + X = €200,000

€600,000

X


+ £150,000 + £240,000

+ +

Equity Retained Earnings Revenues – Expenses – Dividends £450,000 –

+ $50,000


–

£320,000 –

£40,000

$35,000

$7,000

–


1-9

BRIEF EXERCISE 1-5 A L A

(a) Ac co un ts rec eiv able (b) Salaries payabl e (c) Equ ipm ent

A E L

(d) Off ice supplies (e) Share capit al—ordi nary (f) Not es p ayable

BRIEF EXERCISE 1-6 Asset s + + –

(a) (b) (c)

Li abili ties + NE NE

Equ ity NE + –

BRIEF EXERCISE 1-7 Asset s + – NE

(a) (b) (c)

Li abili ties NE NE NE

Equ ity + – NE

BRIEF EXERCISE 1-8 E R E E

(a) (b) (c) (d)

Adv ertis ing expense Commi ssi on revenue Insur ance expense Salaries expens e

D R E

(e) Divid ends (f) Rent revenue (g) Utili ti es expense

BRIEF EXERCISE 1-9 R NE E

1-10

(a) Received cash for servi ces perfor med (b) Paid cash to pur chase equipm ent (c) Paid emplo yee salaries




BRIEF EXERCISE 1-10 LOPEZ COMPANY Statement of Financial Posi tion December 31, 2011 Asset s Acco unts r eceivable ..................................................................... Cash ............................................................................................... Tot al ass ets ............................................................................ Equity and Liabilities Equity Shar e capit al—or di nar y......................................................... Liabilities Acco unts payable .................................................................. Tot al equit y and li abi li ti es .............................................

$ 72,500 49,000 $121,500

$ 31,500 90,000 $121,500

BRIEF EXERCISE 1-11 FP IS FP FP

(a) Notes payabl e (b) Adv ertis ing expense (c) Share capital—ord inary (d) Cash

IS RE

(e) (f)

Servi ce revenu e Divid ends SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 1-1 1. 2. 3. 4. 5.

False. The three steps in the accounting process are identific ation, recording, and communication. True. True. False. The primary accounti ng standard- setting body in the United States is the Financial Accounting Standards Board (FASB). True.




1-11

DO IT! 1-2 (1) (2) (3) (4)

Divid ends is divi dends ( D); it decrea ses equit y. Rent Reve nue is a reve nue (R); it inc reases e qui ty. Adv ertis ing Expense is a n expense ( E); it decrea ses equi ty. When shareholders pay cash into the business, they receive capital shares (I ); it incr eases equity.

DO IT! 1-3 Asset s Cash (1) (2) +R20,000 (3) (4) –R 5,000

= Li abi li ti es +

Acco un ts Acco un ts + Receivable = Payable + +R20,000 –R20,000

Equ it y Share Capital

+

Retained Earning s Revenues – Expenses – Divid ends +R20,000

+R2,000

–R2,000 –R5,000

DO IT! 1-4 (a) The to tal asset s are R$49,500, co mp ri sed of Cash R$ 7,000, Acc ou nt s Receivable R$13,500, and Equipment R$29,000. (b) Net inc ome is R $21,000, com put ed as foll ows : Revenues Serv ic e rev enue .......................................... Expenses Salari es expens e ........................................ Rent exp ens e .............................................. Adver ti si ng exp ense .................................. Tot al expens es ................................... Net inc om e .........................................................

1-12


R$54,000 R$16,500 10,500 6,000


33,000 R$21,000


DO IT! 1-4 (Conti nu ed) (c) The ending equity balance of Santos Company is R$21,500. By rewr iting the accounting equation, we can compute R$ Equity as Assets minus Liabiliti es, as foll ows: Total assets [as com pu ted in (a)] ....................... Less: Liabilities Notes payabl e........................................... Accou nt s p ayable .................................... Equity ...................................................................

R$49,500 R$25,000 3,000

28,000 R$21,500

Note that it is not possible to determine the company’s equity in any other way, be cause the be ginni ng balance for equity i s not provi ded.




1-13

SOLUTIONS TO EXERCISES EXERCISE 1-1 C R C R R C C I R

Analyzing and interpreting infor mation. Classi fying economic events. Explaining uses, meaning, and limi tations of data. Keeping a systematic chron ologi cal diary of events. Measuring events in dollars and cents. Preparing accounting reports. Reporti ng infor mation in a standa rd form at. Selecting economic activities rele vant to the company. Summarizing economic events.

EXERCISE 1-2 (a)

Internal users

Marketi ng manager Production supervisor Store m anager Vice- president of finance External users

Customers Taxing authori ty Labor unions Securi ties r egula tor Suppliers (b)

1-14

I E I E I I E

Can we afford t o giv e our emplo yees a pay raise? Did the company earn a satisfactory incom e? Do we need to borr ow in the near futu re? How does the company’s profi tabilit y compare to other companies? What does it cost us to manufacture each unit produc ed? Which produ ct shoul d we emphasiz e? Will the company be able to pay its short -term debts?




EXERCISE 1-3 Larry Smith, president of Smith Company, instructed Ron Rivera, the head of the accounting department, to report the company’s land in their accounting reports at his assumed market value of $170,000 instead of its cost of $100,000, in an effort to make the com pany appear to be a better inv estment. Although we have an accou nt ing system t hat per mi ts var iou s m easu rem ent approaches, cos t shou ld be used wheneve r there are questions regardi ng the reliability of a market value. In this c ase, valuation of land is t oo sub jective and there fore the cost pri ncipl e should be used. The stakeholders include shareholders and creditors of Smith Company, potential shareholders and creditors, other users of Smith’s accounting reports, La rry Smith, and Ron R ivera. All u sers of Smith’ s accountin g reports could be harmed by relying on information which violates accounting principles. Larry Smith could benefit if the company is able to attract more investors, but would be harmed if the fraudulent reporting is discovered. Similarly, Ron Rivera could benefit by pleasing his boss, but would be harmed if the fra udulent reporting i s dis covered. Ron’s alternatives are to report the land at $100,000 or to report it at $170,000. Reporting the land at $170,000 is not appropriate since it would mislead many people who rely on Smith’s accounting reports to make financial decisi ons . Ron sh oul d repor t the land at it s cos t of $10 0,000. He shou ld try to c onvin ce Larry Smith th at this is t he appropr iate cours e of actio n, but be prepare d to re sign hi s positi on if Smith insis ts. EXERCISE 1-4 1.

Correct. IFRS allow s companies to revalue property, plant and equipm ent to fair value. However, most companies choose not to instead, due to reliability c oncern about valuation, and nega tive effects on net i ncom e, most companies report property, plant and e quipm ent at cost .

2.

Correct . The monetary unit assumption require s th at companie s i nclude in the accounting records only transaction data that can be expressed in terms of mo ney.

3.

economic Incor rect. be The requires thatofthe cti viti es of the entity kept separateentity and assumption distinct from the activities itsaowner and a ll ot her economi c entities.




