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intermediate accounting volume 1

Accounting Volume 1 8th Canadian Edition Charles T. Horngren, Walter T. Harrison, M. Suzanne Oliver, Peter R. Norwood, Jo-Ann L. Johnston - Solutions

5–7 Suppose Pearson Education, the publisher, sells 1,000 books on account for$75 each (cost of these books is $50,000) on October 10, 2010. The customer discovered that 100 of these books were the wrong edition, so Pearson later received these books as sales returns on October 13, 2010. Then the
5–6 Liz Claiborne, Inc., sells $80,000 of women’s sportswear to The Bay under credit terms of 2/10, net 30 on August 1, 2010. Liz Claiborne’s cost of the goods is $38,000, and Liz Claiborne receives the appropriate amount of cash from The Bay on August 10, 2010. Assume Liz Claiborne, Inc.,
5–5 Suppose The Bay purchases $80,000 of women’s sportswear on account from Liz Claiborne, Inc., on August 1, 2010. Credit terms are 2/10, net 30.The Bay pays electronically, and Liz Claiborne receives the money on August 10, 2010.Journalize The Bay’s (a) purchase, and (b) payment
5–4 Refer to the Toys Unlimited situation in Starter 5–3 and journalize the following transactions on the books of Toys Unlimited. Explanations are not required.a. Purchase of the goods on July 8, 2010.b. Return of the damaged goods on July 12, 2010.c. Payment on July 15, 2010.d. In the end,
5–3 Suppose Toys Unlimited buys $200,000 of LEGO® toys on credit terms of 3/15, n/45. Some of the goods are damaged in shipment, so Toys Unlimited returns $25,000 of the merchandise to LEGO®. How much must Toys Unlimited pay LEGO®a. After the discount period?b. Within the discount period?
5–2 Suppose Gap purchased T-shirts on account for $15,000. Credit terms are 2/10, n/30. Gap paid for the purchase a week later. Journalize the following transactions for Gap:a. Purchase of inventory.b. Payment on account.
5–1 Ending inventory of the previous period was $300,000, and net purchases this period were $1,500,000. If ending inventory this period is $200,000, what is cost of goods sold?
*24. Suppose you are starting a new retail business. What factors would you consider in determining whether to implement a periodic or a perpetual inventory system?
*23. How are purchase discounts accounted for in a periodic inventory system?
*22. Why do accountants use a Purchases account when inventory items are acquired in a periodic inventory system?
*21. In a periodic inventory system, why must inventory be physically counted to determine cost of goods sold?
*20. In the periodic inventory system, what is meant by the term “cost of goods available for sale”?
19. In general, what does a decreasing gross margin percentage, coupled with an increasing rate of inventory turnover, suggest about a business’s pricing strategy?
18. Does a merchandiser prefer a high or a low rate of inventory turnover? Explain.
17. Which financial statement reports sales discounts and sales returns and allowances? Show how they are reported, using any reasonable amounts in your illustration.
16. List eight different operating expenses.
15. Name and describe two formats for the income statement, and identify the type of business to which each format best applies.
14. What is the identifying characteristic of the “other” category of revenues and expenses? Give an example of each.
13. Give the adjusting entry for inventory if shrinkage is$11,000.
12. You are beginning the adjusting and closing process at the end of your company’s fiscal year. Does the trial balance carry the final ending amount of inventory if your company uses the perpetual inventory system?Why or why not?
11. You are evaluating two companies as possible investments.One entity sells its services; the other entity is a merchandiser. How can you identify the merchandiser by examining the two entities’ balance sheets and income statements?
10. Beginning inventory is $10,000, net purchases total$55,000, and freight in is $2,000. If ending inventory is$14,000, what is cost of goods sold?
9. Why is the title of Cost of Goods Sold especially descriptive?What type of account is Cost of Goods Sold?
8. Briefly discuss the similarity in computing supplies expense and computing cost of goods sold under the periodic inventory system using the formula shown on page 228.
7. Name the new contra accounts introduced in this chapter.
6. Inventory listed at $80,000 is sold subject to a quantity discount of $6,000 and under payment terms of 2/15, n/45. What is the net sales revenue on this sale if the customer pays within 15 days?
