Chapter 01 Solution Manual Kieso IFRS

Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-1

CHAPTER 1

Accounting in Action

ASSIGNMENT CLASSIFICATION TABLE

Study Objectives QuestionsBrief

Exercises Do It! ExercisesA

ProblemsB

Problems

1. Explain whataccounting is.

1, 2, 5 1, 2, 4 1

2. Identify the users anduses of accounting.

3, 4 1 2

3. Understand why ethicsis a fundamental businessconcept.

3

4. Explain accountingstandards and themeasurement principles.

6, 7 1 4

5. Explain the monetaryunit assumption andthe economic entityassumption.

8, 9, 10, 11 4

6. State the accountingequation, and defineits components.

12, 13, 14 1, 2, 3,4, 5

2 5, 6,7, 11

1A, 2A,4A

1B, 2B,4B

7. Analyze the effects ofbusiness transactions onthe accounting equation.

15, 16,17, 19

6, 7, 8, 9 3 6, 7, 8, 11 1A, 2A,4A, 5A

1B, 2B,4B, 5B

8. Understand the fourfinancial statementsand how they areprepared.

18, 20, 2122, 23

10, 11 4 9, 10, 12,13, 14, 15,16, 17

2A, 3A,4A, 5A

2B, 3B,4B, 5B

Financial Accounting IFRS Edition Weygandt Kimmel Kieso [Inilah buku yang kita pake buat mata kuliah Akuntansi Dasar 1 dan 2]

Gersom

Sticky Note

Marked set by Gersom

1-2 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)

ASSIGNMENT CHARACTERISTICS TABLE

ProblemNumber Description

DifficultyLevel

Time Allotted(min.)

1A Analyze transactions and compute net income. Moderate 40–50

2A Analyze transactions and prepare income statement,retained earnings statement, and statement of financialposition.

Moderate 50–60

3A Prepare income statement, retained earnings statement,and statement of financial position.

Moderate 50–60

4A Analyze transactions and prepare financial statements. Moderate 40–50

5A Determine financial statement amounts and prepareretained earnings statement.

Moderate 40–50

1B Analyze transactions and compute net income. Moderate 40–50

2B Analyze transactions and prepare income statement,retained earnings statement, and statement of financialposition.

Moderate 50–60

3B Prepare income statement, retained earnings statement,and statement of financial position.

Moderate 50–60

4B Analyze transactions and prepare financial statements. Moderate 40–50

5B Determine financial statement amounts and prepareretained earnings statement.

Moderate 40–50


WEYGANDT IFRS 1ECHAPTER 1

ACCOUNTING IN ACTION

Number SO BT Difficulty Time (min.)

BE1 6 AP Simple 2–4


BE3 6 AP Moderate 4–6

BE4 6 AP Moderate 4–6

BE5 6 C Simple 2–4







DI1 1, 2, 4 K Simple 2–4

DI2 6 K Simple 2–4

DI3 7 AP Simple 6–8

DI4 8 AP Moderate 8–10

EX1 1 C Moderate 5–7

EX2 2 C Simple 6–8

EX3 3 C Moderate 6–8

EX4 4, 5 C Moderate 6–8

EX5 6 C Simple 4–6

EX6 6, 7 C Simple 6–8

EX7 6, 7 C Simple 4–6

EX8 7 AP Moderate 12–15

EX9 8 AP Simple 12–15


EX11 6, 7 AP Moderate 6–8


EX13 8 AN Simple 8–10






ACCOUNTING IN ACTION (Continued)

Number SO BT Difficulty Time (min.)

P1A 6, 7 AP Moderate 40–50

P2A 6–8 AP Moderate 50–60

P3A 8 AP Moderate 50–60

P4A 6–8 AP Moderate 40–50

P5A 7, 8 AP Moderate 40–50

P1B 6, 7 AP Moderate 40–50

P2B 6–8 AP Moderate 50–60

P3B 8 AP Moderate 50–60

P4B 6–8 AP Moderate 40–50

P5B 7, 8 AP Moderate 40–50

BYP1 8 AN Simple 10–15

BYP2 8 AN, E Simple 10–15

BYP3 9 C, AN Simple 15–20

BYP4 8 E Moderate 15–20

BYP5 8 E Simple 12–15

BYP6 3 E Simple 10–12

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ANSWERS TO QUESTIONS

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

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

3. (a) Internal users are those who plan, organize, and run the business and therefore are officersand other decision makers.

(b) To assist management, accounting provides internal reports. Examples include financialcomparisons of operating alternatives, projections of income from new sales campaigns,and forecasts of cash needs for the next year.

4. (a) Investors (owners) use accounting information to make decisions to buy, hold, or sell shares.(b) Creditors use accounting information to evaluate the risks of granting credit or lending money.

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

6. Karen Sommers Travel Agency should report the land at $90,000 on its December 31, 2011statement of financial position. An important concept that accountants follow is the cost principle.The cost principle states that assets should be recorded at their cost. Cost has an importantadvantage over other valuations: it is reliable. Cost can be objectively measured and can beverified.

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

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

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

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


Questions Chapter 1 (Continued)

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

12. The basic accounting equation is Assets = Liabilities + Equity.

13. (a) Assets are resources owned by a business. Liabilities are claims against assets. Put moresimply, liabilities are existing debts and obligations. Equity is the ownership claim on total assets.

(b) Equity is affected by shareholders’ investments, dividends, revenues, and expenses.

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

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

16. Business transactions are the economic events of the enterprise recorded by accountantsbecause they affect the basic equation.

(a) No, the death of the president of the company is not a business transaction as it does notaffect the basic equation.

(b) Yes, supplies purchased on account is a business transaction as it affects the basic equation.(c) No, an employee being fired is not a business transaction as it does not affect the basic

equation.

17. (a) Decrease assets and decrease equity.(b) Increase assets and decrease assets.(c) Increase assets and increase equity.(d) Decrease assets and decrease liabilities.

18. (a) Income statement. (d) Statement of financial position.(b) Statement of financial (e) Statement of financial position and retained

position. earnings statement.(c) Income statement. (f) Statement of financial position.

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

20. Yes. Net income does appear on the income statement—it is the result of subtracting expensesfrom revenues. In addition, net income appears in the retained earnings statement—it is shownas an addition to the beginning-of-period retained earnings. Indirectly, the net income of a company isalso included in the statement of financial position. It is included in the Retained Earnings accountwhich appears in the equity section of the statement of financial position.


Questions Chapter 1 (Continued)

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

(b) Ending equity balance ...................................................................................................... $198,000Beginning equity balance................................................................................................. 168,000

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

22. (a) Total revenues (£20,000 + £70,000) ............................................................................. £90,000

(b) Total expenses (£26,000 + £40,000)............................................................................. £66,000

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

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


SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1-1

(a) ¥90,000 – ¥50,000 = ¥40,000 (Equity).(b) ¥40,000 + ¥70,000 = ¥110,000 (Assets).(c) ¥94,000 – ¥60,000 = ¥34,000 (Liabilities).

BRIEF EXERCISE 1-2

(a) $120,000 + $232,000 = $352,000 (Total assets).(b) $190,000 – $80,000 = $110,000 (Total liabilities).(c) $800,000 – 0.5($800,000) = $400,000 (Equity).