1-15

EXERCISE 1-5 Asset Cash Cleanin g equipm ent Cleanin g sup pli es ccounts receivable

Li ability Acc oun ts payable Notes payable Salaries payable

Equity Share capital—ord inary

EXERCISE 1-6 1. 2. 3. 4. 5. 6. 7. 8. 9.

Increase in assets and inc rease in equit y. Decrease in assets and decrease in equit y. Increase in assets and inc rease in liabi li ties. Increase in assets and inc rease in equit y. Decrease in assets and decrease in equit y. Increase in assets and decrease in assets. Increase in li abili ties and decrease in equit y. Increase in assets and decrease in assets. Increase in assets and inc rease in equit y.

EXERCISE 1-7 1. 2. 3. 4.

(c) (d) (a) (b)

5. 6. 7. 8.

(d) (b) (e) (f)

EXERCISE 1-8 (a) 1. 2. 3. 4. 5.

1-16

Sharehol ders inv ested $15,000 cash in the bus iness. Purch ased off ic e equipm ent for $5,000, paying $ 2,000 in cash a nd the balance of $3,000 on accou nt. Paid $750 cash for sup pli es. Earned $ 8,300 in revenu e, rec eiv in g $4,600 cas h and $3,700 on account. Paid $1,500 cash on accoun ts payable.




EXERCISE 1-8 (Continued) 6. 7. 8. 9. 10.

Paid $2,000 cash div idend s to sharehol ders. Paid $650 cash for rent . Collecte d $450 cash from custo mers on account. Paid salari es of $4,900. Incur red $500 of uti li ties expense on accoun t.

(b) Inv est men t ............................................................................... Serv ic e rev enue ...................................................................... Div id ends ................................................................................ Rent exp ens e .......................................................................... Salari es expens e..................................................................... Uti li ti es expens e ..................................................................... Inc reas e in equit y ...................................................................

$15,000 8,300 (2,000) (650) (4,900) (500) $15,250

(c) Serv ic e rev enue ...................................................................... Rent exp ens e .......................................................................... Salari es exp ens e..................................................................... Uti li ti es exp ens e ..................................................................... Net inc om e ..............................................................................

$ 8,300 (650) (4,900) (500) $ 2,250

EXERCISE 1-9 S. MOSES & CO. Incom e Statement For th e Month Ended Au gus t 31, 2011 Revenues Serv ic e rev enue ......................................................... Expenses Salari es exp ens e........................................................ Rent exp ens e ............................................................. Uti li ti es exp ens e ........................................................ Tot al exp enses ................................................... Net inc om e .........................................................................



$8,300 $4,900 650 500 6,050 $2,250


1-17

EXERCISE 1-9 (Continued) S. MOSES & CO. Retained Earnin gs Statement For th e Mont h Ended Au gus t 31, 2011 Retain ed earni ng s, August 1 .......................................... Add: Net inc om e............................................................

$

0 2,250 2,250 2,000 $ 250

Les s: Div id ends .............................................................. Retain ed earni ngs, Augu st 31 ............................. S. MOSES & CO. Stateme nt of Fina ncial Posit ion August 31, 2011 Assets Off ic e equip men t ............................................................. Sup pl ies ........................................................................... Acco un ts rec eiv able........................................................ Cash ................................................................................. Tot al ass ets ..............................................................

$ 5,000 750 3,250 8,250 $17,250

Equity and Liabilities Equity Shar e capit al—or di nar y ........................................... Retain ed earni ng s .................................................... Liabilities Accou nt s payable .................................................... Total equi ty and li abil it ies .................................

$15,000 250

$15,250 2,000 $17,250

EXERCISE 1-10 (a) Equ ity—12/31/10 (TL400,000 – TL250,000) ........................... Equ ity—1/1/10 ........................................................................ Inc reas e in Equity .................................................................. Add: Div idends ..................................................................... Net in co me fo r 2010 ...............................................................

1-18



TL150,000 100,000 50,000 15,000 TL 65,000


EXERCISE 1-10 (Continued) (b) Equity—12/31/11 (TL460,000 – TL300,000) .................... Equity—1/1/11—see (a) .................................................. Inc reas e in equit y ........................................................... Less : Add it io nal in vest ment ......................................... Net lo ss fo r 2011 .............................................................

TL160,000 150,000 10,000 50,000 TL 40,000

(c) Equity—12/31/12 (TL590,000 – TL400,000) .................... Equity—1/1/12—see (b) .................................................. Inc reas e in equit y ........................................................... Less : Add it io nal in vest ment .........................................

TL190,000 160,000 30,000 15,000 15,000 30,000 TL 45,000

Add: Div idends ............................................................. Net in co me fo r 2012........................................................

EXERCISE 1-11 (a) Tot al ass ets (begi nning of year) .................................... Total li abil it ies (begin ni ng of year) ................................ Tot al equit y (begi nn in g of year) .....................................

£ 95,000 85,000 £ 10,000

(b) Tot al equit y (end of year) ...............................................

£ 40,000

Tot al equit y (begi nn in g of year) ..................................... Inc reas e in equit y ...........................................................

10,000 £ 30,000

Tot al revenues ................................................................ Tot al exp enses ................................................................ Net inc om e ......................................................................

£215,000 175,000 £ 40,000

Inc reas e in equit y .................................... Les s: Net in co me .................................... Add: Div idends ...................................... Addi ti on al i nvest ment .............................

£ 30,000 £40,000 24,000

(16,000) £ 14,000

(c) Tot al ass ets (begi nning of year) ....................................

£129,000

Tot al liequit (begi nn inni g ng of year) ..................................... Total abil ityies (begin of year) ................................

80,000 £ 49,000




1-19

EXERCISE 1-11 (Continued) (d) Tot al equit y (end of year) .................................................. Tot al equit y (begi nn in g of year) ........................................ Inc reas e in equit y...............................................................

£130,000 80,000 £ 50,000

Tot al revenues ................................................................... Tot al exp ens es ................................................................... Net inc om e .........................................................................

£100,000 55,000 £ 45,000

Inc reas e in equit y.........................................

£ 50,000

Les s: Net in co me ........................................ Ad di ti on al i nvest ment ...................... Div id ends .....................................................

£45,000 25,000

(70,000) £ 20,000

EXERCISE 1-12 LINDA STANLEY CO. Incom e Statement For t he Year End ed December 31, 20 11 Revenues Serv ic e rev enue .................................................... Expenses Salari es expens e ................................................... Rent exp ens e ........................................................ Uti li ti es expens e ................................................... Ad vertisi ng exp ense ............................................. Tot al exp ens es .............................................. Net inc om e ....................................................................

$62,500 $30,000 10,400 3,100 1,800 45,300 $17,200

LINDA STANLEY CO. Retained Earnin gs Statement For t he Year End ed December 31, 20 11 Retain ed earni ng s, Januar y 1 ......................................................... Add: Net i nc om e ............................................................................ Les s: Div idends .............................................................................. Retain ed earni ng s, Decemb er 31 ...................................................

