Chapter 1
Accounting Information and Decision Making
BE1-1 2. True
BE1-2 3. a
BE1-3 1. c
BE1-4 5. a
BE1-5 4. c
BE1-6 3. d
BE1-7 2. d
BE1-8 5. Yes
BE1-9 1. True
BE1-10 2. a
BE1-11 3. a
E1-1 4. b
E1-2 3. Revenue, Operating
E1-3 2. Asset, Investing
E1-4 Req. 1, net income = $4,000
E1-5 Req 2., stockholders’ equity = $3,000
E1-6 Net income = $5,500
E1-7 Total stockholders’ equity = $29,500
E1-8 Total assets = $39,000
E1-9 Req. 2, net increase in cash = $25,000
E1-10 2. Dividends = $5,000
E1-11 Year 4 retained earnings = $5,200
E1-12 2. net income = $4.0 billions
E1-13 3. liabilities = $3.5 billion
E1-14 5. operating cash flows = $0.30 billion
E1-15 5. a. Confirmatory value
E1-16 2. c
P 1-1A 9. Operating
P 1-2A 4. Revenue
P 1-3A Total liabilities and stockholders’ equity = $57,700
P 1-4A (d) = $3,000
P 1-5A Total assets = $30,000
P 1-6A 2. Economic entity
P 1-7A 5. a
P 1-1B 3. Operating
P 1-2B 4. Asset
P 1-3B Total stockholders’ equity = $136,100
P 1-4B (i) = $25,000
P 1-5B Total assets = $90,000
P 1-6B 3. Going concern
P 1-7B 8. b
Chapter 2
The Accounting Information System
BE2-1 (f) is the fourth step
BE2-2 (b) liabilities and stockholders’ equity increase
BE2-3 Equipment = $12,000
BE2-4 (a) Assets and stockholders’ equity increase $40,000
BE2-5 Revenue, Debit (−) and Credit (+)
BE2-6 (c) Credit, Debit
BE2-7 (a) Debit Equipment, credit Notes Payable for $14,000
BE2-8 (b) Debit Prepaid Insurance, Credit Cash $3,600
BE2-9 Cash = $4,800
BE2-10 (b) Assets and liabilities increase
BE2-11 Total debits = $14,700
BE2-12 Total credits = $20,800
E2-1 3. a.
E2-2 5. Assets and stockholders’ equity decrease
E2-3 2. Assets and liabilities increase
E2-4 4. Assets and stockholders’ equity decrease
E2-5 Ending retained earnings = $16,500
E2-6 9. Debit
E2-7 4. Debit Supplies and credit Accounts Payable for
E2-8 5. Debit Salaries Expense for $1,600
E2-9 3. Pay current month’s salaries, $1,900.
E2-10 February 14, credit Service Revenue for $2,400
E2-11 March 10, debit Equipment for $20,000
E2-12 Ending cash balance = $8,700
E2-13 Total debits = $80,000
E2-14 Total credits = $61,300
E2-15 Req. 3, total debits $65,000
E2-16 Req. 3, total credits = $51,600
P2-1A 6. Assets and stockholders’ equity increase
P2-2A 2. Assets and stockholders’ equity decrease by $400
P2-3A 5. Expense, debit
P2-4A 4. Debit Prepaid Rent for $500
P2-5A July 18, Debit Advertising Expense for $100
P2-6A Req. 1, July 18, no entry
P2-7A Equipment = $52,000
P2-8A Req. 4, Total debits = $5,120
P2-9A Req. 4, Total credits = $36,300
P2-1B 2. No effect to accounting equation
P2-2B 4. Assets and liabilities increase by $2,400
P2-3B 11. Revenue, credit
P2-4B 2. Debit Accounts Receivable for $2,400
P2-5B May 5, credit Accounts Payable for $375
P2-6B May 5, credit Service Revenue for $375
P2-7B Service Revenue = $46,000
P2-8B Req. 4, total credits = $106,000
P2-9B Req. 4, total debits = $43,400
Chapter 3
The Financial Reporting Process
BE3-1 (c) $2,300
BE3-2 (b) $200
BE3-3 Net income = $4,000
BE3-4 (c) cash-basis net income = $0 and accrual-basis net income = −$400
BE3-5 Accrual-basis net income = $25,000
BE3-6 (3) Supplies = $200
BE3-7 (3) Prepaid Rent = $14,400
BE3-8 (3) Prepaid Insurance = $5,000
BE3-9 (3) Accumulated Depreciation = $4,500
BE3-10 (3) Unearned Revenue = $1,500
BE3-11 (3) Salaries Payable = $900
BE3-12 (3) Interest Payable = $600
BE3-13 (3) Interest Receivable = $600
BE3-14 4. Balance sheet
BE3-15 3. a.
