Financial Accounting Tutorial 3:
1.
During 20X3 Hershey Foods Corporation made sales of 4,173 CHF (assume all on
account) and collected cash of 4,136 CHF from customers. Operating expenses totaled
816 CHF, all paid in cash. At year end, 20X3, Hershey customers owed the company
408 CHF. Hershey owed creditors 132 CHF on account. All amounts are in millions.
a. For these facts, show what Hershey reported on the income statement and balance
sheet
b. Suppose Hershey had used the cash basis of accounting. What would Hershey have
reported for these facts?
2.
Fossil, Inc., the popular watch and leather-goods company, made sales of 781 million
CHF during 20X3. Of this amount, Fossil collected cash for all but 36 million CHF.
The company’s cost of goods sold was 380 million CHF, and all other expenses for
the year totalled 333 million CHF. Also during 20X3, Fossil paid 391 million CHF for
its inventory and 308 million CHF for everything else. Beginning cash was 112
million CHF. Please answer the following questions:
a. How much was Fossil’s net income for 20X3?
b. How much was Fossil’s cash balance at the end of 20X3?
3.
Suppose The Home Depot, Inc. faced the following situations. Journalize the adjusting
entry needed at December 31 for each situation. Consider each fact separately.
a. The business will pay interest expense of 9,000 CHF early in the next period. Of this
amount, two-thirds is expense of the current year
b. Interest revenue of 900 CHF has been earned but not yet received. The business holds
a 20,000 CHF note receivable that it will collect, along with the interest, next year.
c. On July 1, when we collected 6,000 CHF rent in advance, we debited Cash and
credited Unearned Rent Revenue. The tenant was paying for 2 years’ rent.
d. Salary expense is 1,000 CHF per day—Monday through Friday—and the business
pays employees each Friday. This year, December 31 falls on a Thursday.
e. The unadjusted balance of the Supplies account is 3,100 CHF. The total cost of
supplies on hand is 800 CHF.
f. Equipment was purchased at the beginning of this year at a cost of 60,000 CHF. The
equipment’s useful life is 5 years. Record depreciation for this year and then
determine the equipment’s book value.
g. On September 1, we prepaid 1,200 CHF for a 1-year insurance policy.
4.
Please use the above data to answer the following questions:
a. Refer to item f above. Show what Home Depot will report on its:
a1) Balance sheet (show all the data items needed to report the asset's book value)
a2) Income Statement
b. Refer to item g above. Show what Home Depot will report on the following financial
statements:
b1) Income statement of the current year
b2) Balance sheet at the end of the current year
b3) Income statement of the following year
b4) Balance sheet at end of the following year
5.
a.
b.
c.
d.
6.
The accounting records of Studio Art Gallery include the following unadjusted
balances at May 31: Accounts Receivable 1,100 CHF; Supplies 900 CHF; Salary
Payable 0 CHF; Unearned Service Revenue 800 CHF; Service Revenue 4,700 CHF;
Salary Expense 1,200; Supplies Expense 0 CHF. Studio Art Gallery's accountant
develops the following data for the May 31 adjusting entries:
Supplies on hand 500 CHF
Salary owed to employee 700 CHF
Service revenue accrued 600 CHF
Unearned service revenue that has been earned 550 CHF
Open the foregoing T-accounts with their beginning balances. Then record the
adjustments directly in the accounts, keying each adjustment amount by letter. Show
each accounts adjusted balance. Journal entries are not required.
The adjusted trial balance of Upper 10 Cola Company (adapted) follows:
Adjusted Trial Balance
Debit Credit
Cash
900
Accounts Receivable
1,800
Inventories
1,100
Prepaid expenses
1,900
Property, plant, equipment
6,600
Accumulated depreciation
2,400
Other assets
9,900
Account payable
7,700
Income tax payable
600
Other liabilities
2,200
Common stock
4,900
Retained earnings (beginning December 31 200X)
4,500
Dividends
1,700
Sales revenue
20,500
Cost of goods sold
6,200
Selling, administrative and general expense
9,700
Income tax expense
3,000
Total
42,800 42,800
Prepare Upper 10 Cola Company's income statement and statement of retained
earnings for the year ended December 31, 20X6, and its balance sheet on that date.
Show how the three statements are linked.
7.
The unadjusted trial balance and income statement amounts from the March adjusted
trial balance of Wall street Workout Company follow. Wall Street Workout is a
turnaround specialist.
Wall street work out company
Account title
Cash
Supplies
Prepaid rent
Equipment
Accumulated depreciation
Accounts payable
Salary payable
Unearned service revenue
Income tax payable
Common stock
Retained earnings
Dividends
Service revenue
Salary expense
Rent expense
Depreciation expense
Supplies expense
Income tax expense
Total
Net income
Total
Unadjusted Trial From the adjusted
Balance
trial balance
10,200
2,400
1,100
32,100
6,200
4,600
8,400
8,700
10,300
1,000
12,800
3,000
1,200
51,000
17,900
3,800
1,400
300
400
1,600
51,000
10,400
17,900
17,900
a. Journalize the adjusting and closing entries of Wall Street Workout Company at
March 31. There was only one adjustment to Service Revenue.
b. After solving a., use the data to prepare Wall Street Workout Company's classified
balance sheet at March 31 of the current year. Use the report format.
c. Compute Wall Street Workout's current ratio at March 31. A year ago, the current
ratio was 1,30 and the debt ratio was 0,29. Indicate whether the company's ability to
pay its debts improved or deteriorated during the current year.
8. Johnson & Johnson, the health-care products company, reported these ratios at
December 31, 20X3 (in million CHF): Current ratio = 23/13 = 1,77; Debt ratio =
21/48 = 0,44. Assume that Johnson & Johnson completed these transactions during
20X4:
a. Purchased equipment on account, 4 CHF.
b. Paid long-term debt, 5 CHF.
c. Collected cash from customers in advance, 2 CHF.
d. Accrued interest expense, 1 CHF.
e. Made cash sales, 6 CHF.
Determine whether each transaction improved or hurt Johnson & Johnson’s current
ratio and debt ratio. Round all ratios to two decimal places.