BRIEF EXERCISE 1-3

(a) (€800,000 + €150,000) – (€500,000 – €80,000) = €530,000 (Equity).

(b) (€500,000 + €100,000) + (€800,000 – €500,000 – €70,000) = €830,000 (Assets).

(c) (€800,000 – €80,000) – (€800,000 – €500,000 + €120,000) = €300,000 (Liabilities).

BRIEF EXERCISE 1-4

Equity

Retained EarningsAssets = Liabilities +

ShareCapital + Revenues – Expenses – Dividends

(a) X = £ 90,000 + £150,000 + £450,000 – £320,000 – £40,000X = £ 90,000 + £240,000X = £330,000

(b) $57,000 = X + $25,000 + $50,000 – $35,000 – $7,000$57,000 = X + $33,000X = $24,000 ($57,000 – $33,000)

(c) €600,000 = (€600,000 X 2/3) + X (Equity)€600,000 = €400,000 + XX = €200,000


BRIEF EXERCISE 1-5

A (a) Accounts receivable A (d) Office supplies L (b) Salaries payable E (e) Share capital—ordinary A (c) Equipment L (f) Notes payable

BRIEF EXERCISE 1-6

Assets Liabilities Equity

(a) + + NE(b) + NE +(c) – NE –

BRIEF EXERCISE 1-7

Assets Liabilities Equity(a) + NE +(b) – NE –(c) NE NE NE

BRIEF EXERCISE 1-8

E (a) Advertising expense D (e) Dividends R (b) Commission revenue R (f) Rent revenue E (c) Insurance expense E (g) Utilities expense E (d) Salaries expense

BRIEF EXERCISE 1-9

R (a) Received cash for services performed NE (b) Paid cash to purchase equipment E (c) Paid employee salaries


BRIEF EXERCISE 1-10

LOPEZ COMPANYStatement of Financial Position

December 31, 2011

AssetsAccounts receivable.................................................................................. $ 72,500Cash................................................................................................................ 49,000

Total assets ......................................................................................... $121,500

Equity and LiabilitiesEquity

Share capital—ordinary................................................................... $ 31,500Liabilities

Accounts payable.............................................................................. 90,000Total equity and liabilities...................................................... $121,500

BRIEF EXERCISE 1-11

FP (a) Notes payable IS (b) Advertising expense FP (c) Share capital—ordinary FP (d) Cash IS (e) Service revenue RE (f) Dividends

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 1-1

1. False. The three steps in the accounting process are identification,recording, and communication.

2. True.3. True.4. False. The primary accounting standard-setting body in the United

States is the Financial Accounting Standards Board (FASB).5. True.


DO IT! 1-2

(1) Dividends is dividends (D); it decreases equity.(2) Rent Revenue is a revenue (R); it increases equity.(3) Advertising Expense is an expense (E); it decreases equity.(4) When shareholders pay cash into the business, they receive capital

shares (I); it increases equity.

DO IT! 1-3

Assets = Liabilities + Equity

Retained EarningsCash +

AccountsReceivable =

AccountsPayable +

ShareCapital + Revenues – Expenses – Dividends

(1) +R20,000 +R20,000

(2) +R20,000 –R20,000

(3) +R2,000 –R2,000(4) –R 5,000 –R5,000

DO IT! 1-4

(a) The total assets are R$49,500, comprised of Cash R$7,000, AccountsReceivable R$13,500, and Equipment R$29,000.

(b) Net income is R$21,000, computed as follows:

RevenuesService revenue.................................................. R$54,000

ExpensesSalaries expense ................................................ R$16,500Rent expense....................................................... 10,500Advertising expense ......................................... 6,000

Total expenses .......................................... 33,000Net income .................................................................... R$21,000


DO IT! 1-4 (Continued)

(c) The ending equity balance of Santos Company is R$21,500. By rewritingthe accounting equation, we can compute R$ Equity as Assets minusLiabilities, as follows:

Total assets [as computed in (a)]............................ R$49,500Less: Liabilities

Notes payable .................................................. R$25,000Accounts payable ........................................... 3,000 28,000

Equity................................................................................ R$21,500

Note that it is not possible to determine the company’s equity in any otherway, because the beginning balance for equity is not provided.


SOLUTIONS TO EXERCISES

EXERCISE 1-1

C Analyzing and interpreting information. R Classifying economic events. C Explaining uses, meaning, and limitations of data. R Keeping a systematic chronological diary of events. R Measuring events in dollars and cents. C Preparing accounting reports. C Reporting information in a standard format. I Selecting economic activities relevant to the company. R Summarizing economic events.

EXERCISE 1-2

(a) Internal usersMarketing managerProduction supervisorStore managerVice-president of finance

External usersCustomersTaxing authorityLabor unionsSecurities regulatorSuppliers

(b) I Can we afford to give our employees a pay raise? E Did the company earn a satisfactory income? I Do we need to borrow in the near future? E How does the company’s profitability compare to other companies? I What does it cost us to manufacture each unit produced? I Which product should we emphasize? E Will the company be able to pay its short-term debts?


EXERCISE 1-3

Larry Smith, president of Smith Company, instructed Ron Rivera, the head ofthe accounting department, to report the company’s land in their accountingreports at his assumed market value of $170,000 instead of its cost of$100,000, in an effort to make the company appear to be a better investment.Although we have an accounting system that permits various measurementapproaches, cost should be used whenever there are questions regarding thereliability of a market value. In this case, valuation of land is too subjectiveand therefore the cost principle should be used.

The stakeholders include shareholders and creditors of Smith Company,potential shareholders and creditors, other users of Smith’s accountingreports, Larry Smith, and Ron Rivera. All users of Smith’s accounting reportscould be harmed by relying on information which violates accountingprinciples. Larry Smith could benefit if the company is able to attract moreinvestors, but would be harmed if the fraudulent reporting is discovered.Similarly, Ron Rivera could benefit by pleasing his boss, but would beharmed if the fraudulent reporting is discovered.

Ron’s alternatives are to report the land at $100,000 or to report it at$170,000. Reporting the land at $170,000 is not appropriate since it wouldmislead many people who rely on Smith’s accounting reports to make finan-cial decisions. Ron should report the land at its cost of $100,000. He shouldtry to convince Larry Smith that this is the appropriate course of action, butbe prepared to resign his position if Smith insists.

EXERCISE 1-4

1. Correct. IFRS allows companies to revalue property, plant and equipmentto fair value. However, most companies choose not to instead, due toreliability concern about valuation, and negative effects on net income,most companies report property, plant and equipment at cost.

2. Correct. The monetary unit assumption requires that companies includein the accounting records only transaction data that can be expressedin terms of money.

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


EXERCISE 1-5

Asset Liability EquityCash Accounts payable Share capital—ordinaryCleaning equipment Notes payableCleaning supplies Salaries payableAccounts receivable

EXERCISE 1-6

1. Increase in assets and increase in equity.2. Decrease in assets and decrease in equity.3. Increase in assets and increase in liabilities.4. Increase in assets and increase in equity.5. Decrease in assets and decrease in equity.6. Increase in assets and decrease in assets.7. Increase in liabilities and decrease in equity.8. Increase in assets and decrease in assets.9. Increase in assets and increase in equity.