1-20



$48,000 17,200 65,200 6,000 $59,200


EXERCISE 1-13 MENDEZ COMPANY Statement of Financial Positi on Decemb er 31, 2011 Asset s Equipm ent ........................................................................ Suppl ies ........................................................................... Acco unts r eceivable ....................................................... Cash .................................................................................

€46,000

8,000 8,500 15,000 €77,500

Tot al ass ets .............................................................. Equity and Liabilities Equity Share capital—ordinary........................................... Retained ea rni ngs ( €17,500 – €10,000) ................... Liabilities Acco unts payable .................................................... Total equi ty and li abil it ies ..... ..........................

€50,000

7,500

€57,500

20,000 €77,500

EXERCISE 1-14 (a) Campi ng fee rev enues .......................................................... General st ore rev enues ......................................................... Tot al revenue .................................................................. Exp ens es ................................................................................ Net inc om e ............................................................................. (b)

$140,000 50,000 190,000 150,000 $ 40,000

DEER PARK Statement of Financial Positi on December 31, 2011 Asset s Equipm ent .............................................................................. Suppl ies ................................................................................. Cash ........................................................................................

$105,500 2,500 23,000

Tot al ass ets ....................................................................

$131,000




1-21

EXERCISE 1-14 (Continued) DEER PARK Statement of Financial Position (Continu ed) December 31, 2011 Equity and Lia bil ities Equity Shar e capit al—o rdin ary .................................. Retain ed earni ng s ........................................... Tot al equity .............................................. Liabilities Not es payable .................................................. Accou nt s payable............................................ Tot al li abili ti es .......................................... Total equit y and liabilities ........................................

$20,000 40,000 $ 60,000 60,000 11,000 71,000 $131,000

EXERCISE 1-15 SILVA CRUISE COMPANY Incom e Statement For th e Year En ded Decemb er 31, 2011 Revenues Tic ket revenue.................................................. Expenses Salari es exp ens e .............................................. Main ten anc e exp ense ...................................... Pro per ty tax expens e....................................... Adver ti sing exp ense ........................................ Tot al exp ens es ......................................... Net inc om e ...............................................................

1-22


R$325,000 R$142,000 95,000 10,000 3,500


250,500 R$ 74,500


EXERCISE 1-16 KEVIN AND J OHNSON, ATTORNEYS AT L AW Retained Earni ngs Statement For th e Year Ended December 31, 2 011 Retain ed earni ngs, Jan uar y 1 ................................................ Add: Net inc om e .................................................................. Les s: Div id ends ..................................................................... Retain ed earni ngs, Decemb er 31 ..........................................

$ 23,000 139,000* 162,000 79,000 $ 83,000

*Leg al ser vi ce revenue .......................................................... Tot al exp enses ...................................................................... Net inc om e ............................................................................

$350,000 211,000 $139,000

EXERCISE 1-17 BORNEO COMPANY Stateme nt of Cash Flow s For th e Year Ended December 31, 2 011 Cash flow s from operating activiti es Cash receip ts fr om revenu es ........................... Cash paymen ts fo r expens es .......................... Net cash prov ided by operatin g activi ti es Cash flow s from investing activi ties Pur ch ase of equip men t .................................... Cash fl ows fro m financ ing activ iti es ...................... Sale of sh ares ................................................... R p 350,000 Paymen t of cas h di viden ds .............................. (20,000) Net in cr ease in cash ................................................. Cash at th e begi nni ng of th e peri od ....................... Cash at th e end of th e perio d ..................................



R p 600,000 (410,000) 190,000 (100,000) 330,000 420,000 30,000 R p 450,000


1-23

1 2 4

C o p y ir g h t © 2 0 1 1 Jo h n W i le y & S o n s, In c . W e y g a n d t,

I F R S

, 1 /e , S o l u t io n s M a n u a l ( F o r In trs u c t o r U se O n l y )

(a)

BARONE’S REPAIR LTD.

Cash

Acc oun ts + Receivable + Supplies + Equipment

Accou nt s = Payable +

1. +£10,000 2. + –5,000 –400

+

4,600

4. +

–500

+

4,100

+

+

4,100

+

6. – +5,100 + 7.

9,200

+

–1,000 +

8,200

+

8. + –2,000 +

6,200

9. +

–140

+

6,060

10. +000,000 + 11. –

+ + +£750

6,060 +

+ 750

+120

+–120

+£ 6,180 +

0010,000

+ 5,000

=

+ 0010,000 +

=

+

(a)

+000,

+00,000 +

5. +000,000 +

= +£5,000

5,000

3. +

Equity Retained Earnings + Revenues – Expenses – Dividends

+£10,000 +

+ 10,000 +

Share Capital

+£630

+ 5,000

+£500

+00,000

+ 500 +

+ 5,000

+0000

+00,000

+ 500 +

+ 5,000

+0000

+00,000

+ 500 +

+ 5,000

+0000

+00,000

+ 500 +

+ 5,000

+0000

+00,000

+ 500 +

+ 5,000

+0000

+00,000

+ 500 +

+ 5,000

–£400

=

+

10,000 + 10,0000 +

–400

+ 0010,0000 +

–650

+£250 =

+ 250

–250

+0000 =

+ 250

(c)

+£5,100 + 0010,000 +

5,100

(d) –650

=

+ 250

–£1,000 +

10,000 +

5,100

+0000 =

+ 250 +0250

–650

(f)

+

10,000 +

5,100

–2,650

+

10,000 +

5,100

–2,790

–1,000 –1,000

5,850

–2,790

–1,000

–140

+0000

+00,000

+ 500 +

+ 5,000

=

+0000 +0250

+

10,000 +

+

+£500 +

+£5,000

=

+£250

+

£10,000 +

(g)

+750

£5,850 – £12,310

(e)

–1,000

–2,000

+0000 =

(h)

£2,790

P R O B L E M 1 1 -A

+0000

+

£12,310

(b)

–400

–

£1,000

S O L U T IO N S T O P R O B L E M S

PROBL EM 1-1A (Cont in ued) Key to Retained Earnings Column (b) Rent expense (c) Advertisi ng expense (d) Servi ce revenue (e) Dividends (f) Salaries expense (g) Utili ti es expense (h) Servi ce revenue (b) Serv ic e rev enue (£5,100 + £750) ............................ Expenses Salaries ............................................................ Rent .................................................................. Adver ti si ng ...................................................... Uti li ti es ............................................................. Net inc om e ...............................................



£5,850 £2,000 400 250 140

2,790 £3,060


1-25

1 2 6 (a)

C o p y ir g h t © 2 0 1 1 J o h n W ie l y & S o n ,s In .c

NASHVILLE VETERINARY CLINIC

Cash

Acco un ts Office + Receivable + Supplies + Equipment =

Bal.

$ 9,000 +

$1,700

1.

–2,900

00,000

2.

+1,300

6,100 + 7,400 + 3.

