Fundamentals of Financial Accounting Phillips, Libby and Libby: Answer the following:
6. Chapter 2- PB2-2 ,
PB2-2 Recording Transactions (in a Journal and T-Accounts), Preparing and
Interpreting the Balance Sheet
Starbucks is a coffee company-a big coffee company. During a 10-year period, the number of
Starbucks locations grew from 165 to over 5,800 stores-an average increase of 43 percent every
year. The following is adapted from a recent Starbucks annual report. Starbucks' year-end is
September 30 and dollars are reported in thousands.
Cash $ 174,500 Accounts payable $462,600
Accounts receivable 97,500 Short-term bank loans 74,900
Inventories 263,200 Long-term debt 5,100
Other current assets 312,100 Other long-term liabilities 23,500
Property, plant, and equipment 1,265,800 Contributed capital 930,300
Other long-term assets 179,500 Retained earnings 796,200
Assume that the following events occurred in the following quarter, which ended December 31:
a. Paid $10,400 cash for additional other long-term assets.
b. Issued additional shares of stock for $5,300 in cash.
c. Purchased property, plant, and equipment; paid $11,800 in cash and signed additional longterm
loans for $8,900.
d. Sold, at cost, other long-term assets for $3,000 cash.
e. Conducted negotiations to purchase a coffee farm, which is expected to cost $7,400.
Required:
1. Prepare journal entries to record transactions a-e.
cr Cash (-A)...... / 10,400
b. / dr Cash (+A)...... / 5,300
cr Contributed capital (+SE)...... / 5,300
c. / dr Property, plant, and equipment (+A)...... / 20,700
cr Cash (A)...... / 11,800
cr Long-term debt (+L)...... / 8,900
d. / dr Cash (+A)...... / 3,000
cr Other long-term assets (A)...... / 3,000
e. / No effect
2. Create T-accounts for each of the accounts on the balance sheet and enter the balances at theend of September as beginning balances for the October 1-December 31 quarter.
3. Enter the effects of the transactions in T-accounts (including referencing) and determine theDecember 31 balances.
Req. 2 and 3
Cash / AccountsReceivable / Inventories
Beg. / 174,500 / Beg. / 97,500 / Beg. / 263,200
(b) / 5,300 / 10,400 / (a)
(d) / 3,000 / 11,800 / (c)
160,600 / 97,500 / 263,200
Other Current Assets / Property, Plant, and Equipment / Other Long-term Assets
Beg. / 312,100 / Beg. / 1,265,800 / Beg. / 179,500
(c) / 20,700 / (a) / 10,400 / 3,000 / (d)
312,100 / 1,286,500 / 186,900
Accounts Payable / Short-term Bank Loans / Long-Term Debt
462,600 / Beg. / 74,900 / Beg. / 5,100 / Beg.
8,900 / (c)
462,600 / 74,900 / 14,000
Other Long-Term Liabilities / Contributed Capital / Retained Earnings
23,500 / Beg. / 930,300 / Beg. / 796,200 / Beg.
5,300 / (b)
23,500 / 935,600 / 796,200
4. Explain your response to event e.
The negotiations to purchase a coffee farm were not included in the transactions. Because event (e)involves only negotiations, it does not constitute an exchange of cash, goods, or services and thus is not a transaction.
5. Prepare a classified balance sheet at December 31.
Starbucks
Balance Sheet
At December 31
(in thousands of dollars)
AssetsCurrent assets
Cash / $ 160,600
Accounts receivable / 97,500
Inventories / 263,200
Other current assets / 312,100
Total current assets / 833,400
Property, plant, and equipment / 1,286,500
Other long-term assets / 186,900
Total Assets / $2,306,800
Liabilities
Current liabilities
Accounts payable / $ 462,600
Short-term bank loans / 74,900
Total current liabilities / 537,500
Long-term debt / 14,000
Other long-term liabilities / 23,500
Total Liabilities / 575,000
Stockholders’ Equity
Contributed capital / 935,600
Retained earnings / 796,200
Total Stockholders’ Equity / 1,731,800
Total Liabilities and Stockholders’ Equity / $2,306,800
6. As of December 31, has the financing for the investment in assets made by Starbucksprimarily come from liabilities or stockholders' equity?
As of December 31, financing for Starbucks’ assets has come primarily from stockholders’ equity. Stockholders’ equity financed $1,731,800 of the company’s total assets and liabilities financed $575,000.
7. Chapter 3- PB3-1,
PB3-1 Recording Nonquantitative Journal Entries
Abercrombie & Fitch Co. is a specialty retailer of casual apparel. The company's brand wasestablished in 1892. It became a public company in 1996 and then was spun off from The Limitedin 1998. The following is a series of accounts for Abercrombie. The accounts are listedalphabetically and numbered for identification. Following the accounts is a series of transactions.
For each transaction, indicate the account(s) that should be debited and credited by entering theappropriate account number(s) to the right of each transaction. If no journal entry is needed, writenone after the transaction. The first transaction is given as an example.
