VILLANOVA UNIVERSITY
SYLLABUS SUPPPLEMENT
FALL 2003
PRINCIPLES OF ACCOUNTING
Accounting 1101
Dr. Edward Malloy
e-mail: malloy@dvol.com
Phone: (610)459-3520
Office: 1072 Bartley Hall
Section 005
CRN 23511
MWF-8:30AM
Room 3044 Bartley
NOTE: Class will be 3 times a week. Therefore, attendance is essential. Excessive cuts will
adversely affect your class participation grade.
We will be using the Power Point slides that accompany the text. A convenient way to take notes
is to have a copy of the Power Points. You can get these by purchasing Ready Notes for the text
or go to the publisher’s web site: http://highered.mcgrawhill.com/sites/0072472960/student_view0/index.html and download the power points.
We will cover a chapter per week, so it is essential that you come to class prepared to discuss the
material.
TEXT: Fundamental Financial Accounting Concepts; Edmonds, McNair, Milam,
Olds; 4th ed., 2002, McGraw-Hill Publishing Co.
GRADING: 2 Tests @ 25 points each
Final exam
Class participation
Homework
Total
=
50 points
30
10
10
100
HOMEWORK:
Chapter
1
2
3
4
Assignment
Q.1,3,5,6,8,9,10,11,12,14,20,22,26,32,34,36, Ex 1-10A, 1-11A,1-16A,1-1-19A
Q7,12,22,25,28,34, Ex2-5A, 2-11, 2-13A
Q2,6,7,11,12,16,20,24, Ex3-5A, 3-7A, 3-8A, 3-11A
Q2,12,14,15,16,17,18,20, Ex4-7A, 4-15A, 4-21A, ATC 4-9 (Excel)
TEST ON CHAPTERS 1 THROUGH 4
5
6
7
8
Q2,6,8,11,13,15,24, Ex5-4A, 5-8A, 5-12A, 5-15A, ATC 5-10 (Excel)
Q3,4,6,10,13,14,22,28,30,32, Ex6-4A, 6-11A, 6-13A, 6-15A
Q2,4,6,10,15,17,21,26, Ex7-4A, 7-5A, 7-8A, 7-9A, 7-13A
Q1,9,10,11,15,19,22,25,27,32, Ex8-7A, 8-10A, 8-12A, 8-15A, 8-17A
TEST ON CHAPTERS 5 THROUGH 8
9
10
11
12
Q2,8,9,16,24, Ex9-4A, 9-11A, 9-13A, 9-17A, 9-19A
Q1,3,5,9,13,21,23,27,36, Ex10-2A, 10-3A, 10-5A, 10-15A, 10-18A, 10-23A
Q1,4,5,8,9,10,14,15,22,23,27, Ex11-2A, 11-5A, 11-8A, 11-10A, 11-11A,
11-14A
Q2,3,7,11,12,14, Ex12-5A, 12-6A, 12-9A
FINAL EXAM
ANSWERS TO QUESTIONS - CHAPTER 1
1.
Stakeholders are the parties that use accounting information. (p.4)
Stakeholders with a direct interest include owners, managers,
creditors, suppliers, and employees. These individuals are directly
affected by what happens to the business. (p.4)
Stakeholders with an indirect interest include financial analysts,
brokers, attorneys, government regulators, and news reporters.
These individuals use information in the financial reports to advise
and influence their clients. (p.4)
Students may give many different answers under the above
categories depending on their level of experience in business.
All students are direct users of accounting information about tuition
and fees, financial aid, and account balances.
3.
The primary mechanism used to allocate resources in the U.S. is
competition for resources in the open market. (p. 4)
5.
See Exhibit 1-1 (p. 5)
6.
Financial Resource: money (p. 5)
Physical Resource: natural resources (i.e. land, forests, mine ore,
petroleum, etc.), buildings, machinery and equipment, furniture and
fixtures (p. 6)
Labor Resource: includes both intellectual and physical labor; i.e.
employees (p. 6)
8.