5. Inventory costing $4,000 is purchased and invoiced on July 28 under terms of 3/10, n/30. Compute the payment amount on August 6. How much would the payment be on August 9? What explains the difference?What is the latest acceptable payment date under the terms of sale?
4. Indicate which accounts are debited and credited under the perpetual inventory system for (a) a credit purchase of inventory and the subsequent cash payment, and (b) a credit sale of inventory and the subsequent cash collection. Assume no discounts, returns, allowances, or freight.
3. Identify 10 items of information on an invoice.
2. Describe the operating cycle for (a) the purchase and cash sale of inventory, and (b) the purchase and sale of inventory on account.
1. Gross margin is often mentioned in the business press as an important measure of success. What does gross margin measure, and why is it important?
10. Refer to Self-Study Question 9. About how many days does it take the inventory to turn over? (p. 248)a. 122c. 73b. 146d. 88
9. A company has sales of $750,000, cost of goods sold of $450,000, average inventory during the year of$150,000, and ending inventory of $180,000. The company’s inventory turnover for the year is (p. 248)a. 5.00 timesc. 2.50 timesb. 3.00 timesd. 4.17 times
8. Which income statement format reports income from operations? (p. 245)a. Account formatc. Single-step formatb. Report formatd. Multi-step format
7. The closing entry for Sales Discounts includes(pp. 240–241)a. Sales Discounts Income Summaryb. Sales Discounts Sales Revenuec. Income Summary Sales Discountsd. Not used: Sales Discounts is a permanent account, which is not closed.
6. Which account causes the main difference between a merchandiser’s adjusting and closing process and that of a service business? (pp. 240–241)a. Advertising Expensec. Cost of Goods Soldb. Interest Revenued. Accounts Receivable
5. Which of the following is not an account? (p. 236)a. Sales Revenueb. Net Salesc. Inventoryd. Supplies Expense
4. A purchase discount results from (p. 231)a. Returning goods to the sellerb. Receiving a purchase allowance from the sellerc. Buying a large enough quantity of merchandise to get the discountd. Paying within the discount period
3. If a merchandiser’s beginning inventory was $120,000, it purchased $250,000 during the period and a count shows $100,000 of inventory on hand at the end of the period, what was the cost of the goods sold? (p. 256)a. $220,000c. $270,000b. $370,000d. $150,000
2. Sales total $890,000, cost of goods sold is $440,000, and operating expenses are $350,000. How much is gross margin? (p. 226)a. $890,000c. $540,000b. $450,000d. $100,000
1. The major expense of a merchandising business is(p. 226)a. Cost of goods soldc. Rentb. Amortizationd. Interest
1. Compare Sun-Rype’s balance sheet to the balance sheet in Exhibit 4–13 on page 180.What differences in style do you notice between these two balance sheets? Describe these differences.2. What is Sun-Rype’s largest current asset in 2008? In 2007?3. What is the company’s largest current
1 This case, based on Canadian Western Bank’s balance sheet in Appendix A, will familiarize you with some of the assets and liabilities of this actual company. Answer these questions, using the bank’s balance sheet and other information, as shown.Required 1. Compare Canadian Western Bank’s
2 You are preparing the financial statements for the year ended October 31, 2010, for Cusik Publishing Company, a weekly newspaper. You began with the trial balance of the ledger, which balanced, and then made the required adjusting entries. To save time, you omitted preparing an adjusted trial
1 One year ago, your friend Don Jenner founded Jenner Consulting Services. The business has prospered. Jenner, who remembers that you took an accounting course while in university, comes to you for advice. He wishes to know how much net income his business earned during the past year. He also wants
4–2C It is July 15, 2010. A friend, who works in the office of a local company that has four fastfood restaurants, has come to you with a question. She knows you are studying accounting and asks if you could help her sort something out. She acknowledges that although she has worked for the
4–1C The following errors were made by Classy Catering’s new bookkeeper:a. A debit of $3,000 was recorded as an account receivable instead of a note receivable.b. Asalary expense accrual in the amount of $10,000 was overlooked when the work sheet was prepared.c. A catering service revenue
4–10B Refer to the data in Problem 4–3B on page 215.Required 1. Open ledger accounts for Accounts Receivable and Service Revenue. Insert their unadjusted balances at December 31, 2010.2. Journalize the adjusting entry c only and the resulting closing entry for Service Revenue at December 31,
4–9B Mark Hanson, the accountant for Glenn Graphics, had prepared the work sheet shown on the next page on a computer spreadsheet but has lost much of the data. The only particular item the accountant can recall is that an adjustment was made to correct an error made where $900 of supplies,
4–8B Glen Eagle Marina performs overhauls and repairs to boats and motors at the marina and at the customer’s location. The company’s trial balance for the year ended June 30, 2010, follows.Additional information:a. On June 30, repair supplies costing $16,600 were still on hand.b. An
4–7B The auditors of Cohen Logistics encountered the following situations while adjusting and closing the books at February 28. Consider each situation independently.a. The company bookkeeper made the following entry to record a $2,480 credit purchase of supplies:Feb. 26 Equipment
4–6B The accounts of Wang Financial Services at March 31, 2010, are listed in alphabetical order here.Required 1. All adjustments have been journalized and posted, but the closing entries have not yet been made.Prepare the company’s classified balance sheet in report format at March 31, 2010.