EXERCISE 1-7

1. (c) 5. (d)2. (d) 6. (b)3. (a) 7. (e)4. (b) 8. (f)

EXERCISE 1-8

(a) 1. Shareholders invested $15,000 cash in the business.2. Purchased office equipment for $5,000, paying $2,000 in cash and

the balance of $3,000 on account.3. Paid $750 cash for supplies.4. Earned $8,300 in revenue, receiving $4,600 cash and $3,700 on

account.5. Paid $1,500 cash on accounts payable.


EXERCISE 1-8 (Continued)

6. Paid $2,000 cash dividends to shareholders.7. Paid $650 cash for rent.8. Collected $450 cash from customers on account.9. Paid salaries of $4,900.

10. Incurred $500 of utilities expense on account.

(b) Investment ............................................................................................. $15,000Service revenue ................................................................................... 8,300Dividends ............................................................................................... (2,000)Rent expense ........................................................................................ (650)Salaries expense.................................................................................. (4,900)Utilities expense................................................................................... (500)Increase in equity ................................................................................ $15,250

(c) Service revenue ................................................................................... $ 8,300Rent expense ........................................................................................ (650)Salaries expense.................................................................................. (4,900)Utilities expense................................................................................... (500)Net income............................................................................................. $ 2,250

EXERCISE 1-9

S. MOSES & CO.Income Statement

For the Month Ended August 31, 2011 Revenues

Service revenue ................................................................... $8,300Expenses

Salaries expense.................................................................. $4,900Rent expense ........................................................................ 650Utilities expense................................................................... 500

Total expenses ............................................................ 6,050Net income...................................................................................... $2,250



S. MOSES & CO.Retained Earnings Statement

For the Month Ended August 31, 2011 Retained earnings, August 1................................................... $ 0Add: Net income....................................................................... 2,250

2,250Less: Dividends ......................................................................... 2,000

Retained earnings, August 31................................... $ 250

S. MOSES & CO.Statement of Financial Position

August 31, 2011

AssetsOffice equipment......................................................................... $ 5,000Supplies ......................................................................................... 750Accounts receivable .................................................................. 3,250Cash ................................................................................................ 8,250

Total assets.......................................................................... $17,250


Share capital—ordinary ................................................... $15,000Retained earnings.............................................................. 250 $15,250

LiabilitiesAccounts payable .............................................................. 2,000

Total equity and liabilities........................................ $17,250

EXERCISE 1-10

(a) Equity—12/31/10 (TL400,000 – TL250,000) ................................ TL150,000Equity—1/1/10 ..................................................................................... 100,000Increase in Equity .............................................................................. 50,000Add: Dividends ................................................................................. 15,000Net income for 2010 .......................................................................... TL 65,000



(b) Equity—12/31/11 (TL460,000 – TL300,000)......................... TL160,000Equity—1/1/11—see (a)............................................................. 150,000Increase in equity ....................................................................... 10,000Less: Additional investment.................................................. 50,000Net loss for 2011......................................................................... TL 40,000

(c) Equity—12/31/12 (TL590,000 – TL400,000)........................ TL190,000Equity—1/1/12—see (b) ........................................................... 160,000Increase in equity ...................................................................... 30,000Less: Additional investment................................................. 15,000

15,000Add: Dividends ........................................................................ 30,000Net income for 2012.................................................................. TL 45,000

EXERCISE 1-11

(a) Total assets (beginning of year)............................................ £ 95,000Total liabilities (beginning of year) ....................................... 85,000Total equity (beginning of year)............................................. £ 10,000

(b) Total equity (end of year)......................................................... £ 40,000Total equity (beginning of year)............................................. 10,000Increase in equity ....................................................................... £ 30,000

Total revenues............................................................................. £215,000Total expenses ............................................................................ 175,000Net income.................................................................................... £ 40,000

Increase in equity ........................................... £ 30,000Less: Net income........................................... £40,000Add: Dividends ............................................. 24,000 (16,000)Additional investment................................... £ 14,000

(c) Total assets (beginning of year)............................................ £129,000Total equity (beginning of year)............................................. 80,000Total liabilities (beginning of year) ....................................... £ 49,000



(d) Total equity (end of year) ............................................................ £130,000Total equity (beginning of year)................................................ 80,000Increase in equity........................................................................... £ 50,000

Total revenues ................................................................................ £100,000Total expenses................................................................................ 55,000Net income ....................................................................................... £ 45,000

Increase in equity................................................. £ 50,000Less: Net income ................................................ £45,000

Additional investment ........................... 25,000 (70,000)Dividends................................................................ £ 20,000

EXERCISE 1-12

LINDA STANLEY CO.Income Statement

For the Year Ended December 31, 2011 Revenues

Service revenue.............................................................. $62,500Expenses

Salaries expense............................................................ $30,000Rent expense................................................................... 10,400Utilities expense............................................................. 3,100Advertising expense ..................................................... 1,800

Total expenses....................................................... 45,300Net income ................................................................................ $17,200

LINDA STANLEY CO.Retained Earnings Statement

For the Year Ended December 31, 2011 Retained earnings, January 1................................................................... $48,000Add: Net income......................................................................................... 17,200

65,200Less: Dividends............................................................................................ 6,000Retained earnings, December 31............................................................. $59,200


EXERCISE 1-13

MENDEZ COMPANYStatement of Financial Position

December 31, 2011

AssetsEquipment..................................................................................... €46,000Supplies......................................................................................... 8,000Accounts receivable.................................................................. 8,500Cash................................................................................................ 15,000

Total assets ......................................................................... €77,500


Share capital—ordinary................................................... €50,000Retained earnings (€17,500 – €10,000) ....................... 7,500 €57,500

LiabilitiesAccounts payable.............................................................. 20,000

Total equity and liabilities...................................... €77,500

EXERCISE 1-14

(a) Camping fee revenues..................................................................... $140,000General store revenues ................................................................... 50,000

Total revenue ............................................................................. 190,000Expenses.............................................................................................. 150,000Net income........................................................................................... $ 40,000

(b) DEER PARKStatement of Financial Position

December 31, 2011

AssetsEquipment............................................................................................ $105,500Supplies................................................................................................ 2,500Cash....................................................................................................... 23,000

Total assets ................................................................................ $131,000



DEER PARKStatement of Financial Position (Continued)

December 31, 2011 Equity and Liabilities

EquityShare capital—ordinary ......................................... $20,000Retained earnings.................................................... 40,000

Total equity........................................................ $ 60,000Liabilities

Notes payable............................................................ 60,000Accounts payable .................................................... 11,000

Total liabilities.................................................. 71,000Total equity and liabilities................................................ $131,000

EXERCISE 1-15

SILVA CRUISE COMPANYIncome Statement

For the Year Ended December 31, 2011 Revenues

Ticket revenue............................................................ R$325,000Expenses

Salaries expense....................................................... R$142,000Maintenance expense.............................................. 95,000Property tax expense............................................... 10,000Advertising expense ................................................ 3,500