BE3-16 Net income = $42,000
BE3-17 Total stockholders’ equity = $28,000
BE3-18 Total assets = $100,000
BE3-19 To close expenses, debit retained earnings for $595,000
BE3-20 Total credits = $20,000
E3-1 3. April 2.
E3-2 1. August 16.
E3-3 2. February 2.
E3-4 4. February 23.
E3-5 Net income (adjusted) = $82,350
E3-6 Final step is (e)
E3-7 (d) Debit Unearned Revenue for $1,000
E3-8 (b) Credit Interest Revenue for $1,200
E3-9 (c) Revenues and net income are understated by $3,000
E3-10 (a) Credit Service Revenue for $1,000
E3-11 (b) Assets and stockholders’ equity are overstated by $800
E3-12 (d) Debit Interest Expense for $200
E3-13 (b) Debit Rent Expense for $2,000
E3-14 Req. 2, total debits = $62,600
E3-15 2003 retained earnings for Raiders Inc = $542 million
E3-16 Req. 2, total assets = $356,000
E3-17 To close dividends account, debit retained earnings for $2,000
E3-18 To close revenues, credit retained earnings for $55,000
E3-19 Req. 1, to close expense accounts, debit retained earnings for $349,000
P3-1A 5. Accrual-basis expense = $900 and cash-basis expense = $0
P3-2A Net income = $3,500
P3-3A (d) debit Interest Expense $400
P3-4A (a) debit Depreciation Expense $5,000
P3-5A Net income = $51,000
P3-6A Req. 2, total credits = $109,900
P3-7A Req. 3, total debits = $132,900
P3-8A Req. 7, total debits = $90,000
P3-1B 10. Accrual-basis expense = $0 and cash-basis expense = $440
P3-2B Net income = 4,400
P3-3B (b) credit Salaries Payable $3,000
P3-4B (c) debit Interest Expense $900
P3-5B Total assets = $106,000
P3-6B Req. 2, total credits = $125,800
P3-7B Req. 3, total debits = $336,600
P3-8B Req. 7, total debits = $136,000
Chapter 4
Cash and Internal Controls
BE4-1 3. d
BE4-2 2. d
BE4-3 5. b
BE4-4 4. Yes
BE4-5 Total cash sales = $1,150,000
BE4-6 2. Credit Accounts Payable $900
BE4-7 2. c
BE4-8 Subtract from company balance
BE4-9 Reconciled bank balance = $4,532
BE4-10 Credit cash $185
BE4-11 1. c
BE4-12 Total operating cash flows = $3,900
BE4-13 Total investing cash flows = $11,000
BE4-14 Total financing cash flows = $33,000
BE4-15 Oher Corporation free cash flow = $18,900
E4-1 3. True
E4-2 5. False
E4-3 2. False
E4-4 4. Reconciliations
E4-5 Total cash = $15,700
E4-4 Reconciled bank balance = $1,500
E4-5 Reconciled company balance = $3,170
E4-6 Cash should be recorded and deposited more than once per week
E4-7 The petty cash fund of $10,000 is too large.
E4-8 Jim should not deposit the checks and also record them.
