The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.
Adapting to Today’s Students Whether the goal is to become an accountant, a businessperson, or simply an informed consumer of accounting information, Financial Accounting Fundamentals has helped generations of students succeed. Its leading-edge accounting content, paired with state-of-the-art technology, supports student learning and elevates understanding of key accounting principles. This book excels at engaging students with content that shows the relevance of accounting. Its chapter-opening vignettes showcase dynamic entrepreneurial companies to highlight the usefulness of accounting. This edition’s featured companies— Apple, Google, and Samsung—capture student interest, and their annual reports are a pathway for learning. Need-to-Know demonstrations in each chapter apply key concepts and procedures and include guided video teaching presentations.
learning paths that build on different learning styles, interests, and abilities. The revolutionary technology of SmartBook® is available only from McGraw-Hill Education. Based on an intelligent learning system, SmartBook uses a series of adaptive questions to pinpoint each student’s knowledge gaps and then provides an optimal learning path. Students spend less time in areas they already know and more time in areas they don’t. The result: Students study more efficiently, learn faster, and retain more knowledge. Valuable reports provide insights into how students are progressing through textbook content and information useful for shaping in-class time or assessment.
This book delivers innovative technology to help student performance. Connect provides students a media-rich eBook version of the textbook and offers instant online grading and feedback for assignments. Connect takes accounting content to the next level, delivering assessment material in a more intuitive, less restrictive format.
Interactive Presentations teach each chapter’s core learning objectives in a rich, multimedia format, bringing the content to life. Your students come to class prepared when you assign Interactive Presentations. Students can also review the Interactive Presentations as they study. Guided Examples provide students with narrated, animated, step-by-step walkthroughs of algorithmic versions of assigned e xercises. Students appreciate Guided Examples, which help them learn and complete assignments outside of class.
Our technology features: • A general journal interface that looks and feels more like that found in practice. • An auto-calculation feature that allows students to focus on concepts rather than rote tasks. • A smart (auto-fill) drop-down design.
A General Ledger (GL) application offers students the ability to see how transactions post from the general journal all the way through the financial statements. It uses an intuitive, less restrictive format, and it adds critical thinking components to each GL question, to ensure understanding of the entire process.
The result is content that prepares students for today’s world. Connect also includes digitally based, interactive, adaptive learning tools that engage students more effectively by offering varied instructional methods and more personalized
The first and only analytics tool of its kind, Connect Insight® is a series of visual data displays—each framed by an intuitive question—to provide information on how your class is doing on five key dimensions.
“A great enhancement! I love the fact that GL makes the student choose from an entire chart of accounts.” —TAMMY METZKE, Milwaukee Area Technical College
About the Author JOHN J. WILD is a distinguished professor of accounting at the University of Wisconsin at Madison. He previously held appointments at Michigan State University and the University of Manchester in England. He received his BBA, MS, and PhD from the University of Wisconsin. John teaches accounting courses at both the undergraduate and graduate Courtesy of John J. Wild levels. He has received numerous teaching honors, including the Mabel W. Chipman Excellence-inTeaching Award and the departmental Excellence-in-Teaching Award, and he is a two-time recipient of the Teaching Excellence Award from business graduates at the University of Wisconsin. He also received the Beta Alpha Psi and Roland F. Salmonson Excellence-in-Teaching Award from Michigan State University. John has received several research honors, is a past KPMG Peat Marwick National Fellow, and is a recipient of fellowships from the American Accounting Association and the Ernst and Young Foundation.
John is an active member of the American Accounting Association and its sections. He has served on several committees of these organizations, including the Outstanding Accounting Educator Award, Wildman Award, National Program Advisory, Publications, and Research Committees. John is author of Fundamental Accounting Principles, Financial Accounting, Managerial Accounting, and College Accounting, all published by McGraw-Hill Education. John’s research articles on accounting and analysis appear in The Accounting Review; Journal of Accounting Research; Journal of Accounting and Economics; Contemporary Accounting Research; Journal of Accounting, Auditing and Finance; Journal of Accounting and Public Policy; and other journals. He is past associate editor of Contemporary Accounting Research and has served on several editorial boards including The Accounting Review. In his leisure time, John enjoys hiking, sports, boating, travel, people, and spending time with family and friends.