–800

4.

+2,500

5.

–1,000

6,600 + 9,100 + 8,100 +

1,700

+ + + +

600 600

+

600

+

600

6,000 6,000

+

8,100

=

8,100

700

=

8,100

+ $13,000

+

Retained Earnings + Revenues – Expenses – Dividend s $700

0 +

13,000

+

700

700

+

13,000

+

700

+

13,000

+

700

+1,300 =

2,000 00,000

=

2,000

000,000 +

+

00,000

000,000 +

Share Capital

–2,900

+2,100

0000 +

$3,600

=

000,000

0000

00,000 5,900

+

0000

+5,500 5,900

600

$ 6,000 000,000

0000

00,000 400

+

0000

–1,300 400

$600

Notes Acco un ts Payable + Payable +

+

13,000

+

700

8,000

+

13,000

+

700

8,000

F R S ,

1 / e , S o lu ti o n s M a n u a l (F o r In st r u tc o r U se O n l )y

6.

–2,900 5,200 +

7.

000,000 5,200 +

8.

00,000 5,900

0000 +

00,000

600

=

2,000

000,000 +

0000

8,100

+

600

+

8,100

$5,900

+

$600

+

$ 8,100

+10,000 $15,200 +

(c)

–900

(d) (e)

2 -A

–$1,000

2,000

=

2,170

–300 +

13,000

+

700

8,000

–2,900

+

13,000

+

700

8,000

–3,070

+ $13,000

+

$700

+170

–1,000 (f)

–170 –1,000

+$10,000

$29,800

= +$10,000 + $2,170

$29,800

+

$8,000

(b)

–1,000

00,000 =

000,000

5,900

–$1,700

00,000

W e y g a n d t, I

P R O B L E M 1

(a)

+$8,000

–

$ 3,070 –

$1,000

PROBL EM 1-2A (Cont in ued) (b)

NASHVILLE VETERINARY CLINIC Incom e Statement For the Month Ended September 30, 2011 Revenues Serv ic e rev enue.................................................. Expenses Salari es exp ens e ................................................ Rent exp ens e......................................................

$8,000 $1,700 900

Adver ti sing expeense .......................................... Uti li ti es expens ................................................. Tot al exp enses............................................ Net inc om e .................................................................

300 170 3,070 $4,930

NASHVILLE VETERINARY CLINIC Retained Earnin gs Statement For the Month Ended September 30, 2011 Retain ed earni ngs, Sept ember 1 ........................................... Add: Net inc om e ................................................................... Les s: Div id ends ..................................................................... Retain ed earni ngs, Sept ember 30 .........................................



$ 700 4,930 5,630 1,000 $4,630


1-27

PROBLEM 1-2A (Continued) NASHVILL E VETERINARY CLINIC Stateme nt of Financial Position September 30, 2011 Assets Off ic e equip men t......................................................... Sup pl ies ....................................................................... Accou nt s receivable ................................................... Cash ............................................................................. Tot al ass ets ......................................................... Equity and Lia bil ities Equity Shar e capit al—or di nar y ..................................... Retain ed earni ng s .............................................. Tot al equity ................................................. Liabilities Not es payable ..................................................... Accou nt s payable............................................... Tot al li abili ti es ............................................. Tot al equit y and li abi li ti es ........................................

1-28


$ 8,100 600 5,900 15,200 $29,800

$13,000 4,630 $17,630 10,000 2,170


12,170 $29,800


PROBLEM 1-3A

(a)

YOON FLYING SCHOOL Incom e Statement For t he Mont h End ed May 31, 2011 Revenues Les so n rev enue ............................................ Expenses

W7,500

Fuel Rent exp expens ensee................................................ ................................................ Adver ti sing expense .................................... Ins ur ance exp ens e ....................................... Repair exp ense ............................................ Tot al exp enses...................................... Net in co me ...........................................................

W2,500 1,200 500 400 400 5,000 W2,500

YOON FLYING SCHOOL Retained Earnin gs Statement For t he Mont h End ed May 31, 2011 Retain ed Earni ngs, May 1 ...................................

W

Add:

2,500 2,500 1,500 W1,000

Net i nc om e................................................

Les s: Div id ends .................................................. Retain ed earni ngs, May 31 ..................................

0

YOON FLYING SCHOOL Statement of Financial Position May 31, 2011 Assets Equipm ent ............................................................................... Acco unts rec eiv able ............................................................... Cash ......................................................................................... Tot al ass ets .....................................................................



W64,000 7,200 5,600 W76,800


1-29

PROBLEM 1-3A (Continued) YOON FLYING SCHOOL Statement of Financial Position (Contin ued) May 31, 2011 Equity and Liabilities Equity Shar e capit al—or di nar y .................................. Retain ed earni ng s ........................................... Tot al equity .............................................. Liabilities Not es payable .................................................. Ac cou nt s payable............................................ Tot al li abili ti es .......................................... Tot al equit y and li abi li ti es ...................................... (b)

W45,000 1,000 W46,000 W30,000 800 30,800 W76,800

YOON FLYING SCHOOL Incom e Statement For t he Mont h Ended May 31, 2 011 Revenues Les so n rev enue (W7,500 + W900) .............. Expenses Fuel (W2,500 + W1,500)................ Rent exp expense ens e ............................................... Adver ti si ng exp ense ................................... Ins ur anc e expens e ...................................... Repair exp ens e ............................................ Tot al exp ens es ..................................... Net in co me ..........................................................

W8,400 W4,000 1,200 500 400 400 6,500 W1,900

YOON FLYING SCHOOL Retained Earnin gs Statement For t he Mont h Ended May 31, 2 011 Retain ed Earni ngs, May 1................................... Add: Net i nc om e ............................................... Les s: Div id ends ................................................. Retain ed Earni ngs, May 31 ................................ 1-30



W

0 1,900

1,900 1,500 W 400 (For Instruct or Use Only)

C o p ry i g h t © 2 0 1 1 Jo h n W ile y & S o n s, In c .

