Test Bank: Financial Accounting Information for Decisions 7th Edition by Wild Solution Manual

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Exercise 2-7 (25 minutes)

Aug. 1 Cash................................................................ 6,500

Photography Equipment.................................. 33,500

Common Stock.......................................... 40,000

Owner investment in business for stock.

2 Prepaid Insurance........................................... 2,100

Cash.......................................................... 2,100

Acquired 2 years of insurance coverage.

5 Office Supplies................................................ 880

Cash.......................................................... 880

Purchased office supplies.

20 Cash................................................................ 3,331

Photography Fees Earned......................... 3,331

Collected photography fees.

31 Utilities Expense............................................. 675

Cash.......................................................... 675

Paid for August utilities.

Exercise 2-8 (30 minutes)

Cash				Photography Equipment
Aug. 1	6,500	Aug. 2	2,100	Aug. 1	33,500
20	3,331	5	880
		31	675	Common Stock
Balance	6,176					Aug. 1	40,000

Office Supplies				Photography Fees Earned
Aug. 5	880					Aug. 20	3,331

Prepaid Insurance				Utilities Expense
Aug. 2	2,100			Aug. 31	675

Pose-for-pics
Trial Balance
August 31
	*Debit*	*Credit*
Cash...........................................	$ 6,176
Office supplies...........................	880
Prepaid insurance......................	2,100
Photography equipment.............	33,500
Common stock...........................		$40,000
Photography fees earned...........		3,331
Utilities expense.........................	675	______
Totals.........................................	$43,331	$43,331

Exercise 2-9 (30 minutes)

a. Cash......................................................................... 100,750

Common Stock................................................. 100,750

Owner invested in the business for stock.

b. Office Supplies........................................................ 1,250

Cash................................................................. 1,250

Purchased supplies with cash.

c. Office Equipment..................................................... 10,050

Accounts Payable............................................. 10,050

Purchased office equipment on credit.

d. Cash......................................................................... 15,500

Fees Earned...................................................... 15,500

Received cash from customer for services.

e. Accounts Payable.................................................... 10,050

Cash................................................................. 10,050

Made payment toward account payable.

f. Accounts Receivable............................................... 2,700

Fees Earned...................................................... 2,700

Billed customer for services provided.

g. Rent Expense........................................................... 1,225

Cash................................................................. 1,225

Paid for this period’s rental charge.

h. Cash......................................................................... 1,125

Accounts Receivable........................................ 1,125

Received cash toward an account receivable.

i. Dividends................................................................. 10,000

Cash................................................................. 10,000

Paid cash dividends.

Exercise 2-9 (concluded)

Cash

Accounts Payable

(a)

100,750

(b)

1,250

(e)

10,050

(c)

10,050

(d)

15,500

(e)

10,050

Balance

(h)

1,125

(g)

1,225

(i)

10,000

Balance

94,850

Common Stock

(a)

100,750

Balance

100,750

Accounts Receivable

Dividends

(f)

2,700

(h)

1,125

(i)

10,000

Balance

1,575

Balance

10,000

Office Supplies

Fees Earned

(b)

1,250

(d)

15,500

Balance

1,250

(f)

2,700

Balance

18,200

Office Equipment

Rent Expense

(c)

10,050

(g)

1,225

Balance

10,050

Balance

1,225

Exercise 2-10 (15 minutes)

SPADE COMPANY
Trial Balance
May 31, 2013
	*Debit*	*Credit*
Cash..................................................	$ 94,850
Accounts receivable......................	1,575
Office supplies................................	1,250
Office equipment............................	10,050
Accounts payable..........................		$ 0
Common stock...............................		100,750
Dividends............................................	10,000
Fees earned.....................................		18,200
Rent expense...................................	1,225	________
Totals..................................................	$118,950	$118,950

Exercise 2-11 (20 minutes)

Transactions that created revenues:

b. Accounts Receivable......................................... 2,300

Services Revenue........................................ 2,300

Provided services on credit.

c. Cash................................................................... 875

Services Revenue........................................ 875

Provided services for cash.

