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fundamental accounting principles
Fundamental Accounting Principles 17th Edition Kermit D. Larson, John J Wild, Barbara Chiappetta - Solutions
Refer to Krispy Kreme’s financial statements in Appendix A. As an alternative to short-term notes, Krispy Kreme meets short-term borrowing needs through revolving lines of credit. Briefly explain how a line of credit differs from a short-term note payable.
Refer to Tastykake’s balance sheet in Appendix A. What accounts related to income taxes are on its balance sheet? Explain the meaning of each income tax ac¬ count you identify.
Refer to Harley-Davidson’s balance sheet in Harley- Appendix A. Which current liability account re- Davidson ports its payroll-related liabilities (if any) as of December 31, 2002?
Which of the following items are normally classified as a current liability for a company that has a 15-month operating cycle?1. Salaries payable. 4. Note payable maturing in 2 years.2. Note payable due in 18 months. 5. Note payable due in 11 months.3. FICA taxes payable. 6. Portion of long-term
Ticketmaster receives $4,000,000 in advance ticket sales for a four-date tour of the Rolling Stones. Record the advance ticket sales on October 31. Record the revenue earned for the first concert date of November 5, assuming it represents one-fourth of the advance ticket sales.
The following items appear on the balance sheet of a company with a two-month operating cycle. Identify the proper classification of each item as follows: C if it is a current liability, L if it is a long¬ term liability, or N if it is not a liability. 1. Sales taxes payable. 2. FUTA taxes
Prepare any necessary adjusting entries at December 31, 2005, for Yacht Company’s year-end financial statements for each of the following separate transactions and events: 1. During December, Yacht Company sold 3,000 units of a product that carries a 60-day warranty. December sales for this
For the year ended December 31, 2005, Winter Company has implemented an employee bonus pro¬ gram equal to 3% of Winter’s net income, which employees will share equally. Winter’s net income (prebonus) is expected to be $1,000,000, and bonus expense is deducted in computing net income.1. Compute
Perfect Systems borrows $94,000 cash on May 15, 2005, by signing a 60-day, 12% note.1. On what date does this note mature?2. Suppose the face value of the note equals $94,000, the principal of the loan. Prepare the journal entries to record (a) issuance of the note and (b) payment of the note at
MRI Co. has one employee, and the company is subject to the following taxes:Compute MRI’s amounts for each of these four taxes as applied to the employee’s gross earnings for September under each of three separate situations (a), {b), and (c): Tax Rate Applied To FICA-Social Security 6.20%
Using the data in situation a of Exercise 11-6, prepare the employer’s September 30 journal entries to record (1) salary expense and its related payroll liabilities for this employee and (2) the employer’s payroll taxes expense and its related liabilities. The employee’s federal income taxes
WWchecom^v^rff°?1r fr°m Separa‘e Companies “ through/to compute times interest earned. Which company indicates the strongest ability to pay interest expense as it comes due? Net Income (Loss) Interest Expense Income Taxes a. $140,000 $48,000 $ 35,000 b. 140,000 15,000 50,000 C. 140,000 8,000
The payroll records of Clix Software show the following information about Trish Farqua, an em¬ ployee, for the weekly pay period ending September 30, 2005. Farqua is single and claims one al¬ lowance. Compute her Social Security tax (6.2%), Medicare tax (1.45%), federal income tax with¬ holding,
LaShonda Blake, an unmarried employee, works 48 hours in the week ended January 12. Her pay rate is $12 per hour, and her wages are subject to no deductions other than FICA—Social Security, PICA Medicare, and fedeial income taxes. She claims two withholding allowances. Compute her regular pay,
Tytus Co. entered into the following transactions involving short-term liabilities in 2004 and 2005.Required 1. Determine the maturity date for each of the three notes described.2. Determine the interest due at maturity for each of the three notes. (Assume a 360-day year.)3. Determine the interest
Shown here are condensed income statements for two different companies (both are organized as LLCs and pay no income taxes):Required 1. Compute times interest earned for Ace Co.2. Compute times interest earned for Deuce Co.3. What happens to each company’s net income if sales increase by 30%?4.