Dear Colleagues and Friends, As I roll out the new edition of Financial Accounting Fundamentals, I thank each of you who provided suggestions to improve the textbook and its teaching resources. This new edition reflects the advice and wisdom of many dedicated reviewers, symposium and workshop participants, students, and instructors. Throughout the revision process, I steered this textbook and its teaching tools in the manner you directed. As you’ll find, the new edition offers a rich set of features—especially digital features—to improve student learning and assist instructor teaching and grading. I believe you and your students will like what you find in this new edition. Many talented educators and professionals have worked hard to create the materials for this product, and for their efforts, I’m grateful. I extend a special thank-you to our contributing and technology supplement authors, who have worked so diligently to support this product: Contributing Author: Kathleen O’Donnell, Onondaga Community College Accuracy Checkers: Dave Krug, Johnson County Community College; Mark McCarthy, East Carolina University; and Beth Kobylarz LearnSmart Author: April Mohr, Jefferson Community and Technical College, SW Interactive Presentations: Jeannie Folk, College of DuPage, and April Mohr, Jefferson Community and Technical College, SW PowerPoint Presentations and Instructor Resource Manual: April Mohr, Jefferson Community and Technical College, SW Digital Contributor, Connect Content, General Ledger Problems, Test Bank, and Exercise PowerPoints: Kathleen O’Donnell, Onondaga Community College In addition to the invaluable help from the colleagues listed above, I thank the entire team at McGraw-Hill Education: Tim Vertovec, Steve Schuetz, Natalie King, Michelle Williams, Erin Chomat, Kris Tibbetts, Rebecca Mann, Michael McCormick, Lori Koetters, Peggy Hussey, Xin Lin, Kevin Moran, Debra Kubiak, Sarah Evertson, Brian Nacik, and Daryl Horrocks. I could not have published this new edition without your efforts.
John J. Wild
monitors keystrokes; when you sign on to financial websites, it steals your passwords.
Exhibit 3.12 summarizes the four types of transactions requiring adjustment. Remember that or expense) accounts and one or more balance sheet (asset or liability) accounts, but never the Cash account. (Adjusting Wi-Phishing up other wireless networks hoping you will use them to entries areCybercrooks posted likesetany entry.) Phishing Hackers send e-mails to you posing as banks; you are asked for inforeach adjusting entry affects one or more income statement (revenue mation using fake websites where they reel in your passwords and personal data. connect to the web; your passwords and data are stolen as you use their network.
Bot-Networking Hackers send remote-control programs to your PC that takeEntry Adjusting BEFORE Adjusting control to send out spam and viruses; they even rent your bot to other cybercrooks. Prepaid (Deferred) Dr. (increase) Expense Expense understated Asset overstated expenses† Cr. (decrease) Asset* Paid (or received) cash Typo-Squatting Hackers set up websites with addresses similar to legit outfits; when you makebefore a typoexpense and hit their sites, they infect your PC with viruses or take them over as bots. (or revenue) recognized Liability overstated Unearned (Deferred) Dr. (decrease) Liability Hackers also have their own self-identification system:† Revenue understated revenues Cr. (increase) Revenue • Hackers, or external attackers, crack systems and take data for illicit gains (as unauthorized users). • Rogue insiders, or internal attackers, crack systems and take data for illicit gains or revenge (as authorized users). Dr. (increase) Accruedcrack systems and revealExpense vulnerabilities Expense understated • Ethical hackers, or good-guys or white-hat hackers, Liability understated Cr. (increase) Liability expenses Paid (orcontrols. received) cash to enhance
EXHIBIT 3.12 Summary of Adjustments and Financial Statement Links
Innovative Textbook Features . . . Adjustments
expensehackers, crack systems illegally for illicit gains, fame, or revenge. or criminal • Crackers,after (or revenue) recognized
Using Accounting for Decisions Whether we prepare, analyze, or apply accounting information, one skill remains essential: decision making. To help develop good decision-making habits and to illustrate the relevance of accounting, we use a learning framework to enhance decision making in four ways. (See the four nearby examples for the different types of decision boxes, including those that relate to fraud.) Decision Insight provides context for business decisions. Decision NEED-TO-KNOW 8-1 Ethics and Decision Maker are role-playing scenarios that Internal Controls show the relevance of accounting. Decision Analysis proC1 vides key tools to help assess company performance. 127 Chapter 3
Adjusting Accounts for Financial Statements
Profit Margin and Current Ratio
Profit Margin A useful measure of a company’s operating results is the ratio of its net income to net sales. This ratio is called profit margin, or return on sales, and is computed as in Exhibit 3.22. Profit margin =
Do More: QS 8-1, E 8-1, E 8-2, P 8-1 Profit Margin
This ratio is interpreted as reflecting the percent of profit in each dollar of sales. To illustrate how we compute and use profit margin, let’s look at the results of L Brands, Inc., in Exhibit 3.23 for its fiscal years 2011 through 2015.
