Ifrs Accounting Solution

Solutions to line of works and models prorogue OF CONTENTS * Chapter 11 Concepts for Analysis 1-51 Concepts for Analysis 1-62 Concepts for Analysis 1-103 Concepts for Analysis 1-113 * Chapter 24 abbreviated engagement 2-34 Brief work out 2-44 Brief instance 2-54 role 2-35 * Chapter 36 put to work 3-66 Exercise 3-96 Exercise 3-118 Exercise 3-1410 Exercise 3-1510 Exercise 3-1610 * chapter 412 Exercise 4-212 Exercise 4-413 Exercise 4-516 Exercise 4-1217 Exercise 4-1318 Exercise 4-1519 chore 4-119 Problem 4-721 * Chapter 523 Exercise 5-223 Exercise 5-423 Exercise 5-1325Exercise 5-1525 Problem 5-227 * Chapter 729 Exercise 7-529 Exercise 7-730 Exercise 7-1330 Exercise 7-1531 Exercise 7-1631 Exercise 7-2432 Problem 7-834 Problem 7-1135 Problem 7-1536 * Chapter 838 Exercise 8-138 Exercise 8-1538 Exercise 8-2539 Exercise 8-2640 * chapter 942 Brief Exercise 9-242 Brief Exercise 9-442 Brief Exercise 9-742 Brief Exercise 9-843 Exercise 9-243 Exercise 9-744 Exercise 9-1245 Exercise 9-14 46 Exercise 9-1947 Problem 9-447 * Chapter 1849 Exercise 18-249 Exercise 18-450 Exercise 18-751 Exercise 18-1152 Exercise 18-1553 Exercise 18-1954Problem 18-755 Problem 18-857 * Chapter 2359 Exercise 23-159 Exercise 23-559 Exercise 23-660 Exercise 23-1160 CHAPTER 1 CA 1-5 (a)One of the delegations that the AICPA established prior to the establishment of the FASB was the citizens committee on Accounting Procedures (CAP). The CAP, during its existence from 1939 to 1959, issued 51 Accounting query Bulletins (ARB). In 1959, the AICPA created the Accounting Prin-ciples mount up (APB) to replace the CAP. Before being re place by the FASB, the APB released 31 official pronouncements, called APB Opinions. b)Although the ARBs issued by the CAP helped to narrow the range of alternative practices to near extent, the CAPs problem-by-problem approach failed to provide the well-defined, structured body of bill principles that was both needed and desired. As a result, the CAP was replaced by the APB. The APB had more than authority and responsibility than did the CAP. Unfortunately, the APB was beleaguered throughout its 14- class existence. It came under fire early, charged with overleap of productivity and failing to act promptly to correct alleged account abuses.The APB also met a lot of industry and CPA firm resistivity and occasional governmental interference when tackling numerous thorny account issues. In fear of governmental rule making, the write up profession investigated the in transactioniveness of the APB and replaced it with the FASB. skill from prior experiences, the FASB has several significant differences from the APB. The FASB has (1) smaller membership, (2) unspoilt- conviction, compensated membership, (3) greater autonomy, (4) increase indep force outence, and (5) broader re stick ination. In addition, the FASB has its own research taff and relies on the expertise of sundry(a) childbed force groups dramatis personaeed for various projects. T hese features form the bases for the expectations of success and support from the public. In addition, the due process taken by the FASB in establishing financial report standards gives interested persons ample opportunity to make their views known. Thus, the FASB is responsive to the needs and viewpoints of the blameless economic community, non just the public story profession. (c)The AICPA has supplemented the FASBs efforts in the present standard-setting environment.The issue papers, which atomic number 18 preequationed by the Accounting Standards executive director Committee (AcSEC), identify present-day(prenominal) financial insurance coverage problems for specific industries and present alternative treat-ments of the issue. These papers provide the FASB with an early warning device to understand timely effect of FASB standards, Interpretations, and Staff Positions. In situations where the FASB avoids the subject of an issue paper, AcSEC may issue a story of Positio n to provide guidance for the reporting issue. AcSEC also issues Practice Bulletins which indicate how the AICPA believes a given transaction should be account.Recently, the role of the AICPA in standard-setting has diminished. The FASB and the AICPA agreed, that after a transition period, the AICPA and AcSEC no hourlong forget issue authoritative accounting guidance for public companies. CA 1-6 (a)The pecuniary Accounting Foundation (FAF) is the sponsoring organization of the FASB. The FAF selects the members of the FASB and its Advisory Council, funds their activities, and largely oversees the FASBs activities. The FASB follows a due process in establishing a natural FASB affirmation of Financial Accounting Standards.The quest steps are commonly taken (1) A topic or project is identified and placed on the visiting cards agenda. (2) A task force of experts from various sectors is assembled to define problems, issues, and alternatives related to the topic. (3) Research and analysis are conducted by the FASB skilful staff. (4) A preliminary views document is drafted and released. (5) A public hearing is ofttimes held, usually 60 days after the release of the preliminary views. (6) The Board analyzes and evaluates the public response. (7) The Board deliberates on the issues and prepares an exposure draft for release. 