[Note: Revenues are inflows of assets (or decreases in liabilities) received in exchange for goods or services provided to customers.]

Transactions that did not create revenues along with the reasons are:

a. This transaction brought in cash, but this is an owner investment.

d. This transaction brought in cash, but it created a liability because the services have not yet been provided to the client.

e. This transaction changed the form of the asset from accounts receivable to cash. Total assets were not increased (revenue was recognized when the receivable was originally recorded).

f. This transaction brought in cash and increased assets, but it also increased a liability by the same amount (no goods or services were provided to generate revenue).

Exercise 2-12 (20 minutes)

Transactions that created expenses:

b. Salaries Expense........................................ 1,233

Cash..................................................... 1,233

Paid salary of receptionist.

d. Utilities Expense......................................... 870

Cash..................................................... 870

Paid utilities for the office.

[Note: Expenses are outflows or using up of assets (or the creation of liabilities) that occur in the process of providing goods or services to customers.]

Transactions a, c, and e are not expenses for the following reasons:

a. This transaction decreased assets in settlement of a previously existing liability, and equity did not change. Cash payment does not mean the same as using up of assets (expense is recorded when the supplies are used).

c. This transaction involves the purchase of an asset. The form of the company’s assets changed, but total assets did not change, and the equity did not decrease.

e. This transaction is a distribution of cash to the owner. Even though equity decreased, the decrease did not occur in the process of providing goods or services to customers.

Exercise 2-13 (15 minutes)

HELP TODAY

Income Statement

For Month Ended August 31

Revenues

Consulting fees earned......................... $ 27,000

Expenses

Rent expense........................................ $ 9,550

Salaries expense................................... 5,600

Telephone expense............................... 860

Miscellaneous expenses....................... 520

Total expenses..................................... 16,530

Net income................................................ $ 10,470

Exercise 2-14 (15 minutes)

HELP TODAY

Statement of Retained Earnings

For Month Ended August 31

Retained earnings, July 31........................ $ 0

Add: Net income (from Exercise 2-13)...... 10,470

10,470

Less: Dividends........................................ 6,000

Retained earnings, August 31................... $ 4,470

Exercise 2-15 (15 minutes)

HELP TODAY

Balance Sheet

August 31

Assets Liabilities

Cash............................. $ 25,360 Accounts payable................ $ 10,500

Accounts receivable..... 22,360

Office supplies............. 5,250 Equity

Office equipment.......... 20,000 Common stock..................... 102,000

Land.............................. 44,000 Retained earnings^*............... 4,470

Total assets.................. $116,970 Total liabilities & equity....... $116,970

^*Amount from Exercise 2-14.

Exercise 2-16 (20 minutes)

Calculation of change in equity for part a through part d
		Assets	-	Liabilities	=	Equity
	Beginning of the year.......	$ 60,000	-	$20,000	=	$40,000
	End of the year.................	105,000	-	36,000	=	69,000
	Net increase in equity.......					$29,000

a. Net income........................................................		$ ?
Plus owner investments...................................		0
Less dividends .................................................		(0)
Change in equity...............................................		$29,000
	Net Income = $29,000

Since there were no additional investments or dividends, the net income for the year equals the net increase in equity.

b. Net income........................................................		$ ?
Plus owner investments...................................		0
Less dividends ($1,250/mo. x 12 mo.)...............		(15,000)
Change in equity...............................................		$29,000
	Net Income = $44,000

The dividends were added back because they reduced equity without reducing net income.

c. Net income.......................................................		$ ?
Plus owner investment....................................		55,000
Less dividends.................................................		(0)
Change in equity..............................................		$29,000
	Net Loss = $26,000

The investment was deducted because it increased equity without creating net income.

d. Net income........................................................		$ ?
Plus owner investment.....................................		35,000
Less dividends ($1,250/mo. X 12 mo.)...............		(15,000)
Change in equity...............................................		$29,000
	Net Income = $9,000

The dividends were added back because they reduced equity without reducing net income and the investments were deducted because they increased equity without creating net income.

