Saturday, June 4, 2016

Chapter - 2 Financial accounting An introduction to concepts, methods and uses - Solutions for text book questions with case studies and answers to problems by stickney

Chapter 2 solutions continued

2.26 continued.

Correcting Entry:
Equipment.............................................................................     120,000
Depreciation Expense..........................................................       12,000
     Equipment Expense........................................................                        120,000
     Accumulated Depreciation.............................................                          12,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+120,000



      +120,000
IncSt à RE
    –12,000



        –12,000
IncSt à RE
2.27         (Bullseye Corporation; dual effects of transactions on balance sheet equation and journal entries.)  (Amounts in Millions)

a.   Transaction                                                                  Shareholders'
         Number                          Assets   =    Liabilities          +     Equity

                 (1)                                  +  $     960                                 +          $     960
                                 Subtotal           $     960   =                                        $     960
                 (2)                                  +      1,500         +    $ 1,500                              
                                 Subtotal           $ 2,460   =          $ 1,500     +          $     960
                 (3)                                  +      3,200
                                                        +         930
                                                        –      4,130                                                           
                                 Subtotal           $ 2,460   =          $ 1,500     +          $     960
                 (4)                                  +         860   =    +          860                              
                                 Subtotal           $ 3,320   =          $ 2,360     +          $     960
                 (5)                                  –      1,500         –       1,500                              
                                 Subtotal           $ 1,820   =          $     860     +          $     960
                 (6)                                  –         430         –           860     +                 430
                                 Total                  $ 1,390   =                  -0-      +          $ 1,390

b.   (1)    Cash...........................................................................         960.0
                    Common Stock....................................................                              1.7
                    Additional Paid-in Capital...............................                          958.3

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+960.0



           +1.7
ContriCap




       +958.3
ContriCap

Issue 20 million shares of $0.0833 par value common stock for $960 million.



2.27 b. continued.

      (2)    Merchandise Inventory.........................................      1,500
                    Accounts Payable...............................................                           1,500

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+1,500

+1,500




Purchase $1,500 million of inventory on account.

      (3)    Building....................................................................      3,200
               Land...........................................................................         930
                    Cash.......................................................................                           4,130

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
    +3,200





       +930





    –4,130






Acquires building costing $3,200 million and land costing $930 million, and pays in cash.

      (4)    Building Fixtures....................................................         860
                    Accounts Payable...............................................                              860

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+860

–860




Acquires building fixtures costing $860 million on account.

      (5)    Accounts Payable....................................................      1,500
                    Cash.......................................................................                           1,500

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–1,500

–1,500




Pays suppliers in Transaction (2).



2.27 b. continued.

      (6)    Accounts Payable....................................................         860.0
                    Cash.......................................................................                              430.0
                    Common Stock....................................................                                   0.7
                    Additional Paid-in Capital...............................                              429.3

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–430.0

–860.0

            +0.7
ContriCap




        +429.3
ContriCap

Pays suppliers of fixtures cash of $430 million in shares of common stock.  Bullseye Corporation shares are trading at $50 per share, so it gave the supplier 8.6 million shares of common stock (= $430 million/$50 per share).
2.28         (Inheritance Brands; dual effects of transactions on balance sheet equation and journal entries.)  (Amounts in Millions)

a.   Transaction                                                                  Shareholders'
         Number                          Assets   =    Liabilities          +     Equity

                 (1)                                  +  $     550                                 +          $     550
                                 Subtotal           $     550   =                                        $     550
                                                        –         400
                 (2)                                  +      1,150         +    $     750                              
                                 Subtotal           $ 1,300   =          $     750     +          $     550
                 (3)                                  –           30
                                                        +           30                                                           
                                 Subtotal           $ 1,300   =          $     750     +          $     550
                 (4)                                  +         400   =    +          400                              
                                 Subtotal           $ 1,700   =          $ 1,150     +          $     550
                 (5)                                  –         400         –           400                              
                                 Total                  $ 1,300   =          $     750     +          $     550

b.   (1)    Cash...........................................................................           550.0
                    Common Stock....................................................                            31.25
                    Additional Paid-in Capital...............................                          518.75

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+550.0



       +31.25
ContriCap




     +518.75
ContriCap

Issue 10 million shares of $3.125 par-value common stock for $55 per share.



2.28 b. continued.

      (2)    Land...........................................................................         250
               Building....................................................................         900
                    Cash.......................................................................                              400
                    Notes Payable......................................................                              750

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+250

+750



+900





–400






Gives $400 million in cash and promises to pay the remainder in 2009 for land costing $250 million and a building costing $900 million.

      (3)    Prepaid Insurance..................................................            30
                    Cash.......................................................................                                 30

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
         +30





         –30






Pays $30 million in advance to insurance company for coverage beginning next month.

      (4)    Merchandise Inventory.........................................         400
                    Accounts Payable...............................................                              400

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+400

+400




Purchases merchandise costing $400 million on account.