(a)

Date

Cash

Delivery

+ Receivable + Supplies +

June 1

$10,000

June 2

+ –2,000

June 3

+

–500

+

7,500 +

+

7,500 +

+

–200

June 5 June 9

1 /e , S o lu tio n s M a n u a l

June 15

=

Payable +

7,300 +

+ +1,250 8,550 +

Retained Earnings + Revenues – Expenses – Dividends

12,000

=

10,000 +

10,000

+12,000

=

10,000 +

10,000

4,400

+

+

$4,400

+0012,000

=

10,000 +

10,000 +

4,400

(b) –500

4,400

+

+050

+ 12,000

=

4,400

+

150

4,400 –

–500

–

–200

+

10,000 +

4,400 –

–500

–

–200

+

10,000 +

4,400 –

–500

–

–200

–600

–

–200

+

12,000

=

10,000 +

+ 150 00

+

150

+

12,000

=

10,000 +

+ 150

–100

10,050 +

+

150

+

12,000

=

10,000 +

+ 250

+

10,000 +

3,150

+

150

+

+12,000

=

10,000 +

+ 250

+

10,000 +

5,900 –

–600

–

–200

+0250

+

10,000 +

5,900 –

–600

–

–200

–850

–

–200

–

–200

–

$200

+

–500 +

9,550 +

3,150

+

150

+

12,000

=

9,500 +

3,150

+

150

+

12,000

=

9,500 +

3,150

+

150

+

12,000

=

9,500 +

–250

+0250

+

10,000 +

5,900 –

+

10,000 +

5,900 –

–850

–

–1,000

$5,900 –

$1,850

(f)

–100 150

–1,000 $ 8,200 +

(e)

+0

–100 9,200 +

1,500

–500

–250 9,300 +

4,400 –

(d)

3,150

+ +1,500

June 23

(c)

+$150

–1,250 3,150

10,000 +

10,000 +

+100 + 8,550 +

(a)

–500

–$200

June 17

June 30

Capital

+$10,000

+$150 –

June 29

Payable +

+$4,400

7,300 +

June 26

Share

–$ 500

June 12

June 20

Equi ty

Acc oun ts

+$10,000

$3,150

+

$150

$23,500

1 3 1

Van

Notes

+$12,000

8,000 +

e y g a n d ,t

(F o r In st ru c to r U se O n ly )

Li abi li ti es

Acc oun ts

W

IF R S ,

MILLER DELIVERIES Ass ets

+

$12,000

=

$ 9,500 +

$150

+

$10,000 + $23,500

(g)

P R O B L E M 1 -4 A

PROBLEM 1-4A (Continued) Key to Retained Ea rning s Column (a) Rent expens e (b) Servi ce revenue (c) Divid ends (d) Gasol ine expense (b)

(e) (f) (g)

Servi ce revenu e Utili ti es expense Salaries expense

MILL ER DELIVERIES Incom e Statement For t he Month Ended Jun e 30, 2011 Revenues Serv ic e rev enue ($4,400 + $1,500)..................... Expenses Salari es expens e ................................................ $1,000 Rent exp ens e ...................................................... 500 Uti li ti es expens e ................................................. 250 Gaso li ne expens e ............................................... 100 Tot al exp ens es ............................................ Net inc om e .................................................................

(c)

1,850 $4,050

MILL ER DELIVERIES Stateme nt of Financial Position June 30, 2011 Assets Deli ver y Van ............................................................... Sup pl ies ...................................................................... Accou nt s receivable .................................................. Cash ............................................................................ Tot al ass ets ........................................................

$12,000 150 3,150 8,200 $23,500

Equity and Lia bil ities Equity Shar e capit al—or di nar y ..................................... $10,000 Retain ed earni ng s .............................................. 3,850 Tot al equity ................................................. Liabilities Not es payable ..................................................... Accou nt s p ayable ............................................... Tot al li abili ti es ............................................. Tot al equit y and li abi li ti es ......................................... 1-32

$5,900


$13,850

9,500 150


9,650 $23,500 (For Instruct or Use Only)

PROBLEM 1-5A

(a)

(b)

Karma Company (a) $ 45,000 (b) 115,000 (c) 10,000

Yates Company (d) $50,000 (e) 62,000 (f) 48,000

McCain Company (g) $120,000 (h) 70,000 (i) 431,000

Dench Company (j) $ 80,000 (k) 250,000 (l) 435,000

YATES COMPANY Retained Earnin gs Statement For th e Year Ended December 31, 2 011 Retain ed earni ngs, January 1 ........................... Add: Net inc om e .............................................. Les s: Div id ends ................................................ Retain ed earni ngs, Decemb er 31......................

$20,000 35,000 55,000 48,000 $ 7,000

(c) The seque nce of pre paring financial state ments is incom e stateme nt, retained earnings statement, and statement of financial position. The interrelationship of the retained earnings statement the other financial statements results from the fact that net income tofrom the income statement is reported in the retained earnings statement and ending retained earnings reported in the retained earnings statement is the amount reported for retained earnings on the statement of financial position.




1-33

1 3 4 (a) C o p riy g h t © 2 0 1 1 J o h n W li e y & S o n ,s I n c . W e y g a n d ,t

IF R S ,

1 / e , S o lu tio n s M a n u a l ( F o r I n trs u c to r U se O n ly )

MATRIX TRAVEL AGENCY

Cash

Acc oun ts Office + Receivable + Supplies + Equipment =

1. +€10,000 + 10,000 2. + –400 + 9,600 3. + –2,500 + 7,100 4. +000,000 + 7,100 5. + –600 + 6,500 6. – +3,000 + 9,500 + 7. + –200 + 9,300 8. + –300 + 9,000 9. + –2,200 + 6,800 10. – +4,000 +€10,800

+ + + +

+ + + +€6,500 + 6,500 + 0,000 + 6,500 + 0,000 + 6,500 + 0,000 + 6,500 +–4,000 +€2,500

+ + + + +

+€600 + 600 +0000 + 600 +0000 + 600 +0000 + 600 +0000 + 600 + +€600

€16,400

+ +

+€2,500 + 2,500 +00,000 + 2,500 +00,000 + 2,500 +00,000 + 2,500

+

+00,000 + 2,500 +00,000 + 2,500 +00,000 + 2,500

+

+€2,500

+ +

Accou nt s Payable +

Share Capital

=

+€10,000 10,000

=

10,000

=

10,000

+

Equity Retained Earnings Revenues – Expenses – Dividends

– –

€

400 400

(a)

+

= = = = =

+€300 + 300 +0000 + 300 +0000 + 300 +0000 + 300 +–300 + 0 +0000

+

+ +€ 0

400 300 700

–

700

–

700

(b)

+000,000 +

10,000

+

10,000

+ +

+

10,000

+

–

700

+

10,000

+ 9,500 +000,000 + + 9,500

10,000

+

– – –

€10,000

+

–

= =

– – –

+

–€9,500 + 9,500

+ 9,500 + +€9,500 €16,400

(c) (d) – –

€200

700 2,200 2,900

–

200

–

200

€2,900

–

€200

P R O B L E M 1 1 -B

200

(e)

PROBLEM 1-1B (Continued) Key to Retained Earnings Column (a) Rent Expens e (b) Advert is ing Expense (c) Servi ce Revenue

(d) Divi dend s (e) Salaries Expense

(b) Servi ce rev enue ...................................................... Expenses Salaries ............................................................ Rent .................................................................. Adver ti sing ...................................................... Net inc om e ...............................................



€9,500 €2,200

400 300

2,900 €6,600


1-35

1 3 6 (a)

C o p riy g h t © 2 0 1 1 J o h n W li e y & S o n ,s I n c . W e y g

Bal.

$4,000 +

$1,500

1.

+1,400

–1,400

5,400 + 2.

–2,700

3.

+3,000

2,700 + 5,700 + 4.