Decision Insight Fraud Discovery The Association of Certified Fraud Examiners (ACFE) re- 60% Detects Fraud? Information about some adjustments is not available until after theWhoperiod-end. This ports that 43% of frauds are detected from a “tip,” which is much higher than 50% 52% 40% means that some adjusting and closing entries are recorded later than, but dated as of, the the next three detection sources (13% from management review, 17% from 30% last day of the period. One example is a company that receives a utility bill on January 10 internal audit, and 6% by accident). The top source for a tip is an employee, 20% for costs for athe month of December. When it receives followed by aincurred customer and vendor—see graph. [Source: 2016 Report to 10% the bill,18%the company re14% 10% cords the ACFE expense and the statement and balance the Nations, (acfe.com).] ■ payable as of December 31. The income 0% Employee Anonymous Vendor sheet reflect these adjustments even though the amounts were not Customer actually known at period-end.
Identify the following phrases/terms as best associated with the (a) purposes of an internal control system, Decision Ethics (b) principles of internal control, or (c) limitations of internal control. 1. Protect fraudofficer, not to record accrued ex8. you, Human Financial Officer assets At year-end, the president instructs the financial Chapter 8 Accounting forcustody Long-Term Assets penses until next year because they will not be paid9.until then. The president also directs you to of record in 2. Establish responsibilities Separate recordkeeping from assets current-year sales a recent purchase order from a customer that requires merchandise to betransactions delivered two Human error 3. Divide responsibility for related 10. weeks after the year-end. Your company would report a net income instead of a net loss if you carry out these 4.Revenue Maintain adequate recordscalled income 11.statement Cost-benefit principle expenditures, expenditures, are additional costs of instructions. What do you do? ■ also Answer: Omitting accrued expenses and recognizing revenue early can mislead financial statement usApply technological 5.One assets efficient operations 12.asset’s plant doa meeting not materially increase life orIf the productive capabilities. They are ers. action is tothat request with controls the president so you can the explain what is Promote required. president persists, you might discuss the situation with and any auditors involved. Your ethical actionrevenues might13. cost you,in butthe the potential pitfalls for and falsification of statements, reputation and 6.legal counsel Ensure reliable accounting Perform regular independent reviews recorded as expenses and deducted from current period’s income statement. personal integrity loss, and other costs are too great. 7.Capital Insure assets and bond keycalled employees 14. Uphold company expenditures, also balance sheet expenditures, arepolicies additional costs of plant
assets that provide benefits extending beyond the current period. They are debited to asset accounts and reported on the balance sheet.
Entrepreneur Your start-up Internet services company needs cash, and you are preparing financial statements to apply for a short-term loan.balance A friend suggests you treat as many expenses as possible as capital expenditures. An unadjusted trial is a list that of accounts and balances prepared before adjustments are What are theAn impacts on financial suggestion? What and do you think is the aim of this suggestion? ■ recorded. adjusted trialstatements balance ofis this a list of accounts balances prepared after adjusting Answer: Treating an expense as a capital expenditure means that expenses are lower and income higher in the short run. This is so because a capital expenditure is not expensed immediately but is spread over the asset’s useful life. It also means that asset and equity totals are reported at higher amounts in the short run. This continues until the asset is fully depreciated. Thus, the friend’s suggestion is misguided. Only an expenditure benefiting future periods is a capital expenditure.
entries have been recorded and posted to the ledger. Exhibit 3.13 shows both the unadjusted and the adjusted trial balances for FastForward at December 31, 2017. The order of accounts in the trial balance usually matches the order in the chart of accounts. Several new accounts usually arise from adjusting entries.
Analyzing and “This textbook does address many learning styles and at the same time allows Analyzing Recording for many teaching styles . . and . our faculty have been very pleased with the continued revisions and supplements. I’m a ‘Wild’ fan!” Recording Transactions Transactions L Brands:
Net Income ($)
Net Sales ($)
CFO Your health care equipment company consistently reports a profit margin near 9%, which is similar to that of competitors. The treasurer argues that profit margin can be increased to near 20% if the company cuts back on marketing expenses. Do you cut those expenses? ■ Answer: Cutting those expenses will increase profit margin in the short run.
Profit Margin (%)
However, over the long run, cutting such expenses can hurt current and future sales and, potentially, put the company in financial distress. The CFO must explain that the company can cut the “fat” (expenses that do not drive sales) but should not cut those that drive sales.
