Solutions to Year-End Review Package: Chapters 1 and 2
PART I — MULTIPLE CHOICE
1.
2.
3.
d
b
c
4.
5.
6.
a
c
d
7.
8.
9.
d
b
c
10.
11.
12.
c
d
a
13.
14.
15.
b
d
d
16.
17.
18.
c
d
d
PART II — JOURNAL ENTRIES
0.
1.
2.
3.
4.
5.
6.
Account(s)
Debited
1
8
6
1
None
15
None
Account(s)
Credited
11
1
10
13
None
1
None
7.
8.
9.
10.
11.
12.
13.
Account(s)
Debited
17
3
5
1
2
12
18
Account(s)
Credited
1
8
1
9
13
1
1
PART III — SHORT PROBLEMS
A. Ending Capital, 12/31/01 .................................................................................
Beginning Capital, 1/1/01................................................................................
Increase in capital balance ...............................................................................
Withdrawals during 2001 ................................................................................
Investments during 2001 .................................................................................
Net income in 2001 .........................................................................................
$140,000
125,000
15,000
38,000
53,000
20,000
$ 33,000
B. Total liabilities, $50,000 (Beginning of year).
Total owner’s equity, $30,000 (End of year).
Expenses during the year, $65,000.
PART IV — TYPES OF ACCOUNTS
Debit
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Credit
Asset
Liability
Owner’s
Equity
Solutions: Chapters 3 and 4
PART I — MULTIPLE CHOICE
1.
2.
3.
a
c
b
4.
5.
6.
d
d
b
7.
8.
9.
d
c
a
10.
11.
12.
c
b
a
13.
b
PART II — FINANCIAL STATEMENT PREPARATION
PENA SERVICE AGENCY
Income Statement
For the Month Ended September 30, 2001
Revenues:
Service revenue
Expenses:
Interest expense
Salaries expense
Supplies expense
Rent expense
Insurance expense
Total expenses
Net income
$16,000
$ 400
4,000
1,500
2,000
1,200
9,100
$ 6,900
PENA SERVICE AGENCY
Balance Sheet
At September 30, 2001
Assets
Cash
Fees receivable
Supplies
Prepaid insurance
Prepaid rent
Equipment
Less: Accumulated amortization
Total assets
Liabilities and Owner’s Equity
Liabilities:
Notes payable
Accounts payable
Salaries payable
Interest payable
Unearned revenue
Total liabilities
Owner’s equity:
J. Pena, Capital (1)
Total liabilities and owner’s equity
(1)
J. Pena, Capital — Beginning
$ 9,825
Less: drawings
2,000
Add: net income
6,900
$14,725
$ 6,500
1,000
3,075
2,000
500
$35,000
4,000
31,000
$44,075
$14,000
12,000
1,300
50
2,000
29,350
14,725
$44,075
PART III — ADJUSTING ENTRIES
Account(s)
Account(s)
Dollar
Debited
Credited
Amount
0.
3
12
$500
1.
15
8
$1,440
2.
10
13
$5,000
3.
14
7
$12,000
4.
2
13
$500
PART IV—CLOSING ENTRIES
1. X
6.
2. X
7.
3. C
8.
4. C
9.
5. C
10.
D
D
X
X
X
PART V—BALANCE SHEET CLASSIFICATIONS
1. F
6. D
2. D
7. C
3. A
8. G
4. D
9. G
5. C
10. A
Account(s)
Debited
5.
17
6.
18
7.
16
8.
3
11.
12.
13.
C
X
X
11.
12.
13.
14.
15.
A
D
C
A
E
Account(s)
Credited
4
5
9
12
Dollar
Amount
$5,000
$1,500
$400
$800
16.
17.
G
C
Solutions: Chapters 5 and 6
PART I — MULTIPLE CHOICE
1.
2.
3.
a
a
b
4.
5.
6.
a
b
d
7.
8.