4–5B The trial balance of Stone Environmental Services at October 31, 2010, and the data needed for the month-end adjustments, are shown below.The data needed for the month-end adjustments are as follows:a. Unearned consulting revenue that still had not been earned at October 31, $22,050.b. Rent
4–4B This problem should be used only in conjunction with Problem 4–3B. It completes the accounting cycle by posting to T-accounts and preparing the postclosing trial balance.Required 1. Using the Problem 4–3B data, post the adjusting and closing entries to the T-accounts, identifying
4–3B The unadjusted T-accounts of Super Media at December 31, 2010, are shown here. The related year-end adjustment data appear below them.Adjustment data at December 31, 2010, include the following:a. Amortization for the year, $7,500.b. Supplies still unused at the year end, $10,000.c. Accrued
4–2B The adjusted trial balance of Musquem Golf School at April 30, 2010, the end of the company’s fiscal year, is shown here.Adjusting data at April 30, 2010, which have all been incorporated into the trial balance figures, consist of the following:a. Of the balance of Unearned Teaching
4–1B The trial balance of Denise Arami Design at May 31, 2010, is shown here.Additional data at May 31, 2010:a. Amortization: furniture, $480; building, $460.b. Accrued salary expense, $1,200.c. A count of supplies showed that unused supplies amounted to $410.d. During May, $1,390 of prepaid
4–10A Refer to the data in Problem 4–5A, page 209.Required 1. Open ledger accounts for Salaries Payable and Salary Expense. Insert their unadjusted balances at August 31, 2010.2. Journalize adjusting entry f and the closing entry for Salary Expense at August 31. Post to the accounts.3. On
4–9A Len Thomas, the accountant for Lancaster Consulting, prepared the work sheet shown on the next page on a computer spreadsheet but has lost much of the data. The only particular item Thomas can recall is that there was an adjustment made to correct an error made where $600 of supplies,
4–8A Slee Truck Services performs overhauls and repairs to trucks. The company’s trial balance for the year ended March 31, 2010, is shown here.Additional information:a. On March 31, repair supplies costing $3,900 were still on hand.b. An examination of the insurance policies showed $3,150 of
4–7A Accountants for Mainland Catering Service encountered the following situations while adjusting and closing the books at December 31. Consider each situation independently.a. The company bookkeeper made the following entry to record a $4,500 credit purchase of office equipment:Nov. 12 Office
4–6A The accounts of Bolton Travel at December 31, 2010, are listed in alphabetical order:Required 1. All adjustments have been journalized and posted, but the closing entries have not yet been made. Prepare the company’s classified balance sheet in report format at December 31, 2010.2. Compute
4–5A The trial balance of Goldman Insurance Agency at August 31, 2010, appears below. The data needed for the month-end adjustments follow.Adjustment data:a. Commission revenue received in advance that had not been earned at August 31, $40,500.b. Rent still prepaid at August 31, $2,300.c.