Financial accounting provides information that is useful to external
resource providers. (p. 6)
Managerial accounting provides information that is useful to
managers in operating an organization (i.e., internal users). (p. 6)
9.
Not-for-profit or nonprofit entities provide goods or services to
consumers for humanitarian or special reasons rather than to earn a
profit for owners. For example, governments allocate resources to
provide for national defense or social/environmental welfare;
benevolent organizations allocate resources to meet humanitarian
needs and to promote the arts and meet social needs. (p. 7)
10.
The U.S. rules of accounting information measurement are called
generally accepted accounting principles (GAAP). (p. 8)
11.
In the U.S., GAAP are established by the accounting profession
through the Financial Accounting Standards Board (FASB). In Japan
and Germany, GAAP are established by governmental bodies. (p. 8,
24)
12.
The Financial Accounting Standards Board (FASB) has the primary
responsibility for establishing GAAP in the U.S. FASB is a nongovernmental rule-making body established by the accounting
profession. (p. 9)
14.
“Assets = Claims” is the most basic form of the accounting
equation. (p. 10)
20. The accounting equation is:
ASSETS – LIABILITIES = STOCKHOLDERS’ EQUITY
or
ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY
Assets are the economic resources used by a business for the
production of revenue. Liabilities are obligations of a business to
relinquish assets, provide services, or accept other obligations.
Equity, also called “residual interest” or “net assets”, is the portion
of the assets remaining after the creditors' claims have been
satisfied (i.e., Assets – Liabilities). (p10)
22.
A double-entry bookkeeping system is one in which every
transaction is recorded twice. A transaction can affect both assets
and claims (liabilities and equity) or only assets or only claims. In
order to “balance” the accounting equation, every transaction
requires a “double entry.” (p. 14)
26.
Revenue increases the asset side of the accounting equation and
also increases the source of that asset, the retained earnings
account in the stockholders’ equity section of the equation. (p. 15)
32.
(1) Balance Sheet - lists the assets and the corresponding claims on
those assets as of a particular date. (p. 11)
(2) Income Statement - measures the difference between the asset
increases and the asset decreases that were associated with
operating a business during a particular accounting period. (p.11)
(3) Statement of Cash Flows - explains how a company obtained and
used cash during the accounting period. (p.12)
(4) Statement of Changes in Stockholders’ Equity - explains the
effects of transactions on stockholders’ equity during the
accounting period. (p.18)
34.
Revenue, expenses, and dividends are temporary accounts and are
closed to Retained Earnings at the end of the accounting period.
(p.19)
36.
(1) Operating activities - explain the cash generated from revenue
and
the cash paid for expenses.
(2) Investing activities - include cash received or spent by the
business on productive assets used in the business and
investments in debt or equity of other companies.
(3) Financing activities - include cash inflows and outflows from the
company's transactions with its owners and inflows and outflows
from its borrowing activities. (p. 12)
SOLUTIONS TO EXERCISES - SERIES A - CHAPTER 1
EXERCISE 1-10A
a.
Maulder Mechanics
Horizontal Statements Model for 2001
Assets
Event
No.
1
2
3
4
b.
Cash
7,000
14,000
(6,800)
(1,000)
13,200
=
=
=
=
=
=
=
Balance Sheet
Liab.
+
Stockholders’ Equity
Notes
Common
Retained
Payable +
Stock
+ Earnings
+
+
NA
7,000
NA
+
+
NA
NA
14,000
+
+
NA
NA
(6,800)
+
+
NA
NA
(1,000)
+
+
-07,000
6,200
Income Statement
Revenue  Expense = Net
NA
14,000
NA
NA
14,000





Net income is $7,200 and caused assets to increase by $7,200.
NA
NA
6,800
NA
6,800
=
=
=
=
=
14
(6
7
EXERCISE 1-11A
Event
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
Net Assets
$69,000
Statement of Cash Flow Classification
OA
FA
FA
IA
OA
OA
IA
FA
NA
FA
EXERCISE 1-16A
a.