      (5)    Accounts Payable....................................................         400
                    Cash.......................................................................                              400

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–400

–400




Pays cash to suppliers for merchandise on account.
2.29         (Callen Incorporated; preparing a balance sheet and an income statement.)  (Amounts in Thousands of Euros)

a.                                      CALLEN, INCORPORATED
Balance Sheet

                                                                                               Jan. 31,        Jan. 31,
                                                                              2008             2007
Assets
        Cash....................................................................              30,536               2,559
        Merchandise Inventory..................................              114,249           151,894
        Other Current Assets......................................              109,992            134,916
            Total Current Assets..................................            254,777          289,369
        Property, Plant and Equipment (Net).........                98,130           149,990
        Other Noncurrent Assets...............................                56,459              88,955
            Total Assets..................................................            409,366          528,314
Liabilities and Shareholders' Equity
        Accounts Payable............................................              16,402            14,063
        Notes Payable to Banks.................................                15,241             43,598
        Other Current Liabilities...............................                84,334            109,335
            Total Current Liabilities...........................            115,977          166,996
        Long-Term Debt...............................................                31,566             38,315
        Other Noncurrent Liabilities........................                19,859              27,947
            Total Liabilities...........................................            167,402          233,258
        Common Stock.................................................              72,325            72,325
        Retained Earnings..........................................              169,639            222,731
            Total Shareholders' Equity.......................            241,964          295,056
            Total Liabilities and Shareholders'
                 Equity.......................................................            409,366          528,314

b.                                      CALLEN, INCORPORATED
Income Statement

        For the Year Ended:                                                               Dec. 31, 2008
        Sales...........................................................................................              695,623
        Cost of Goods Sold....................................................................              (382,349)
        Selling Expenses......................................................................                (72,453)
        Administrative Expenses.......................................................              (141,183)
        Interest Expense......................................................................                  (2,744)
        Income Taxes............................................................................                 (24,324)
        Net Income................................................................................                72,570

c.     Retained Earnings, December 31, 2007.............................              222,731
        Plus Net Income for 2008.......................................................                 72,570
        Less Dividends Declared during 2008 (Plug)....................              (125,662)
        Retained Earnings, December 31, 2008.............................              169,639


2.30         (ChemAsia Limited; preparing a balance sheet and an income statement.)  (Amounts in Millions)

a.                                                 ChemAsia, Limited
      Income Statement
      For the Year Ended December 31, 2008

        Revenues:
            Net Operating Revenues...................................................         $    835,037
            Interest and Other Revenues...........................................                    3,098
                 Total Revenues...............................................................         $    838,135
        Less Expenses:
            Cost of Sales.........................................................................         $   (487,112)
            Selling Expenses.................................................................                (41,345)
            General and Administrative Expenses..........................                (49,324)
            Other Operating Expenses................................................                (64,600)
            Interest Expense.................................................................                  (2,869)
            Income Taxes.......................................................................                 (49,331)
                 Total Expenses................................................................         $   (694,581)
        Net Income................................................................................         $    143,554

b.                                              ChemAsia, Limited
Comparative Balance Sheet

                                                                                                  Dec 31,      Dec. 31,
                                                                               2008            2007
Assets
        Noncurrent Assets:
            Intangible Assets..............................................   $      20,022   $       16,127
            Oil and Gas Properties.....................................         326,328          270,496
            Property, Plant and Equipment—Net..........         247,803          231,590
            Other Noncurrent Assets.................................         163,711          132,214
                 Total Noncurrent Assets.............................   $    757,864   $    650,427
        Current Assets:
            Inventories.........................................................   $      88,467   $       76,038
            Other Current Assets.......................................           20,367            13,457
            Advances to Suppliers......................................           20,386            12,664
            Accounts Receivable.........................................           18,419              8,488
            Cash.....................................................................            88,589            54,070
                 Total Current Assets....................................   $    236,228   $    164,717
                 Total Assets....................................................   $    994,092   $    815,144


2.30 b. continued.

Liabilities and Shareholders' Equity
        Noncurrent Liabilities:
            Long-Term Debt................................................   $      35,305   $       30,401
            Other Noncurrent Liabilities..........................            42,062            36,683
                 Total Noncurrent Liabilities......................   $      77,367   $       67,084
        Current Liabilities:
            Advances from Customers...............................   $      12,433   $       11,590
            Other Current Liabilities................................           84,761            90,939
            Accounts Payable to Suppliers.......................         104,460            77,936
                 Total Current Liabilities.............................   $    201,654   $    180,465
        Shareholders' Equity:
            Common Stock...................................................   $    444,527   $    354,340
            Retained Earnings............................................         270,544          213,255
                 Total Shareholders' Equity........................   $    715,071   $    567,595
                 Total Liabilities and Shareholders'
                     Equity.........................................................   $    994,092   $    815,144

c.     Retained Earnings, December 31, 2007.....................................   $   213,255
        Plus Net Income for Year Ending December 31, 2008............        143,554
        Subtract Dividends for Year Ending December 31, 2008
            (Plug).............................................................................................         (86,265)
        Retained Earnings, December 31, 2008.....................................   $   270,544
2.31         (LBJ Group; miscellaneous transactions and adjusting entries.)  (Amounts in Millions)

a.    (1)    Inventories..............................................................   180,000
                     Notes Payable....................................................                       180,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+180,000