An important use of financial statements is to help assess a company’s ability to pay its debts in the near future. Such analysis affects decisions by suppliers when allowing a company to buy on credit. It also affects decisions by creditors when lending money to a company, including loan terms such as interest rate, due date, and collateral requirements. It can also affect a manager’s decisions about using cash to pay debts when they come due. The current ratio is one measure of a company’s ability to pay its short-term obligations. It is defined in Exhibit 3.24 as current assets divided by current liabilities.
Compute the current ratio and describe what it reveals about a company’s financial condition.
Ordinary repairs are expenditures to keep an asset in normal, good operating condition. Ordinary repairs do not extend an asset’s useful life beyond its original estimate or increase its productivity beyond original expectations. Examples are normal costs of cleaning, lubricating, adjusting, oil changing, and replacing small parts of a machine. Ordinary repairs are treated as revenue expenditures. This means their costs are reported as expenses on the current-period income statement. Following this rule, Brunswick reports that “maintenance and repair costs are expensed as incurred.” If Brunswick’s current-year repair costs are $9,500, it makes the following entry. Dec . 31
Accounting for betterments and extraordinary repairs is similar—both are treated as capital expenditures.
• Cleaning • Lubricating • Adjusting • Repainting
Each chapter opens with a visual chapter preBetterments, also Betterments Using financial information from L Brands, Inc., we compute its current ratio for the recent six-year peSYSTEM OF DEBITS AND(Improvements) RECORDING TRIAL FINANCIAL view. Students begin their reading with a riod. The results are in Exhibitcan 3.25. called improvements, areTRANSACTIONS expenditures that make a plant ACCOUNTS CREDITS BALANCE STATEMENTS asset more efficient or productive. A betterment often involves adding a component to an asset clear understanding of what they will learn and EXHIBIT 3.25C1 Source Chapter Preview P1 P3increase T-accountone of its old Journalizingwith and a betterP2 Trial Financial or replacing components one andbalance does not always an asset’s documents posting manual controls onpreparation statement when. Learning objective numbers highlight the useful life.and An example is replacing a machine with automatic controls. One C4 Debits and use preparation SYSTEM OF DEBITS AND RECORDING TRIAL FINANCIAL credits C2 Types of A1isProcessing special type of betterment an addition, such as adding a new wing or dock to a warehouse. location of related content. of conACCOUNTS CREDITS Each “block” TRANSACTIONS BALANCE STATEMENTS accounts transactions— Error to the asset account as a capital exBecause a betterment benefits future periods, it is debited A2 Debt ratio Normal balance Illustration identification penditure. The new book value (less salvage value) is then depreciated over the asset’s remainC3 General ledger tent withT-account a Need-to-Know (NTK) Source and to P2 Trial balance C1concludes P1 Journalizing P3 Financial documents posting preparation statement ing useful life. To illustrate, suppose a company pays $8,000 for a machine with an eight-year Debits and C4 aidC2 and reinforce student learning. Organization and use NTK 2-1 preparation useful life2-2 and no salvage value. $3,000 it adds an autoNTK NTKAfter 2-3 three years andNTK 2-4of depreciation,NTK 2-5 credits Types of A1 Processing accounts transactions— Error into “blocks” aids students in quickly searching Debtmated ratio control system to the machine at a cost of $1,800. The cost of the betterment is added to A2 Normal balance Illustration identification the Machinery account with this entry. C3 General ledger for answers to homework assignments. $ millions
Current assets Current ratio = Current liabilities
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L Brands’s average profit margin is 8.3% during this five-year period. This favorably compares to the average industry profit margin of 2.3%. Moreover, we see that L Brands’s profit margin has rebounded from the recent recessionary period and is at the 7% to 9% margin for the past five years (see margin graph). Future success depends on L Brands maintaining its market share and increasing its profit margin.
Compute profit margin and describe its use in analyzing company performance.
Explain and prepare an
Asset understated Revenue understated
*For depreciation, the credit is to Accumulated Depreciation (contra asset). †Exhibit assumes that prepaid expenses are initially recorded as assets and that unearned revenues are initially recorded as liabilities.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800 PROCEDURAL Define debits and credits and explain Record installation of automated system. double-entry accounting. P1 Record transactions in a journal and post
Example: Assume a firm owns a web server. Identify each cost as a revenue or capital expenditure: (1) purchase price, (2) necessary wiring, (3) platform for operation, (4) circuits to increase capacity, (5) cleaning after each month of use, (6) repair of a faulty switch, and (7) replacement of a worn fan. Answer: Capital expenditures: 1, 2, 3, 4; revenue expenditures: 5, 6, 7.