9.
a
c
b
10.
11.
12.
d
c
d
13.
14.
15.
c
d
b
16.
17.
b
b
PART II — BASIC INVENTORY CALCULATIONS
(a) Average ending inventory:
500 × $20 =
$10,000
Average cost of goods sold
1,250 × $20 =
$25,000
Average cost = $35,000 ÷ 1,750 = $20
(b) FIFO ending inventory:
425 × $26 =
75 × $22 =
(c) LIFO ending inventory:
400 × $14 =
100 × $18 =
$11,050
1,650
$12,700
FIFO cost of goods sold
400 × $14 =
375 × $18 =
250 × $20 =
225 × $22 =
$5,600
1,800
$7,400
LIFO cost of goods sold
425 × $26 =
300 × $20 =
250 × $20 =
275 × $18 =
$ 5,600
6,750
5,000
4,950
$22,300
$11,050
6,600
5,000
4,950
$27,600
PART III — CLOSING ENTRIES
——————————————————————————————————————————
Not
Closed
Account
Closed
Debit
Credit
——————————————————————————————————————————
1. Purchase Returns and Allowances ................................................
X
2. Freight In ......................................................................................
X
3. Sales ..............................................................................................
X
4. Merchandise Inventory (Ending) ..................................................
X
5. Sales Returns and Allowances .....................................................
X
6. H. Carey, Drawings ......................................................................
X
7. Freight Out ...................................................................................
X
8. H. Carey, Capital .........................................................................
X
9. Merchandise Inventory (Beginning) ............................................
X
10. Cash .............................................................................................
X
*PART IV — INVENTORY: SHORT PROBLEMS
A.
Net Sales ($200,000 – $25,000) ........................................................................................
Less estimated gross profit (40% × 175,000)....................................................................
Estimated cost of goods sold .............................................................................................
$175,000
70,000
$105,000
Beginning inventory..........................................................................................................
Cost of goods purchased ($140,000 – $5,000 + $19,000).................................................
Cost of goods available for sale ........................................................................................
Less: estimated cost of goods sold ....................................................................................
Estimated cost of ending inventory ...................................................................................
Less: undamaged inventory ..............................................................................................
Estimated cost of merchandise lost in fire ........................................................................
$ 30,000
153,000
183,000
105,000
78,000
25,000
$ 53,000
B.
Beginning inventory .......................................................................................
Purchases ........................................................................................................
Goods available for sale ..................................................................................
Net sales ..........................................................................................................
Ending inventory at retail ...............................................................................
Cost to retail ratio ($120,000 ÷ $160,000) = 75%
Ending inventory at cost ($60,000 × 75%) .....................................................
C.
Total cost =
Total market
Write down required
At Cost
$ 25,000
95,000
$120,000
At Retail
$ 35,000
125,000
$160,000
100,000
$ 60,000
$ 45,000
$19,950
19,610
$ 340
Loss Due to Decline in Net Realizable Value in Inventory ....................................
Merchandise Inventory .........................................................................
To record decline in inventory from original cost of
$19,950 to current NRV of $19,610.
340
340
PART V –– MULTIPLE-STEP INCOME STATEMENT
BYRNE INDUSTRIES
Income Statement
For the Year Ended December 31, 2002
Sales revenues
Sales (sales returns and allowances — $30,000)
Less: Sales returns and allowances
Net sales
Cost of goods sold
Gross profit
Operating expenses
Wages expense
Selling expense
Amortization expense — store equipment
Freight out
Total operating expenses
$630,000
30,000
600,000
275,000
325,000
$967,500
60,000
16,000
6,000
149,500
Income from operations
175,500
Other revenue and gains
Interest revenue
$ 2,700
Other expenses and loses
Interest expense
Loss on sale of equipment
Total non-operating expenses and losses
$12,300
4,800
$17,100
Net non-operating expenses and losses
Net Income
14,400
$161,100
Solutions: Chapters 9 –11
PART I — MULTIPLE CHOICE
1.