Total expenses.................................................. 250,500Net income ........................................................................... R$ 74,500


EXERCISE 1-16

KEVIN AND JOHNSON, ATTORNEYS AT LAWRetained Earnings Statement

For the Year Ended December 31, 2011 Retained earnings, January 1.......................................................... $ 23,000Add: Net income................................................................................ 139,000*

162,000Less: Dividends .................................................................................. 79,000Retained earnings, December 31 ................................................... $ 83,000

*Legal service revenue ...................................................................... $350,000Total expenses ................................................................................... 211,000Net income........................................................................................... $139,000

EXERCISE 1-17

BORNEO COMPANYStatement of Cash Flows

For the Year Ended December 31, 2011 Cash flows from operating activities

Cash receipts from revenues ............................... Rp600,000Cash payments for expenses............................... (410,000)Net cash provided by operating activities 190,000

Cash flows from investing activitiesPurchase of equipment .......................................... (100,000)

Cash flows from financing activities ..........................Sale of shares ............................................................ Rp350,000Payment of cash dividends................................... (20,000) 330,000

Net increase in cash......................................................... 420,000Cash at the beginning of the period............................ 30,000Cash at the end of the period........................................ Rp450,000


(a)

BA

RO

NE

’S R

EP

AIR

LT

D.

Eq

uit

yR

etai

ned

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gs

Cas

h+

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ble

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up

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s+

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men

t=

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nts

Pay

able

+S

har

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apit

al+

Rev

enu

es–

Exp

ense

s–

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iden

ds

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

11.

+£10

,000

+ 10

,000

+ –5

,000

+ 5

,000

+

–400

+ 4

,600

+

–500

+ 4

,100

+000

,000

+ 4

,100

– +5

,100

+ 9

,200

–

1,00

0

+ 8

,200

+ –2

,000

+ 6

,200

+

–140

+ 6

,060

+000

,000

+ 6

,060

–

+120

+£ 6

,180

+ +

+£75

0

+ 75

0

+–12

0

+£63

0

+ + + + + + + +

+£50

0

+ 50

0

+000

0

+ 50

0

+000

0

+ 50

0

+000

0

+ 50

0

+000

0

+ 50

0

+000

0

+ 50

0

+000

0

+ 50

0

+£50

0

+ + + + + + + + + +

+£5,

000

+ 5,

000

+00,

000

+ 5,

000

+00,

000

+ 5,

000

+00,

000

+ 5,

000

+00,

000

+ 5,

000

+00,

000

+ 5,

000

+00,

000

+ 5,

000

+00,

000

+ 5,

000

+00,

000

+ 5,

000

+£5,

000

= = = = = = = = = = =

+£25

0

+ 25

0

+000

0

+ 25

0

+000

0

+ 25

0

+000

0

+ 25

0

+000

0

+025

0

+000

0

+025

0

+£25

0

+ + + + + + + + + +

+£10

,000

0010

,000

+000

,

0010

,000

10,0

00

10,0

000

0001

0,00

00

0001

0,00

0

0

10,0

00

10,0

00

10,0

00

10,0

00

£10,

000

+ + + + + + + + + + +

+£5,

100

5,10

0

5,10

0

5,10

0

5,10

0

+7

50

5,85

0

£5,8

50–

–£4

00

–4

00

–40

0

–2

50

–65

0

–65

0

–65

0

–2,0

00

–2,6

50

–

140

–2,7

90

–2,7

90

£2,7

90–

–£1,

000

–1,0

00

–1,0

00

–1,0

00

–1,0

00

£1,0

00

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

£12,

310

£12,

310

PROBLEM 1-1A

SOLUTIONS TO PROBLEMS


PROBLEM 1-1A (Continued)

Key to Retained Earnings Column(b) Rent expense(c) Advertising expense(d) Service revenue(e) Dividends(f) Salaries expense(g) Utilities expense(h) Service revenue

(b) Service revenue (£5,100 + £750)................................. £5,850Expenses

Salaries ...................................................................... £2,000Rent ............................................................................. 400Advertising ............................................................... 250Utilities ....................................................................... 140 2,790

Net income....................................................... £3,060

PROBLEM 1-2A


(a)

NA

SH

VIL

LE

VE

TE

RIN

AR

Y C

LIN

IC

Cas

h+

Acc

ou

nts

Rec

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ble

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up

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s+

Off

ice

Eq

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men

t=

No

tes

Pay

able

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cco

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tsP

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le+

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are

Cap

ital

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ned

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nin

gs

+R

even

ues

–E

xpen

ses

–D

ivid

end

s

Bal

.

1. 2. 3. 4. 5. 6. 7. 8.

$ 9,

000

–2,

900

6,

100

+1,

300

7,

400

–

800

6,

600

+2,

500

9,

100

–1,

000

8,

100

–2,

900

5,

200

000,

000

5

,200

+10,

000

$15,

200

+ + + + + + + + +

$1,7

00

00,0

00

1,7

00

–1,3

00

4

00

00,0

00

4

00

+5,5

00

5,9

00

00,0

00

5,9

00

00,0

00

5,9

00

00,0

00

5,9

00

$5,9

00

+ + + + + + + + +

$600

0000

600

0000

600

0000

600

0000

600

0000

600

0000

600

0000

600

$600

+ + + + + + + + +

$ 6,

000

000,

000

6,

000

000,

000

6,

000

+2,

100

8,

100

000,

000

8,

100

000,

000

8,

100

000,

000

8,

100

000,

000

8,

100

$ 8,

100

= = = = = = = = =

+$10

,000

+$10

,000

+

$3,6

00

–2,9

00

7

00

00,0

00

7

00

+1,3

00

2,0

00

00,0

00

2,0

00

00,0

00

2,0

00

00,0

00

2,0

00

+1

70

2,1

70

$2,1

70

+ + + + + + + + +

$13,

000

13,0

00

13,0

00

13,0

00

13,0

00

13,0

00

13,0

00

13,0

00

$13

,000

+ 0 + + + + + + + +

$700

700

700

700

700

700

700

700

$700

+

+$8,

000

8,

000

8,

000

8,

000

8

,000

$8,0

00–

–$1,

700

–

900

–

300

–2,

900

–

170

–3,

070

$ 3

,070

–

–$1,

000

–1,0

00

–1,0

00

–1,0

00

$1,0

00

(a)

(b)

(c)

(d)

(e)

(f)

$29,

800

$29,

800



(b) NASHVILLE VETERINARY CLINICIncome Statement

For the Month Ended September 30, 2011 Revenues

Service revenue .......................................................... $8,000Expenses

Salaries expense......................................................... $1,700Rent expense ............................................................... 900Advertising expense.................................................. 300Utilities expense.......................................................... 170

Total expenses ................................................... 3,070Net income............................................................................. $4,930

NASHVILLE VETERINARY CLINICRetained Earnings Statement

For the Month Ended September 30, 2011 Retained earnings, September 1 .................................................... $ 700Add: Net income................................................................................ 4,930

5,630Less: Dividends .................................................................................. 1,000Retained earnings, September 30.................................................. $4,630