Permanent Accounts
Cash
Notes Payable
Land
Common Stock
Retained Earnings
Nominal (Temporary)
Accounts
Revenue
Expenses
Dividends
b.
Beginning Retained Earnings
Add:
Revenue
Less: Expenses
Less: Dividends
Ending Retained Earnings
$3,500
4,000
(2,500)
(500)
$4,500
Computation of Net Income
Revenue
Less: Expenses
Net Income
$4,000
(2,500)
$1,500
c.
d. Net income is only the current year’s net income. Retained Earnings is an accumulation of net
income over the life of the business less any dividends that have been paid over the years.
e. All revenue, expense and dividends accounts will have a zero balance because they have been
closed to retained earnings.
SOLUTIONS TO EXERCISES - SERIES A - CHAPTER 2
CHAPTER 2
7.
Revenue is recognized under accrual accounting when a revenue-producing transaction
occurs, i.e., when the revenue is earned, even if no cash is collected at the time of the
transaction12. Expenses are recognized under accrual accounting at the time the expense is
incurred or resources are consumed, regardless of when cash payment is made.
22.
Assets are listed on the balance sheet in accordance with their respective levels of liquidity
(how rapidly they can be converted to cash).
25.
An adjusting entry is an entry that updates account balances prior to preparation of the
financial statements. Example: entry to recognize accrued interest revenue.
28.
Land purchased in 1920 is listed on a balance sheet at its historical cost.
34. The four stages of the accounting cycle:
Record transactions; adjust the accounts; prepare
statements; and close the nominal accounts. The adjustment process has been added to the
cycle in this chapter. It is necessary to adjust accounts so that the accounts will reflect the
correct balances under the accrual basis of accounting.
SOLUTIONS TO EXERCISES - SERIES A - CHAPTER 2
EXERCISE 2-5A
a.
Jones and Reed
Statements Model
For the 2004 Accounting Year
Event
No.
1.
2.
3.
4.
5.
6.
7.
8.
Totals
b.
c.
d.
e.
Balance Sheet
Assets
=
Liabilities
+ Stk. Equity
Accts.
Acct.
Sal.
Retained
Cash +
Rec.
= Payable + Pay. + Earnings
NA
85,000
NA
NA
85,000
25,000
NA
NA
NA
25,000
NA
NA
32,000
NA
(32,000)
(15,000)
NA
NA
NA
(15,000)
73,000
(73,000)
NA
NA
NA
(28,000)
NA
(28,000)
NA
NA
(5,000)
NA
NA
NA
(5,000)
NA
NA
NA
1,250
(1,250)
50,000 +
12,000 =
4,000 + 1,250 +
56,750
Income Statement
Rev.
– Exp. = Net Inc.
85,000
NA
25,000
NA
NA
32,000
NA
15,000
NA
NA
NA
NA
NA
NA
NA
1,250
110,000  48,250 =
Total assets: $62,000 ($50,000 + $12,000)
$12,000
$4,000
Accounts Receivable (an asset) is an amount owed to you: $12,000;
Accounts Payable (a liability) is an amount that you owe: $4,000.
f. $61,750
g. $55,000 ($25,000 – $15,000 + $73,000 – $28,000)
85,000
25,000
(32,000)
(15,000)
NA
NA
NA
(1,250)
61,750
Statement of
Cash Flows
NA
25,000
NA
(15,000)
73,000
(28,000)
(5,000)
NA
50,000
OA
OA
OA
OA
FA
NC
EXERCISE 2-11A
Sun Corp.
Effect of Events on the 2001 General Ledger Accounts
Event
1. Issue Stock
2. Svc. On Acct.
3. Coll. Acc. Rec.
4. Recog. Exp.
5. Paid Acc. Pay.
6. Pur. Land
7. Loan
8. Accrued Int.
Totals
a.
b.
c.
d.
e.
f.
Cash
85,000
Assets
+ Acc. Rec. +
250,000
(200,000)
200,000
+ Stockholders’ Equity
+ Int. Pay. + C. Stock + Ret. Earn.