Legal Stars pays its employees each week. Its employees’ gross pay is subject to these taxes:The company is preparing its payroll calculations for the week ended August 25. Payroll records show the following information for the company’s four employees:In addition to gross pay, the company must
Bargen Co. entered into the following transactions involving short-term liabilities in 2004 and 2005.Required 1. Determine the maturity date for each of the three notes described.2. Determine the interest due at maturity for each of the three notes. (Assume a 360-day year.)3. Determine the interest
Shown here are condensed income statements for two different companies (both are organized as LLCs and pay no income taxes):Required 1. Compute times interest earned for Virgo.2. Compute times interest earned for Zodiac.3. What happens to each company’s net income if sales 4. What happens to each
Sea Biz Company pays its employees each week. Employees’ gross pay is subject to these taxes:The company is preparing its payroll calculations for the week ended September 30. Payroll records show the following information for the company’s four employees: In addition to gross pay, the company
Refer to the financial statements ofKrispy Kreme in AppendixA to answer the following:1. Compute times interest earned for the fiscal years ended 2003, 2002, and 2001. Comment on Krispy Kreme’s ability to cover its interest expense for this period.2. What evidence can you identify as an
Key comparative figures ($ thousands) for both Krispy Kreme and Tastykake follow:Required Key Figures Net income Income taxes Krispy Kreme Tastykake Current One Year Two Years Current One Year Two Years Year Prior Prior Year Prior Prior $33,478 $26,378 $14,725 $2,000* $8,048* $8,144 21,295 16,168
Cann°" Bly 1S a sales manager for an automobile dealership. He earns a bonus each yeai based on revenue from the number of autos sold in the year less related warranty expenses. Actual warranty exP®nsos have vaned over the prior 10 years from a low of 3% of an automobile’s selling price to a
Dustin Clemens is the accounting and finance manager for a manufacturer. At year- end, he must determine how to account for the company’s contingencies. His manager, Tom Pretti, objects to Clemens’s proposal to recognize an expense and a liability for warranty service on units of a new product
Access the March 12, 2003, filing of the December 31, 2002, annual 10-K report of McDonald’s Corporation (Ticker: MCD), which is available from www.SEC.gov.Required 1. Identify the current liabilities on McDonald’s balance sheet as of December 31, 2002.2. What portion (in percent) of
Assume that your team is in business and you must borrow $6,000 cash for short-term needs. You have been shopping banks for a loan, and you have the following two options:A. Sign a $6,000, 90-day, 10% interest-bearing note dated June 1.B. Sign a $6,000, 120-day, 8% interest-bearing note dated June
Read the article “Bed, Board—and Big Trouble” in the October 23, 2002, online issue of Business Week. (This book’s Website provides a free link.)Required 1. What arrangement does the motel owner have with the long-term resident?2. What risks is the motel operator exposed to by this
Check your phone book or the Social Security Administration Website (www.ssA.gov) to locate the Social Security office near you. Visit the office to request a personal earnings and esti¬ mate form. Fill out the form and mail according to the instructions. You will receive a statement from the
Grupo Bimbo, Krispy Kreme, and Tastykake are all competitors in the global marketplace. Key comparative figures for Grupo Bimbo (GrupoBimbo.com) for the year ended December 31, 2002 (along with selected figures from Krispy Kreme and Tastykake) follow:Required 1. Compute the times interest earned
An internal control system consists of all policies and procedures used to protect assets, ensure reli- a e accounting, promote efficient operations, and urge adherence to company policies.1. What is the main objective of internal control procedures, and how is it achieved?2. Why should
Good accounting systems help with the management and control of cash and cash equivalents.1. Define and contrast the terms liquid asset and cash equivalent.2. Why would companies invest their idle cash in cash equivalents?
1. For each of the following items, indicate whether its amount (i) affects the bank or book side of a bank reconciliation and (ii) represents an addition or a subtraction in a bank reconciliation:a. Outstanding checksb. Debit memosc. NSF checksd. Unrecorded depositse. Interest on cash balancef.
The following annual account balances are taken from Next Level Sports at December 31:What is the change in the number of days’ sales uncollected between years 2005 and 2004? According to this analysis, is the company’s collection of receivables improving? Explain your answer. Accounts
What internal control procedures would you recommend in each of the following situations?1. A concession company has one employee who sells T-shirts and sunglasses at the beach. Each day, the employee is given enough shirts and sunglasses to last through the day and enough cash to make change. The
Some of Castel Co.’s cash receipts from customers are sent to the company with the regular mail. Castel’s recordkeeper opens these letters and deposits the cash received each day. (a) Identify any internal control problem(s) in this arrangement. (b) What changes do you recommend?
Bemis Company is a rapidly growing start-up business. Its recordkeeper, who was hired one year ago, left town after the company’s manager discovered that a large sum of money had disappeared over the past six months. An audit disclosed that the recordkeeper had written and signed several checks
Prepare a table with the following headings for a monthly bank reconciliation dated September 30:For each item 1 through 12, place an x in the appropriate column to indicate whether the item should be added to or deducted from the book or bank balance, or whether it should not appear on the rec¬
Management uses a voucher system to help control and monitor cash disbursements. Identify at least four key documents that are part of a voucher system of control. Explain each document’s purpose, where it originates, and how it flows through the voucher system (including its copies).