NASHVILLE VETERINARY CLINICStatement of Financial Position

September 30, 2011

AssetsOffice equipment................................................................... $ 8,100Supplies ................................................................................... 600Accounts receivable ............................................................ 5,900Cash .......................................................................................... 15,200

Total assets.................................................................... $29,800


Share capital—ordinary ............................................. $13,000Retained earnings........................................................ 4,630

Total equity............................................................ $17,630Liabilities

Notes payable................................................................ 10,000Accounts payable ........................................................ 2,170

Total liabilities...................................................... 12,170Total equity and liabilities ................................................. $29,800


PROBLEM 1-3A

(a) YOON FLYING SCHOOLIncome Statement

For the Month Ended May 31, 2011 Revenues

Lesson revenue.................................................... W7,500Expenses

Fuel expense......................................................... W2,500Rent expense ........................................................ 1,200Advertising expense........................................... 500Insurance expense.............................................. 400Repair expense..................................................... 400

Total expenses ............................................ 5,000Net income...................................................................... W2,500

YOON FLYING SCHOOLRetained Earnings Statement

For the Month Ended May 31, 2011 Retained Earnings, May 1.......................................... W 0Add: Net income ........................................................ 2,500

2,500Less: Dividends ........................................................... 1,500Retained earnings, May 31 ........................................ W1,000

YOON FLYING SCHOOLStatement of Financial Position

May 31, 2011

AssetsEquipment.............................................................................................. W64,000Accounts receivable........................................................................... 7,200Cash......................................................................................................... 5,600

Total assets .................................................................................. W76,800



YOON FLYING SCHOOLStatement of Financial Position (Continued)

May 31, 2011


Share capital—ordinary ......................................... W45,000Retained earnings.................................................... 1,000

Total equity........................................................ W46,000Liabilities

Notes payable............................................................ W30,000Accounts payable .................................................... 800

Total liabilities.................................................. 30,800Total equity and liabilities.............................................. W76,800

(b) YOON FLYING SCHOOLIncome Statement


Lesson revenue (W7,500 + W900) ................. W8,400Expenses

Fuel expense (W2,500 + W1,500) ................... W4,000Rent expense........................................................ 1,200Advertising expense .......................................... 500Insurance expense ............................................. 400Repair expense .................................................... 400

Total expenses............................................ 6,500Net income ..................................................................... W1,900

YOON FLYING SCHOOLRetained Earnings Statement

For the Month Ended May 31, 2011 Retained Earnings, May 1 ......................................... W 0Add: Net income ........................................................ 1,900

1,900Less: Dividends .......................................................... 1,500Retained Earnings, May 31....................................... W 400


(a)

MIL

LE

R D

EL

IVE

RIE

S

Ass

ets

Lia

bili

ties

Eq

uit

y

Ret

ain

ed E

arn

ing

s

Dat

eC

ash

+

Acc

ou

nts

Rec

eiva

ble

+S

up

plie

s+

Del

iver

y

Van

=

No

tes

Pay

able

+

Acc

ou

nts

Pay

able

+

Sh

are

Cap

ital

+R

even

ues

–E

xpen

ses

–D

ivid

end

s

Jun

e 1

Jun

e 2

Jun

e 3

Jun

e 5

Jun

e 9

Jun

e 12

Jun

e 15

Jun

e 17

Jun

e 20

Jun

e 23

Jun

e 26

Jun

e 29

Jun

e 30

$10

,000

+ –2

,000

8,00

0

+

–500

+

7,50

0

+ 7

,500

+

–200

7,30

00

–

7,30

0

+ +1

,250

8,55

0

+ 8

,550

+ +1

,500

1

0,05

0

–50

0

+

9,55

0

–25

0

9

,300

–100

9

,200

–

1,00

0

$ 8

,200

+ + + + + + + + + + + +

+$4,

400

4,40

0

4,40

0

4,40

0

–1,2

50

3,15

0

3,15

0

3,15

0

3,15

0

3,15

0

3,15

0

$3,1

50

+ + + + + + + + + +

+050

+$15

0

150

150

150

150

150

150

150

$150

+ + + + + + + +

+$12

,000

12,0

00

+12,

000

+001

2,00

0

+ 1

2,00

0

12,0

00

12,0

00

12,0

00

+12,

000

12,0

00

12,0

00

12,0

00

$12,

000

= = = = = = = = = = = =

+$10

,000

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

–

500

9,50

0

9,50

0

9,50

0

$ 9

,500

+ + + + + + + + + + + +

+$15

0

+ 15

0

+00

+ 15

0

+100

+ 25

0

+ 25

0

+025

0

+0

+025

0

–100 150

$150

+ + + + + + + +

+$10

,000

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

10,0

00

$10,

000

+ + + + + + + + + + + +

$4,4

00

4,40

0

4,40

0

4,40

0

4,40

0

4,40

0

1,5

00

5,90

0

5,9

00

5,90

0

5,90

0

$5,9

00

– – – – – – – – – –

–$

500

–500

–500

–500

–500

–500

–1

00

–600

–600

–600

–2

50

–850

–850

–1,0

00

$1,8

50

– – – – – – – – –

–$20

0

–200

–200

–200

–200

–200

–200

–200

–200

$200

(a)

(b)

(c)

(d)

(e)

(f)

(g)

$23,

500

$23,

500

PROBLEM 1-4A



Key to Retained Earnings Column(a) Rent expense (e) Service revenue(b) Service revenue (f) Utilities expense(c) Dividends (g) Salaries expense(d) Gasoline expense

(b) MILLER DELIVERIESIncome Statement

For the Month Ended June 30, 2011 Revenues

Service revenue ($4,400 + $1,500)......................... $5,900Expenses

Salaries expense ......................................................... $1,000Rent expense................................................................ 500Utilities expense.......................................................... 250Gasoline expense ....................................................... 100

Total expenses.................................................... 1,850Net income ............................................................................. $4,050

(c) MILLER DELIVERIESStatement of Financial Position

June 30, 2011

AssetsDelivery Van........................................................................... $12,000Supplies .................................................................................. 150Accounts receivable ........................................................... 3,150Cash ......................................................................................... 8,200

Total assets................................................................... $23,500


Share capital—ordinary ............................................ $10,000Retained earnings....................................................... 3,850

Total equity........................................................... $13,850Liabilities

Notes payable............................................................... 9,500Accounts payable ....................................................... 150

Total liabilities..................................................... 9,650Total equity and liabilities................................................. $23,500


PROBLEM 1-5A

(a) KarmaCompany

YatesCompany

McCainCompany

DenchCompany

(a) $ 45,000 (d) $50,000 (g) $120,000 (j) $ 80,000(b) 115,000 (e) 62,000 (h) 70,000 (k) 250,000(c) 10,000 (f) 48,000 (i) 431,000 (l) 435,000

(b) YATES COMPANYRetained Earnings Statement

For the Year Ended December 31, 2011 Retained earnings, January 1 ................................. $20,000Add: Net income....................................................... 35,000

55,000Less: Dividends ......................................................... 48,000Retained earnings, December 31 .......................... $ 7,000

(c) The sequence of preparing financial statements is income statement,retained earnings statement, and statement of financial position. Theinterrelationship of the retained earnings statement to the other financialstatements results from the fact that net income from the incomestatement is reported in the retained earnings statement and endingretained earnings reported in the retained earnings statement is theamount reported for retained earnings on the statement of financialposition.