4–4A This problem should be used only in conjunction with Problem 4–3A. It completes the accounting cycle by posting to T-accounts and preparing the postclosing trial balance.Required 1. Using the Problem 4–3A data, post the adjusting and closing entries to the T-accounts, identifying
4–3A The unadjusted T-accounts of Byford Systems at December 31, 2010, and the related yearend adjustment data are given on the next page.Adjustment data at December 31, 2010, include the following:a. Of the $7,500 balance of Unearned Service Revenue at the beginning of the year, all of it was
4–2A The adjusted trial balance of Alan Wood Design at June 30, 2010, the end of the company’s fiscal year, appears on the following page.Adjusting data at June 30, 2010, which have been incorporated into the trial balance figures, consist of the following:a. Amortization for the year:
4–1A The trial balance of Brentwood Construction at July 31, 2010, appears belowAdditional data at July 31, 2010:a. Amortization: equipment, $2,040; building, $4,220.b. Accrued wages expense, $3,440.c. A count of supplies showed that unused supplies amounted to $88,440.d. During July, $7,000 of
1. Discount Hardware wishes to expand its business and has borrowed $200,000 from Royal Bank. As a condition for making this loan, the bank required Discount Hardware to maintain a current ratio of at least 1.50 and a debt ratio of no more than 0.50, and to submit annual financial statements to the
4–19 The Adjusted Trial Balance columns on the work sheet have total debits of $110,000 and total credits of $128,000. Show how the following errors would create this imbalance. How would you correct each error?a. A $6,000 debit adjustment to Prepaid Insurance was incorrectly subtracted on the
4–18 Refer to Exercise 4–17. Which adjusting entries (a,b, c,d, e, and/orf) can be reversed with reversing journal entries?
4–17 The unadjusted account balances of Stinson Consulting follow:Cash............................................... $ 1,900 Unearned Service Revenue ..... $ 5,300 Accounts Receivable................... 7,200 Scott Stinson, Capital ............... 90,200 Supplies
4–16 Refer to Exercise 3–23 of Chapter 3. Start from the posted T-accounts and the adjusted trial balance shown below that Haupt Consulting prepared at December 31, 2010.Note: If you did not do Exercise 3–23, you can complete this Exercise by using the accounts and balances given in the
4–15 On September 30, 2010, its fiscal year end, Slolam Services recorded an adjusting entry for$2,000 of interest it owes at year end and will include as part of its payment on October 31, 2010. On October 31, 2010, the company paid interest in the amount of $3,000. Assuming Slolam Services uses
4–14 On December 31, 2010, Tristar Industries recorded an adjusting entry for $10,000 of accrued interest revenue. On January 15, 2011, the company received interest payments in the amount of $22,000. Assuming Tristar Industries uses reversing entries, prepare the 2010 and 2011 journal entries
4–13 Shown below are extracts from the balance sheets of two airlines. WestJet Airlines Ltd. is a Canadian corporation and reported its results under Canadian GAAP. British Airways is a British airline that reported its results under IFRS.Review each balance sheet and describe at least three
4–12 Prepare a correcting entry for each of the following accounting errors:a. Debited Supplies and credited Accounts Payable for a $9,000 purchase of office equipment on account.b. Accrued interest revenue of $3,000 by a debit to Accounts Receivable and a credit to Interest Revenue.c. Adjusted
4–11 1. Suppose LES paid an account payable of $2,400 and erroneously debited Supplies. Make the journal entry to correct this error.2. Suppose LES made the following adjusting entry to record amortization at April 30:Amortization Expense—Furniture........... 4,000 Furniture
4–10 Refer to Exercise 4–9.Required 1. After solving Exercise 4–9, use the data in that exercise to prepare O’Neill Systems’classified balance sheet at March 31, 2010. Use the report format. You must compute the ending balance of P. O’Neill, Capital.2. Compute O’Neill Systems’
4–8 From the following accounts of Howser Consulting, prepare the entity’s statement of owner’s equity for the year ended December 31, 2010.The adjusted trial balance from the March work sheet of O’Neill Systems follows:Required 1. Journalize the closing entries of O’Neill Systems at
4–7 The accountant for Decker Environmental Consulting has posted adjusting entries (a)through (e) to the accounts at December 31, 2010. All the revenue, expense, and owner’s equity accounts of the entity are listed here in T-account form.Required 1. Journalize Decker Environmental
4–6 Viera Printers reported the following selected accounts in its June 30, 2010, annual financial statements. Prepare the company’s closing entries.Dan Viera, Capital .................... $118,400 Interest Expense........................ $ 8,800 Service Revenue........................ 356,400
4–5 Husky Systems, a transportation company, reported the following items in a recent financial report:Cash and Term Deposits ......... $ 2,917 Amortization Expense—Equipment ............................. $1,090 Revenues.................................... 29,452 Equipment
4–4 After completing Exercises 4–2 and 4–3, prepare the postclosing trial balance for Brighter Testing Services at September 30, 2010.
