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Accounting 23rd Edition Jonathan E. Duchac, James M. Reeve, Carl S. Warren - Solutions

Web-based application software is a recent trend in business computing. Major software firms such as Oracle, SAP, and NetSuites are running their core products on the Web. Net-Suite Inc. is one of the most popular small business Web-based accounting systems. Go to the text’s Web site at
The two leading software application providers for supply chain management (SCM) and customer relationship management (CRM) software are I2 and Salesforce.com, respectively. In groups of two or three, go to the Web site for each company (linked to the text’s Web site at
Cliff Hall opened Meridian Co. on January 1, 2009. At the end of the first year, the business needed additional capital. On behalf of Meridian, Cliff applied to Federal National Bank for a loan of $300,000. Based on Meridian financial statements, which had been prepared on a cash basis, the
On December 30, 2010, you buy a Ford Expedition. It comes with a three-year, 36,000- mile warranty. On March 5, 2011, you return the Expedition to the dealership for some basic repairs covered under the warranty. The cost of the repairs to the dealership is $1,645. In what year, 2010 or 2011,
What types of accounts are referred to as temporary accounts?
What is the purpose of the post-closing trial balance?
What is the natural business year?
The fiscal years for several well-known companies are as follows:What general characteristic shared by these companies explains why they do not have fiscal years ending December31?
Homeland Security Services Co. offers security services to business clients. The trial balance for Homeland Security Services Co. has been prepared on the end-of-period spreadsheet (work sheet) for the year ended October 31, 2010, shown below.The data for year-end adjustments are as follows:a. Fees
In the Income Statement columns of the end-of-period spreadsheet (work sheet) for El Dorado Consulting Co. for the current year, the Debit column total is $186,200 and the Credit column total is $233,400 before the amount for net income or net loss has been included. In preparing the income
In the Balance Sheet columns of the end-of-period spreadsheet (work sheet) for Lancaster Consulting Co. for the current year, the Debit column total is $375,000 and the Credit column total is $505,200 before the amount for net income or net loss has been included. In preparing the income statement
The unadjusted trial balance of Surf Suds Laundry at October 31, 2010, the end of the current fiscal year, is shown below.The data needed to determine year-end adjustments are as follows:a. Wages accrued but not paid at October 31 are $1,250.b. Depreciation of equipment during the year is $9,500.c.
The ledger and trial balance of Mechanical Services Co. as of July 31, 2010, the end of the first month of its current fiscal year, are presented in the working papers.Data needed to determine the necessary adjusting entries are as follows:a. Service revenue accrued at July 31 is $3,000.b. Supplies
The unadjusted trial balance of Loose Leaf Co. at December 31, 2010, the end of the current year, is shown at the top of the next page. The data needed to determine year-end adjustments are as follows:a. Supplies on hand at December 31 are $1,500.b. Insurance premiums expired during the year are
For the past several years, Emily Page has operated a part-time consulting business from her home. As of June 1, 2010, Emily decided to move to rented quarters and to operate the business, which was to be known as Bottom Line Consulting, on a full-time basis. Bottom Line Consulting entered into the
The unadjusted trial balance of Ocean Breeze Laundromat at April 30, 2010, the end of the current fiscal year, is shown below.The data needed to determine year-end adjustments are as follows:a. Laundry supplies on hand at April 30 are $4,000.b. Insurance premiums expired during the year are
The ledger and trial balance of Handy Man Services Co. as of July 31, 2010, the end of the first month of its current fiscal year, are presented in the working papers.Data needed to determine the necessary adjusting entries are as follows:a. Service revenue accrued at July 31 is $2,200.b. Supplies
The unadjusted trial balance of Fix-It Co. at February 28, 2010, the end of the current year, is shown below.The data needed to determine year-end adjustments are as follows:a. Supplies on hand at February 28 are $4,000.b. Insurance premiums expired during year are $2,000.c. Depreciation of
For the past several years, Kareem Ismail has operated a part-time consulting business from his home. As of October 1, 2010, Kareem decided to move to rented quarters and to operate the business, which was to be known as Iron Mountain Consulting, on a full-time basis. Iron Mountain Consulting
Pixel Graphics is a graphics arts design consulting firm. Marcie Biel, its treasurer and vice president of finance, has prepared a classified balance sheet as of August 31, 2010, the end of its fiscal year. This balance sheet will be submitted with Pixel Graphics’ loan application to Planet
The following is an excerpt from a telephone conversation between Alice Lutz, president of DeSoto Supplies Co., and Victor Hood, owner of Hood Employment Co.Alice: Victor, you’re going to have to do a better job of finding me a new computer programmer. That last guy was great at programming, but
Assume that you recently accepted a position with Stockman National Bank as an assistant loan officer. As one of your first duties, you have been assigned the responsibility of evaluating a loan request for $90,000 from Goldworks.com, a small proprietorship. In support of the loan application,
Kelly Pitney began her consulting business, Kelly Consulting, on April 1, 2010. The accounting cycle for Kelly Consulting for April, including financial statements, was illustrated on pages 157–168. During May, Kelly Consulting entered into the following transactions:May 3. Received cash from
Can a business earn a gross profit but incur a net loss? Explain.