1 / e , S o lu tio n s M a n u a l ( F o r I n tsr u c to r U se O n ly )

–400 5,300 +

5.

a n d ,t

I F R S ,

CINDY BELTON, ATTORNEY AT LAW Acco un ts Office Cash + Receivable + Supplies + Equipment =

6.

+

500

+

500 500

=

$4,200

5,000

+

5,000

4,200

5,000

=

1,500

=

1,500

6,000

=

2,100

000,000 +

6,000 +

800 000,000

+

6,000 +

800

+

6,000 +

800 +

+

6,000 +

+$9,000

+600

(a)

9,000

000,000 800 +

9,000 –$3,000

1,050 +

00,000 6,100

–750

00,000

+2,000 2,300 +

6,100

+

+

0000 +

00,000 6,100

0000 500 500 500

00,000 2,100

=

00,000 +

0000 +

00,000 6,000

+

6,000

$6,100

+

$500

$14,900

+

(c) (d)

+

6,000 +

800 +

9,000

–

–350 4,250

2,100

+

6,000 +

800 +

9,000

–

4,250

–

750

6,000 +

9,000

–

4,250

–

750

–

$750

–$750

00,000

+$2,000

00,000

6,000

= + 2,000 +

2,100

+

+250

+

$6,000

(b)

–900

00,000 =

8. $2,300 +

– Divi dend s

$ 800

00,000

+1,000 +

+

–2,700

00,000 +

+ $6,000

00,000 =

00,000

0000 +

$5,000 00,000

+

0000

00,000 6,100

500 0000

+6,000 6,100

+

0000 +

00,000 100

$500

Share Retained Capital + Earnings + Revenues – Expenses

–4,250

300 + 7.

100

+

Notes Acco unt s Payable + Payable +

= +$2,000 +

$2,350

(e)

000,000 800 +

–250 $6,000

+

$ 800 + $14,900

$9,000

–

$4.500

(f)

P R O B L E M 1 2 -B

PROBLEM 1-2B (Continued) (b)

CINDY BEL TON, ATTORNEY AT LAW Incom e Statement For th e Month Ended Au gus t 31, 2011 Revenues Serv ic e rev enue............................................. Expenses Salari es exp ens e ........................................... Rent exp ens e.................................................

$9,000 $3,000 900

Adver ti siexpens ng expeense ..................................... Uti li ti es ............................................ Tot al exp enses....................................... Net in co me ............................................................

350 250 4,500 $4,500

CINDY BEL TON, ATTORNEY AT LA W Retained Earnin gs Statement For th e Month Ended Au gus t 31, 2011 Retain ed earni ngs, Augu st 1 ............................... Add: Net inc om e ................................................. Les s: Div id ends ................................................... Retain ed earni ngs, Augu st 31..............................



$ 800 4,500 5,300 750 $4,550


1-37

PROBLEM 1-2B (Continued) CINDY BEL TON, ATTORNEY AT LA W Stateme nt of Financial Position Au gust 31, 2011 Assets Off ic e equip men t....................................................... Sup pl ies ..................................................................... Accou nt s receivable ................................................. Cash ...........................................................................

$ 6,000 500 6,100 2,300

Tot al ass ets .......................................................

$14,900

Equity and Lia bil ities Equity Shar e capit al—or di nar y .................................... Retain ed earni ng s ............................................. Tot al equity ................................................ Liabilities Not es payable .................................................... Accou nt s p ayable.............................................. Tot al li abili ti es ............................................ Total equit y and liabilities ..........................................

1-38


$6,000 4,550 $10,550 2,000 2,350

Weygandt ,IFRS, 1/e, Solution s Manual

4,350 $14,900

(For InstructorUse Only)

PROBLEM 1-3B

(a)

DIVINE COSMETICS CO. Incom e Statement For t he Month Ended Ju ne 30, 2011 Revenues Serv ic e rev enue............................................ Expenses Sup pl ies expens e ......................................... Gas and oil exp ens e .................................... Adver ti sing expense .................................... Uti li ti es exp ens e ........................................... Tot al exp enses...................................... Net in co me ...........................................................

¥6,000 ¥1,600 800 500 300 3,200 ¥2,800

DIVINE COSMETICS CO. Retained Earnin gs Statement For t he Month Ended Ju ne 30, 2011 Retain ed Earni ngs, Ju ne 1 .................................. Add: Net i nc om e ................................................

¥

0 2,800

Les s: Div id ends .................................................. Retain ed Earni ngs, Ju ne 30 ................................

2,800 1,200 ¥1,600

DIVINE COSMETICS CO. Statement of Financial Posi tion Ju ne 30, 2011 Asset s Equipm ent ............................................................................... Cosmet ic su pp li es .................................................................. Acco unts rec eiv able ............................................................... Cash .........................................................................................

¥25,000 2,000 4,000 11,000

Tot al ass ets .....................................................................

¥42,000




1-39

PROBLEM 1-3B (Continued) DIVINE COSMETICS CO. Statement of Financial Position (Continu ed) June 30, 2011

(b)

Equity and Lia bil ities Equity Shar e capit al—or di nar y .................................... ¥26,200 Retain ed earni ng s ............................................. 1,600 Tot al equity ................................................

¥27,800

Liabilities Not es payable .................................................... Accou nt s payable.............................................. Tot al li abili ti es ............................................ Total equit y and liabilities ..........................................

14,200 ¥42,000

13,000 1,200

DIVINE COSMETICS CO. Incom e Statement For the Month Ended June 30, 2011 Revenues Serv ic e rev enue (¥6,000 + ¥800)................. Expenses Sup pl ies expens e ........................................ Gas and oil expens e (¥800 + ¥100)............. Adver ti sing exp ense ................................... Uti li ti es exp ens e .......................................... Tot al exp ens es ..................................... Net in co me ..........................................................

¥6,800 ¥1,600 900 500 300 3,300 ¥3,500

DIVINE COSMETICS CO. Retained Earnin gs Statement For t he Month Ended Jun e 30, 2011 Retain ed earni ng s, Ju ne 1.................................. Add: Net inc om e ............................................... Les s: Div id ends ................................................. Retain ed earni ng s, Ju ne 30................................ 1-40



¥

0 3,500

3,500 1,200 ¥2,300 (For InstructorUse Only)

C o p ry i g h t © 2 0 1 1 Jo h n W il e y & S o n ,s In c .