+180,000




        (2)    Interest Expense [= $180,000 X .08 X
                     (60/360)]...............................................................        2,400
                          Interest Payable...........................................                           2,400

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)


+2,400

–2,400
IncSt à RE



2.31 continued.

b.    (1)    Cash..........................................................................     842,000
                     Advances from Customers...............................                          842,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+842,000

+842,000




c.     (1)    Equipment.............................................................. 1,400,000
                     Cash.....................................................................                      1,400,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+1,400,000





–1,400,000






(2)    Depreciation Expense [= 3/12 X ($1,400,000
                     – $160,000)/10]...................................................       31,000
                          Accumulated Depreciation.........................                          31,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–31,000



–31,000
IncSt à RE

d.    (1)    Accounts Receivable.............................................     565,000
                     Revenues.............................................................                          565,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+565,000



+565,000
IncSt à RE

(2)Cost of Goods Sold......................................................     422,000
                     Accumulated Depreciation..............................                          422,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–422,000



–422,000
IncSt à RE



2.31 continued.

e.     (1)    Prepaid Insurance.................................................     360,000
                     Cash.....................................................................                          360,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+360,000





–360,000






(2)Insurance Expense [= (4/12) X $360,000]..............     120,000
                     Prepaid Insurance............................................                        120,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–120,000



–120,000
IncSt à RE

f.     (1)    Cash.......................................................................... 1,040,000
                     Common Stock Par Value...............................                            40,000
                     Additional Paid-in Capital..............................                      1,000,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+1,040,000



         +40,000
ContriCap




    +1,000,000
ContriCap

        (2)    Accounts Payable.................................................. 1,040,000
                     Cash.....................................................................                      1,040,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–1,040,000

–1,040,000



2.32         (Platinum Fields Limited; miscellaneous transactions and adjusting entries.)  (Amounts in Millions)

a.    (1)    Cash..........................................................................     57,000
                     Rental Fees Received in Advance.................                         57,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+57,000

+57,000






2.32 a. continued.

(2)Rental Fees Received in Advance..........................     19,000
                     Rent Revenue [= (4/12) X R57,000]................                         19,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)


–19,000

+19,000
IncSt à RE

b.    (1)    Salary Expense......................................................     42,000
                     Cash.....................................................................                         42,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–42,000



–42,000
IncSt à RE

        (2)    Salary Expense [= (1/2) X R42,000]....................     21,000
                     Salaries Payable................................................                         21,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)


+21,000

–21,000
IncSt à RE

c.     (1)    Prepaid Insurance.................................................   960,000
                     Cash.....................................................................                       960,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+960,000





–960,000






(2)Insurance Expense [= (8/24) X R960,000].............   320,000
                     Prepaid Insurance............................................                       320,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–320,000



–320,000
IncSt à RE

d.    (1)    Inventory.................................................................   235,000
                     Accounts Payable..............................................                       235,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+235,000

+235,000






2.32 continued.

e.     (1)    Equipment..............................................................   728,000
                     Cash.....................................................................                       728,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
+728,000





–728,000






(2)      Depreciation Expense [= (6/60  X R728,000].....     72,800
                     Accumulated Depreciation..............................                         72,800

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–72,800



–72,800
IncSt à RE

f.     (1)    Retained Earnings................................................ 1,143,000
                     Dividends Payable............................................                      1,143,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)


+1,143,000

–1,143,000
RE

        (2)    Dividends Payable................................................. 1,143,000
                      Cash.....................................................................                      1,143,000

Assets

=
Liabilities
+
Shareholders' Equity
(Class.)
–1,143,000

–1,143,000



2.33         (Hansen Retail Store; preparing income statement and balance sheet using accrual basis.)

a.                                       HANSEN RETAIL STORE
                                        Income Statement
                       For the Year Ended December 31, 2008
           
        Sales ($52,900 + $116,100).......................................................         $ 169,000
        Cost of Goods Sold ($125,000 – $15,400)................................           (109,600)
        Salary Expense ($34,200 + $2,400)........................................             (36,600)
        Utility Expense ($2,600 + $180)..............................................               (2,780)
        Depreciation Expense ($60,000/30)........................................               (2,000)
        Interest Expense (.10 X $40,000).............................................                (4,000)
        Net Income before Income Taxes............................................         $    14,020
        Income Taxes at 40%.................................................................                (5,608)
        Net Income...................................................................................         $      8,412

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