Trade Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Trade Imports records invoices (a) at gross amounts and (b) at net amounts. Oct. 2 Purchased
For each of these five separate cases, identify the principle of internal control that is violated.Recommend what the business should do to ensure adherence to principles of internal control.1. Heather Flatt records all incoming customer cash receipts for her employer and posts the customer
Shawnee Co. set up a petty cash fund for payments of small amounts. The following transactions in¬ volving the petty cash fund occurred in May (the last month of the company’s fiscal year):Required I. Prepare journal entries to establish the fund on May 1, to replenish it on May 15 and on May
Inoke Galleiy had the following petty cash transactions in February of the current year:Required I.Prepare the journal entry to establish the petty cash fund.2« Prepare a petty cash payments report for February with these categories: delivery expense, mileage expense, postage expense, merchandise
Pepco Co. establishes a petty cash fund for payments of small amounts. The following transac¬ tions involving the petty cash fund occurred in January (the last month of the company’s fiscal year).Required 1. Prepare journal entries to establish the fund on January 3, to replenish it on January
RPM Music Center had the following petty cash transactions in March of the current year:Required 1. Prepare the journal entry to establish the petty cash fund.2. Prepare a petty cash payments report for March with these categories: delivery expense, mileage expense, postage expense, merchandise
The following information is available to reconcile Style Co.’s book balance of cash with its bank statement cash balance as of December 31, 2005:Required 1. Prepare the bank reconciliation for this company as of December 31, 2005.2. Prepare the journal entries necessary to bring the company’s
Refer to Krispy Kreme’s financial statements in Appendix A to answer the following:1. For both fiscal year-end 2003 and 2002, identify the total amount of cash and cash equivalents. Determine the percent this amount represents of total current assets, total current liabilities, total shareholders
Key comparative figures ($ thousands) for both Krispy Kreme and Tastykake follow:Required Compute days’ sales uncollected for both companies for each of the two years shown. Comment on any trends for both companies. Which company has the larger percent change in days’ sales uncol¬ lected? Key
Carol Benton, Sue Knox, and Marcia Diamond work for a family physician, Dr. Gwen Conrad, who is in private practice. Dr. Conrad is knowledgeable about office management practices and has segregated the cash receipt duties as follows. Benton opens the mail and prepares a triplicate list of money
Assume you are a business consultant. The owner of a company sends you an e-mail expressing concern that the company is not taking advantage of its discounts offered by vendors. The company currently uses the gross method of recording purchases. The owner is considering a review of all invoices and
Read the article “To Cure Fraud, Start at the Top” in the October 18, 2002, issue of Business Week. (The book’s Website provides a free link.)Required:1. Which fraud case does Pergola (the interviewee) state was the most significant?2. What are the character traits of individuals who might be
Refer to the chapter’s opening feature, “Sweet Success,” describing the entrepreneurial efforts of Dylan Lauren and Jeff Rubin with Dylan’s Candy Bar.Required List the seven principles of internal control. For each principle, identify how Lauren and Rubin could implement it in their candy
Visit a part of your college that serves the student community with either products or services. Some examples are food services, libraries, and book stores. Identify and describe between four and eight internal controls being implemented.
Review the consolidated statement of changes in financial position for Grupo Bimbo for the year ended December 31, 2002, at GrupoBimbo.com Required 1. What item caused the largest change (excluding net income) in the Operations section of the state¬ ment?2. What item caused the largest change in
In recording credit card sales, when do you debit Accounts Receivable and when do you debit Cash?
A company accumulates sales receipts and remits them to the credit card company for payment. When are the credit card expenses recorded? When are these expenses incurred?
Why must bad debts expense be estimated if such an estimate is possible?
What term describes the balance sheet valuation of Accounts Receivable less the Allowance for Doubtful Accounts?
Why is estimated bad debts expense credited to a contra account (Allowance for Doubtful Accounts) rather than to the Accounts Receivable account?
Record entries for these transactions assuming the allowance method is used: Jan. 10 The $300 account of customer Cool Jam is determined uncollectible. April 12 Cool Jam unexpectedly pays in full the account that was deemed uncollectible on January 10.
Irwin purchases $7,000 of merchandise from Stamford on December 16, 2005. Stamford accepts Irwin’s $7,000, 90-day, 12% note as payment. Stamford’s accounting period ends on December 31, and it does not make reversing entries. Prepare entries for Stamford on December 16, 2005, and December
Using the information in Quick Check 8, prepare Stamford’s March 16, 2006, entry if Irwin dishonors the note.