(a)

IF R S ,

1 /e , S o lu tio n s M a n u a l (F o r In st ru c to r U se O n ly )

Li abil it ies

Acc oun ts Date May 1

Cash

Office

+ Receivable + Supplies + Equipment =

+ Revenues – Expenses – Dividends

8,000

=

8,000 +

–50

=

500

+

8,000 +

=

500

+

8,000

May 9

+3,000 10,150 +

+050 500

May 12

–700

=

500

+

8,000 +

–50

+

+$3,000 3,000

500

=

500

+

8,000 +

+$5,300

May 20

–500

May 23

+3,000

5,950 + 8,950 +

850

(c)

3,000

–

850 –

700

–

850 –

700

500

=

500

+

8,000 +

8,300

5,300

+

500

=

500

+

8,000 +

8,300

–

3,850 –

700

5,300

+

500

=

–0–

+

8,000 +

8,300

–

3,850 –

700

+

500

=

–0–

+

8,000 +

8,300

–

3,850 –

700

–0–

+

8,000 +

8,300

–

3,850 –

700

+

8,000 +

8,300

–

3,850 –

700

– +

(f)

+ +$5,000

2,300

+

500

=

5,000

+$2,800 2,300

+

500

+

2,800

+2,800 =

5,000

2,800

–150 $13,800 +

–3,000

–500

–3,000 2,300

(d) (e)

+

May 29 13,950 +

–

(b)

5,300

+5,000 13,950 +

850

+5,300

–3,000 6,450 +

–

–$700

9,450 + 9,450 +

(a)

800 800

+ 500

May 15

–

+$ 500

500

–150 $ 2,300

+ $500

$19,400

1 4 1

Capital

=

+$500

7,150 +

May 30

+

Retained Earnings

–$ 800

7,200 +

May 26

Payable

Share

–800

May 3

May 17

Payable +

Equi ty

Acc oun ts

+$8,000

7,200

May 5

Notes

$ 8,000 8,000

May 2

W e y g a n d ,t

GELLER CONSULTING Ass ets

+

$2,800

=

$5,000 +

$2,800

+

$8,000 +

$8,300

$19,400

–

$4,000 –

(g) $700

P R O B L E M 1 -4 B

PROBLEM 1-4B (Continued) Key to Retained Ea rning s Column (a) (b) (c) (d) (b)

Rent Expens e Adv ertis ing Expense Servi ce Revenue Dividends

(e) Servi ce Revenue (f) Salaries Expense (g) Utili ties Expense

GELLER CONSULTING Incom e Statement For t he Mont h End ed May 31, 2011 Revenues Serv ic e rev enue ($3,000 + $5,300)................ Expenses Salari es expens e ........................................... Rent exp ens e ................................................. Uti li ti es expens e ............................................ Adver tisi ng exp ense ..................................... Tot al exp ens es ....................................... Net in co me ............................................................

(c)

$8,300 $3,000 800 150 50 4,000 $4,300

GELLER CONSULTING Stateme nt of Financial Position May 31, 2011 Assets Off ic e equip men t........................................................ Sup pl ies ...................................................................... Accou nt s receivable .................................................. Cash ............................................................................ Tot al ass ets ........................................................ Equity and Lia bil ities Equity Shar e capit al—or di nar y ..................................... Retain ed earni ng s .............................................. Tot al equity ................................................. Liabilities Not es payable ..................................................... Accou nt s p ayable............................................... Tot al li abili ti es ............................................. Tot al equit y and li abi li ti es .........................................

1-42


$ 2,800 500 2,300 13,800 $19,400

$8,000 3,600


$11,600 5,000 2,800

7,800 $19,400


PROBLEM 1-5B

(a)

(b)

McKane Company (a) $30,000 (b) 95,000 (c) 5,000

Selara Company (d) $40,000 (e) 45,000 (f) 28,000

Gordon Company (g) $124,000 (h) 80,000 (i) 413,000

Hindi Company (j) $ 50,000 (k) 225,000 (l) 460,000

McK ANE COMPANY Retained Earnin gs Statement For th e Year Ended December 31, 2 011 Retain ed earni ngs, Jan uar y 1 ............................. Add: Net inc om e ................................................ Les s: Div id ends .................................................. Retain ed earni ngs Decemb er 31.........................

$

0 15,000 15,000 10,000 $ 5,000

(c) The seque nce of pre paring financial state ments is incom e stateme nt, retained earnings statement, and statement of financial position. The interrelationship of the retained earnings statement to the other financial statements results from the fact that net income from the income statement is reported in the retained earnings statement and ending retained earnings reported in the retained earnings statement is the amount reported for retained earnings on the statement of financial position.




1-43

BYP 1-1

FINANCIAL REPORTING PROBLEM

(a) Cadbur y’s to tal assets at December 3 1, 2008 were £8,895 mi ll io n and at December 31, 2007 were £11, 338 mi ll io n. (b) Cadbur y had £251 mil lion of cash and cash equiv alents at December 31, 2008. (c) Cadbur y had trade and other paya bles tot aling £1 ,551 mil lio n on December 31, 2008 and £1,701 million on December 31, 2007. (d) Cadbur y reports reve nues for thre e consecuti ve years as follows : 2007 2008

£5,384 mi ll io n £4,699 mi ll io n

(e) From 20 07 to 2008, Cadbur y’s net in com e (profi t for t he peri od) decreased £ 416 mil li on fr om £407 mil li on to £36 6 mi lli on.

1-44




BYP 1-2

(a) 1. 2. 3. 4.

COMPARATIVE ANALYSIS PROBLEM

(in mil lio ns) Tot al ass ets Acc ou nt s (not es) receiv able, (net) Net sales Net inc om e

(b) Receiv ables/Tot al assets Net in co me/Sales


Cadbur y £ 8,895 £ 1,067 £ 5,384 £ 366

Cadbur y 12.0% 6.8%


Nestl é CHF106,215 CHF 13,442 CHF109,908 CHF 19,051

Nestl é 12.7% 17.3%


1-45

BYP 1-3

EXPLORING THE WEB

(a) The field is normally divided into three tax, and management accounting.

broad a reas: audit ing, financia l/

(b) The ski ll s requir ed in these areas: People skills, sale s ski lls, commu nication ski lls, ana lytic al skills, ability to s ynthesize , creative a bili ty, initi ative, computer ski lls. (c) The skil ls re quir ed in these areas differ a s follows :

People skill s Sales skill s Communication skil ls Analytical s ki lls Ability to s ynthes ize Creative ability Initi ative Computer skil ls

Au di ti ng Medium Medium Medium Hig h Medi um Low Mediu m High

Financial and Tax Medium Medium Medium Very High Low Medium Mediu m High

Management Accou nt ing Medium Low High High High Medium Mediu m Very High

(d) Some key job func tions in accounting: Au diting: Work in audit involves checking accounting ledgers and financial state ments withi n corpor ations and government. T his w ork is b ecomin g inc reasingl y comput eriz ed and can rely on soph isti cate d random sampling methods. Audit is the bread-and-butter work of accounting. This work can involve significant travel and allows you to really understand how money is being made in the company that you are ana lyzing. It’s gr eat backgr ound ! Budget Analysis : Budget ana lyst s are responsibl e for deve lopi ng and managing an organization’s financial plans. There are plentiful jobs in this area in government and private industry. Besides quantitative skills many budget analyst jobs require good people skills because of negotiations involved in the work.