Assets = Liabilities + Equity +1,800 −1,800
Explain the steps in processing transactions and the role of source entries to a ledger. After the betterment is recorded, the remaining cost to be depreciated is $6,800, computed as ANALYTICAL documents. P2remaining Prepare and explain the is use$1,360 of a trial per $8,000 − $3,000 $1,800.theDepreciation expense for the five years impact of transactions on A1+ Analyze C2 Describe an account and year, its usecomputed in balance. PROCEDURAL as $6,800∕5 years. accounts and financial statements. recording transactions. P1 Record transactions in a journal and post P3 Prepare financial statements from A2 Compute the debt ratio and describe its to aa ledger. C3 entries Describe ledger and a chart of business transactions. use in analyzing financial condition. accounts. P2 Prepare and explain the use of a trial balance.
Prepare financial statements from business transactions.
The Conceptual/Analytical/Procedural (CAP) model allows courses to be specially designed to meet the teaching needs of a diverse faculty. This model identifies learning objectives, textual materials, assignments, and test items by C, A, or P, allowing different instructors to teach from the same materials, yet easily customize their courses toward a conceptual, analytical, or procedural approach (or a combination thereof) based on personal preferences.
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from retirement of debt − Noncash revenues and gains Examples: Gains from disposal of long-term assets and from retirement of debt 2 Adjustments for changes in current assets and current liabilities + Decrease in noncash current operating asset − Increase in noncash current operating asset + Increase in current operating liability − Decrease in current operating liability Net cash provided (used) by operating activities
Bring Accounting to Life How Much Cash in Income? The difference between net income and operating cash flows can be large and sometimes reflects on the quality of earnings. This bar chart shows the net income and operating cash flows of three companies. Operating cash flows can be either higher or lower than net income. ■
Reporting Operating Cash Flows (Indirect)
Operating Cash Flows
$1,000 $2,000 $3,000 $4,000 $ Millions
A company’s current-year income statement and selected balance sheet data at December 31 of the current and prior years follow. Prepare only the operating activities section of the statement of cash flows using the indirect method for the current year.
Need-to-Know demonstrations are located at key junctures in each chapter. These demonstrations At December 31 Current Yr Prior Yr pose questions about the material just Sales revenue . . . . . . . . . . . . . . . . . . . . $120 Accounts receivable . . . . . . . . . . . $12 $10 Expenses Inventory . . . . . . . . . . . . . . . . . . . . 6 9 presented—content that students “need to know” Cost of goods sold . . . . . . . . . . . . . . 50 Accounts payable . . . . . . . . . . . . . 7 11 Chapter 5 Inventories and Cost of Sales 275 to successfully learn accounting. Accompanying Depreciation expense . . . . . . . . . . . 30 Salaries payable . . . . . . . . . . . . . . 8 3 Salaries expense. . . . . . . . . . . . . . . . 17 Interest payable. . . . . . . . . . . . . . . 1 0 solutions walk students through key procedures Interest expense . . . . . . . . . . . . . . . . 3 Net income . . . . . . . . . . . . . . . . . . . . . . $ 20 BTN 5-9 Following are key figures (in millions of Korean won) for Samsung (Samsung.com),to whichbe is GLOBAL DECISIONwith and analysis necessary successful a leading manufacturer of consumer electronics products. A3 Solution homework and test materials. Need-to-Know W in millions Current Year One Year Prior Two Years Prior Cash Flows from Operating Activities—Indirect Method Samsung demonstrations are supplemented with narrated, Inventory . . . . . . . . . . . . . . W 18,811,794 W 17,317,504 W 19,134,868 For Current Year Ended December 31 APPLE Cost of sales . . . . . . . . . . . 123,482,118 128,278,800 137,696,309 animated, step-by-step walk-through videos led Cash flows from operating activities Chapter 5 Inventories and Cost of Sales 275 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20 by an instructor and available via Connect. Required Selected Balance Sheet Accounts
Income Statement For Current Year Ended December 31
Adjustments to reconcile net income to net cash provided by operating activities 1. Use these data and those from BTN 5-2 to compute (a) inventory turnover and (b) days’ sales in invenIncome statement items not affecting cash BTNtory 5-9 Following are keytwo figures millions of Korean won) forand Samsung (Samsung.com), which is most recent years(in shown for Samsung, Apple, Microsoft. Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .a. .leading . . . . . . .for .manufacturer . the$30 of consumer electronics products. 2. Comment on and interpret your findings from part 1. Changes in current assets and current liabilities Increase in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) W in millions Current Year One Year Prior Two Years Prior Decrease in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Inventory . . . . . . . . . . . . . . W 18,811,794 W 17,317,504 W 19,134,868 Decrease in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) Cost of sales . . . . . . . . . . . 123,482,118 128,278,800 137,696,309 Increase in salaries payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Use these data and those from BTNcosts 5-2 to inventory turnover (b) days’ sales values. in invendise inventory, in the methods to assign tocompute inventory,(a) and in the methods to and estimate inventory tory for the most recent two years shown for Samsung, Apple, and Microsoft. Items and Costs Making Upyour Inventory Bothpart U.S.1.GAAP and IFRS include broad and similar guid2. Comment on and interpret findings from ance for the items and costs making up merchandise inventory. Specifically, under both accounting systems, merchandise inventory includes all items that a company owns and holds for sale. Further, merchandise inventory includes costs of expenditures necessary, directly or indirectly, to bring those items to a salable condition and location.