Explain the accounting principle of materiality.
Refer to Krispy Kreme’s balance sheet in Appen- dix A. What percent of accounts receivable at February 2, 2003, has been set aside as an allowance for doubt¬ ful accounts? How does this percent compare to the prior year?
Refer to the balance sheet of Tastykake in Appendix A. Does it use the direct write-off method or allowance method to account for doubtful accounts? What is the realizable value of its accounts receivable as of December 28, 2002? What is another name for the Allowance for Doubtful Accounts?
Refer to the balance sheet of Harley-Davidson in Appendix A. What two types of receivables Davidson does Harley show in its current asset section of the balance sheet?
Dekon Company’s December 31 year-end unadjusted trial balance shows an $8,000 balance in Notes Receivable. This balance is from one 6% note dated December 1, with a period of 45 days. Prepare journal entries for December 31 and for the note’s maturity date assuming it is honored.
The following data are taken from the comparative balance sheets of Fulton Company. Compute and interpret its accounts receivable turnover for year 2005 (competitors average a turnover of 7.5). 2005 2004 Accounts receivable.... Net sales $152,900 $133,700 754,200 810,600
Petri Company allows customers to use two credit cards in charging purchases. With the Omni Card, Petri receives an immediate credit to its account when it deposits sales receipts. Omni Card assesses a 4% service charge for credit card sales. The second credit card that Petri accepts is the
Sami Company recorded the following selected transactions during November 2005:1. Open a general ledger having T-accounts for Accounts Receivable, Sales, and Sales Returns and Allowances. Also open an accounts receivable subsidiary ledger having a T-account for each customer. Post these entries to
At each calendar year-end, Cabool Supply Co. uses the percent of accounts receivable method to es- timate bad debts. On December 31, 2005, it has outstanding accounts receivable of $53,000, and it estimates that 4% will be uncollectible. Prepare the adjusting entry to record bad debts expense for
n une 30, Pena Co. has $125,900 of accounts receivable. Prepare journal entries to record the fl¬ owing selected July transactions. Also prepare any footnotes to the July 31 financial statements that result from these transactions. (The company uses the perpetual inventory system.) July 4 Sold
Prepare journal entries to record these selected transactions for Eduardo Company: Nov. 1 Accepted a $5,000, 180-day, 6% note dated November 1 from Melosa Allen in granting a time extension on her past-due account receivable. Dec. 31 Apr. 30 Adjusted the year-end accounts for the accrued interest
Prepare journal entries to record the following selected transactions of Paloma Company: Mar. 21 Accepted a $3,100, 180-day, 10% note dated March 21 from Salma Hernandez in grant- ing a time extension on her past-due account receivable. Sept. 17 Dec. 31 Hernandez dishonors her note when it is
Prepare journal entries for the following selected transactions of Deshawn Company: 2004 Dec. 13 Accepted a $10,000, 60-day, 8% note dated December 13 in granting Latisha Clark a time extension on her past-due account receivable. 2005 31 Prepared an adjusting entry to record the accrued interest
The following information is from the annual financial statements of Waseem Company. Compute its accounts receivable turnover for 2004 and 2005. Compare the two years results and give a possible explanation for any change (competitors average a turnover of 11). 2005 2004 2003 Net sales $305,000
Atlas Co. allows select customers to make purchases on credit. Its other customers can use either of two credit cards: Zisa or Access. Zisa deducts a 3% service charge for sales on its credit card and credits the bank account of Atlas immediately when credit card receipts are deposited. Atlas
Lopez Company began operations on January 1, 2004. During its first two years, the company com¬ pleted a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows:Required Prepare journal entries to record
On December 31, 2005, Ethan Co. records show the following results for the calendar-year:Required 1. Prepare the adjusting entry for Ethan Co. to recognize bad debts under each of the following in¬ dependent assumptions:a. Bad debts are estimated to be 2% of credit sales.b. Bad debts are estimated
Carmack Company has credit sales of $2.6 million for year 2005. On December 31, 2005, the com¬ pany s Allowance tor Doubtful Accounts has an unadjusted credit balance of $13,400. Carmack prepares a schedule of its December 31, 2005, accounts receivable by age. On the basis of past ex¬ perience,
The following selected transactions are from Ohlde Company:Required 1. Prepare journal entries to record these transactions and events.Analysis Component 2. What reporting is necessary when a business pledges receivables as security for a loan and the loan is still outstanding at the end of the