How are sales to customers using MasterCard and VISA recorded?
The credit period during which the buyer of merchandise is allowed to pay usually begins with what date?
What is the meaning of?(a) 1/15, n/60;(b) n/30;(c) n/eom?
Business Outfitters Inc., which uses a perpetual inventory system, experienced a normal inventory shrinkage of $9,175. What accounts would be debited and credited to record the adjustment for the inventory shrinkage at the end of the accounting period?
Assume that Business Outfitters Inc. in Eye Opener 14 experienced an abnormal inventory shrinkage of $80,750. Business Outfitters Inc. has decided to record the abnormal inventory shrinkage so that it would be separately disclosed on the income statement. What account would be debited for the
The following selected transactions were completed by Silvertree Company during January of the current year:Jan. 1. Purchased merchandise from Guinn Co., $13,600, terms FOB destination, n/30.3. Purchased merchandise from Cybernet Co., $18,000, terms FOB shipping point, 2/10, n/eom. Prepaid freight
In 2007, Best Buy reported revenue of $35,934 million. Its gross profit was $8,769 million. What was the amount of Best Buy’s cost of merchandise sold?
The debits and credits for three related transactions are presented in the following T accounts. Describe eachtransaction.
Iverson Tile Co.’s perpetual inventory records indicate that $675,150 of merchandise should be on hand on December 31, 2010. The physical inventory indicates that $649,780 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Iverson Tile Co. for the
South Coast Boards Co. is a merchandising business. The account balances for South Coast Boards Co. as of July 1, 2010 (unless otherwise indicated), are as follows:During July, the last month of the fiscal year, the following transactions were completed:July 1. Paid rent for July, $5,000.3.
The accounts and their balances in the ledger of Rack Saver Co. on December 31, 2010, are as follows:The data needed for year-end adjustments on December 31 are as follows:Instructions1. Prepare an end-of-period spreadsheet (work sheet) for the fiscal year endedDecember 31, 2010. List all accounts
The accounts and their balances in the ledger of Quality Sports Co. on December 31, 2010, are as follows:The data needed for year-end adjustments on December 31 are as follows:Instructions1. Prepare an end-of-period spreadsheet (work sheet) for the fiscal year ended December 31, listing all
What are the three classifications of receivables? Discuss.
What types of transactions give rise to accounts receivable?
Which of the two methods of accounting for uncollectible accounts provides for the recognition of the expense at the earlier date?
What kind of an account (asset, liability, etc.) is Allowance for Doubtful Accounts, and is its normal balance a debit or a credit?
After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $298,150 and Allowance for Doubtful Accounts has a balance of $31,200. Describe how the accounts receivable and the allowance for doubtful accounts are reported on the balance sheet.
A firm has consistently adjusted its allowance account at the end of the fiscal year by adding a fixed percent of the period’s net sales on account. After seven years, the balance in Allowance for Doubtful Accounts has become very large in relationship to the balance in Accounts Receivable. Give
Which of the two methods of estimating uncollectibles provides for the most accurate estimate of the current net realizable value of the receivables?