Exercise 2-17 (15 minutes)

	(a)	(b)	(c)	(d)
Answers	$(28,000)	$42,000	$73,000	$(45,000)

Computations:
Equity, Dec. 31, 2012....	$ 0	$ 0	$ 0	$ 0
Owner's investments...	110,000	42,000	87,000	210,000
Dividends.....................	(28,000)	(47,000)	(10,000)	(55,000)
Net income (loss).........	22,000	90,000	(4,000)	(45,000)
Equity, Dec. 31, 2013....	$104,000	$85,000	$73,000	$110,000

Exercise 2-18 (25 minutes)

a. Belle created a new business and invested $6,000 cash, $7,600 of equipment, and $12,000 in automobiles, all in exchange for stock.

b. Paid $4,800 cash in advance for insurance coverage.

c. Paid $900 cash for office supplies.

d. Purchased $300 of office supplies and $9,700 of equipment on credit.

e. Received $4,500 cash for delivery services provided.

f. Paid $1,600 cash towards accounts payable.

g. Paid $820 cash for gas and oil expenses.

Exercise 2-19 (30 minutes)

a. Cash......................................................................... 6,000

Equipment............................................................... 7,600

Automobiles............................................................ 12,000

Common Stock................................................. 25,600

Owner investment in exchange for stock.

b. Prepaid Insurance.................................................... 4,800

Cash................................................................. 4,800

Purchased insurance coverage.

c. Office Supplies........................................................ 900

Cash................................................................. 900

Purchased supplies with cash.

d. Office Supplies........................................................ 300

Equipment............................................................... 9,700

Accounts Payable............................................. 10,000

Purchased supplies and equipment on credit.

e. Cash......................................................................... 4,500

Delivery Services Revenue............................... 4,500

Received cash from customer for services provided.

f. Accounts Payable.................................................... 1,600

Cash................................................................. 1,600

Made payment on payables.

g. Gas and Oil Expense................................................ 820

Cash................................................................. 820

Paid for gas and oil.

Exercise 2-20 (20 minutes)

	Description	(1) Difference between Debit and Credit Columns	(2) Column with the Larger Total	(3) Identify Account(s) Incorrectly Stated	(4) Amount that Account(s) is Overstated or Understated
a.	$3,600 debit to Rent Expense is posted as a $1,340 debit.	$2,260	Credit	Rent Expense	Rent Expense is understated by $2,260
b.	$6,500 credit to Cash is posted twice as two credits to Cash.	$6,500	Credit	Cash	Cash is understated by $6,500
c.	$10,900 debit to the Dividends account is debited to Common Stock	$0	––	Common Stock Dividends	Common Stock is understated by $10,900 Dividends is understated by $10,900
d.	$2,050 debit to Prepaid Insurance is posted as a debit to Insurance Expense.	$0	––	Prepaid Insurance Insurance Expense	Prepaid Insurance is understated by $2,050 Insurance Expense is overstated by $2,050
e.	$38,000 debit to Machinery is posted as a debit to Accounts Payable.	$0	––	Machinery Accounts Payable	Machinery is understated by $38,000 Accounts Payable is understated by $38,000
f.	$5,850 credit to Services Revenue is posted as a $585 credit.	$5,265	Debit	Services Revenue	Services Revenue is understated by $5,265
g.	$1,390 debit to Store Supplies is not posted.	$1,390	Credit	Store Supplies	Store Supplies is understated by $1,390

Exercise 2-21 (15 minutes)

a. The debit column is correctly stated because the erroneous debit (to Accounts Payable) is deducted from an account with a (larger assumed) credit balance.

b. The credit column is understated by $37,900 because Accounts Payable was debited — it should have been credited.

c. The Automobiles account balance is correctly stated.

d. The Accounts Payable account balance is understated by $37,900. It should have been increased (credited) by $18,950 but the posting error decreased (debited) it by $18,950.

e. The credit column is $37,900 less than the debit column, or $162,100 in total ($200,000 - $37,900).