Able Co. allows select customers to make purchases on credit. Its other customers can use either of two credit cards: Commerce Bank or Aztec. Commerce Bank deducts a 3% service charge for sales on its credit card and immediately credits the bank account of Able when credit card receipts are de¬
Crist Co. began operations on January 1, 2004, and completed several transactions during 2004 and 2005 that involved sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows:Required Prepare journal entries to record Crist’s 2004 and 2005
On December 31, 2005, Klimek Co.’s records show the following results for the year:Required Cash sales... Credit sales $1,015,000 1,241,000 In addition, its unadjusted trial balance includes the following items: Accounts receivable. Allowance for doubtful accounts $475,000 debit 5,200 credit
Quisp Company has credit sales of $3.5 million for year 2005. On December 31, 2005, the company’s Allowance for Doubtful Accounts has an unadjusted debit balance of $4,100. Quisp prepares a schedule of its December 31, 2005, accounts receivable by age. On the basis of past experience, it
The following selected transactions are from Seeker Company:Required 1. Prepare journal entries to record these transactions and events.Analysis Component 2. What reporting is necessary when a business pledges receivables as security for a loan and the loan is still outstanding at the end of the
Refer to Krispy Kreme’s financial statements in Appendix A to answer the following:1. What is the amount of its accounts receivable (net) on February 2, 2003?2. Knspy Kreme s most liquid assets include (a) Cash and Cash Equivalents, (b) Short-Term Investments, (c) Accounts Receivable, (d)
Key comparative figures ($ thousands) for both Krispy Kreme and Tastykake follow:Required 1. Compute the accounts receivable turnover for both Krispy Kreme and Tastykake for each of the two most recent years using the data shown.2. Using results from part 1, compute how many days it takes each
Kelly Steinman is the manager of a medium-size company. A few years ago, Steinman persuaded the owner to base a part of her compensation on the net income the company earns each year. Each December she estimates year-end financial figures in anticipation of the bonus she will receive. If the bonus
Access Surg II, Inc.’s, February 7, 2003, filing of its 10-KSB (small business 10-K) for the fiscal year-end of December 31, 2002 at www.SEC.gov, Cl mhhe.com/larson Required 1. How does its accounts receivable balance for the fiscal year-end 2002 compare with its fiscal year- end 2001 balance?2.
Each member of a team is to participate in estimating uncollectibles using the ag¬ ing schedule and percents shown in Problem 9-4A. The division of labor is up to the team. Your goal is to accurately complete this task as soon as possible. After estimating uncollectibles, check your estimate with
Read the article, “How Plastic Put Sears in a Pickle” in the October 30, 2002, issue of Business Week. (The book’s Website provides a free link.)Required 1. What two types of credit cards does Sears issue to its customers?2. What is Sears’ overall bad-debt charge-off rate as a percent of
The chapter’s opening feature introduces Barbara Manzi and her business, Manzi Metals, a distributor of aluminum, steel, titanium, brass, and other alloys. Manzi Metals generates $3 million in annual sales. Assume that all sales are cash sales and that Manzi’s net profit margin is 30%.
Many commercials include comments similar to the following: “Bring your VISA” or e do not accept American Express.” Conduct your own research by contacting at least 5 compa¬ nies via interviews, phone calls, or the Internet to determine the reason(s) companies discriminate in their use of
Grupo Bimbo, Krispy Kreme, and Tastykake are all competitors in the global mar¬ ketplace. Review the Consolidated Balance Sheet for Grupo Bimbo for the year ended December 31 2002, at GrupoBimbo.com Required 1. Contrast the presentation of the accounts receivable balance on the Grupo Bimbo balance
Identify the asset class for each of the following: (a) supplies, (b) office equipment,(c) inventory, (d) land for future expansion, and (e) trucks used in operations.
Identify the account charged for each of the following: (a) purchase price of a vacant lot to be used in operations and (b) cost of paving that same vacant lot.
On January 1,2005, a company pays $77,000 to purchase office furniture with a zero salvage value. The furniture’s useful .life is somewhere between 7 and 10 years. What is the year 2005 straight-line depreciation on the furniture using (a) a 7-year useful life and (b) a 10-year useful life?
What does the term depreciation mean in accounting?
Early in the fifth year of a machine’s six-year useful life, it is overhauled, and its useful life is extended to nine years. This machine originally cost $108,000 and the overhaul cost is$ 12,000. Prepare the entry to record the overhaul cost.
Explain the difference between revenue expenditures and capital expenditures and how both are recorded.10.What is a betterment? How is a betterment recorded?
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