For a business, what are the advantages of a note receivable in comparison to an account receivable?
If a note provides for payment of principal of $90,000 and interest at the rate of 7%, will the interest amount to $6,300? Explain.
Under what section should accounts receivable be reported on the balance sheet?
Boeing is one of the world’s major aerospace firms, with operations involving commercial aircraft, military aircraft, missiles, satellite systems, and information and battle management systems. As of December 31, 2007, Boeing had $2,838 million of receivables involving U.S. government contracts
Using the data in Exercise 9-15, assume that during the second year of operations Master Plumbing Supply Co. had net sales of $4,200,000, wrote off $60,000 of accounts as uncollectible using the direct write-off method, and reported net income of $425,000.a. Determine what net income would have
The Limited, Inc., sells women’s and men’s clothing through specialty retail stores. The Limited sells women’s intimate apparel and personal care products through Victoria’s Secret and Bath & Body Works stores. The Limited reported the following (in millions):a. Compute the accounts
Journalize the following transactions using the direct write-off method of accounting for uncollectible receivables:Sept. 19. Received $100 from Pat Roark and wrote off the remainder owed of $500 as uncollectible.Dec. 20. Reinstated the account of Pat Roark and received $500 cash in full payment.
Journalize the following transactions using the allowance method of accounting for uncollectible receivables:Sept. 19. Received $100 from Pat Roark and wrote off the remainder owed of $500 as uncollectible.Dec. 20. Reinstated the account of Pat Roark and received $500 cash in full payment.
Best Buy is a specialty retailer of consumer electronics, including personal computers, entertainment software, and appliances. Best Buy operates retail stores in addition to the Best Buy, Media Play, On Cue, and Magnolia Hi-Fi Web sites. For two recent years, Best Buy reported the following (in
EarthLink, Inc., is a nationwide Internet Service Provider (ISP). EarthLink provides a variety of services to its customers, including narrowband access, broadband or high-speed access, and Web hosting services. For two recent years, EarthLink reported the following (in thousands):Assume that the
The accounts receivable turnover ratio will vary across companies, depending on the nature of the company's operations. For example, an accounts receivable turnover of 6 for an Internet Service Provider is unacceptable but might be excellent for a manufacturer of specialty milling equipment. A
Ramsey Inc. has $600,000 of income before income taxes, a 35% tax rate, and $320,000 of taxable income. Provide the journal entry for the current year’s taxes.
Downstairs Corp. has $180,000 of income before income taxes, a 40% tax rate, and $90,000 of taxable income. Provide the journal entry for the current year’s taxes.
Mattress Systems Inc. recognized service revenue of $500,000 on its financial statements in 2009. Assume, however, that the Tax Code requires this amount to be recognized for tax purposes in 2010. The taxable income for 2009 and 2010 is $1,800,000 and $2,400,000, respectively. Assume a tax rate of
Differences between the accounting methods applied to accounts and financial reports and those used in determining taxable income yielded the following amounts for the first four years of a corporation's operations:The income tax rate for each of the four years was 40% of taxable income, and each
Differences between the accounting methods applied to accounts and financial reports and those used in determining taxable income yielded the following amounts for the first four years of a corporation's operations:The income tax rate for each of the four years was 35% of taxable income, and each
What is the principal disadvantage of the direct method of reporting cash flows from operating activities?
A corporation issued $500,000 of common stock in exchange for $500,000 of fixed assets. Where would this transaction be reported on the statement of cash flows?
A retail business, using the accrual method of accounting, owed merchandise creditors (accounts payable) $300,000 at the beginning of the year and $340,000 at the end of the year. How would the $40,000 increase be used to adjust net income in determining the amount of cash flows from operating
If salaries payable was $90,000 at the beginning of the year and $70,000 at the end of the year, should $20,000 be added to or deducted from income to determine the amount of cash flows from operating activities by the indirect method? Explain.