Exercise 2-22 (15 minutes)

Co.

Liabilities

Assets

Debt

Ratio

Net

Income

Average

Assets

ROA

$11,765

$ 90,500

0.13

$20,000

$100,000

0.200

46,720

64,000

0.73

3,800

40,000

0.095

26,650

32,500

0.82

650

50,000

0.013

55,860

147,000

0.38

21,000

200,000

0.105

31,280

92,000

0.34

7,520

40,000

0.188

52,250

104,500

0.50

12,000

80,000

0.150

b. Company 3 relies most heavily on creditor (nonowner) financing with 82% of its assets financed by liabilities.

c. Company 1 relies least on creditor (nonowner) financing at only 13%. This implies that 87% of the assets are financed by equity (owners).

d. The companies with the highest debt ratios indicate the greatest risk. The two companies with the highest debt ratios are 2 and 3.

e. Company 1 yields the highest return on assets at 20%; followed by Company 5 at 18.8%.

f. As an investor, one prefers high returns at low risk. Company 1 is the preferred investment since it yields the lowest risk (debt ratio is 13%) and highest return on assets (20%).

Exercise 2-23 (10 minutes)

BMW

Balance Sheet (in Euro millions)

December 31, 2011

Assets Equity and liabilities

Noncurrent assets........ € 9,826 Total equity.......................... € 8,222

Current assets.............. 17,682 Noncurrent liabilities........... 7,767

Current liabilities........... 11,519

Total assets.................. €27,508 Total equity and liabilities... €27,508

Problem sET A

Problem 2-1A (90 minutes)

Part 1

a. Cash........................................................ 101 100,000

Office Equipment.................................... 163 5,000

Drafting Equipment................................. 164 60,000

Common Stock................................ 307 165,000

Owner invested cash and equipment for stock.

b. Land........................................................ 172 49,000

Cash................................................. 101 6,300

Notes Payable.................................. 250 42,700

Purchased land with cash and notes payable.

c. Building.................................................. 170 55,000

Cash................................................. 101 55,000

Purchased building.

d. Prepaid Insurance................................... 108 3,000

Cash................................................. 101 3,000

Purchased 18-month insurance policy.

e. Cash........................................................ 101 6,200

Engineering Fees Earned................. 402 6,200

Collected cash for completed work.

f. Drafting Equipment................................. 164 20,000

Cash................................................. 101 9,500

Notes Payable.................................. 250 10,500

Purchased equipment with cash and notes.

g. Accounts Receivable............................... 106 14,000

Engineering Fees Earned................. 402 14,000

Completed services for client.

h. Office Equipment.................................... 163 1,150

Accounts Payable............................ 201 1,150

Purchased equipment on credit.

Problem 2-1A (Part 1 Continued)

i. Accounts Receivable............................... 106 22,000

Engineering Fees Earned................. 402 22,000

Billed client for completed work.

j. Equipment Rental Expense..................... 602 1,333

Accounts Payable............................ 201 1,333

Incurred equipment rental expense.

k. Cash........................................................ 101 7,000

Accounts Receivable....................... 106 7,000

Collected cash on account.

l. Wages Expense....................................... 601 1,200

Cash................................................. 101 1,200

Paid assistant’s wages.

m. Accounts Payable................................... 201 1,150

Cash................................................. 101 1,150

Paid amount due on account.

n. Repairs Expense..................................... 604 925

Cash................................................. 101 925

Paid for repair of equipment.

o. Dividends................................................ 319 9,480

Cash................................................. 101 9,480

Paid cash dividends.

p. Wages Expense....................................... 601 1,200

Cash................................................. 101 1,200

Paid assistant’s wages.

q. Advertising Expense............................... 603 2,500

Cash................................................. 101 2,500

Paid for advertising expense.

