Managerial Uses of Accounting Information Problem 3-15 Solution

Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only) 3-

CHAPTER 3

The Accounting Information System

ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)

Topics Questions

Brief Exercises Exercises Problems

1. Transaction identification. 1, 2, 3, 5, 6, 7, 8

1, 2 1, 2, 3, 4, 17 1

2. Nominal accounts. 4, 7

3. Trial balance. 6, 10 2, 3, 4 1, 2, 7, 8

4. Adjusting entries. 8, 11, 13, 14 3, 4, 5, 6, 7, 8, 9, 10

5, 6, 7, 8, 9, 10, 20

1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12

5. Financial statements. 11, 12, 15, 22, 23

1, 2, 4, 6

6. Closing. 12 11 13, 14, 16 1, 4, 9, 10, 12

7. Inventory and cost of goods sold.

9 14, 15

8. Comprehensive accounting cycle.

1, 2, 6, 12

*9. Cash vs. Accrual Basis. 15, 16, 17 12 18, 19 11

*10. Reversing entries. 18 13 20

*11. Worksheet. 19 21, 22, 23 12

*These topics are dealt with in an Appendix to the Chapter.

3-2 Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)

Learning Objectives

Brief Exercises Exercises Problems

1. Understand basic accounting terminology.
2. Explain double-entry rules.
3. Identify steps in accounting cycle.
4. Record transactions in journals, post to ledger accounts, and prepare a trial balance.

1, 2, 3, 4, 5, 6, 7

1, 2, 3, 4, 17

1, 4, 9, 10

5. Explain the reasons for preparing adjusting entries.

3, 4, 5, 6, 7, 8, 9, 10

5, 6, 7, 8, 9, 10, 20

2, 3, 4, 5, 6, 7, 8, 9, 10, 12 6. Prepare financial statements from the adjusted trail balance.

11, 12, 15 1, 2, 4, 6, 7, 8, 9, 10, 12 7. Prepare closing entries. 11 13, 14, 16 1, 4, 9, 10, 12

*8. Differentiate the cash basis of accounting from the accrual basis of accounting.

12 18, 19 11

*9. Identify adjusting entries that may be reversed. 13 20

*10. Prepare a 10-column worksheet. 21, 22, 23 12

*These topics are dealt with in an Appendix to the Chapter.

3-4 Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

ANSWERS TO QUESTIONS

1. Examples are: (a) Payment of an accounts payable. (b) Collection of an accounts receivable from a customer. (c) Transfer of an accounts payable to a note payable.
2. Transactions (a), (b), (d) are considered business transactions and are recorded in the accounting records because a change in assets, liabilities, or owners'/stockholders' equity has been effected as a result of a transfer of values from one party to another. Transactions (c) and (e) are not business transactions because a transfer of values has not resulted, nor can the event be considered financial in nature and capable of being expressed in terms of money.
3. Transaction (a): Accounts Receivable (debit), Service Revenue (credit). Transaction (b): Cash (debit), Accounts Receivable (credit). Transaction (c): Office Supplies (debit), Accounts Payable (credit). Transaction (d): Freight Out (debit), Cash (credit).
4. Revenue and expense accounts are referred to as temporary or nominal accounts because each period they are closed out to Income Summary in the closing process. Their balances are reduced to zero at the end of the accounting period; therefore, the term temporary or nominal is given to these accounts.
5. Andrea is not correct. The double-entry system means that for every debit amount there must be a credit amount and vice-versa. At least two accounts are affected. It does not mean that each trans- action must be recorded twice.
6. Although it is not absolutely necessary that a trial balance be taken periodically, it is customary and desirable. The trial balance accomplishes two principal purposes: (1)It tests the accuracy of the entries in that it proves that debits and credits of an equal amount

                 are in the ledger.            

   (2)It provides a list of ledger accounts and their balances which may be used in preparing the

                 financial statements and in supplying financial data about the concern.            

7. (a) Real account; balance sheet. (b) Real account; balance sheet. (c) Inventory is generally considered a real account appearing on the balance sheet. It has the

                 elements of a nominal account when the periodic inventory system is used. It may appear on the income statement when the multiple-step format is used under a periodic inventory system.            

   (d) Real account; balance sheet. (e) Real account; balance sheet. (f) Nominal account; income statement. (g) Nominal account; income statement. (h) Real account; balance sheet.
8. At December 31, the three days' wages due to the employees represent a current liability. The related expense must be recorded in this period to properly reflect the expense incurred.
9. (a)In a service company, revenues are service revenues and expenses are operating expenses. In a merchandising company, revenues are sales revenues and expenses consist of cost of goods sold plus operating expenses. (b)The measurement process in a merchandising company consists of comparing the sales price

                 of the merchandise inventory to the cost of goods sold and operating expenses.            

Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only) 3-

Questions Chapter 3 (Continued)

10.(a) No change. (b) Before closing, balances exist in these accounts; after closing, no balances exist. (c) Before closing, balances exist in these accounts; after closing, no balances exist. (d) Before closing, a balance exists in this account exclusive of any dividends or the net income or net loss for the period; after closing, the balance is increased or decreased by the amount of net income or net loss, and decreased by dividends declared. (e) No change.

11.Adjusting entries are prepared prior to the preparation of financial statements in order to bring the accounts up to date and are necessary (1) to achieve a proper recognition of revenues and expenses in measuring income and (2) to achieve an accurate presentation of assets, liabilities and stockholders' equity.

12.Closing entries are prepared to transfer the balances of nominal accounts to capital (retained earnings) after the adjusting entries have been recorded and the financial statements prepared. Closing entries are necessary to reduce the balances in nominal accounts to zero in order to prepare the accounts for the next period's transactions.

13.Cost – Salvage Value = Depreciable Cost: $4,000 – $0 = $4,000. Depreciable Cost ÷ Useful Life = Depreciation Expense For One Year $4,000 ÷ 5 years = $800 per year. The asset was used for 6 months (7/1 – 12/31), therefore 1/2-year of depreciation expense should be reported. Annual depreciation X 6/12 = amount to be reported on 2012 income statement: $800 X 6/12 = $400.

14. December 31 Interest Receivable...............................................................................................................10, Interest Revenue........................................................................................................... 10, (To record accrued interest revenue on loan) Accrued expenses result from the same causes as accrued revenues. In fact, an accrued expense on the books of one company is an accrued revenue to another company.

*15.Under the cash basis of accounting, revenue is recorded only when cash is received and expenses are recorded only when paid. Under the accrual basis of accounting, revenue is recognized when it is earned and expenses are recognized when incurred, without regard to the time of the receipt or payment of cash. A cash-basis balance sheet and income statement are incomplete and inaccurate in comparison to accrual-basis financial statements. The accrual basis matches effort (expenses) with accomplishment (revenues) in the income statement while the cash basis only presents cash receipts and cash disbursements. The accrual basis balance sheet contains receivables, payables, accruals, prepayments, and deferrals while a cash basis balance sheet shows none of these.

*16.Wages paid during the year will include the payment of any wages attributable to the prior year but unpaid at the end of the prior year. This amount is an expense of the prior year and not of the current year, and thus should be subtracted in determining wages expense. Similarly, wages paid during the year will not include any wages attributable to hours worked during the current year but not actually paid until the following year. This should be added in determining wages expense.

*17.Although similar to the strict cash basis, the modified cash basis of accounting requires that expenditures for capital items be charged against income over all the periods to be benefited. This is done through conventional accounting methods, such as depreciation and amortization. Under the strict cash basis, expenditures would be recognized as expenses in the period in which the corresponding cash disbursements are made.

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-

BRIEF EXERCISE 3-

BRIEF EXERCISE 3-

• Increase in prepaid expenses

Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only) 3-

BRIEF EXERCISE 3- 3-10 Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

EXERCISE 3-2 (10–15 minutes)

GERONIMO COMPANY Trial Balance April 30, 2012 Debit Credit Cash.................................................................................... $ 2, Accounts Receivable..................................................... 2, Prepaid Insurance ($700 + $1,000)............................ 1, Equipment......................................................................... 8, Accounts Payable ($4,500 – $1,000)......................... $ 3, Property Tax Payable.................................................... 560 Owner's Capital ($11,200 + $3,200)........................... 14, Owner's Drawings.......................................................... 3, Service Revenue............................................................. 6, Salaries and Wages Expense..................................... 4, Advertising Expense ($1,100 + $300)....................... 1, Property Tax Expense ($800 + $1,000).................... 1, $25,150 $25,

EXERCISE 3-3 (15–20 minutes)

The ledger accounts are reproduced below, and corrections are shown in the accounts.