A corporation issued $6,000,000 of 20-year bonds for cash at 104. How would the transaction be reported on the statement of cash flows?
For the current year, Bearings Company decided to switch from the indirect method to the direct method for reporting cash flows from operating activities on the statement of cash flows. Will the change cause the amount of net cash flow from operating activities to be(a) Larger,(b) Smaller, or(c)
Name five common major classes of operating cash receipts or operating cash payments presented on the statement of cash flows when the cash flows from operating activities are reported by the direct method.
In a recent annual report, eBay Inc. reported that during the year it issued stock of $128 million for acquisitions. How would this be reported on the statement of cash flows?
On its income statement for a recent year, Continental Airlines, Inc. reported a net loss of $68 million from operations. On its statement of cash flows, it reported $457 million of cash flows from operating activities.Explain this apparent contradiction between the loss and the positive cash flows.
The net income reported on the income statement for the current year was $210,000. Depreciation recorded on equipment and a building amounted to $62,500 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:(a) Prepare the
Selected data derived from the income statement and balance sheet of Jones Soda Co. for a recent year are as follows:a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows using the indirect method for Jones Soda Co. for the year.b. Interpret your results in
The comparative balance sheet of Tru-Built Construction Inc. for December 31, 2010 and2009, is as follows:The following additional information is taken from the records:a. Land was sold for $25.b. Equipment was acquired for cash.c. There were no disposals of equipment during the year.d. The common
The comparative balance sheet of Mavenir Technologies Inc. for December 31, 2010 and 2009, is shown as follows:The following additional information was taken from the records:a. The investments were sold for $140,000 cash.b. Equipment and land were acquired for cash.c. There were no disposals of
The comparative balance sheet of Amelia Enterprises, Inc. at December 31, 2010 and 2009, is as follows:Additional data obtained from the income statement and from an examination of the accounts in the ledger for 2010 are as follows:a. Net income, $126,000.b. Depreciation reported on the income
The comparative balance sheet of Putnam Cycle Co. at December 31, 2010 and 2009, is as follows:The noncurrent asset, noncurrent liability, and stockholders€™ equity accounts for 2010 are as follows:InstructionsPrepare a statement of cash flows, using the indirect method of presenting
The comparative balance sheet of Rucker Photography Products Inc. for December 31, 2011 and 2010, is as follows:The income statement for the year ended December 31, 2011, is as follows:The following additional information was taken from the records:a. Equipment and land were acquired for cash.b.
The comparative balance sheet of Mavenir Technologies Inc. for December 31, 2010 and 2009, is as follows:The income statement for the year ended December 31, 2010, is as follows:The following additional information was taken from the records:a. The investments were sold for $140,000 cash.b.
The comparative balance sheet of House Construction Co. for June 30, 2010 and 2009,is as follows:The following additional information was taken from the records of House Construction Co.:a. Equipment and land were acquired for cash.b. There were no disposals of equipment during the year.c. The
The comparative balance sheet of TorMax Technology, Inc. at December 31, 2010 and2009, is as follows:An examination of the income statement and the accounting records revealed the following additional information applicable to 2010:a. Net income, $184,150.b. Depreciation expense reported on the
The comparative balance sheet of Cantor Industries, Inc. at December 31, 2010 and 2009, is as follows:The noncurrent asset, noncurrent liability, and stockholders€™ equity accounts for 2010 are as follows:InstructionsPrepare a statement of cash flows, using the indirect method of
The comparative balance sheet of Lim Garden Supplies Inc. for December 31, 2010 and2011, is as follows:The income statement for the year ended December 31, 2011, is as follows:The following additional information was taken from the records:a. Equipment and land were acquired for cash.b. There were
The comparative balance sheet of House Construction Co. for June 30, 2010 and 2009, is as follows:The income statement for the year ended June 30, 2010, is as follows:The following additional information was taken from the records:a. Equipment and land were acquired for cash.b. There were no
Kelly Tough, president of Tu-Rock Industries Inc., believes that reporting operating cash flow per share on the income statement would be a useful addition to the company’s just completed financial statements. The following discussion took place between Kelly Tough and Tu-Rock controller, Tripp
Jim Walker is the president and majority shareholder of Tech Trends Inc., a small retail store chain. Recently, Walker submitted a loan application for Tech Trends Inc. to Yadkin National Bank. It called for a $200,000, 9%, 10-year loan to help finance the construction of a building and the
The Retailing Division of Most Excellent Purchase Inc. provided the following information on its cash flow from operations:Net income ……………………………. $ 540,000Increase in accounts receivable ……….. (648,000)Increase in inventory ………………….. (720,000)Decrease in
This activity will require two teams to retrieve cash flow statement information from the Internet. One team is to obtain the most recent year’s statement of cash flows for Johnson & Johnson, and the other team the most recent year’s statement of cash flows for AMR Corp.The statement of
What is the difference between horizontal and vertical analysis of financial statements? Discuss in detail.