Global View The Global View section explains international accounting practices related to the material covered in that chapter. The aim of this section is to describe accounting practices and to identify the similarities and differences in international accounting practices versus those in the United States. The importance of student familiarity with international accounting continues to grow. This innovative section helps us begin down that path. This section is purposefully located at the very end of each chapter so that each instructor can decide what emphasis, if at all, is to be assigned to it.
Assigning Costs to Inventory 10/10/16 Both U.S. GAAP and IFRS allow companies to use specific identifica7:48 AM tion in assigning costs to inventory. Further, both systems allow companies to apply a cost flow assumpThis section discusses differences between GAAP and IFRS in theand items and costs making up merchantion. The usual cost flow assumptions areU.S. FIFO, weighted average, LIFO. However, IFRS does not dise inventory, in the methods to assign costs to inventory, and in the methods to estimate inventory values. allow use of LIFO. Items and Costs Making Up Inventory Bothcan U.S. GAAP or and IFRS include broadsale. and similar guidEstimating Inventory Costs Inventory value decrease increase as it awaits ance for the items and costs making up merchandise inventory. Specifically, under both accounting sysDecreases in Inventory Value Both U.S. all GAAP andthat IFRS require companies write for down (reduce the tems, merchandise inventory includes items a company owns andtoholds sale. Further, cost recordedinventory for) inventory when its of value falls below the cost recorded. is referred to asthose the lower merchandise includes costs expenditures necessary, directly orThis indirectly, to bring items of cost or market method explained in this chapter. U.S. GAAP prohibits any later increase in the recorded to a salable condition and location. value of that inventory even if that decline in value is reversed through value increases in later periods. Assigning Costs to Inventory GAAP and companies to use specific identificaHowever, IFRS allows reversals of Both thoseU.S. write-downs upIFRS to theallow original acquisition cost. For example, if tion in wrote assigning costs to inventory. Further, both systems companies to itapply a cost flow assumpApple down its 2015 inventory from $2,349 millionallow to $2,300 million, could not reverse this in tion. usualeven costifflow assumptions weighted average, LIFO. However, IFRS does futureThe periods its value increasedare to FIFO, more than $2,349 million.and However, if Apple applied IFRS,not it allow of LIFO. could use reverse that previous loss. (Another difference is that value refers to replacement cost under U.S. GAAP, but net realizable value under IFRS.) Estimating Inventory Costs Inventory value can decrease or increase as it awaits sale. Increases in Inventory Value Neither U.S. GAAP nor IFRS allows inventory to be adjusted upward beDecreases in Inventory Value Both U.S. GAAP and IFRS require companies to write down (reduce the yond the original cost. (One exception is that IFRS requires agricultural assets such as animals, forests, cost recorded for) inventory when its value falls below the cost recorded. This is referred to as the lower and plants to be measured at fair value less point-of-sale costs.) of cost or market method explained in this chapter. U.S. GAAP prohibits any later increase in the recorded Nokia provides the following description of its inventory valuation procedures: value of that inventory even if that decline in value is reversed through value increases in later periods. However, IFRS allows reversals of those write-downs up to the original acquisition cost. For example, if Inventories at the lower of cost or net realizable value . Cost approximates actualitcost on a FIFO Apple wrote downareitsstated 2015 inventory from $2,349 million to $2,300 million, could not (first-in reverse this in first-out) basis . Net realizable value is the amount that can be realized from the sale of the inventory in the normal future periods even if its value increased to more than $2,349 million. However, if Apple applied IFRS, it course of business after allowing for the costs of realization . could reverse that previous loss. (Another difference is that value refers to replacement cost under U.S. GAAP, but net realizable value under IFRS.)