PROBLEM 1-1B


(a)

MA

TR

IX T

RA

VE

L A

GE

NC

YE

qu

ity

Ret

ain

ed E

arn

ing

sC

ash

+A

cco

un

tsR

ecei

vab

le+

Su

pp

lies

+O

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qu

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ent

=A

cco

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le+

Sh

are

Cap

ital

+R

even

ues

–E

xpen

ses

–D

ivid

end

s

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

+€10

,000

+ 10

,000

+

–400

+ 9

,600

+ –2

,500

+ 7

,100

+000

,000

+ 7

,100

+

–600

+ 6

,500

– +3

,000

+ 9

,500

+

–200

+ 9

,300

+

–300

+ 9

,000

+ –2

,200

+ 6

,800

– +4

,000

+€10

,800

+ + + + +

+€6,

500

+ 6,

500

+ 0,

000

+ 6,

500

+ 0,

000

+ 6,

500

+ 0,

000

+ 6,

500

+–4,

000

+€2,

500

+ + + + + +

+€60

0+

600

+000

0+

600

+000

0+

600

+000

0+

600

+000

0+

600

+

+€60

0

+ + + + + + + +

+€2,

500

+ 2,

500

+00,

000

+ 2,

500

+00,

000

+ 2,

500

+00,

000

+ 2,

500

+00,

000

+ 2,

500

+00,

000

+ 2,

500

+00,

000

+ 2,

500

+€2,

500

= = = = = = = = = =

+€30

0+

300

+000

0+

300

+000

0+

300

+000

0+

300

+–30

0+

0

+000

0

+

+€

0

+ + + + + +

+€10

,000

10,

000

10

,000

10

,000

10

,000

10

,000

10

,000

10

,000

10

,000

€1

0,00

0

+ + + + + +

+

+000

,000

–€9,

500

+ 9,

500

+ 9,

500

+000

,000

+ 9,

500

+ 9,

500

+

+€

9,50

0

– – – – – – – – – – – –

€ 4

00 400

400

3

00 700

700

700

700

700

2,

200

2,90

0

€2

,900

– – – – –

€200 200

200

200

€2

00

(a)

(b)

(c)

(d)

(e)

€16,

400

€16,

400


PROBLEM 1-1B (Continued)

Key to Retained Earnings Column

(a) Rent Expense (d) Dividends(b) Advertising Expense (e) Salaries Expense(c) Service Revenue

(b) Service revenue ................................................................ €9,500Expenses

Salaries ...................................................................... €2,200Rent ............................................................................. 400Advertising ............................................................... 300 2,900

Net income....................................................... €6,600

PROBLEM 1-2B


(a)

CIN

DY

BE

LT

ON

, A

TT

OR

NE

Y A

T L

AW

Cas

h+

Acc

ou

nts

Rec

eiva

ble

+S

up

plie

s+

Off

ice

Eq

uip

men

t=

No

tes

Pay

able

+A

cco

un

tsP

ayab

le+

Sh

are

Cap

ital

+R

etai

ned

Ear

nin

gs

+R

even

ues

–E

xpen

ses

–D

ivid

end

s

Bal

.

1. 2. 3. 4. 5. 6. 7. 8.

$4,0

00

+1,4

00

5,4

00

–2,7

00

2,7

00

+3,0

00

5,7

00

–4

00

5,3

00

–4,2

50

1,0

50

–7

50

3

00

+2,0

00

2,3

00

$2,3

00

+ + + + + + + + +

$1,5

00

–1,4

00

1

00

00,0

00

1

00

+6,0

00

6,1

00

00,0

00

6,1

00

00,0

00

6,1

00

00,0

00

6,1

00

00,0

00

6,1

00

$6,1

00

+ + + + + + + + +

$500

0000

500

0000

500

0000

500

0000

500

0000

500

0000

500

0000

500

$500

+ + + + + + + + +

$5,0

00

00,0

00

5,0

00

00,0

00

5,0

00

00,0

00

5,0

00

+1,0

00

6,0

00

00,0

00

6,0

00

00,0

00

6,0

00

00,0

00

6,0

00

$6,0

00

= = = = = = = = =

+$2,

000

+ 2,

000

+$2,

000

+ +

$4,2

00

00,0

00

4,2

00

–2,7

00

1,5

00

00,0

00

1,5

00

+6

00

2,1

00

00,0

00

2,1

00

00,0

00

2,1

00

00,0

00

2,1

00

+2

50

$2,3

50

+ + + + + + + + +

$6,0

00

6,00

0

6,00

0

6,00

0

6,00

0

6,00

0

6,00

0

6,00

0

$6,0

00

+ + + + + + + + +

$ 8

00

000,

000

800

000,

000

80

0

800

000,

000

800

800 80

0

000,

000

800

$ 8

00

+ + + + + +

+$9,

000

9,00

0

9,00

0

9,00

0

9,00

0

9,00

0

$9,0

00

– – – –

–$3,

000

–900

–35

0

4,25

0

4,25

0

4,25

0

–2

50

$4.5

00

– – –

–$75

0

750

750

$750

(a)

(b)

(c)

(d)

(e)

(f)

$14,

900

$14,

900



(b) CINDY BELTON, ATTORNEY AT LAWIncome Statement

For the Month Ended August 31, 2011 Revenues

Service revenue...................................................... $9,000Expenses

Salaries expense.................................................... $3,000Rent expense .......................................................... 900Advertising expense............................................. 350Utilities expense..................................................... 250

Total expenses .............................................. 4,500Net income........................................................................ $4,500

CINDY BELTON, ATTORNEY AT LAWRetained Earnings Statement

For the Month Ended August 31, 2011 Retained earnings, August 1 ...................................... $ 800Add: Net income........................................................... 4,500

5,300Less: Dividends ............................................................. 750Retained earnings, August 31.................................... $4,550



CINDY BELTON, ATTORNEY AT LAWStatement of Financial Position

August 31, 2011

AssetsOffice equipment................................................................. $ 6,000Supplies ................................................................................. 500Accounts receivable .......................................................... 6,100Cash ........................................................................................ 2,300

Total assets.................................................................. $14,900


Share capital—ordinary ........................................... $6,000Retained earnings...................................................... 4,550

Total equity.......................................................... $10,550

LiabilitiesNotes payable.............................................................. 2,000Accounts payable ...................................................... 2,350

Total liabilities.................................................... 4,350Total equity and liabilities.................................................. $14,900


PROBLEM 1-3B

(a) DIVINE COSMETICS CO.Income Statement


Service revenue ................................................... ¥6,000Expenses

Supplies expense ................................................ ¥1,600Gas and oil expense ........................................... 800Advertising expense........................................... 500Utilities expense................................................... 300

Total expenses ............................................ 3,200Net income...................................................................... ¥2,800

DIVINE COSMETICS CO.Retained Earnings Statement

For the Month Ended June 30, 2011 Retained Earnings, June 1 ........................................ ¥ 0Add: Net income ........................................................ 2,800