Problem 2-1A (Continued)

Part 2

Cash No. 101					Accounts Payable No. 201
Date	PR	Debit	Credit	Balance	Date	PR	Debit	Credit	Balance
(a)		100,000		100,000	(h)			1,150	1,150
(b)			6,300	93,700	(j)			1,333	2,483
(c)			55,000	38,700	(m)		1,150		1,333
(d)			3,000	35,700
(e)		6,200		41,900	Notes Payable No. 250
(f)			9,500	32,400	Date	PR	Debit	Credit	Balance
(k)		7,000		39,400	(b)			42,700	42,700
(l)			1,200	38,200	(f)			10,500	53,200
(m)			1,150	37,050
(n)			925	36,125
(o)			9,480	26,645	Common Stock No. 307
(p)			1,200	25,445	Date	PR	Debit	Credit	Balance
(q)			2,500	22,945	(a)			165,000	165,000

Accounts Receivable No. 106					Dividends No. 319
Date	PR	Debit	Credit	Balance	Date	PR	Debit	Credit	Balance
(g)		14,000		14,000	(o)		9,480		9,480
(i)		22,000		36,000
(k)			7,000	29,000	Engineering Fees Earned No. 402
					Date	PR	Debit	Credit	Balance
Prepaid Insurance No. 108					(e)			6,200	6,200
Date	PR	Debit	Credit	Balance	(g)			14,000	20,200
(d)		3,000		3,000	(i)			22,000	42,200

Office Equipment No. 163					Wages Expense No. 601
Date	PR	Debit	Credit	Balance	Date	PR	Debit	Credit	Balance
(a)		5,000		5,000	(l)		1,200		1,200
(h)		1,150		6,150	(p)		1,200		2,400

Drafting Equipment No. 164					Equipment Rental Expense No. 602
Date	PR	Debit	Credit	Balance	Date	PR	Debit	Credit	Balance
(a)		60,000		60,000	(j)		1,333		1,333
(f)		20,000		80,000

Building No. 170					Advertising Expense No. 603
Date	PR	Debit	Credit	Balance	Date	PR	Debit	Credit	Balance
(c)		55,000		55,000	(q)		2,500		2,500

Land No. 172					Repairs Expense No. 604
Date	PR	Debit	Credit	Balance	Date	PR	Debit	Credit	Balance
(b)		49,000		49,000	(n)		925		925

Problem 2-1A (Concluded)

Part 3

Aracel Engineering

Trial Balance

June 30

Debit Credit

Cash.......................................................... $ 22,945

Accounts receivable.................................. 29,000

Prepaid insurance..................................... 3,000

Office equipment....................................... 6,150

Drafting equipment................................... 80,000

Building..................................................... 55,000

Land.......................................................... 49,000

Accounts payable...................................... $ 1,333

Notes payable............................................ 53,200

Common stock.......................................... 165,000

Dividends.................................................. 9,480

Engineering fees earned............................ 42,200

Wages expense.......................................... 2,400

Equipment rental expense......................... 1,333

Advertising expense.................................. 2,500

Repairs expense........................................ 925

Totals........................................................ $261,733 $261,733

Problem 2-2A (90 minutes)

Part 1

Mar. 1 Cash........................................................ 101 150,000

Office Equipment.................................... 163 22,000

Common Stock................................ 307 172,000

Owner invested cash and equipment for stock.

2 Prepaid Rent........................................... 131 6,000

Cash................................................. 101 6,000

Prepaid six months’ rent.

3 Office Equipment.................................... 163 3,000

Office Supplies....................................... 124 1,200

Accounts Payable............................ 201 4,200

Purchased equipment and supplies on credit.

6 Cash........................................................ 101 4,000

Services Revenue............................ 403 4,000

Received cash for services.