1-46




BYP 1-3 (Continued) Financial: Financial a ccoun tants prepare financial statements ba sed on general ledge rs and participate in i mportant fi nancia l d ecisions i nvolvi ng mergers and acquisitions, benefits/ERISA planning, and long-term financial projections. This work can be varied over time. One day you may be running spreadshe ets. T he next day you may be vi siti ng a cust omer or supplier to set up a new account and discuss business. This work requires a good understanding of both accounting and finance. Management Account ing : Management accou ntants work in companies and participate in decisions about capital budgeting and line of business analysis. Major functions include cost analysis, analysis of new contracts, and participation in efforts to control expenses efficiently. This work often involves the analysis of the structure of organizations. Is responsibility to spend money in a company at the right level of our organiz ation? Are goa ls and objectives to contr ol cost s being comm unicated effectively? Historically, many management accountants have been derided a s “ bean count ers. ” This menta lit y has undergone ma jor change a s manage ment accountants now often work s ide by side wit h marketing and finance to develop new busi ness. Tax: Tax account ants prepa re corporate a nd personal inco me tax statements and formulate tax strategies involving issues such as financial choice, how to best treat a merger or acquisition, deferral of taxes, when to expense items and the like. This work requires a thorough understanding of economics and the tax code. Increasingly, large corporations are looking for persons with both an accounting and a legal background in tax. A pe rson, fo r example, wit h a JD a nd a CP A wou ld be especially desirable to many fir ms. (e) Juni or Staff Acc ou nt ant


$46,000 – $63,000



1-47

BYP 1-4

DECISION MAKING ACROSS THE ORGANIZATION

(a) The estim ate of the $6 ,100 los s was base d on the diff erence betwee n the $25,000 invested in the driving range and the bank balance of $18,900 at March 31. This is not a valid basis for determining income because it onl y shows the change in cash betwee n two po ints i n tim e. (b) The stateme nt of financial position at M arch 3 1 is as foll ows: CHIP-SHOT DRIVING RANGE COMPANY Stateme nt of Financial Position Marc h 31, 2011 Assets Cadd y sh ack ............................................................... Equ ip men t .................................................................. Cash ............................................................................ Tot al ass ets ........................................................ Equity and Lia bil ities Equity Shar e capit al—or di nar y ..................................... Retain ed earni ng s .............................................. Liabilities Accou nt s payable ($150 + $100) ....................... Total equi ty and liabil it ies ..........................

$ 8,000 800 18,900 $27,700

$25,000 2,450

$27,450 250 $27,700

As sh ow n in th e stat emen t of financi al positi on , the equity at March 31 is $27,450. The estimate of $2,450 of net income is the difference between the initial investment of $25,000 and $27,450. This was not a valid basis for determining net income because changes in equity betwee n two points in t ime may have be en cause d by factors unrelate d to net income. For example, there may be dividends and/or additional capital i nvestments by t he shareholders.

1-48




BYP 1-4 (Continued) (c) Actu al net inco me for Ma rch can be determined by addi ng divid ends to the change in equity during th e month as shown below: Equit y, Marc h 31, per statement of fin ancial pos iti on .......... Equ it y, Marc h 1 ....................................................................... Inc reas e in equit y ................................................................... Add: Div idends ..................................................................... Net inc om e ..............................................................................

$27,450 25,000 2,450 1,000 $ 3,450

Al ternatively, net income can be found by determining the revenues earned [descri bed in (d) below] and sub tracti ng expenses. (d) Revenues e arned ca n be determin ed by adding expens es incur red during the month to net income. March expenses were Rent, $1,000; Wages, $400; Advertising, $750; and Utilities, $100 for a total of $2,250. Revenues earned, therefore, were $5,700 ($2,250 + $3,450). Alternatively, si nc e all revenues are recei ved in cas h, revenues earn ed can be comput ed from an a nalysis of t he cha nges in cash as follows : Beginnin g cas h balanc e ........................................ Less: Cash payments Cadd y sh ack ......................................... Golf s and cl ubs ............................. Rent ball ....................................................... Adver ti sing ............................................ Wages .................................................... Div id ends .............................................. Cash bal ance befor e rev enues ............................. Cash bal ance, Marc h 31 ........................................ Revenu es earn ed ...................................................



$25,000 $8,000 800 1,000 600 400 1,000

11,800 13,200 18,900 $ 5,700


1-49

BYP 1-5

To: From:

COMMUNICATION ACTIVITY

Lynn Benedict Student

I have received the statement of fi nancial po sit ion o f Londo n Company a s of December 31, 2011. A number of items in this statement of financial position are not pro perly repor ted. They are: 1.

The statement of financial position shoul d be dated as of a specific date , not for a period of ti me. Therefore, it s hou ld be dated “ December 31 , 2011.”

2.

Cash should be re ported a fter S uppli es on the stateme nt of financial position.

3.

Acco unts receivable shoul d be show n as an asset, not a liabil ity, and reported between Cash and Supplies on the statement of financial position.

4.

Accou nts paya ble should be show n as a liabilit y, not a n asset. The note payable is also a liability and shoul d be re ported in the liabilit y section.

5.

Liabilities and equity should be shown on the statement of fi nancial posit ion. Sha re ca pital—ordinary is no t a liabilit y.

6.

Share capital—ord inary and retained earni ngs are part of equit y.

1-50




BYP 1-5 (Continued) A cor rect st atem ent of financial p osition is as fo llow s: LONDON COMPANY Statement of Financial Positi on Decemb er 31, 2011 Asset s Equipment............................................................... Suppl ies .................................................................. Acco unts rec eiv able .............................................. Cash ........................................................................ Tot al ass ets ....................................................... Equity and Liabilities Equity Shar e capit al—or di nar y.................................. Retain ed earni ngs ........................................... Tot al li abili ti es ......................................... Liabilities Notes payab le ................................................. Acco unts payable ........................................... Tot al li abili ti es ......................................... Tot al equit y and liabil it ies ......................................



£25,500 2,000 6,000 9,000 £42,500

£26,000 (2,000) £24,000 10,500 8,000 18,500 £42,500


1-51

BYP 1-6

ETHICS CASE

(a) The students shoul d identify a ll of the sta keholders in the case; that is, all the parties that are affected, either beneficially or negatively, by the action or decision described in the case. The list of stakeholders in this case are:   

Steve Baden, int erviewee . Both Baltimore firms. Great Nort hern Coll ege.

(b) The students shoul d identif y the ethical issues, dilemmas, or other considera tions pertinent to the situation described in t he ca se. In this c ase the ethical i ssues are: 

Is it proper that Steve charged both firms for the total travel costs rather than split the actua l amount of $29 6 between the two firms ?



Is collecting $592 as reimbursement for total costs of $296 ethical behavior?



Did Ste ve de ceive both firm s or neither fir m?

(c) Each student must a nswer the question for himself/he rself. Would you want to start your first job having deceived your employer before your first day of work? Would you be embarrassed if either firm found out that you double-charged? Would your school be embarrassed if your act was uncovered? Would you be proud to tell your professor that you col lected your expe nses twice?

1-52




solution manual chapter 1

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