Account No. Account Title Account No. Account Title
1 Accounts payable 8 Rent expense
2 Accounts receivable 9 Supplies expense
3 Cash 10 Supplies
4 Contributed capital 11 Unearned revenue
5 Equipment 12 Wages expense
6 Interest revenue 13 Wages payable
7 Prepaid rent
Transactions Debit Credit
a. Example: Incurred wages expense; paid cash. 12 3
b. Collected cash on account.
c. Used up supplies (cash register tapes, etc.) this period.
d. Sold gift certificates to customers; none redeemed this period.
e. Purchased equipment, paying part in cash and charging the
balance on account.
f. Paid cash to suppliers on account.
g. Issued additional stock for cash.
h. Paid rent to landlords for next month's use of mall space.
i. Earned and received cash for interest on investments.
a. / 12 / 3
b. / 3 / 2
c. / 9 / 10
d. / 3 / 11
e. / 5 / 1, 3
f. / 1 / 3
g. / 3 / 4
h. / 7 / 3
i. / 3 / 6
8. Chapter 13- PB13-1,
PB13-1 Analyzing Financial Statements Using Ratios and Percentage Changes
The comparative financial statements prepared at December 31, 2004, for Soon Company showed
the following summarized data:
Increase (Decrease)
2004 over 2003
2004 2003 Amount Percentage
Income Statement
Sales revenue* $222,000 $185,000
Cost of goods sold 127,650 111,000
Gross profit 94,350 74,000
Operating expenses 39,600 33,730
Interest expense 4,000 3,270
Income before income taxes 50,750 37,000
Income tax expense (30%) 15,225 11,100
Net income $ 35,525 $ 25,900
Balance Sheet
Cash $ 40,000 $ 38,000
Accounts receivable (net) 18,500 16,000
Inventory 25,000 22,000
Property and equipment (net) 127,000 119,000
Total assets $210,500 $195,000
Accounts payable $ 27,000 $ 25,000
Income taxes payable 3,000 2,800
Note payable, long-term 75,500 92,200
Total liabilities 105,500 120,000
Capital stock (par $1) 25,000 25,000
Retained earnings† 80,000 50,000
Total liabilities and
stockholders' equity $210,500 $195,000
*One-half of all sales are on credit.
†During 2004, cash dividends amounting to $5,525 were declared and paid.
Required:
1. Complete the two final columns shown beside each item in Soon Company's comparative financial statements.
Increase (Decrease)2004 over 2003
Amount / Percent
Income statement:
Sales revenue / $37,000 / 20.00%
Cost of goods sold / 16,650 / 15.00%
Gross profit / 20,350 / 27.50%
Operating expenses / 5,870 / 17.40%
Interest expense / 730 / 22.32%
Income before income taxes / 13,750 / 37.16%
Income tax expense / 4,125 / 37.16%
Net income / $ 9,625 / 37.16%
Balance sheet:
Cash / $ 2,000 / 5.26%
Accounts receivable(net) / 2,500 / 15.63%
Inventory / 3,000 / 13.64%
Property & equipment (net) / 8,000 / 6.72%
Total Assets / $15,500 / 7.95%
Accounts payable / $ 2,000 / 8.00%
Income taxes payable / 200 / 7.14%
Note payable, long-term / (16,700) / -18.11%
Total liabilities / (14,500) / -12.08%
Capital stock ($1par) / 0 / 0.00%
Retained earnings / 30,000 / 60.00%
Total liabilities & stockholders' equity / $15,500 / 7.95%
2. Does anything significant jump out at you from the year-over-year analyses?
Looking at the year-over-year analyses, 2004 appears to have been a successful year for Soon Company. The percentage increase in sales (20%) was greater than that for cost of goods sold (15%) and operating expenses (17.4%). The combined result of these changes was a significant increase in net income (37%), which contributed to the 60% increase in retained earnings.
9. Chapter 6 PB6-1,
Preparing a Bank Reconciliation and Journal Entries, and Reporting Cash
The bookkeeper at Tony Company has asked you to prepare a bank reconciliation as of February
28, 2006. The February 28, 2006, bank statement and the February T-account for cash showed the
following (summarized):
Bank Statement
Checks Deposits Other Balance
Balance, February 1, 2006 $52,600
Deposits during February $30,650 83,250
Interest earned $150 83,400
Checks cleared during February $49,200 34,200
NSF checks-S. H. Schaffer 320 33,880
Bank service charges 40 33,840
Balance, February 28, 2006 33,840
Cash (A)
Feb. 1 Balance 49,400 Feb. Checks written 50,400
Feb. Deposits 38,450
Tony Company's bank reconciliation at the end of January 2006, showed outstanding checks
of $3,200. No deposits were in transit at the end of January, but a deposit was in transit at the end
of February.