85,000
250,000
215,000
(190,000)
(190,000)
(30,000)
25,000
90,000
Land
=
Liabilities
= Acc. Pay. + N. Pay.
(215,000)
30,000
25,000
+
50,000 +
$90,000
$50,000
$170,000 ($90,000 + $50,000 + $30,000)
$51,250 ($25,000 + $25,000 + $1,250)
$85,000
$33,750
30,000 =
25,000 +
25,000 +
1,250
1,250 +
85,000 +
(1,250)
33,750
EXERCISE 2-13A a.
Zig Company
Accounting Equation for 2001
Assets
Event
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Totals
b.
+65,000
+175,000
NA
25,000
+25,000
+95,000
95,000
50,000
+15,000
5,000
10,000
+20,000
NA
210,000
= Liabilities +
NA
NA
+105,000
NA
NA
=
50,000
NA
NA
NA
+20,000
+900
75,900
Stockholders’ Equity
Common
Retained
Acct.
Stock
+ Earnings Title /RE
+65,000
NA
Revenue
NA
+175,000
Op. Exp.
NA
105,000
NA
NA
NA
+
NA
NA
NA
NA
NA
NA
65,000 +
NA
NA
+15,000
5,000
10,000
NA
900
69,100
Revenue: $175,000 + $15,000 =
$ 190,000
Expenses: $105,000 + $5,000 + $900 = (110,900)
Net Income
$ 79,100
Revenue
Sal. Exp.
Dividends
Int. Exp.
c. $210,000
d.
$75,900
EXERCISE 1-19A
a.
Event
1.
Asset Source
2.
Asset Source
3.
Asset Source
4.
Asset Use
5.
Asset Exchange
6.
Asset Use
b.
Better Sports
Horizontal Statements Model for 2008
Balance Sheet
Assets
=
Event
No.
Cash
+
Land
1
2
3
4
5
6
I
I
I
D
D
D
+
NA
NA
NA
NA
I
NA
+
+
+
+
+
Liab.
Notes
= Payable
=
=
=
=
=
=
NA
NA
I
NA
NA
NA
+ Stockholders’ Equity
Commo
Retained
+
n
+ Earnings
Stock
+
+
I
NA
+
+
NA
I
+
+
NA
NA
+
+
NA
D
+
+
NA
NA
+
+
NA
D
Income Statement
Revenue  Expense = N
NA
I
NA
NA
NA
NA






NA
NA
NA
I
NA
NA
=
=
=
=
=
=
ANSWERS TO QUESTIONS - CHAPTER 3
2.
Deferral is the recognition of revenue or expenses in a period after
the cash consequences are realized, i.e., cash is collected in
advance of performing the service.
6.
Unearned revenue is revenue that has been collected but the service
has not yet been performed.
7.
Straight line depreciation is computed by taking the cost of an asset
minus the salvage value and dividing by the number of years of
useful life. Straight line depreciation allocates an equal amount of
depreciation to each accounting period.
10.
The book value of an asset is the asset's historical cost minus the
accumulated depreciation.
11.
$12,000  $10,000 = $2,000 book value.
16.
Supplies used during the accounting period are recognized in a
single adjusting entry at the end of the period. The amount of
supplies used is determined by subtracting the amount of supplies
on hand at the end of the period from the amount of supplies that
were available for use (beginning supplies balance plus supplies
purchased).
20.
Gains are increases in assets or decreases in liabilities which result
from peripheral or incidental transactions. For example, when land
purchased for $4,000 is sold for $5,000, the gain is $1,000.
24. The concept of materiality: If the decision of a reasonable person
would be influenced by the omission or misstatement of accounting
information, the omission or misstatement is considered material.
SOLUTIONS TO EXERCISES - SERIES A - CHAPTER 3
EXERCISE 3-5A
a.
Management Consulting Services
Effect of Events on the Accounting Equation
Assets
Event
1. Acq. Stock
2. Prepaid Rent
3. Provided Service
4. Used Rent
Totals
Cash
12,000
(9,000)
18,000
21,000
=
Prepaid
Rent
=
Stockholders’ Equity
Com.