2.
3.
b
b
d
4.
5.
6.
a
c
a
7.
8.
9.
a
a
d
10.
11.
12.
a
c
d
13.
14.
a
b
PART III — MATCHING
1.
A
2.
C
3.
C
4.
A
5.
B
PART III — AMORTIZATION METHODS
Straight-line [($900,000 – $100,000) ÷ 10]
2000
$ 80,000
Double declining-balance (10% × 2 = 20%)
2000
$900,000 × .20
2001
($900,000 – $180,000) × .20
$180,000
Units-of-Activity ($900,000 – $100,000) ÷ 1,000,000 = $.80/unit
2000
60,000 × $.80
2001
120,000 × $.80
$ 48,000
2001
$ 80,000
$144,000
$ 96,000
PART IV — RECEIVABLES
A. UNCOLLECTIBLE ACCOUNTS
(1) Bad Debts Expense .......................................................................................
Allowance for Doubtful Accounts ($500 + $7,000) ..........................
(2)
(3)
(4)
7,500
7,500
Bad Debts Expense (1% × $740,000) ...........................................................
Allowance for Doubtful Accounts ...................................................
7,400
Allowance for Doubtful Accounts ................................................................
Accounts Receivable ........................................................................
400
Accounts Receivable ....................................................................................
Allowance for Doubtful Accounts ...................................................
400
7,400
400
400
Cash ............................................................................................................ 200
Accounts Receivable ........................................................................
B.
July
Nov.
Nov.
200
NOTES RECEIVABLE
1 Notes Receivable ........................................................................................
Accounts Receivable ........................................................................
6,000
6,000
1 Cash .......................................................................................................... 6,160
Notes Receivable ..............................................................................
Interest Revenue ...............................................................................
1 Accounts Receivable ..................................................................................
Notes Receivable ..............................................................................
Interest Revenue ...............................................................................
6,000
160
6,160
6,000
160
PART V — CAPITAL ASSETS: SHORT PROBLEMS
A.
B.
C.
D.
Land .......................................................................................................... 390,000
Building ......................................................................................................
210,000
Cash .................................................................................................
600,000
Revised annual amortization
Book value, 1/1/00 ($100,000 – $18,000) ....................................................................
Less: New salvage value ..............................................................................................
Amortizable cost ..........................................................................................................
$ 82,000
12,000
$ 70,000
Remaining useful life ...................................................................................................
5 years
Revised annual amortization ($70,000 ÷ 5) .................................................................
$14,000
2000 amortization: $300,000 × .40 × 1/2 =
$60,000
2001 amortization: ($300,000 – $60,000) ×.40 =
$96,000
Cash .......................................................................................................... 12,000
Accumulated Amortization ..........................................................................
Crane .................................................................................................
Gain on Sale of Crane .......................................................................
7,000
18,000
1,000
PART VI — PAYROLL CALCULATIONS
a.
b.
c.
d.
e.
$330
$314.96
$13.50
Zero
$43.99
PART VII — INTEREST ON SHORT-TERM NOTES PAYABLE
Note to be
Interest Payable
2002 Interest
Case
Principal
Interest Rate
Note Given
Repaid
12/31/01
Expense
———————————————————————————————————————————
1.
$60,000
8%
9/30/01
9/30/02
$1,200
$3,600
2.
$30,000
10%
9/1/00
3/1/01
Zero
XXXX
3.
$45,000
8%
6/30/01
or 7/1/01
3/31/02
or 4/1/02
$1,800
$ 900
4.
$20,000
9%
4/1/01
4/1/02
1,350
XXXX
5.
$50,000
12%
12/1/01
3/1/02
XXXX
1,000
6.
$80,000
8%
10/1/01
6/1/02
1,600
XXXX
Solutions: Chapters 14-15
PART I — MULTIPLE CHOICE
1.