Required:
1. Prepare a bank reconciliation for February.
TONY COMPANY
Bank Reconciliation
February 28, 2006
Bank Statement / Company's BooksEnding balance per bank statement / $33,840 / Ending balance per Cash account / $37,450
Additions: / Additions:
Deposit in transit*.... / 7,800 / Interest earned...... / 150
41,640 / 37,600
Deductions:
Deductions: / Bank service charges. / $ 40
Outstanding checks**. / 4,400 / NSF check –
S. H. Schaffer..... / 320 / 360
Up-to-date cash balance. / $37,240 / Up-to-date cash balance. / $37,240
*$38,450 – 30,650 = $7,800.
**$50,400 – 49,200 + 3,200= $4,400
2. Prepare any journal entries required as a result of the bank reconciliation. Why are theynecessary?
(1)dr. Cash (+A)...... 150
cr. Interest revenue (+R,+SE)...... 150
Interest earned.
(2)dr. Accounts receivable (S. H. Schaffer) (+A)...... 320
cr. Cash (-A)...... 320
Customer's check returned; insufficient funds.
(3)dr. Other expenses (+E,-SE)...... 40
cr. Cash (-A)...... 40
Bank service charges deducted from bank statement.
These entries are necessary because the bank has appropriately recorded these changes in its accounts, but Tony Company hasn’t yet recorded them in its accounts. The Cash account (and the other accounts in the entries) must be updated before adjusted financial statements can be prepared.
3. After the reconciliation journal entries are posted, what balance will be reflected in the Cash account in the ledger?4. If the company also has $50 on hand, which is recorded in a different account called Cash on Hand, what total amount of cash should be reported on the balance sheet at the end ofFebruary?
Balance in Cash account...... $37,240
Req. 4
Balance Sheet (February 28, 2006):
Current Assets:
Cash ($37,240 + $50)...... $37,290
10. Chapter 6- PB6-2
Identifying Outstanding Checks and Deposits in Transit and Preparing a Bank Reconciliation and Journal Entries.
The September 2007 bank statement for Terrick Company and the cash T-account for September
2007 follow:
Bank Statement
Date Checks Deposits Other Balance
Sept.1 $75,900
2 $620; 550 $25,000 99,730
4 2,000; 200 97,530
6 1,500; 870; 21,000 74,160
11 300; 1,500; 600 14,000 85,760
13 650; 600; 6,550 77,960
17 10,000; 9,000 58,960
23 90; 500 27,000 85,370
26 700; 3,220 81,450
28 8,000; 8,200 65,250
29 730; 3,200 17,000 NSF* $500 77,820
30 400; 4,400 Interest earned 60
Service charge 40 73,040
*NSF check from B. Frank, a customer.
Cash (A)
Sept. 1 Balance 98,780 Checks written during September:
Deposits 730 8,000 3,220
Sept. 11 14,000 21,000 200 550
23 27,000 600 3,680 4,400
29 17,000 700 650 9,000
30 21,000 6,550 3,200 600
560 500 840
2,000 8,200 10,000
90 300 400
870 1,500
The August 2007 bank reconciliation showed the following: up-to-date cash balance at
August 30, $98,780; deposits in transit on August 31, $25,000; and outstanding checks on August
31, $620 $1,500 $2,120.
Required:
1. Identify and list the deposits in transit at the end of September.
Comparison of deposits listed in the Cash account with deposits listed on the bank statement reveals a $21,000 deposit in transit on September 30.
2. Identify and list the outstanding checks at the end of September.
Comparison of the checks cleared on the bank statement with (a) outstanding checks from August, and (b) checks written in September reveals three outstanding checks at the end of September ($560 + $3,680 + $840 = $5,080).
3. Prepare a bank reconciliation for September.
TERRICK COMPANY
Bank Reconciliation
September 30, 2007
Bank Statement / Company's BooksEnding balance per bank
statement...... / $73,040 / Ending balance per Cash
account...... / $89,440
Additions: / Additions:
Interest earned...... / 60
Deposits in transit...... / 21,000 / 89,500
94,040
Deductions: / Deductions:
NSF—B. Frank...... / 500
Outstanding checks...... / 5,080 / Bank service charges...... / 40
Up-to-date cash balance.. / $88,960 / Up-to-date cash balance...... / $88,960
4. Give any journal entries that the company should make as a result of the bank reconciliation. Why are they necessary?
(1)dr. Cash (+A)...... 60
cr. Interest revenue (+R,+SE)...... 60
Interest earned.
(2)dr. Other expenses (+E,-SE) ...... 40
cr. Cash (-A)...... 40
Service charges deducted from bank balance.
(3)dr. Accounts receivable, B. Frank (+A) ...... 500
cr. Cash (-A)...... 500
Customer's check returned; insufficient funds.
These entries are necessary because the bank has appropriately recorded these changes in its accounts, but Terrick Company hasn’t yet recorded them in its accounts. The Cash account (and the other accounts in the entries) must be updated before adjusted financial statements can be prepared.
5. After the reconciliation journal entries are posted, what balance will be reflected in the Cashaccount in the ledger?
Balance in Cash account...... $88,960
6. If the company also has $200 on hand, which is recorded in a different account called Cash onHand, what total amount of cash should be reported on the September 30, 2007, balance sheet?
Current Assets:
Cash ($88,960 + $200)...... $89,160