The price-earnings ratio for the common stock of Breeden Company was 12 at December 31, the end of the current fiscal year. What does the ratio indicate about the selling price of the common stock in relation to current earnings?
The following data are taken from the financial statements of McKee Technology Inc. Terms of all sales are 2/10, n/60. a. Determine for each year (1) the accounts receivable turnover and (2) the number of days? sales in receivables. Round to nearest dollar and one decimal place. b. What
The following data were taken from the financial statements of Heston Enterprises Inc. for the current fiscal year. Assuming that long-term investments totaled $2,100,000 throughout the year and that total assets were $4,000,000 at the beginning of the year, determine the following:(a) Ratio of
Discuss whether Baxter Company correctly reported the following items in the financial statements:a. In 2010, the company discovered a clerical error in the prior year’s accounting records. As a result, the reported net income for 2009 was overstated by $20,000. The company corrected this error
Data pertaining to the current position of Boole Company are as follows:Cash ................ $240,000Temporary investments ......... 120,000Accounts and notes receivable (net) ... 360,000Inventories .............. 380,000Prepaid expenses ............ 20,000Accounts payable .......... 140,000Notes
Lancelot Company has provided the following comparative information:You have been asked to evaluate the historical performance of the company over the last five years.Selected industry ratios have remained relatively steady at the following levels for the last five years:Instructions1. Prepare four
Data pertaining to the current position of Newton Industries, Inc., are as follows:Cash $300,000Temporary investments 250,000Accounts and notes receivable (net) 350,000Inventories 440,000Prepaid expenses 60,000Accounts payable 420,000Notes payable (short-term) 460,000Accrued expenses
Merlin Company has provided the following comparative information: You have been asked to evaluate the historical performance of the company over the last five years.Selected industry ratios have remained relatively steady at the following levels for the last five years:Instructions1. Prepare four
Harley-Davidson, lnc., is a leading motorcycle manufacturer in the United States. The company manufactures and sells a number of different types of motorcycles, a complete line of motorcycle parts, and brand-related accessories, clothing, and collectibles. In recent years, Harley-Davidson has
Mancini Office Supplies has a fleet of automobiles and trucks for use by salespersons and for delivery of office supplies and equipment. East Village Auto Sales Co. has automobiles and trucks for sale. Under what caption would the automobiles and truck be reported in the balance sheet of (a)
Just Animals Co. acquired an adjacent vacant lot with the hope of selling it in the future at a gain. The lot is not intended to be used in Just Animals’ business operations. Where should such real estate be listed in the balance sheet?
You are planning to acquire a delivery truck for use in your business for five years. In groups of three or four, explore a local dealer’s purchase and leasing options for the truck. Summarize the costs of purchasing versus leasing, and list other factors that might help you decide whether to buy
Go to the Internet and review the procedures for applying for a patent, a copyright, and a trademark. One Internet site that is useful for this purpose is idresearch.com, which is linked to the text’s Web site at academic.cengage.com/accounting/warren. Prepare a written summary of these
The following table shows the revenues and average net fixed assets for a recent fiscal year for three different companies from three different industries: retailing, manufacturing, and communications.a. For each company, determine the fixed asset turnover ratio. Round to two decimal places.b.

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