Cash Accounts Payable Bal. 5,912 (4) 190 Bal. 7, (1) 270

Accounts Receivable Common Stock Bal. 5,240 (1) 270 Bal. 8,

Supplies Retained Earnings Bal. 2,967 Bal. 2,

3-14 Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

EXERCISE 3-3 (Continued)

Equipment Service Revenue Bal. 6,100 Bal. 5, (2) 1,900 (3) 2, (5) 80

Office Expense Bal. 4,320 (2) 1,

SCARLATTI CORPORATION

Trial Balance (Corrected) April 30, 2012

Debit Credit

Cash................................................................................... $ 5, Accounts Receivable.................................................... 4, Supplies............................................................................ 2, Equipment........................................................................ 8, Accounts Payable.......................................................... $ 7, Common Stock............................................................... 8, Retained Earnings......................................................... 2, Service Revenue............................................................ 7, Office Expense................................................................ 2, $24,349 $24,

3-16 Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

The policy was purchased six months ago (August 1, 2011)

Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only) 3-

EXERCISE 3-7 (Continued)

The "T" account for salaries and wages payable is

(a) Salaries and Wages Payable....................................... 4,

Paid 900 Beg. Bal.? January End Bal. 800

The beginning balance is therefore

Ending balance of salaries and wages payable $ 800 Plus: Reduction of salaries and wages payable 900 Beginning balance of salaries and wages payable $1,

(d) Service revenue............................................................................... $2, Cash received.................................................................................. 1, Unearned service revenue reduced.......................................... $ 400

Ending unearned service revenue January 31, 2012.......... $ 750 Plus: Unearned service revenue reduced.............................. 400 Beginning unearned service revenue December 31, 2011...................................................................... $1,

EXERCISE 3-8 (10–15 minutes)

(b) Salaries and Wages Expense..................................... 7,

(c) Salaries and Wages Payable....................................... 4,

(b) Utilities Expenses........................................................................... 600 Accounts Payable................................................................... 600

(c) Interest Expense ($60,000 X 8% X 1/12)................................... 400 Interest Payable...................................................................... 400

(d) Utilities Expenses........................................................................... 117 Accounts Payable................................................................... 117

Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only) 3-

EXERCISE 3-10 (25–30 minutes)

(a) 1. Aug. 31 Insurance Expense ($4,500 X 3/12)............... 1, Prepaid Insurance...................................... 1,12 5

2. Aug. 31 Supplies Expense ($2,600 – $650)................. 1, Supplies......................................................... 1,95 0

3. Aug. 31 Depreciation Expense....................................... 1,

Accumulated Depreciation—Equipment...........

Buildings.................................................... 1,08 0 ($120,000 – $12,000 = $108,000; $108,000 X 4% = $4,320 per year; $4,320 X 3/12 = $1,080)

Aug. 31 Depreciation Expense....................................... 360 Accumulated Depreciation— Equipment................................................. 360 ($16,000 – $1,600 = $14,400; $14,400 X 10% = $1,440; $1,440 X 3/12 = $360)

4. Aug. 31 Unearned Rent Revenue................................... 3, Rent Revenue.............................................. 3,80 0

5. Aug. 31 Salaries and Wages Expense......................... 375

Salaries and Wages Payable.................................

6. Aug. 31 Accounts Receivable......................................... 800 Rent Revenue.............................................. 800

7. Aug. 31 Interest Expense................................................. 1, Interest Payable [($50,000 X 8%) X 3/12]......................... 1,00 0

3-20 Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)

EXERCISE 3-10 (Continued)

(b) UHURA RESORT

• Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only) 3-
• BRIEF EXERCISE 3-
• May 1 Cash......................................................................... 4,

                                - Common Stock............................................ 4,            

  • 3 Equipment............................................................. 1,

                                          - Accounts Payable...................................... 1,                

  • 13 Rent Expense.......................................................

                                          - Cash................................................................                

  • 21 Accounts Receivable.........................................

                                          - Service Revenue.........................................                

• BRIEF EXERCISE 3-
• Aug. 2 Cash.......................................................................... 12,

                - Equipment............................................................... 2,    - Owner's Capital............................................ 14,            

  • 7 Supplies...................................................................

                      - Accounts Payable........................................                

  • 12 Cash.......................................................................... 1,
    • Accounts Receivable..........................................
      • Service Revenue.......................................... 1,
  • 15 Rent Expense..........................................................

                      - Cash..................................................................                

  • 19 Supplies Expense..................................................

                      - Supplies ($500 – $270)................................                