Global: IFRS requires that LCM be applied to individual items.
Global: IFRS requires that LCM be applied to individual items.
Neither U.S. GAAP nor IFRS allows inventory to be adjusted upward beyond the original cost. (One exception is that IFRS requires agricultural assets such as animals, forests, Global View Assignments and plants to be measured at fair value less point-of-sale costs.) Discussion Questions 16 & 17 description of its inventory valuation procedures: Nokia provides the following Increases in Inventory Value
Quick Study 5-23
ExerciseInventories 5-18 are stated at the lower of cost or net realizable value . Cost approximates actual cost on a FIFO (first-in first-out) basis . Net realizable value is the amount that can be realized from the sale of the inventory in the normal
BTN 5-9course of business after allowing for the costs of realization .
Discussion Questions 16 & 17 Quick Study wiL26703_ch05_226-275.indd 275
Exercise 5-18 ReGreen Corporation, featured in this chapter’s opening story, is committed to improving the environment by helping businesses apply sustainable solutions. BTN 5-9 ReGreen’s website touts its mission: “to improve the health of our planet and economy through the implementation of profitable energy solutions.” So far, ReGreen has been able to reduce their clients’ energy consumption and water costs by an average of 60%. It offers customers guaranteed payback on sustainable investments within two years. “We’re pleased to have met those challenges,” proclaims co-founder David Duel. David explains that the two-year payback guarantee on sustainable investwiL26703_ch05_226-275.indd 275 ments requires use of a reliable accounting system. ReGreen uses its accounting system to track investments in assets and the cost savings associated with these assets. This information is used to make sure ReGreen can meet its two-year payback guarantee. Without such a guarantee, businesses may be less willing to invest in sustainable solutions. ReGreen also uses accounting data to track clients’ progress on sustainability initiatives. ReGreen reviews its customers’ accounting systems to analyze energy and water expenses. The entrepreneurs use these data to make recommendations on how ReGreen’s customers can “achieve significant energy cost savings” and reduce their impact on the environment, explains David.
Accounts Receivable Turnover
For a company selling on credit, we want to assess both the quality and liquidity of its accounts receivable. Quality of receivables refers to the likelihood of collection without loss. Experience shows that the longer receivables are outstanding beyond their due date, the lower the likelihood of collection. Liquidity of receivables refers to the speed of collection. Accounts receivable turnover is a measure of both the quality
Sustainability and Accounting This edition has brief sections that highlight the importance of sustainability within the broader context of global accounting (and accountability). Companies increasingly address sustainability in their public reporting and consider the sustainabilit y accounting standards (from the Sustainability Accounting Standards Board) and the expectations of our global society. These sections cover different aspects of sustainability, often within the context of the chapter’s featured entrepreneurial company.
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Accounting for Long-Term Assets
food stores and toy merchandisers). Molson Coors’s turnover is much lower than that for Boston Beer and many other competitors. Total asset turnover for Molson Coors’s competitors, available in industry publications, is generally in the range of 0.5 to 1.0 over this same period. Overall, Molson Coors must improve relative to its competitors on total asset turnover.
Outstanding Assignment Material . . . Decision Maker
Point: The plant asset age is estimated by dividing accumulated depreciation by depreciation expense. Older plant assets can signal needed asset replacements; they may also signal less efficient assets.
Environmentalist A paper manufacturer claims it cannot afford more environmental controls. It points to its low total asset turnover of 1.9 and argues that it cannot compete with companies whose total asset turnover is much higher. Examples cited are food stores (5.5) and auto dealers (3.8). How do you respond? ■ Answer: The paper manufacturer’s
Once a student has finished reading the chapter, how well he or she retains the material can depend greatly on the questions, brief exercises, exercises, and problems that reinforce it. This book leads the way in comprehensive, accurate assignments.
Comprehensive Need-to-Know Problems present both a problem
comparison of its total asset turnover with food stores and auto dealers is misdirected. These other industries’ turnovers are higher because their profit margins are lower (about 2%). Profit margins for the paper industry are usually 3% to 3.5%. You need to collect data from competitors in the paper industry to show that a 1.9 total asset turnover is about the norm for this industry. You might also want to collect data on this company’s revenues and expenses, along with compensation data for its high-ranking officers and employees.