E4-9 Reconciled bank balance = $1,500
E4-10 Reconciled company balance = $3,170
E4-11 Debit Service Fee Expense $75
E4-12 Reconciled bank balance = $22,825
E4-13 Reconciled company balance = $7,855
E4-14 To replenish the petty cash fund, credit Cash $330
E4-15 To establish the petty cash fund, debit Petty Cash for $500
E4-16 g. Yes, Operating, Inflow
E4-17 e. +$5,000, Operating
E4-18 Cash flows from operating activities = +$3,400
E4-19 Cash flows from investing activities = −$60,500
E4-20 Cash flows from financing activities = +$20,000
E4-21 Glasco will have a larger increase in net income in year 5
P4-2A Reconciled bank balance = $9,750
P4-3A Reconciled company balance = $6,030
P4-4A Net cash flows from investing activities = ($9,000)
P4-5A Req. 4, Net cash flows from financing activities = $6,600
P4-1B Reconciled bank balance = $10,298
P4-2B Reconciled bank balance = $11,618
P4-3B Reconciled company balance = $5,170
P4-4B Net cash flows from operating activities = 15,600
P4-5B Req. 4, Net cash flows from investing activities = ($7,400)
Chapter 5
Receivables and Sales
BE5-1 Debit Accounts Receivable for $2,250
BE5-2 Net sales = $575,000
BE5-3 Debit Bad Debt Expense for $2,500
BE5-4 Debit Bad Debt Expense for $8,000
BE5-5 Credit Allowance for Uncollectible Accounts for $12,000
BE5-6 Debit Allowance for Uncollectible Accounts for $15,000
BE5-7 Credit Allowance for Uncollectible Accounts for $6,000
BE5-8 Estimated amount uncollectible = $4,700
BE5-9 No entry on the direct write-off method
BE5-10 (b) = 12 months
BE5-11 Interest revenue for 2013 = $1,800
BE5-12 Debit Bad Debt Expense for $5,000
BE5-13 Credit Allowance for Uncollectible Accounts for $5,000
E5-1 May 13, credit Accounts Receivable for $3,000
E5-2 Credit Service Revenue for $180
E5-3 March 20, debit Sales Discounts for $300
E5-4 March 31, credit Accounts Receivable for $10,000
E5-5 March 31, debit Accounts Payable for $10,000
E5-6 Req. 4, net sales = $2,000
E5-7 Req. 2, net realizable value = $28,000
E5-8 Req. 3, net realizable value = $40,000
E5-9 Req. 3, net realizable value = $108,000
E5-10 3. NE on all account totals
E5-11 Req. 3, net realizable value = $47,800
E5-12 Req. 3, net realizable value = $85,000
E5-13 Req. 3, in 2013, bad debt expense under direct write-off method = $7,000
E5-14 (b) debit Notes Receivable $10,000
E5-15 March 1, Debit Notes Receivable for $10,000
E5-16 Sep. 1, credit Cash for $10,500
E5-17 Req. 3, credit Interest Receivable for $45,000
E5-18 Average collection period for Costco is 3.4 days
E5-19 Req. 2, debit Bad Debt Expense for $5,000
E5-20 Req. 1, debit Bad Debt Expense for $5,500
P5-1A Scenario 2: revenue = $1,200
P5-2A Req. 2, net sales = $513
P5-3A Req. 3, net realizable value in 2013 = $6,000
P5-4A Req. 2, debit Bad Debt Expense for $14,000
P5-5A Req. 3, understate expenses by $120,000
P5-6A Req. 4, overstate operating income by $30,000
P5-7A Req. 2, understate total assets by $280,000
P5-8A Req. 3, credit Interest Revenue for $8,800
P5-1B Scenario 4: revenue = $250,000
P5-2B Req. 4, net sales = $1,164
P5-3B Req. 3, net realizable value in 2013 = $3,500
P5-4B Req. 2, debit Bad Debt Expense for $2,700
P5-5B Req. 3, understate expenses by $64,000
P5-6B Req. 3, understate assets by $400,000
P5-7B Req. 2, Underestimate uncollectible accounts by $40,000
P5-8B Req. 3, credit Interest Revenue for $2,625
Chapter 6
Inventory and Cost of Goods Sold
BE6-1 3. c.
BE6-2 1. c.