2,800Less: Dividends ........................................................... 1,200Retained Earnings, June 30 ...................................... ¥1,600

DIVINE COSMETICS CO.Statement of Financial Position

June 30, 2011

AssetsEquipment.............................................................................................. ¥25,000Cosmetic supplies............................................................................... 2,000Accounts receivable........................................................................... 4,000Cash......................................................................................................... 11,000

Total assets .................................................................................. ¥42,000



DIVINE COSMETICS CO.Statement of Financial Position (Continued)

June 30, 2011


Share capital—ordinary ........................................... ¥26,200Retained earnings...................................................... 1,600

Total equity.......................................................... ¥27,800Liabilities

Notes payable.............................................................. 13,000Accounts payable ...................................................... 1,200

Total liabilities.................................................... 14,200Total equity and liabilities.................................................. ¥42,000

(b) DIVINE COSMETICS CO.Income Statement


Service revenue (¥6,000 + ¥800) .................... ¥6,800Expenses

Supplies expense................................................ ¥1,600Gas and oil expense (¥800 + ¥100)................ 900Advertising expense .......................................... 500Utilities expense.................................................. 300

Total expenses............................................ 3,300Net income ..................................................................... ¥3,500

DIVINE COSMETICS CO.Retained Earnings Statement

For the Month Ended June 30, 2011 Retained earnings, June 1 ........................................ ¥ 0Add: Net income........................................................ 3,500

3,500Less: Dividends........................................................... 1,200Retained earnings, June 30...................................... ¥2,300


(a)

GE

LL

ER

CO

NS

UL

TIN

G

Ass

ets

Lia

bili

ties

Eq

uit

y

Ret

ain

ed E

arn

ing

s

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ash

+

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nts

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ble

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up

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s+

Off

ice

Eq

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men

t=

No

tes

Pay

able

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nts

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+

Sh

are

Cap

ital

+R

even

ues

–E

xpen

ses

–D

ivid

end

s

May

1

May

2

May

3

May

5

May

9

May

12

May

15

May

17

May

20

May

23

May

26

May

29

May

30

+$ 8

,000

8,00

0

–

800

7,20

0

7,20

0

–50

+ 7

,150

+3,

000

10,1

50

–

700

9,45

0

9,45

0

–3,

000

6,45

0

–

500

5

,950

+3,

000

+

8,95

0

+5,

000

13

,950

13,9

50

–

150

$13

,800

+ + + + + + + + + + +

+$5,

300

5,30

0

5,30

0

5,30

0

–3,

000

2,30

0

2,30

0

2,30

0

$ 2

,300

+ + + + + + +

+$50

0

500

500

+05

0

500

500

500

500

500

500

500

500

$500

+ +

+ + +

+$2,

800

2,80

0

$2,8

00

= = = = = = = = = = = = =

+$5,

000

5,00

0

5,00

0

$5,0

00+

+$

500

5

00

50

0

500

500

500

500

–5

00

–

0– +

+

–0–

–

0–

+2,8

00

2,80

0

$2,8

00

+ + + + + + + + + + +

+$8,

000

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

$8,0

00

+ + + + + + + + + + +

+$3,

000

3,00

0

3,00

0

+5,3

00

8,30

0

8,30

0

8,30

0

8,30

0

8,30

0

8,30

0

$8,3

00

– – – – – – – – – – – –

–$ 8

00 800

800

–50

850

850

850

850

–3,0

00

3,85

0

3,85

0

3,85

0

3,85

0

3,85

0

–1

50

$4,0

00

– – – – – – – –

–$70

0

700

700

700

700

700

700

700

$700

(a)

(b)

(c)

(d)

(e)

(f)

(g)

$19,

400

$19

,400

PROBLEM 1-4B



Key to Retained Earnings Column

(a) Rent Expense (e) Service Revenue(b) Advertising Expense (f) Salaries Expense(c) Service Revenue (g) Utilities Expense(d) Dividends

(b) GELLER CONSULTINGIncome Statement


Service revenue ($3,000 + $5,300)................... $8,300Expenses

Salaries expense ................................................... $3,000Rent expense.......................................................... 800Utilities expense.................................................... 150Advertising expense ............................................ 50

Total expenses.............................................. 4,000Net income ....................................................................... $4,300

(c) GELLER CONSULTINGStatement of Financial Position

May 31, 2011

AssetsOffice equipment................................................................... $ 2,800Supplies ................................................................................... 500Accounts receivable ............................................................ 2,300Cash........................................................................................... 13,800

Total assets.................................................................... $19,400


Share capital—ordinary ............................................. $8,000Retained earnings........................................................ 3,600

Total equity............................................................ $11,600Liabilities

Notes payable................................................................ 5,000Accounts payable ........................................................ 2,800

Total liabilities...................................................... 7,800Total equity and liabilities.................................................. $19,400


PROBLEM 1-5B

(a) McKaneCompany

SelaraCompany

GordonCompany

HindiCompany

(a) $30,000 (d) $40,000 (g) $124,000 (j) $ 50,000(b) 95,000 (e) 45,000 (h) 80,000 (k) 225,000(c) 5,000 (f) 28,000 (i) 413,000 (l) 460,000

(b) McKANE COMPANYRetained Earnings Statement

For the Year Ended December 31, 2011 Retained earnings, January 1................................... $ 0Add: Net income......................................................... 15,000

15,000Less: Dividends ........................................................... 10,000Retained earnings December 31 ............................. $ 5,000

(c) The sequence of preparing financial statements is income statement,retained earnings statement, and statement of financial position. Theinterrelationship of the retained earnings statement to the other financialstatements results from the fact that net income from the incomestatement is reported in the retained earnings statement and endingretained earnings reported in the retained earnings statement is theamount reported for retained earnings on the statement of financialposition.


BYP 1-1 FINANCIAL REPORTING PROBLEM

(a) Cadbury’s total assets at December 31, 2008 were £8,895 million and atDecember 31, 2007 were £11,338 million.

(b) Cadbury had £251 million of cash and cash equivalents at December 31,2008.

(c) Cadbury had trade and other payables totaling £1,551 million onDecember 31, 2008 and £1,701 million on December 31, 2007.

(d) Cadbury reports revenues for three consecutive years as follows:

2007 £5,384 million2008 £4,699 million

(e) From 2007 to 2008, Cadbury’s net income (profit for the period)decreased £416 million from £407 million to £366 million.


BYP 1-2 COMPARATIVE ANALYSIS PROBLEM

(a) (in millions) Cadbury Nestlé1. Total assets £ 8,895 CHF106,2152. Accounts (notes) receivable, (net) £ 1,067 CHF 13,4423. Net sales £ 5,384 CHF109,9084. Net income £ 366 CHF 19,051

(b) Cadbury NestléReceivables/Total assets 12.0% 12.7%Net income/Sales 6.8% 17.3%


BYP 1-3 EXPLORING THE WEB

(a) The field is normally divided into three broad areas: auditing, financial/tax, and management accounting.

(b) The skills required in these areas:

People skills, sales skills, communication skills, analytical skills, abilityto synthesize, creative ability, initiative, computer skills.