9 Accounts Receivable............................... 106 7,500

Services Revenue............................ 403 7,500

Billed client for completed work.

12 Accounts Payable................................... 201 4,200

Cash................................................. 101 4,200

Paid balance due on account.

19 Prepaid Insurance................................... 128 5,000

Cash................................................. 101 5,000

Paid premium for insurance.

22 Cash........................................................ 101 3,500

Accounts Receivable....................... 106 3,500

Collected part of amount owed by client.

25 Accounts Receivable............................... 106 3,820

Services Revenue............................ 403 3,820

Billed client for completed work.

29 Dividends................................................ 319 5,100

Cash................................................. 101 5,100

Paid cash dividends.

30 Office Supplies....................................... 124 600

Accounts Payable............................ 201 600

Purchased supplies on account.

31 Utilities Expense..................................... 690 500

Cash................................................. 101 500

Paid monthly utility bill.

Problem 2-2A (Continued)

Part 2

Cash						Acct. No. 101
Date		Explanation	PR	Debit	Credit		Balance
Mar.	1		G1	150,000			150,000
	2		G1		6,000		144,000
	6		G1	4,000			148,000
	12		G1		4,200		143,800
	19		G1		5,000		138,800
	22		G1	3,500			142,300
	29		G1		5,100		137,200
	31		G1		500		136,700

Accounts Receivable					Acct. No. 106
Date		Explanation	PR	Debit	Credit		Balance
Mar.	9		G1	7,500			7,500
	22		G1		3,500		4,000
	25		G1	3,820			7,820

Office Supplies					Acct. No. 124
Date		Explanation	PR	Debit	Credit		Balance
Mar.	3		G1	1,200			1,200
	30		G1	600			1,800

Prepaid Insurance					Acct. No. 128
Date		Explanation	PR	Debit	Credit		Balance
Mar.	19		G1	5,000			5,000

Prepaid Rent					Acct. No. 131
Date		Explanation	PR	Debit	Credit		Balance
Mar.	2		G1	6,000			6,000

Office Equipment					Acct. No. 163
Date		Explanation	PR	Debit	Credit		Balance
Mar.	1		G1	22,000			22,000
	3		G1	3,000			25,000

Problem 2-2A (Continued)

Part 2 (Continued)

Accounts Payable					Acct. No. 201
Date		Explanation	PR	Debit	Credit	Balance
Mar.	3		G1		4,200	4,200
	12		G1	4,200		0
	30		G1		600	600


Common Stock					Acct. No. 307
Date		Explanation	PR	Debit	Credit	Balance
Mar.	1		G1		172,000	172,000

Dividends					Acct. No. 319
Date		Explanation	PR	Debit	Credit	Balance
Mar.	29		G1	5,100		5,100

Services Revenue					Acct. No. 403
Date		Explanation	PR	Debit	Credit	Balance
Mar.	6		G1		4,000	4,000
	9		G1		7,500	11,500
	25		G1		3,820	15,320

Utilities Expense					Acct. No. 690
Date		Explanation	PR	Debit	Credit	Balance
Mar.	31		G1	500		500

Problem 2-2A (Concluded)

Part 3

Venture Consultants

Trial Balance

March 31

Debit Credit

Cash.................................................................... $136,700

Accounts receivable............................................ 7,820

Office supplies.................................................... 1,800

Prepaid insurance............................................... 5,000

Prepaid rent........................................................ 6,000

Office equipment................................................ 25,000

Accounts payable................................................ $ 600

Common stock.................................................... 172,000

Dividends............................................................ 5,100

Services revenue................................................. 15,320

Utilities expense................................................. 500

Totals.................................................................. $187,920 $187,920

Test Bank

Tuesday, 1 November 2016

Financial Accounting Information for Decisions 7th Edition by Wild Solution Manual

For This And Any Other test Bnaks, slotion Manuals, Quizess, Exams And Assignments Contact us At whiperhills@gmail.com

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