BE6-3 Cost of goods sold = $20,000
BE6-4 Ending inventory = $2,400
BE6-5 Cost of goods sold = $24,440
BE6-6 Ending inventory = $2,280
BE6-7 Cost of goods sold = $24,300
BE6-8 Declining, LIFO results in higher total assets
BE6-9 March 17, debit Cost of Goods Sold for $30,000
BE6-10 To purchase inventory on account, credit Accounts Payable for $30,000
BE6-11 February 5, credit Inventory for $1,500
BE6-12 February 10, credit Cash for $29,400
BE6-13 (a) $9,000
BE6-14 Ending inventory = $8,500
BE6-15 Ending inventory = $7,000
BE6-16 Gross profit ratio = 30%
BE6-17 March 17, credit Sales Revenue for $50,000
BE6-18 February 2, debit Freight-In for $500
BE6-19 February 5, credit Purchase Returns for $1,500
BE6-20 February 10, credit Purchase Discounts for $600
BE6-21 2013, gross profit is understated by $10,000
BE6-22 2012, retained earnings is overstated by $10,000
E6-1 Cost of goods sold = $880,000
E6-2 Req. 2, (b) cost of goods sold = $14,570
E6-3 Req. 2, (d) gross profit = $530
E6-4 Credit Inventory for $325,000 for sale
E6-5 June 16, debit Cost of Goods Sold for $800
E6-6 June 12, credit Inventory for $20
E6-7 May 5, debit Accounts Payable for $300
E6-8 July 13, credit Inventory for $910
E6-9 August 23, credit Sales Revenue for $3,600
E6-10 August 6, debit Cost of Goods Sold for $4,000
E6-11 Operating income = $110,000
E6-12 Income before income taxes = $50,000
E6-13 Req. 2, credit inventory for $2,000
E6-14 Req. 2, debit cost of goods sold for $300
E6-15 Req. 2, inventory turnover ratio for Lewis = 11.0 times
E6-16 Req. 2, gross profit ratio for Henry = 0.75
E6-17 May 3, debit Freight In for $100
E6-18 July 8, credit Purchase Returns for $3,000
E6-19 August 14, credit Purchase Discounts for $45
E6-20 Req. 2, in the following year, gross profit is overstated
P6-1A Req. 1, ending inventory = $5,780
P6-2A Req. 2, cost of goods sold = $7,350
P6-3A July 11, credit Inventory for $30
P6-4A Req. 3, write-down = $37,000
P6-5A Req. 2, cost of goods sold = $2,200
P6-6A October 15, debit Cost of Goods Sold for $7,350
P6-7A Req. 1, operating income = $13,900
P6-8A Req. 1, inventory turnover ratio for Company 1 = 3.0
P6-9A July 4, debit Freight-In for $100
P6-10A Req. 3, Corrected gross profit from 2007-2010 = $124,000
P6-1B Req. 1, ending inventory = $3,380
P6-2B Req. 2, cost of goods sold = $3,380
P6-3B June 10, credit Inventory for $40
P6-4B Req. 3, write-down = $250
P6-5B Req. 2, cost of goods sold = $18,000
P6-6B November 16, debit Cost of Goods Sold for $9,800
P6-7B Req. 1, operating income = $15,600
P6-8B Req. 1, inventory turnover ratio for Company 1 = 1.6
P6-9B June 4, debit Freight-In for $300
P6-10B Req. 3, (a) overstate, no effect
Appendix C
Time Value of Money
BEC-1 Oprah should choose the second option
BEC-2 Future value = $16,105.10
BEC-3 Future value = $26,202.35
BEC-4 2. Future value = $8,144.47
BEC-5 Present value = $3,814.50
BEC-6 Present value = $30,626.24
BEC-7 3. Present value = $3,122.99
BEC-8 Future value of annuity = $22,570.00
BEC-9 Future value of annuity = $18,428.40
BEC-10 1. Future value of annuity = $21,459.87
BEC-11 Present value of annuity = $27,720.88
BEC-11 Present value of annuity = $30,722.84
BEC-12 2. Present value of annuity = $47,179.23
EC-1 Kramer’s future value = $27,695.23
EC-2 Future value = $93,050.97
EC-3 Isabel’s present value = $405,709.99
EC-4 Store 2’s present value = $2,454.55
EC-5 Total cost of Option 3 = $102,678.57
EC-6 With annual rate of 6%, future value of annuity = $218,730.80
EC-7 Future value of annuity = $767,091.42
EC-8 Present value of annuity = $29,862.01
PC-1A Alec’s investment = $23,673.60
PC-2A Total present value = $931,186.34
PC-3A Camera 1, total cost = $5,906.21
PC-1B Elle’s maximum purchase = $158,821.20
PC-2B Present value of future cash flows = = $585,594.78
PC-3B Option 3, present value of annuity = $1,404,716.31
Chapter 7
Long-Term Assets
BE7-1 Cost of the land = $567,000
BE7-2 Cost of the bread machine = $30,500
BE7-3 Goodwill = $4.2 million
BE7-4 Research and development expense = $691,000
BE7-5 (4) Capitalize and depreciate over the useful life of the asset.
BE7-6 Depreciation in accounting is not based on the decrease in value.
BE7-7 2012 depreciation expense = $1,000
BE7-8 (2) $10,000
BE7-9 Amortization expense = $800,000
BE7-10 Loss = $2,000
BE7-11 Gain = $7,000