8) After a 30-day (minimum) exposure period for public comment, the Board evaluates all of the responses trustworthy. (9) A committee studies the exposure draft in relation to the public responses, reevaluates its position, and revises the draft if necessary. (10) The full Board gives the revised draft final exam consideration and votes on issuance of a Standards teaching. The passage of a new accounting standard in the form of an FASB Statement requires the support of five of the seven Board members. (b)The FASB issues deuce-ace major types of pronouncements Standards and Interpretations, Financial Accounting Concepts, and Technical B ulletins.Financial accounting standards issued by the FASB are considered GAAP. In addition, the FASB also issues interpretations that represent modifications or extensions of existing standards and APB Opinions. These interpretations have the uniform authority as standards and APB Opinions in guiding real accounting practices. The Statements of Financial Accounting Concepts (SFAC) help the FASB to avoid the problem-by-problem approach. These statements set forth fundamental objectives and concepts that the Board go away use in developing future standards of financial accounting and reporting.They are intended to form a cohesive set of interrelate concepts, a body of theory or a conceptual framework, that will serve as tools for solving existing and emerging problems in a consistent, sound manner. The FASB may issue a technical bulletin when in that respect is a need for guidelines on implementing or applying FASB Standards or Interpretations, APB Opinions, Accounting Research Bulletins, or emerging issues. A technical bulletin is issued only when (1) it is non expected to cause a major change in accounting practice for a number of enterprises, (2) its constitute of implementation is low, and (3) the guidance provided by the bulletin does ot conflict with any broad fundamental accounting principle. In addition, the FASBs Emerging Issues Task Force (EITF) issues statements to provide guidance on how to account for new and unusual financial transactions that have the electric potential for creating diversity in reporting practices. The EITF identifies controversial accounting problems as they come out and determines whether they can be quickly resolved or whether the FASB should become knobbed in solving them. In essence, it becomes a problem filter for the FASB.Thus, it is hoped that the FASB will be able to work on more pervasive long-run problems, while the EITF deals with short-term emerging issues. CA 1-10 1. (b), (e) 2. (a) 3. (c) 4. (d) CA 1-1 1 1. (d) 2. (f) 3. (c) 4. (e) 5. (a) 6. (b) CHAPTER 2 apprize ferment 2-3 (a)Equity (b) receiptss (c)Equity (d)Assets (e) courts (f) breathing outes (g)Liabilities (h)Distributions to owners (i)Gains (j)Investments by owners legal brief behave 2-4 (a)Periodicity (b)Mo bring inary unit (c)Going concern (d)Economic entity abbreviated cipher 2-5 (a)Revenue recognition (b) disbursement recognition (c)Full disclosure (d)Historical represent answer 2-3 (1520 minutes) a)Gains, issuees. (b)Liabilities. (c)Investments by owners, comprehensive income. (also possible would be unrefined incomes and gains). (d)Distributions to owners. ( line of credit to instructor web effect is to reduce virtue and additions). (e)Comprehensive income. (also possible would be levy receiptss and gains). (f)Assets. (g)Comprehensive income. (h)Revenues, expenses. (i)Equity. (j)Revenues. (k)Distributions to owners. (l)Comprehensive income. CHAPTER 3 EXERCISE 3-6 (1015 minutes) 1. Accounts due 750 overhaul Revenue 750 2. Utilities Expense 520 Utilities due 520 3. Depreciation Expense cd Accumulated DepreciationDental Equipment 400 enliven Expense 500 wager Payable 500 4. Insurance Expense ($15,000 X 1/12) 1,250 Prepaid Insurance 1,250 5. Supplies Expense ($1,600 $400) 1,200 Supplies 1,200 EXERCISE 3-9 (1520 minutes) (a) 10/15 Salaries Expense 800 gold 800 (To record payment of October 15 payroll) 10/17 Accounts receivable 2,100 Service Revenue 2,100 (To record gross for work performed for which payment has not yet been received) 10/20 currency 650 honorary Service Revenue 650 (To record receipt of gold for service not yet performed) (b) 10/31 Supplies Expense 470 Supplies 470 (To record the use of supplies during October) 10/31 Accounts receivable 1,650 Service Revenue 1,650 (To record tax income for services performed for which payment has not yet been received) 10/31 Salaries Expense 600 Salaries Payable 600 (To record liability for accrued payroll) 10/31 honorary Service Revenue 400 Service Revenue 400 (To reduce the Unearned Service Revenue account for service that has been performed) EXERCISE 3-11 (2025 Minutes) (a)CAVAMANLIS CO. Income Statement For the twelvemonth finish celestial latitude 31, 2010 Revenues Service revenue $12,590 Expenses Salaries expense $6,840 undertake expense 2,760 Depreciation expense 145 Interest expense 83 9,828 dinero Income $ 2,762 (b)CAVAMANLIS CO. Statement of introduceed fee For the course of instruction Ended celestial latitude 31, 2010 bear cyberspace, January 1 $11,310 Add dinero income 2,762 slight Dividends 3,000 contain lucre, December 31 $11,072 c)CAVAMANLIS CO. proportionality Sheet December 31, 2010 Assets certain Assets funds $18,972 Accounts receivable 6,920 Prepaid rent 2,280 enumerate current assets $28,172 Property, plant, a nd equipment Equipment 18,050 less(prenominal) Accumulated disparagement (4,895) 13,155 ingrained assets $41,327 Liabilities and Stockholders Equity online liabilities zero(prenominal)es collectible $ 5,700 Accounts due 4,472 Interest payable 83 contribute current liabilities 10,255 Stockholders equity