(c) The skills required in these areas differ as follows:

AuditingFinancialand Tax

ManagementAccounting

People skills Medium Medium MediumSales skills Medium Medium LowCommunication skills Medium Medium HighAnalytical skills High Very High HighAbility to synthesize Medium Low HighCreative ability Low Medium MediumInitiative Medium Medium MediumComputer skills High High Very High

(d) Some key job functions in accounting:

Auditing: Work in audit involves checking accounting ledgers andfinancial statements within corporations and government. This workis becoming increasingly computerized and can rely on sophisticatedrandom sampling methods. Audit is the bread-and-butter work ofaccounting. This work can involve significant travel and allows youto really understand how money is being made in the company thatyou are analyzing. It’s great background!

Budget Analysis: Budget analysts are responsible for developing andmanaging an organization’s financial plans. There are plentiful jobs inthis area in government and private industry. Besides quantitativeskills many budget analyst jobs require good people skills because ofnegotiations involved in the work.


BYP 1-3 (Continued)

Financial: Financial accountants prepare financial statements based ongeneral ledgers and participate in important financial decisions involvingmergers and acquisitions, benefits/ERISA planning, and long-term finan-cial projections. This work can be varied over time. One day you maybe running spreadsheets. The next day you may be visiting a customeror supplier to set up a new account and discuss business. This workrequires a good understanding of both accounting and finance.

Management Accounting: Management accountants work in companiesand participate in decisions about capital budgeting and line of busi-ness analysis. Major functions include cost analysis, analysis of newcontracts, and participation in efforts to control expenses efficiently.This work often involves the analysis of the structure of organizations.Is responsibility to spend money in a company at the right level of ourorganization? Are goals and objectives to control costs being communi-cated effectively? Historically, many management accountants havebeen derided as “bean counters.” This mentality has undergone majorchange as management accountants now often work side by side withmarketing and finance to develop new business.

Tax: Tax accountants prepare corporate and personal income tax state-ments and formulate tax strategies involving issues such as financialchoice, how to best treat a merger or acquisition, deferral of taxes,when to expense items and the like. This work requires a thoroughunderstanding of economics and the tax code. Increasingly, large corpo-rations are looking for persons with both an accounting and a legalbackground in tax. A person, for example, with a JD and a CPA wouldbe especially desirable to many firms.

(e) Junior Staff Accountant $46,000 – $63,000


BYP 1-4 DECISION MAKING ACROSS THE ORGANIZATION

(a) The estimate of the $6,100 loss was based on the difference betweenthe $25,000 invested in the driving range and the bank balance of$18,900 at March 31. This is not a valid basis for determining incomebecause it only shows the change in cash between two points in time.

(b) The statement of financial position at March 31 is as follows:

CHIP-SHOT DRIVING RANGE COMPANYStatement of Financial Position

March 31, 2011

AssetsCaddy shack .......................................................................... $ 8,000Equipment .............................................................................. 800Cash ......................................................................................... 18,900

Total assets................................................................... $27,700


Share capital—ordinary ............................................. $25,000Retained earnings........................................................ 2,450 $27,450

LiabilitiesAccounts payable ($150 + $100) ............................. 250

Total equity and liabilities ................................ $27,700

As shown in the statement of financial position, the equity at March 31is $27,450. The estimate of $2,450 of net income is the differencebetween the initial investment of $25,000 and $27,450. This was not avalid basis for determining net income because changes in equitybetween two points in time may have been caused by factors unrelatedto net income. For example, there may be dividends and/or additionalcapital investments by the shareholders.


BYP 1-4 (Continued)

(c) Actual net income for March can be determined by adding dividendsto the change in equity during the month as shown below:

Equity, March 31, per statement of financial position............. $27,450Equity, March 1..................................................................................... 25,000Increase in equity ................................................................................ 2,450Add: Dividends................................................................................... 1,000Net income............................................................................................. $ 3,450

Alternatively, net income can be found by determining the revenuesearned [described in (d) below] and subtracting expenses.

(d) Revenues earned can be determined by adding expenses incurredduring the month to net income. March expenses were Rent, $1,000;Wages, $400; Advertising, $750; and Utilities, $100 for a total of $2,250.Revenues earned, therefore, were $5,700 ($2,250 + $3,450). Alternatively,since all revenues are received in cash, revenues earned can be com-puted from an analysis of the changes in cash as follows:

Beginning cash balance............................................... $25,000Less: Cash payments

Caddy shack ................................................ $8,000Golf balls and clubs................................... 800Rent................................................................. 1,000Advertising ................................................... 600Wages............................................................. 400Dividends ...................................................... 1,000 11,800

Cash balance before revenues .................................. 13,200Cash balance, March 31 ............................................... 18,900Revenues earned............................................................ $ 5,700


BYP 1-5 COMMUNICATION ACTIVITY

To: Lynn BenedictFrom: Student

I have received the statement of financial position of London Company as ofDecember 31, 2011. A number of items in this statement of financial positionare not properly reported. They are:

1. The statement of financial position should be dated as of a specific date,not for a period of time. Therefore, it should be dated “December 31,2011.”

2. Cash should be reported after Supplies on the statement of financialposition.

3. Accounts receivable should be shown as an asset, not a liability, andreported between Cash and Supplies on the statement of financialposition.

4. Accounts payable should be shown as a liability, not an asset. The notepayable is also a liability and should be reported in the liability section.

5. Liabilities and equity should be shown on the statement of financialposition. Share capital—ordinary is not a liability.

6. Share capital—ordinary and retained earnings are part of equity.


BYP 1-5 (Continued)

A correct statement of financial position is as follows:

LONDON COMPANYStatement of Financial Position

December 31, 2011

AssetsEquipment........................................................................... £25,500Supplies............................................................................... 2,000Accounts receivable........................................................ 6,000Cash...................................................................................... 9,000

Total assets ................................................................. £42,500


Share capital—ordinary......................................... £26,000Retained earnings ................................................... (2,000)

Total liabilities ................................................. £24,000Liabilities

Notes payable ........................................................... 10,500Accounts payable.................................................... 8,000

Total liabilities.................................................. 18,500Total equity and liabilities ............................................. £42,500


BYP 1-6 ETHICS CASE

(a) The students should identify all of the stakeholders in the case; that is,all the parties that are affected, either beneficially or negatively, by theaction or decision described in the case. The list of stakeholders in thiscase are:

� Steve Baden, interviewee.� Both Baltimore firms.� Great Northern College.

(b) The students should identify the ethical issues, dilemmas, or other con-siderations pertinent to the situation described in the case. In this casethe ethical issues are:

� Is it proper that Steve charged both firms for the total travel costsrather than split the actual amount of $296 between the two firms?

� Is collecting $592 as reimbursement for total costs of $296 ethicalbehavior?

� Did Steve deceive both firms or neither firm?

(c) Each student must answer the question for himself/herself. Would youwant to start your first job having deceived your employer before yourfirst day of work? Would you be embarrassed if either firm found outthat you double-charged? Would your school be embarrassed if youract was uncovered? Would you be proud to tell your professor thatyou collected your expenses twice?

Evert Sandye Taasiringan

Chapter 01 Solution Manual Kieso IFRS

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Transcript of Chapter 01 Solution Manual Kieso IFRS