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Sales revenue.
Cost of goods sold
All other expenses
Net income..
Beginning cash..
Collections ($850 $27)..
Payments for: inventory.
everything else.
Ending cash
$ 75
823
(380)
(255)
$ 263
$ .8
Balance sheet
$4.2
Interest payable.
0.3
Chapter 3
3-1
When the large auto manufacturer records the revenue from the sale, at that time
not before or afterthe large auto manufacturer should also record cost of goods
sold, the expense. The expense recognition principle tells when to record expenses.
(10 min.) S 3-5
Depreciation is the periodic allocation of the cost of a tangible long-lived asset, less
its estimated residual value, over its estimated useful life. All long-lived or plant
assets, except for land, decline in usefulness during their lives, and this decline is an
expense. Accountants must allocate the cost of each plant asset, except for land,
over the assets useful life. Depreciation is the process of allocating the cost of a
plant asset to expense. Depreciation also decreases the book value of the asset to
reflect its usage.
e.
b.
c.
d.
Chapter 3
3-3
Oct. 31
500
500
Prepaid Rent
Oct. 1
3,000 Oct. 31
Bal.
2,500
Rent Expense
500
Oct. 31
500
Bal.
500
b.
Oct. 31
Supplies
Oct. 1
950 Oct. 31
Bal.
400
550
550
Supplies Expense
550
Oct. 31
550
Bal.
550
(b)
3-4
Jan. 1
Dec. 31
Computer Equipment...
Cash.
Purchased computer equipment.
Depreciation Expense
Computer Equipment ($50,000 / 5).
Accumulated Depreciation
Computer Equipment.......
Record depreciation expense.
50,000
50,000
10,000
10,000
Req. 2
Accumulated Depreciation
Computer Equipment
Computer Equipment
Jan. 1
Bal.
Depreciation
Expense
Computer Equipment
50,000
Dec. 31 10,000
Dec. 31
10,000
50,000
Bal.
Bal.
10,000
10,000
Req. 3
Computer equipment.
$50,000
(10,000)
Book value
$40,000
Chapter 3
3-5
2012
$44.6
Balance sheet:
Salary payable.........
2012
$ 2.2
Nov. 30
Dec. 31
Interest Expense..
Interest Payable..
To accrue interest expense for October.
250
Interest Expense..
Interest Payable..
To accrue interest expense for November.
250
Interest Expense...
Interest Payable
To accrue interest expense for December.
250
250
250
Req. 2
Interest Payable
Oct.
31
250
Nov. 30
250
Dec. 31
250
Bal.
750
Req. 3
3-6
250
Dec. 31
Interest Payable..........
Cash..
To pay interest.
750
750
Nov. 30
Dec. 31
Interest Receivable
Interest Revenue..
To accrue interest revenue for October.
250
Interest Receivable
Interest Revenue...
To accrue interest revenue for November.
250
Interest Receivable
Interest Revenue......
To accrue interest revenue for December.
250
250
250
250
Req. 2
Interest Receivable
Oct. 31
250
Nov. 30
250
Dec. 31
250
Bal.
750
Req. 3
Dec. 31
Cash.
Interest Receivable.
To collect interest.
Chapter 3
750
750
3-7
3-8
Cash.
Unearned Subscription Revenue.......
Received cash for revenue in advance.
60,000
60,000
40,000
40,000
Unadjusted amount.
$18,000
b.
12,000
Unadjusted amount
d.
-06,000
3-9
a.
b.
Accounts Receivable...
Service Revenue..
55,000
Cash.
Accounts Receivable.
35,000
Cash.
Unearned Service Revenue..
9,000
7,000
55,000
35,000
9,000
7,000
$175,500
136,000
29,000
Net income
$ 10,500
3-10
$21,500
10,500
$32,000
(continued) S 3-15
Sparrow Sporting Goods Company
Balance Sheet
March 31, 2012
Thousands
ASSETS
Current:
Cash....................................................................
$ 20,800
Accounts receivable..........................................
28,000
Inventories..........................................................
35,000
5,000
88,800
6,300
Other assets.......................................................
22,000
Total assets...............................................................
$117,100
LIABILITIES
Total current liabilities.......................................
$ 55,100
Long-term liabilities...........................................
7,500
Total liabilities...........................................................
62,600
STOCKHOLDERS EQUITY
Common stock...................................................
22,500
Retained earnings..............................................
32,000
54,500
$117,100
Chapter 3
3-11
31
Net Revenues .
Retained Earnings.......
175,500
Retained Earnings.
Cost of Goods Sold.
All Other Expenses..
165,000
175,500
136,000
29,000
Retained Earnings
Mar. 31, 2012 Expenses
21,500
175,500
32,000
Retained Earnings ending balance agrees with the amount reported on the
statement of retained earnings and the balance sheet (in S 3-15).
(5 min.) S 3-17
(Dollars in thousands)
Req. 1
Net working capital
$33,700
$88,800
$55,100
Req. 2
Current ratio
3-12
$88,800
$55,100
1.61
Req. 3
Debt ratio
Total liabilities
Total assets
$62,600
$117,100
0.53
Req. 4
Net working capital of $33,700 means current assets exceed current liabilitiesa
positive sign. The current ratio and debt ratio values are strong.
(10 min.) S 3-18
1.
2.
b.
Current ratio
$98,800
$55,100
1.79
c.
Debt ratio
$62,600
$127,100 ($117,100 +$10,000)
0.49
Current ratio
$78,800
$45,100
1.74
c.
Debt ratio
0.49
Chapter 3
3-13