4–1. Post the adjusting and closing entries from Exercise 4–2 to the accounts, identifying adjustment amounts as Adj., closing amounts as Clo., and balances as Bal. Double underline the accounts with zero balances after you close them and show the ending balance in each account.
4–3 Set up T-accounts for only those accounts affected by the adjusting and closing entries in
4–2 Journalize the adjusting and closing entries for the company in Exercise 4–1.
4–1 The trial balance of Brighter Testing Services appears here.Additional information at September 30, 2010:a. Accrued service revenue, $840.b. Equipment Amortization, $160.c. Accrued salary expense, $2,000.d. Prepaid rent expired, $1,200.e. Supplies used, $3,300.Required Complete the Brighter
4–13 This exercise should be used in conjunction with Starter 4–12.1. How much in current assets does Belleville Services have for every dollar of current liabilities that it owes? What ratio measures this relationship?2. What percentage of Belleville Services total assets are financed with
4–12 Belleville Services has these account balances at December 31, 2010:Accounts Payable................ $ 8,000 Note Payable, Long-term ........ $18,000 Accounts Receivable........... 12,000 Prepaid Rent.............................. 4,000 Cash....................................... 6,000
4–11 This exercise should be used in conjunction with Starter 4–10. Examine Ink Jet Printing’s account balances in Starter 4–10. Identify or compute the following amounts for Ink Jet Printing:a. Total current assetsb. Book value of the buildingc. Total current liabilitiesd. Total long-term
4–10 Ink Jet Printing reported the following (amounts in thousands):Service Revenue .................. $1,300 Building ..................................... $4,000 Cash....................................... 200 Accounts Payable ..................... 400 Accounts Receivable........... 500 Total
4–9 Assume that there is only one transposition error in the following trial balance. Identify the incorrect amount, and correct the trial balance. Cash Accounts receivable Supplies Accounts payable R. Fisher, capital R. Fisher, withdrawals Service fees earned Insurance expense Salaries expense
4–8 After closing its accounts at March 31, 2010, Watts Home Services had the following balances:Long-Term Liabilities ................ $1,000 Equipment .................. $8,000 Other Assets................................ 1,600 Cash ............................. 600 Accounts Receivable
4–7 This exercise should be used in conjunction with Starter 4–6. Use the data in Starter 4–6 to set up T-accounts for those accounts that Lipsky Insurance Agency closed on May 31. Insert their account balances prior to closing, post the closing entries to these accounts, and show each
4–6 Lipsky Insurance Agency reported the following items at May 31:Sales and Marketing Expense.. $1,600 Cash ............................. $1,000 Other Assets................................ 500 Service Revenue......... 4,200 Amortization Expense .............. 700 Accounts Payable....... 300
4–5 This exercise should be used in conjunction with Starter 4–4.1. Set up all the T–accounts in Starter 4–4 and insert their adjusted balances(denote as Bal.) at December 31, 2010. Also set up a T-account for Brett Kaufman, Capital, $12,500, and for Income Summary. Post the closing entries
4–4 It is December 31, 2010, and time to close the books. Journalize the following closing entries for Kaufman Services:a. Service revenue, $11,000b. A compound closing entry for all the expenses: Salaries, $3,500; Rent,$2,000; Advertising, $1,500c. Income Summaryd. Owner, Withdrawals, $3,000.
4–3 Answer the following questions:1. What type of balance does the Owner, Capital account have—debit or credit?2. Which income statement account has the same type of balance as the Capital account?3. Which type of income statement account has the opposite type of balance as the Capital
4–2 Explain what the following terms mean:a. Accounts receivablef. Accounts payableb. Supplies g. Unearned service revenuec. Prepaid rent h. Service revenued. Furniture i. Rent expensee. Accumulated amortization
4–1 Explain why the following accounts must be adjusted:a. Salary Payabled. Prepaid Rentb. Unearned Service Revenuee. Accumulated Amortizationc. Supplies

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