2.
3.
4.
5.
6.
d
d
c
d
a
b
7.
8.
9.
10.
11.
12.
a
b
b
a
d
b
13.
14.
15.
16.
17.
c
d
d
d
c
PART II — DIVIDEND CALCULATIONS
1.
2.
3.
$15,000.
$60,000.
$30,000.
4.
5.
6.
$15,000.
$10,000.
$147,000.
PART III — STOCK SPLITS, DIVIDENDS, AND RESTRICTIONS OF RETAINED EARNINGS
1.
2.
3.
4.
5.
B
C
C
A
C
6.
7.
8.
9.
10.
D
A
B
A
C
PART IV — EARNINGS PER SHARE
1.
2.
3.
$2.00
$.70
$1.00
PART V — INCOME STATEMENT AMOUNTS
1.
2.
3.
4.
decrease
increase
decrease
$45,000.
$56,000.
$24,000.
$zero.
Solutions: Chapter 16
PART I — MULTIPLE CHOICE
1. c
2. b
PART II — BOND CALCULATIONS
1.
2.
$36,234.
$37,480.80.
3.
4.
loss of $40,222.50.
$51,055.20.
PART III — BOND ENTRIES
1.
2.
Debit
1
Credit
5
9
Amount
$208,000
200,000
8,000
1
800
11,200
12,000
9
6
3.
4.
Debit
6
Credit
12
14
Amount
$ 11,000
1,000
10,000
1
200,000
4,800
204,800
5
9
Solutions: Chapters 18-19
PART I — MULTIPLE CHOICE
1.
2.
3.
4.
5.
a
d
d
b
b
6.
7.
8.
9.
10.
d
d
a
b
d
11.
12.
13.
14.
c
d
a
b
PART II — RATIO ANALYSIS
1.
2.
3.
4.
5.
20.00
1.60
5.00
47.37
.45
6.
7.
8.
9.
4.00
34.55
8.00
3.00
PART III —CASH FLOW STATEMENT CLASSIFICATIONS
1.
2.
3.
4.
5.
F
F
C
D
B
6.
7.
8.
9.
10.
D
B
E
G
A
PART IV — CASH FLOW STATEMENT — Indirect Method
ZIMMER CORPORATION
Cash Flow Statement
For the Year Ended December 31, 2002
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided
by operating activities
Amortization expense
Increase in accounts receivable
Decrease in inventory
Increase in accounts payable
Decrease in accrued expenses payable
Net cash provided by operating activities
Cash flows from investing activities
Purchase of equipment
Net cash used by investing activities
Cash flows from financing activities
Payment of dividends
Net cash used by financing activities
Net increase in cash
Cash at beginning of period
Cash at end of period
Noncash investing and financing activities
Land was acquired by issuing common shares
$28,000
$25,000
(7,000)
10,000
43,000
(6,000)
65,000
93,000
(50,000)
(50,000)
(5,000)
(5,000)
38,000
20,000
$58,000
$70,000
PART IV — CASH FLOW STATEMENT — Direct Method
ZIMMER CORPORATION
Cash Flow Statement
For the Year Ended December 31, 2002
Cash flow from operating activities
Cash receipts from customers ($290,000 – $7,000)
Cash payments:
To suppliers ($110,000 – $10,000 – $43,000)
For operating expenses ($90,000 – $25,000 + $6,000)
For interest
For income taxes
Net cash provided by operating activities
Cash flows from investing activities
Purchase of equipment
Net cash used by investing activities
Cash flows from financing activities
Payment of dividends
Net cash used by financing activities
Net increase in cash
Cash at beginning of period
Cash at end of period
Noncash investing and financing activities
Land was acquired by issuing long-term bonds
$283,000
$57,000
71,000
50,000
12,000
190,000
93,000
(50,000)
(50,000)
(5,000)
(5,000)
38,000
20,000
$58,000
$70,000