unwashed Stock $20,000 Retained honorarium 11,072* 31,072 totality liabilities and phone lineholders equity $41,327 *Beg. proportion + crystallize Income Dividends = culmination Balance $11,310 + $2,762 $3,000 = $11,072 EXERCISE 3-14 (1015 minutes) deals 340,000 gross sales Returns and Allowances 13,000 sales Discounts 8,000 Income summary 319,000 Income abstract 302,000 bell of Goods Sold 202,000 Freight-out 7,000 Insurance Expense 12,000 Rent Expense 20,000 payment Expense 61,000 Income Summary 17,000 Retained Earnings 17,000 EXERCISE 3-15 (1015 minutes) (a) $5,000 ($90,000 $85,000)(d) $95,000 ($5,000 + $90,000) b) $29,00 0 ($85,000 $56,000)(e) $52,000 ($90,000 $38,000) (c) $14,000 ($29,000 $15,000) EXERCISE 3-16 (1015 minutes) trades 390,000 equal of Goods Sold 235,700 gross sales Returns and Allowances 12,000 gross sales Discounts 15,000 interchange Expenses 16,000 Administrative Expenses 38,000 Income task Expense 30,000 Income Summary 43,300 (or) gross revenue 390,000 Income Summary 390,000 Income Summary 346,700 price of Goods Sold 235,700 sales Returns and Allowances 12,000 sales Discounts 15,000 Selling Expenses 16,000 Administrative Expenses 38,000Income Tax Expense 30,000 Income Summary 43,300 Retained Earnings 43,300 Retained Earnings 18,000 Dividends 18,000 CHAPTER 4 EXERCISE 4-2 (2535 minutes) (a) add together net revenue sales $400,000 less(prenominal) Sales discounts $ 7,800 Sales returns 12,400 20,200 Net sales 379,800 Dividend revenue 71,000 lease revenue 6,500 do net revenue $457,300 (b) Net income gibe net revenue (from a) $457,300 Expenses bell of goods exchange $184,400 Selling expenses 99,400 Administrative expenses 82,500 Interest expense 12,700 innate expenses 379,000 Income earlier income impose 78,300 Income revenue 26,600 Net income $ 51,700 (c) Dividends declared Ending carry earnings $134,000 lineage retained earnings 114,400 Net increase 19,600 little Net income (from (b)) 51,700 Dividends declared $ 32,100 ALTERNATE SOLUTION (for (c)) Beginning retained earnings $114,400 Add Net income 51,700 166,100 slight Dividends declared ? Ending retained earnings $134,000 Dividends declared must(prenominal) be $32,100 ($166,100 $134,000) EXERCISE 4-4 (3035 minutes) (a)Multiple-Step Form WEBSTER society Income Statement For the family Ended December 31, 2010 (In thousands, except earnings per share) Sales $96,500 Cost of goods sold 63,570 sodding(a) meshing 32,930 operatio nal Expenses Selling expenses Sales commissions $7,980 Depr. of sales equipment 6,480 Transportation-out 2,690 $17,150 Administrative expenses Officers salaries 4,900 Depr. of office furn. and equip. 3,960 8,860 26,010 Income from trading trading operations 6,920 Other Revenues and Gains Rental revenue 17,230 24,150 Other Expenses and Losses Interest expense 1,860 Income before income tax 22,290 Income tax 7,580 Net income $14,710 Earnings per share ($14,710 ? 40,550) $. 36 (b)Single-Step Form WEBSTER gild Income Statement For the Year Ended December 31, 2010 (In thousands, except earnings per share) Revenues Sales $ 96,500Rental revenue 17,230 Total revenues 113,730 Expenses Cost of goods sold 63,570 Selling expenses 17,150 Administrative expenses 8,860 Interest expense 1,860 Total expenses 91,440 Income before income tax 22,290 Income tax 7,580 Net income $ 14,710 Earnings per share $0. 36 noe An alternative income statement format for the single-step form is to show income tax as part of expenses, and not as a separate percentage point. (c)Single-step 1. Simplicity and conciseness. 2. Probably better understood by users. . accent mark on total be and expenses and net income. 4. Does not imply precession of one revenue or expense over another. Multiple-step 1. Provides more training through segregation of operating and nonoperating items. 2. Expenses are matched with related revenue. Note to instructor Students answers will vary due to the nature of the question i. e. , it asks for an opinion. However, the discussion accompaniment the answer should include the above points. EXERCISE 4-5 (3035 minutes) PARNEVIK CORP. Income Statement For the Year Ended December 31, 2010 Sales Revenue Sales $1,280,000 slight Sales returns and allowances $150,000 Sales discounts 45,000 195,000 Net sales revenue 1,085,000 Cost of goods sold 621,000 megascopic meshing 464,000 Operating Expenses Selling expenses 194,000 Admin. and general expenses 97,000 291,000 Income from operations 173,000 Other Revenues and Gains Interest revenue 86,000 259,000 Other Expenses and Losses Interest expense 60,000 Income before tax and terrific item 199,000 Income tax ($199,000 X . 34) 67,660 Income before odd item 131,340 sinful itemloss from earthquake damage great hundred,000 Less applicable tax reduction ($120,000 X . 34) 40,800 79,200 Net income $ 52,140 Per share of common stock Income before extraordinary item ? ($131,340 ? 100,000) $1. 31* Extraordinary item (net of tax) (0. 79) Net income ($52,140 ? 100,000) $0. 52 * locomote EXERCISE 4-12 (1520 minutes) Net income Income from move operations before income tax $21,650,000 Income tax (35% X $21,650,000) 7,577,500 Income from continuing operations 14,072,500 discontinue operations Loss before income tax $3,225,000 Less Applicable income tax (35%) 1,128,750 2,096,250 Ne t income $11,976,250 Preferred dividends declared $ 860,000 leaden average common shares corking 4,000,000 Earnings per share Income from continuing operations $3. 30* Discontinued operations, net of tax (0. 52)** Net income $2. 78*** *($14,072,500 $860,000) ? 