Retained
Stock
Earnings
12,000
9,000
(8,250)*
750
=
12,000
*$9,000 x 11/12 = $8,250
b.
Management Consulting Services
Income Statement
For the Year Ended December 31, 2007
Revenue
Expense
$18,000
(8,250)
Net Income
$ 9,750
18,000
(8,250)
9,750
EXERCISE 3-5A b. (cont.)
Management Consulting Services
Statement of Cash Flows
For the Year Ended December 31, 2007
Cash Flows From Operating Activities:
Cash Receipt from Revenue
Cash Payment for Rent
Net Cash Flow from Operating Activities
$18,000
(9,000)
$ 9,000
Cash Flow From Investing Activities
Cash Flows From Financing Activities
Cash from Issue of Stock
Net Cash Flow from Financing Activities
Net Change in Cash
Plus: Beginning Cash Balance
Ending Cash Balance
-012,000
12,000
21,000
-0-
$21,000
c. The difference of $750 ($9,750  $9,000) is attributed to recognizing rent
expense of $8,250 in the income statement, whereas the cash payment
for rent is $9,000.
EXERCISE 3-7A
a.
Tasty Pizza
Accounting Equation for 2008
Assets
Event
1. Issue Stk.
2. Pur. Oven
3. Rev.
4. Paid Exp.
5. Depr. Exp.
Totals
Cash
12,000
(11,000)
8,000
(2,000)
7,000
Oven
=
Accum.
Depr.
=
Stockholders’ Equity
Com.
Retained
Stock
+
Earnings
12,000
11,000
11,000
(2,000)*
(2,000) =
12,000
*(11,000  $1,000)  5=$2,000 depreciation per year
+
8,000
(2,000)
(2,000)
4,000
b. $2,000 each year.
c. 4,000 of accumulated depreciation ($2,000 for 2008 + $2,000 for 2009).
d. No, because depreciation is a non-cash expense. Depreciation is the
systematic allocation of the cost of an asset to expense. The cash
payment occurred when the oven was purchased.
EXERCISE 3-8A a.
a.
Kim Vanderbilt Personal Financial Planning
Horizontal Statements Model for 2003
Assets
Event
1. Advance Payment
2. Revenue Earned
Totals
= Liabilities + Stk. Equity
Unearned
Retained
Cash
= Revenue +
Earnings
72,000
72,000
(60,000)*
60,000
72,000 =
12,000
60,000
Income Statement
Rev.
NA
60,000
60,000

Exp.
NA
NA
Net
= Income
NA
60,000
60,000
*$72,000 x 10/12 = $60,000
b.
Revenue that will be recognized in 2004 is $12,000, the remainder of
the unearned revenue.
72
72
c.
$-0-, no cash is received. All cash was received in 2003.
EXERCISE 3-11A
R. Ross Attorney At Law
Effect of Transactions on the Financial Statements for 2002
Assets
No.
1.
2.
3.
4.
5.
6.
7.
8.
Totals
Cash + Supplies
15,000 +
NA
NA +
900
+
35,300
NA
(21,400) +
NA
(4,000) +
NA
+
(700)
NA
NA +
(825)
NA +
NA
+
24,200
75
*$15,000 x 9/12 = $11,250
Balance Sheet
=
Liabilities
Acct.
Unearn.
= Payable + Revenue
=
NA + 15,000
=
900 +
NA
=
+
NA
NA
=
NA +
NA
=
NA +
NA
=
+
(700)
NA
=
NA +
NA
=
NA + (11,250)*
=
200 +
3,750
+ S. Equity
Rev
Income Statement
= Ne

Exp.
Retained
+ Earnings
+
NA
+
NA
+ 35,300
+ (21,400)
+
(4,000)
+
NA
+
(825)
+ 11,250
+ 20,325
NA
NA
35,300
NA
NA
NA
NA
11,250
46,550









NA =
NA =
NA =
21,400 =
NA =
NA =
825 =
NA =
22,225 =
35
(21
11
24