• BRIEF EXERCISE 3- 3-8 Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)
• July 1 Prepaid Insurance................................................. 15,
  • Cash.................................................................. 15,
• Dec. 31 Insurance Expense............................................... 2,
  • ($15,000 X 1/2 X 1/3)................................ 2, Prepaid Insurance
• BRIEF EXERCISE 3-
• July 1 Cash.......................................................................... 15,
  • Unearned Service Revenue....................... 15,
• Dec. 31 Unearned Service Revenue............................... 2,
  • ($15,000 X 1/2 X 1/3)................................ 2, Service Revenue
• BRIEF EXERCISE 3-
• Feb. 1 Prepaid Insurance................................................. 720,
  • Cash.................................................................. 720,
• June 30 Insurance Expense............................................... 150,
  • ($720,000 X 5/24)...................................... 150, Prepaid Insurance
• BRIEF EXERCISE 3-
• Nov. 1 Cash.......................................................................... 2,
  • Unearned Rent Revenue............................ 2,
• Dec. 31 Unearned Rent Revenue..................................... 1,
  • ($2,400 X 2/3)............................................. 1, Rent Revenue
• BRIEF EXERCISE 3- 3-10 Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only)
• Depreciation Expense......................................................... 2,
  • Accumulated Depreciation—Equipment.............. 2,
• Equipment............................................................................... $30,
• Less: Accumulated Depreciation—Equipment.......... 2,000 $28,
• BRIEF EXERCISE 3-
• Sales Revenue....................................................................... 808,
• Interest Revenue................................................................... 13,
  • Income Summary......................................................... 822,
• Income Summary.................................................................. 780,
  • Cost of Goods Sold..................................................... 556,
  • Administrative Expenses........................................... 189,
  • Income Tax Expense................................................... 35,
• Income Summary.................................................................. 42,
  • Retained Earnings........................................................ 42,
• Retained Earnings................................................................ 18,
  • Dividends........................................................................ 18,
• *BRIEF EXERCISE 3-
• (a) Cash receipts............................................................... $142,

                                - ($18,600 – $13,000)............................................ 5, + Increase in accounts receivable - Service revenue.......................................................... $147,            

• (b) Payments for operating expenses........................ $ 97,

                - Operating expenses.................................................. $ 91, ($23,200 – $17,500)............................................ (5,700)            

• Copyright © 2011 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 14/e, Solutions Manual (For Instructor Use Only) 3-
• *BRIEF EXERCISE 3-
• (a) Salaries and Wages Payable....................................... 4,

                - Salaries and Wages Expense............................. 4,            

• (b) Salaries and Wages Expense..................................... 7,

                - Cash............................................................................ 7,            

• (c) Salaries and Wages Payable....................................... 4,
  • Salaries and Wages Expense..................................... 2,
    • Cash............................................................................ 7,
• 1. Accounts Receivable.................................................... EXERCISE 3-6 (15–20 minutes)

                                           - Service Revenue...................................................                

• 2. Utilities Expenses..........................................................

                                           - Accounts Payable.................................................                

• 3. Depreciation Expense..................................................

                                           - Accumulated Depreciation—Equipment.......                

     • Interest Expense............................................................

                                                     - Interest Payable.....................................................                    

• 4. Insurance Expense ($15,000 X 1/12)....................... 1,

                                           - Prepaid Insurance................................................. 1,25                

• 5. Supplies Expense ($1,600 – $400)........................... 1,

                                           - Supplies................................................................... 1,20                

• (a) Ending balance of supplies....................................... $ EXERCISE 3-7 (15–20 minutes)

                - Add: Adjusting entry................................................... - Deduct: Purchases...................................................... - Beginning balance of supplies................................. 1, - Amount used (6 X $400).............................................. 2, (b) Total prepaid insurance.............................................. $4,800 ($400 X 12) - Present balance............................................................. 2, - Salaries and Wages Expense.................................... 1, (c) The entry in January to record salary expense was - Salaries and Wages Payable.....................................    - Cash............................................................................ 2,70            

  • August 31, Adjusted Trial Balance
• Cash.............................................................................. $ 19, Debit Credit
• Accounts Receivable...............................................
• Prepaid Insurance ($4,500 – $1,125)................... 3,
• Supplies ($2,600 – $1,950)......................................
• Land............................................................................... 20,
• Buildings...................................................................... 120,
• Accumulated Depreciation—Buildings............. $ 1,
• Equipment................................................................... 16,
• Accumulated Depreciation—Equipment...........
• Accounts Payable..................................................... 4,
• Unearned Rent Revenue ($4,600 – $3,800).......
• Salaries and Wages Payable.................................
• Interest Payable......................................................... 1,
• Mortgage Payable..................................................... 50,
• Common Stock.......................................................... 100,
• Dividends..................................................................... 5,
• Rent Revenue ($86,200 + $3,800 + $800)........... 90,
• ($44,800 + $375)...................................................... 45, Salaries and Wages Expense
• Utilities Expenses..................................................... 9,
• Maintenance and Repairs Expenses.................. 3,
• Insurance Expense................................................... 1,
• Supplies Expense..................................................... 1,
• Depreciation Expense............................................. 1,
• Depreciation Expense.............................................
• Interest Expense....................................................... 1,

                - $248,915 $248,            

Managerial Uses of Accounting Information Problem 3-15 Solution

Source: https://www.studocu.com/id/document/universitas-riau/akuntansi-manajemen/solution-intermediate-accounting-ifrs-2e-chapter-3/14392066

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