4,000,000. (Rounded) **$2,096,250 ? 4,000,000. (Rounded) ***($11,976,250 $860,000) ? 4,000,000. EXERCISE 4-13 (1520 minutes) (a) 2010 Income before income tax$460,000Income tax (35%) 161,000 Net Income$299,000 (b)Cumulative effect for age prior to 2010 Year charge Average FIFO Difference Tax Rate (35%) Net resultant 2008 $370,000 $395,000 $25,000 2009 390,000 420,000 30,000 Total $55,000 $19,250 $35,750 (c) 2010 2009 2008 Income before income tax $460,000 $420,000 $395,000 Income tax (35%) 161,000 147,000 138,250 Net income $299,000 $273,000 $256,750 EXERCISE 4-15 (1520 minutes) BRYANT CO. Statement of Stockholders Equity For the Year Ended December 31, 2010 Total Compre-hensive Income Retained Earnings Accumulated Other Comprehensive Income popular Stock Beginning balance $520,000 $ 90,000 $80,000 $350,000 Comprehensive income Net income* 170,000 $170,000 170,000 Other comprehensive income Unrealized memory loss (50,000) (50,000) (50,000) Comprehensive income $120,000 Dividends (10,000) (10,000) Ending balance $630,000 $250,000 $30,000 $350,000 *($750,000 $500,000 $80,000).SOLUTIONS TO enigmaS PROBLEM 4-1 DICKINSON club Income Statement For the Year Ended December 31, 2010 Sales $25,000,000 Cost of goods sold 16,000,000 crying(a) reach 9,000,000 Selling and administrative expenses 4,700,000 Income from operations 4,300,000 Other revenues and gains Interest revenue $ 70,000 Gain on the sale of investments 110,000 180,000 Other expenses and losses Write-off of thanksgiving 820,000 Income from continuing operations before income tax 3,660,000 Income tax 1,244,000 Income from continui ng operations 2,416,000Discontinued operations Loss on operations, net of tax 90,000 Loss on disposal, net of tax 440,000 530,000 Income before extraordinary item 1,886,000 Extraordinary itemloss from flood damage, net of tax 390,000 Net income $ 1,496,000 Earnings per share Income from continuing operations $ 4. 67a Discontinued operations Loss on operations, net of tax $(0. 18) Loss on disposal, net of tax (0. 88) (1. 06) Income before extraordinary item 3. 61b Extraordinary loss, net of tax (0. 78) Net income $ 2. 83c DICKINSON allianceRetained Earnings Statement For the Year Ended December 31, 2010 Retained earnings, January 1 $ 980,000 Add Net income 1,496,000 2,476,000 Less Dividends Preferred stock $ 80,000 Common stock 250,000 330,000 Retained earnings, December 31 $ 2,146,000 a$2,416,000 $80,000 = $4. 67 500,000 shares b$1,886,000 $80,000 = $3. 61 500,000 shares c$1,496,000 $80,000 = $2. 83 500,000 shares PROBLEM 4-7 WADE CORP. Income Statement (Partial) For the Year Ended December 31, 2010 Income from continuing operations before income tax $1,200,000* Income tax 456,000** Income from continuing operations 744,000 Discontinued operations Loss from operations of cease subsidiary $ 90,000 Less Applicable income tax reduction 34,200 $ 55,800 Loss from disposal of subsidiary 100,000 Less Applicable income tax reduction 38,000 62,000 117,800 Income before extraordinary item 626,200 Extraordinary item Gain on condemnation 125,000 Less Applicable income tax 50,000 75,000 Net income $ 701,200 Per share of common stock Income from continuing operations $4. 96 Discontinued operations, net of tax (0. 79) Income before extraordinary item 4. 17 Extraordinary item, net of tax 0. 50 Net income ($701,200 ? 150,000) $4. 67 * computing of income from continuing operations before income tax As previously stated $1,210,000 Loss on sale of equipment $40,000 ($80,000 $30,000) (10,0 00) Restated $1,200,000 **Computation of income tax expense $1,200,000 X . 38 = $456,000 Note The error related to the intangible asset was correctly charged to retained earnings.CHAPTER 5 EXERCISE 5-2 (1520 minutes) 1. h. 11. b. 2. d. 12. f. 3. f. 13. a. 4. f. 14. h. 5 c. 15. c. 6. a. 16. b. 7. f. 17. a. 8. g. 18. a. 9. a. 19. g. 10. a. 20. f. EXERCISE 5-4 (3035 minutes) GULISTAN INC. Balance Sheet December 31, 2010 Assets Current assets cash $ xxx Less Cash dependant for plant expanding upon xxx $thirty Accounts receivable xxx Less Allowance for equivocal accounts XXX XXX Notes receivable XXX receivablesofficers XXX Inventories Finished goods XXX Work in process XXX Raw materials XXX XXX Total current assets $XXX Long-term investments Preferred stock investments XXX Land held for future plant site XXX Cash restricted for plant expansion XXX Total long investments XXX Property, plant, and equipment Buildings XXX Less Accum. depreciation buildings XXX XXX Intangible assets Copyrights XXX Total assets $XXX Liabilities and Stockholders Equity Current liabilities Accrued salaries payable $XXX Notes payable, short-term XXX Unearned subscriptions revenue XXX Unearned rent revenue XXX Total current liabilities $XXX Long-term debt Bonds payable, due in four years $XXX Less Discount on bonds payable (XXX) XXX Total liabilities XXX Stockholders equity Capital stock Common stock XXX Additional paid-in groovy paying(a) in capital in excess of parcommon stock XXX Total paid-in capital XXX Retained earnings XXX Total paid-in capital and retained earnings XXX Less Treasury stock, at cost (XXX) Total stockholders equity XXX Total liabilities and stock- holders equity $XXX Note to instructor An assumption made here is that specie included the cash restricted for plant expansion. If it did not, then a subtraction from cash would not be necessary or the cash balance would be grossed up and then the cash restricted for plant expansion deducted. EXERCISE 5-13 (1520 minutes) (a) 4. (f) 1. (k) 1. (b) 3. (g) 5. (l) 2. (c) 4. (h) 4. (m) 2. (d) 3. (i) 5. (e) 1. (j) 4. EXERCISE 5-15 (2535 minutes) (a)SONDERGAARD CORPORATION Statement of Cash Flows For the Year Ended December 31, 2010 Cash flows from operating activities Net income $160,000 Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense $17,000 Loss on sale of investments 7,000 Decrease in accounts receivable 5,000 Decrease in current liabilities (17,000) 12,000 Net cash provided by operating activities 172,000 Cash flows from investing activities Sale of investments ($74,000 $52,000) $7,000 15,000 Purchase of equipment (58,000) Net cash used by investing activities (43,000) Cash flows from financing activities Payment of cash div idends (50,000) Net increase in cash 79,000 Cash at beginning of year 78,000 Cash at end of year $157,000 (b)Free Cash Flow Analysis Net cash provided by operating activities $172,000 Less Purchase of equipment (58,000) Dividends (50,000) Free cash flow $ 64,000 PROBLEM 5-2 MONTOYA, INC. Balance Sheet December 31, 2010Assets Current assets Cash $ 360,000 Trading securities 121,000 Notes receivable 445,700 Income taxes receivable 97,630 Inventories 239,800 Prepaid expenses 87,920 Total current assets $1,352,050 Property, plant, and equipment Land $ 480,000 Building $1,640,000 Less Accum. depreciation building 270,200 1,369,800 Equipment 1,470,000 Less Accum. depreciation equipment 292,000 1,178,000 3,027,800 Intangible assets Goodwill 125,000 Total assets $4,504,850Liabilities and Stockholders Equity Current liabilities Accounts payable $ 490,000 Notes payable to banks 265,000 Payroll taxes payable 177,591 Taxes payable 9 8,362 Rent payable 45,000 Total current liabilities $1,075,953 Long-term liabilities Unsecured strains payable (long-term) $1,600,000 Bonds payable $300,000 LessDiscount on bonds payable 15,000 285,000 Long-term renting obligations 480,000 2,365,000 Total liabilities 3,440,953 Stockholders equity Capital stock Preferred stock, $10 par 20,000 shares authorized, 15,000 shares issued $150,000 Common stock, $1 par 400,000 shares authorized, 200,000 issued 200,000 $350,000 Retained earnings ($1,063,897 $350,000) 713,897 Total stockholders equity ($4,504,850 $3,440,953) 1,063,897 Total liabilities and stockholders equity $4,504,850 CHAPTER 7 EXERCISE 7-5 (1520 minutes) (a) 1. June 3 Accounts dueArquette 2,000 Sales 2,000 June 12 Cash 1,960 Sales Discounts ($2,000 X 2%) 40 Accounts ReceivableArquette 2,000 2. June 3 Accounts ReceivableArquette 1,960 Sales ($2,000 X 98%) 1,960 June 12 Cash 1,960 Acc ounts ReceivableArquette 1,960 (b) July 29 Cash 2,000 Accounts ReceivableArquette 1,960 Sales Discounts waive 40 (Note to instructor Sales discounts forfeited could have been recog-nized at the time the discount period lapsed. The company, however, would probably not record this forfeiture until final cash settlement. ) EXERCISE 7-7 (1015 minutes) (a) Bad Debt Expense 7,500 Allowance for dubious Accounts 7,500* . 01 X ($800,000 $50,000) = $7,500 (b) Bad Debt Expense 6,000 Allowance for Doubtful Accounts 6,000* *Step 1. 05 X $160,000 = $8,000 (desired credit balance in Allowance account) Step 2$8,000 $2,000 = $6,000 (required credit entry to bring allowance account to $8,000 credit balance) EXERCISE 7-13 (1015 minutes) (a) Cash 290,000 Finance Charge 10,000* Notes Payable 300,000 *2% X $500,000 = $10,000 (b) Cash 350,000 Accounts Receivable 350,000 EXERCISE 7-13 (Continued) (c) Notes Payable 300,000 Interest Expense 7,500* Ca sh 307,500 *10% X $300,000 X 3/12 = $7,500 EXERCISE 7-15 (1015 minutes) Computation of net proceeds Cash received $190,000 Less recourse liability 2,000 Net proceeds $188,000 Computation of gain or loss Carrying value $200,000 Net proceeds 188,000 Loss on sale of receivables $ 12,000 The following journal entry would be made Cash $190,000 Loss on Sale of Receivables 12,000 Recourse Liability 2,000 Accounts Receivable 200,000 EXERCISE 7-16 (1520 minutes) (a) To be recorded as a sale, all of the following conditions would be met 1. The transferred asset has been isolated from the transferor (put beyond reach of the transferor and its creditors). 2. The transferees have obtained the right to pledge or to exchange either the transferred assets or beneficial interests in the trans-ferred assets. 3. The transferor does not maintain effective control over the trans-ferred assets through an agreement to repurchase or redeem them before their maturity. (b) C omputation of net proceeds Cash received ($250,000 X 94%) $235,000 collectible from factor ($250,000 X 4%) 10,000 $245,000 Less Recourse obligation 3,000 Net proceeds $242,000 Computation of gain or loss Carrying value $250,000 Net proceeds 242,000 Loss on sale of receivables $ 8,000 The following journal entry would be made Cash $235,000 Due from Factor 10,000 Loss on Sale of Receivables 8,000 Recourse Liability 3,000 Accounts Receivable 250,000 *EXERCISE 7-24 (1520 minutes) (a)KIPLING COMPANY camber Reconciliation July 31 Balance per bank statement, July 31 $ 8,650 Add Deposits in transit 2,850a Deduct salient(ip) cow chips (1,100)b Correct cash balance, July 31 $10,400 Balance per books, July 31 $ 9,250 Add disposition of note 1,500 Less believe service charge $ 15 NSF check 335 (350) Corrected cash balance, July 31 $10,400 aComputation of deposits in transit Deposits per books $5,810 Deposits per bank in July $ 4,500 Less deposits in transit (June) (1,540) Deposits mailed and received in July (2,960) Deposits in transit, July 31 $2,850 bComputation of outstanding checks Checks written per books $3,100 Checks cleared by bank in July $ 4,000 Less outstanding checks (June)* (2,000) Checks written and cleared in July (2,000) Outstanding checks, July 31 $1,100 *Assumed to clear bank in July (b) Cash 1,150 Office ExpensesBank Charges 15 Accounts Receivable 335 Notes Receivable 1,500 PROBLEM 7-8 10/1/10 Notes Receivable 120,000 Sales 120,000 12/31/10 Interest Receivable 2,400* Interest Revenue 2,400 *$120,000 X . 08 X 3/12 = $2,400 10/1/11 Cash 9,600* Interest Receivable 2,400 Interest Revenue 7,200** *$120,000 X . 08 = $9,600**$120,000 X . 08 X 9/12 = $7,200 2/31/11 Interest Receivable 2,400 Interest Revenue 2,400 10/1/12 Cash 9,600 Interest Receivable 2,400 Interest Revenue 7,200 Cash 120,000 Notes Receivable 120,000 Note Entries at 10/1/11 and 10 /1/12 assumes reversing entries were not made on January 1, 2011 and January 1, 2012. PROBLEM 7-11 SANDBURG COMPANY Income Statement Effects For the Year Ended December 31, 2010 Expenses resulting from accounts receivable designate (Schedule 1) $22,320 Loss resulting from accounts receivable sold ($300,000 $270,000) 30,000Total expenses $52,320 Schedule 1 Computation of Expense for Accounts Receivable Assigned Assignment expense Accounts receivable charge $400,000 X 80% Advance by Keller Finance confederacy 320,000 X 3% $ 9,600 Interest expense 12,720 Total expenses $22,320 *PROBLEM 7-15 (a)The entries for the issuance of the note on January 1, 2010 The present value of the note is $1,200,000 X . 68058 = $816,700 (Rounded by $4). Botosan Company (Debtor) Cash 816,700 Discount on Notes Payable 383,300 Note Payable 1,200,000 home(a) Organization Bank (Creditor) Notes Receivable 1,200,000 Discount on Notes Receivable 3 83,300 Cash 816,700 (b)The amortization schedule for this note is SCHEDULE FOR INTEREST AND DISCOUNT amortisation EFFECTIVE-INTEREST METHOD $1,200,000 Note Issued to Yield 8% Date Cash Paid Interest Expense Discount Amortized Carrying Amount of Note 1/1/10 $ 816,700 12/31/10 $0 $ 65,336* $ 65,336 882,036** 12/31/11 0 70,563 70,563 952,599 12/31/12 0 76,208 76,208 1,028,807 12/31/13 0 82,305 82,305 1,111,112 2/31/14 0 88,888 88,888 1,200,000 Total $0 $383,300 $383,300 *$816,700 X 8% = $65,336. **$816,700 + $65,336 = $882,036. (c)The note can be considered to be impaired only when it is probable that, based on current information and events, National Organization Bank will be otiose to collect all counts due (both principal and interest) according to the contractual footing of the loan. (d) The loss is computed as follows Carrying amount of loan (12/31/11) $952,599a Less pay value of $800,000 due in 3 years at 8% (635,064)b Loss due to impairment $317,535 aSee amortization schedule from answer (b) on page 7-66. b$800,000 X . 79383 = $635,064. December 31, 2011 National Organization Bank (Creditor) Bad Debt Expense 317,535 Allowance for Doubtful Accounts 317,535 Note Botosan Company (Debtor) has no entry. CHAPTER 8 EXERCISE 8-1 (1520 minutes) Items 2, 3, 5, 8, 10, 13, 14, 16, and 17 would be report as roll in the financial statements. The following items would not be describe as instrument 1. Cost of goods sold in the income statement. 4. Not reported in the financial statements. 6. Cost of goods sold in the income statement. . Cost of goods sold in the income statement. 9. Interest expense in the income statement. 11. Advertising expense in the income statement. 12. Office supplies in the current assets component part of the balance sheet. 15. Not reported in the financial statements. 18. Short-term investments in the current asset section of the balance sheet. EXERCISE 8-15 (1520 minutes) (a)ESPLANADE COMPANY Computation of Inventory for fruit BAP downstairs FIFO Inventory system March 31, 2010 Units Unit Cost Total Cost March 26, 2010 600 $12. 00 $ 7,200 February 16, 2010 800 11. 00 8,800January 25, 2010 (portion) 100 10. 00 1,000 March 31, 2010, inventory 1,500 $17,000 (b)ESPLANADE COMPANY Computation of Inventory for Product BAP Under LIFO Inventory Method March 31, 2010 Units Unit Cost Total Cost Beginning inventory 600 $8. 00 $ 4,800 January 5, 2010 (portion) 900 9. 00 8,100 March 31, 2010, inventory 1,500 $12,900 (c)ESPLANADE COMPANY Computation of Inventory for Product BAP Under Weighted Average Inventory Method March 31, 2010 Units Unit Cost Total Cost Beginning inventory 600 $ 8. 0 $ 4,800 January 5, 2010 1,100 9. 00 9,900 January 25, 2010 1,300 10. 00 13,000 February 16, 2010 800 11. 00 8,800 March 26, 2010 600 12. 00 7,200 4,400 $43,700 Weighted average cost ($43,700 ? 4,400) $ 9. 93* March 31 , 2010, inventory 1,500 $ 9. 93 $14,895 *Rounded off. EXERCISE 8-25 (2025 minutes) Current $ Price Index Base Year $ Change from Prior Year 2007 $ 80,000 1. 00 $ 80,000 2008 111,300 1. 05 106,000 +$26,000 2009 108,000 1. 0 90,000 (16,000) 2010 122,200 1. 30 94,000 +4,000 2011 147,000 1. 40 105,000 +11,000 2012 176,900 1. 45 122,000 +17,000 Ending InventoryDollar-value LIFO 2007 $80,000 2011 $80,000 1. 00 = $ 80,000 10,000 1. 05 = 10,500 2008 $80,000 1. 00 = $ 80,000 4,000 1. 30 = 5,200 26,000 1. 05 = 27,300 11,000 1. 40 = 15,400 $107,300 $111,100 2009 $80,000 1. 00 = $ 80,000 2012 $80,000 1. 00 = $ 80,000 10,000 1. 05 = 10,500 10,000 1. 5 = 10,500 $ 90,500 4,000 1. 30 = 5,200 11,000 1. 40 = 15,400 2010 $80,000 1. 00 = $ 80,000 17,000 1. 45 = 24,650 10,000 1. 05 = 10,500 $135,750 4,000 1. 30 = 5,200 $ 95,700 EXERCISE 8-26 (1520 minutes) Date Current $ Price Index Base-Year $ Change fr om Prior Year Dec. 31, 2007 $ 70,000 1. 00 $70,000 Dec. 31, 2008 88,200 1. 05 84,000 +$14,000 Dec. 31, 2009 95,120 1. 16 82,000 (2,000) Dec. 31, 2010 108,000 1. 0 90,000 +8,000 Dec. 31, 2011 100,000 1. 25 80,000 (10,000) Ending InventoryDollar-value LIFO Dec. 31, 2007 $70,000 Dec. 31, 2008 $70,000 1. 00 = $70,000 14,000 1. 05 = 14,700 $84,700 Dec. 31, 2009 $70,000 1. 00 = $70,000 12,000 1. 05 = 12,600 $82,600 Dec. 31, 2010 $70,000 1. 00 = $70,000 12,000 1. 05 = 12,600 8,000 1. 20 = 9,600 $92,200 Dec. 31, 2011 $70,000 1. 00 = $70,000 10,000 1. 05 = 10,500 $80,500 CHAPTER 9 shortened EXERCISE 9-2 Item Cost Designated commercialise LCM Jokers $2,000 $2,050 $2,000 Penguins 5,000 4,950 4,950 Riddlers 4,400 4,550 4,400 Scarecrows 3,200 3,070 3,070 BRIEF EXERCISE 9-4 Group bout of CDs Sales Price per CD Total Sales Price Relative Sales Price Total Cost Cost Allocated to CDs Cost per CD 1 100 $ 5 $ 500 5/100 * X $8,000 = $ 400 $ 4** 2 800 $10 8,000 80/100 X $8,000 = 6,400 $ 8 3 100 $15 1,500 15/100 X $8,000 = 1,200 $12 $10,000 $8,000 $500/$10,000 = 5/100**$400/100 = $4 BRIEF EXERCISE 9-7 Beginning inventory $150,000 Purchases 500,000 Cost of goods for sale 650,000 Sales $700,000 Less gross benefit (35% X 700,000) 245,000 Estimated cost of goods sold 455,000 Estimated decision inventory destroyed in fire $195,000 BRIEF EXERCISE 9-8 Cost sell Beginning inventory $ 12,000 $ 20,000 Net purchases 120,000 170,000 Net markups 10,000 Totals $132,000 200,000 Deduct Net markdowns 7,000 Sales 147,000 Ending inventory at sell $ 46,000 Cost-to-retail ratio $132,000 ? $200,000 = 66% Ending inventory at lower-of cost-or-market (66% X $46,000) = $30,360 EXERCISE 9-2 (1015 minutes) Item Net tangible Value (Ceiling) Net Realizable Value Less Normal gain (Floor) Replacement Cost Designated Market Cost LCM D $90* $70** $120 $90 $75 $75 E 80 60 72 72 80 72 F 60 40 70 60 80 60 G 55 35 30 35 80 35 H 80 60 70 70 50 50 I 60 40 30 40 36 36 Estimated change price Estimated selling expense = $120 $30 = $90. **Net realizable value Normal cabbage perimeter = $90 $20 = $70. EXERCISE 9-7 (1520 minutes) Cost Per tummy (Cost Allocated/ No. of Lots) $2,040 2,720 1,360 Cost Allocated to Lots $18,360 40,800 25,840 $85,000 Total Cost $85,000 85,000 85,000 X X X Relative Sales Price $27,000/$125,000 $60,000/$125,000 $38,000/$125,000 $78,000 53,040 24,960 18,200 $ 6,760 Gross Profit $ 3,840 10,240 10,880 $24,960 Total Sales Price $ 27,000 60,000 38,000 $125,000 Sales (see schedule) Cost of goods sold (see schedule) Gross proceeds Operating expenses Net income Sales $12,000 32,000 34,000 $78,000 SalesPrice Per L ot $3,000 4,000 2,000 Cost Cost of Per Lots Lot Sold $2,040 $ 8,160 2,720 21,760 1,360 23,120 $53,040 No. of Lots 9 15 19 Number of Lots Sold* 4 8 17 29 * 9 5 = 4 15 7 = 8 19 2 = 17 Group 1 Group 2 Group 3 Group 1 Group 2 Group 3 Total EXERCISE 9-12 (1015 minutes) a) Inventory, May 1 (at cost) $160,000 Purchases (at cost) 640,000 Purchase discounts (12,000) Freight-in 30,000 Goods available (at cost) 818,000 Sales (at selling price) $1,000,000 Sales returns (at selling price) (70,000) Net sales (at selling price) 930,000 Less Gross profit (25% of $930,000) 232,500 Sales (at cost) 697,500 Approximate inventory, May 31 (at cost) $120,500 (b)Gross profit as a percent of sales must be computed 25% = 20% of sales. 100% + 25% Inventory, May 1 (at cost) $160,000 Purchases (at cost) 640,000 Purchase discounts (12,000) Freight-in 30,000 Goods available (at cost) 818,000 Sal es (at selling price) $1,000,000 Sales returns (at selling price) (70,000) Net sales (at selling price) 930,000 Less Gross profit (20% of $930,000) 186,000 Sales (at cost) 744,000 Approximate inventory, May 31 (at cost) $ 74,000 EXERCISE 9-14 Beginning inventory $170,000 Purchases 450,000 620,000 Purchase returns (30,000) Goods available (at cost) 590,000Sales $650,000 Sales returns (24,000) Net sales 626,000 Less Gross profit (30% X $626,000) (187,800) 438,200 Estimated ending inventory (unadjusted for damage) 151,800 Less Goods on handundamaged (at cost) $21,000 X (1 30%) (14,700) Less Goods on handdamaged (at net realizable value) (5,300) levy loss on inventory $131,800 EXERCISE 9-19 (1217 minutes) Cost Retail Beginning inventory $ 200,000 $ 280,000 Purchases 1,425,000 2,140,000 Totals 1,625,000 2,420,000 Add Net markups Markups $95,000 Markup cancellations _________ (15,000) 80,000 Totals $1,625,000 2,500,000 Deduct Net markdowns Ma rkdowns 35,000 Markdown cancellations (5,000) 30,000 Sales price of goods available 2,470,000 Deduct Sales 2,250,000 Ending inventory at retail $ 220,000 Cost-to-retail ratio = $1,625,000 = 65% $2,500,000 Ending inventory at cost = 65% X $220,000 = $143,000 PROBLEM 9-4 Beginning inventory $ 80,000 Purchases 290,000 370,000 Purchase returns (28,000)Total goods available 342,000 Sales $415,000 Sales returns (21,000) 394,000 Less Gross profit (35% of $394,000) 137,900 (256,100) Ending inventory (unadjusted for damage) 85,900 Less Goods on handundamaged ($30,000 X 1 35%) 19,500 Inventory damaged 66,400 Less Salvage value of damaged inventory 8,150 Fire loss on inventory $ 58,250 CHAPTER 18 EXERCISE 18-2 (1520 minutes) (a)1. 6/3Accounts ReceivableAnn Mount8,000 Sales8,000 6/5Sales Returns and Allowances600 Accounts ReceivableAnn Mount600 6/7Transportation-Out24Cash24 6/12Cash7,252 Sales Discounts (2% X $7,400)148 Accounts ReceivableAnn Mount7,400 2. 6/3Acco unts ReceivableAnn Mount7,840 Sales $8,000 (2% X $8,000)7,840 6/5Sales Returns and Allowances588 Accounts ReceivableAnn Mount $600 (2% x $600)588 6/7Transportation-Out24 Cash24 6/12Cash7,252 Accounts ReceivableAnn Mount7,252 (b)8/5Cash7,400 Accounts ReceivableAnn Mount7,252 Sales Discounts Forfeited (2% X $7,400)148 EXERCISE 18-4 (2025 minutes) (a)Gross profit accept in 2010 2011 2012 centre price $1,600,000 $1,600,000 $1,600,000 Costs Costs to attend $400,000 $825,000 $1,070,000 Estimated be to complete 600,000 1,000,000 275,000 1,100,000 0 1,070,000 Total estimated profit 600,000 500,000 530,000 Percentage completed to date 40%* 75%** 100% Total gross profit recognised 240,000 375,000 530,000 Less Gross profit recognized in previous years 0 240,000 375,000 Gross profit recognized in current year $ 240,000 $ 135,000 $ 155,000 **$400,000 ? $1,000,000**$825,000 ? 1,100,000 (b) eddy in Process ($825,000 $400,000)425,000Materials, Cash, Payables, etc. 425,000Accounts Receivable ($900,000 $300,000)600,000 Billings on Construction in Process600,000 Cash ($810,000 $270,000)540,000 Accounts Receivable540,000 Construction Expenses425,000 Construction in Process135,000 Revenue from Long-Term Contracts560,000* *$1,600,000 X (75% 40%) (c)Gross profit recognized in 2010 2011 2012 Gross profit $0 $0 $530,000* *$1,600,000 $1,070,000 EXERCISE 18-7 (2530 minutes) (a)1. Gross profit recognized in 2010 Contract price$1,200,000 Costs Costs to date$280,000Estimated additional costs 520,000 800,000 Total estimated profit400,000 Percentage completion to date ($280,000/$800,000) 35% Gross profit recognized in 2010$ 140,000 Gross profit recognized in 2011 Contract price$1,200,000 Costs Costs to date$600,000 Estimated additional costs 200,000 800,000 Total estimated profit400,000 Percentage completion to date ($600,000/$800,000) 75% Total gross profit recognized300,000 Less Gross profit recognized in 2010 140,000 Gross profit recognized in 2011$ 160,000 2. Construction in Process ($600,000 $280,000)320,000 Materials, Cash, Payables, etc. 20,000 Accounts Receivable ($500,000 $150,000)350,000 Billings on Construction in Process350,000 Cash ($320,000 $120,000)200,000 Accounts Receivable200,000 Construction in Process160,000 Construction Expenses320,000 Revenues from Long-Term Contracts480,000* *$1,200,000 X ($600,000 $280,000) ? $800,000 (b)Income Statement (2011) Gross profit on long-term structure contract$160,000 Balance Sheet (12/31/11) Current assets Receivablesconstruction in process$180,000* Inventoriesconstruction in process totaling $900,000** less billings of $500,000$400,000 **$180,000 = $500,000 $320,000 **Total cost to date$600,000 010 Gross profit140,000 2011 Gross profit 160,000 $900,000 EXERCISE 18-11 (1520 minutes) (a)Computation of gross profit recognized 2010 2011 $370,000 X 34%* $125,800 $350,000 X 34%* $119,000 $450,000 X 32%** 144,000 $125,800 $263,000 *($900,000 $594,000) ? $900,000 **($1,00 0,000 $680,000) ? $1,000,000(b) installation Accounts Receivable20111,000,000 induction Sales1,000,000 Cost of Installment Sales680,000 Inventory680,000 Cash800,000 Installment Accounts Receivable, 2010350,000 Installment Accounts Receivable, 2011450,000 Installment Sales1,000,000 Cost of Installment Sales680,000Deferred Gross Profit on Installment Sales, 2011320,000 Deferred Gross Profit on Installment Sales, 2010119,000 Deferred Gross Profit on Installment Sales, 2011144,000 Realized Gross Profit on Installment Sales263,000 Realized Gross Profit on Installment Sales263,000 Income Summary263,000 EXERCISE 18-15 (1015 minutes) (a)Realized gross profit recognized in 2011 under the installment-sales method of accounting is $83,000. When gross profit is expressed as a percentage of cost, it must be converted to percentage of sales to compute the realized gross profit under the installment-sales method of accounting.Thus, 2010 and 2011 gross profits as a percentage of sales are 20% and 21. 875% respectively. Sale Year Gross Profit Percentage 2011 Collections 2011 Realized Profit 2010 . 25/(1. 00 + . 25) = 20% $240,000 $48,000 2011 . 28/(1. 00 + . 28) = 21. 875% 160,000 35,000 TOTAL $83,000 (Note to instructor The problem provides gross profit as a percent of cost. ) (b)The balance of Deferred Gross Profit could be reported on the balance sheet for 2011 1. As a current liability on the theory that it is related to Installment Accounts Receivables that are normally treated as current assets . As a deferred credit between liabilities and stockholders equity. This treatment is criticized because there is no obligation to outsiders or 3. As an adjustment or graduation to the related Installment Accounts Receivable. This is because the deferred gross profit is a part of revenue from installment sales not yet realized. The related receivable will be overstated unless the deferred gross profit is deducted. On the other hand, the amount of deferred gross profit has no direct relationship with the estimated collectibility of the accounts receivable.It is not a settled matter as to the proper classification of deferred gross profit on the balance sheet when the installment-sales method of accounting is used to legal community income. As indicated in the text, the FASB in Statement of Financial Accounting Concepts No. 6 indicates that it conceptually is an asset valuation. We support the FASB position. (c)Gross profit as a percent of sales in 2010 is 20% (as computed in (a) above) gross profit therefore is $96,000 ($480,000 X . 20) and the cost of 2010 sales is $384,000 ($480,000 $96,000). Because the amounts collected in 2010 ($130,000) and 2011 ($240,000) do not exceed the total cost of