On July 14, 2016, Tulsa Company pays $600,000 to acquire a fully equipped factory. The purchase involves the following assets and information.
and a complete solution, allowing students to review the entire problemsolving process and achieve success. The problems draw on material from the entire chapter.
Chapter Summaries provide students revenues. Accrued expensesby refer to costs incurred inobjeca period with a review organized learning that are both unpaid and unrecorded. Adjusting entries for recording accrued expenses involve increasing (debiting) expenses tives. Chapter Summaries are a component A1 and increasing (crediting) liabilities. Accrued revenues refer to earned(as in a period that are both unrecorded and not of the CAP revenues model discussed in the “Inyet received in cash. Adjusting entries for recording accrued revenues involve increasing (debiting) assets and increasing novative Textbook Features” section), the debt ratio and describe its use analyz- adjustments link to financial (crediting) revenues. howinaccounting A2 Compute A1 Explain ing financial condition. A company’s debt ratioAccounting is com- adjustments bring which conceptual, analytical, statements. an asset orrecaps each and prepare an adjusted trial balance. An P2 Explain puted as total liabilities divided by total assets. It reveals how liability account balance to its correct amount. They also update adjusted trial balance is a list of accounts and balances and entry procedural much of the assets are financed by creditor (nonowner) financrelated expense or revenue accounts. Every adjusting preparedobjective. after recording and posting adjusting entries. Chapter 3
Adjusting Accounts for Financial Statements
Describe an account and its use in recording transactions. An account is a detailed record of increases and decreases in a specific asset, liability, equity, revenue, or expense. Information from accounts is analyzed, summarized, and presented in reports and financial statements.
Describe a ledger and a chart of accounts. The ledger (or general ledger) is a record containing all accounts used by a company and their balances. It is referred to as the books. The chart of accounts is a list of all accounts and usually includes an identification number assigned to each account. Define debits and credits and explain double-entry accounting. Debit refers to left, and credit refers to right. Debits increase assets, expenses, and withdrawals while credits decrease them. Credits increase liabilities, owner capital, and revenues; debits decrease them. Double-entry accounting means each transaction affects at least two accounts and has at least one debit and one credit. The system for recording debits and credits follows from the accounting equation. The left side of an account is the normal balance for assets, withdrawals, and expenses, and the right side is the normal balance for liabilities, capital, and revenues.
wiL26703_ch08_356-399.indd 380 Identify the types of adjustments and their purpose. Adjustments can be grouped according to the timing of cash receipts and cash and payments relative to when they are recAnalyze the impact of transactions on accounts ognized as revenuesusing or expenses as follows: prepaid expenses, financial statements. We analyze transactions unearned revenues, accrued expenses, and accrued revenues. concepts of double-entry accounting. This analysis is performed Adjusting entries are necessary so that revenues, expenses, by determining a transaction’s effects on accounts. assets, and liabilities are correctly reported.
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ing. The higher this ratio, the more risk a company faces be- statement accounts and one or more affects one or more income cause liabilities must be repaid at specific balancedates. sheet accounts. An adjusting entry never affects the
Financial statements are often prepared from the adjusted trial balance.
Prepare financial statements from an adjusted trial balance. Revenue and expense balances are reported on the income statement. Asset, liability, and equity balances are reported on the balance sheet. We usually prepare statements in the following order: income statement, statement of owner’s equity, balance sheet, and statement of cash flows.
Cash account. Record transactions in a journal and post entries to a profit ledger. Transactions are recorded inCompute a journal. Eachmargin entry and describe its use in analyzing performance. in a journal is posted to the accounts in thecompany ledger. This provides Profit margin is defined as the reporting statements. period’s net income divided by its net sales. Profit information that is used to produce financial reflects on acolumns company’s earnings activities by showing Balance column accounts are widelymargin used and include how much income is in each dollar of sales. for debits, credits, and the account balance.
Prepare and explain Prepare and explain the use of a trial balance. A trialadjusting entries. Prepaid expenses to items paid for in advance of receiving their benefits. balance is a list of accounts from therefer ledger showing their Prepaid expenses are assets. Adjusting entries for prepaids indebit or credit balances in separate columns. The trial balance is volve increasing (debiting) expenses and decreasing (crediting) a summary of the ledger’s contents and is useful in preparing fi- revenues refer to cash received in assets. Unearned (or prepaid) nancial statements and in revealing recordkeeping errors.products and services. Unearned revenues advance of providing
liabilities. Adjusting entries for unearned revenues involve Prepare financial statementsare from business transacincreasing (crediting) tions. The balance sheet, the statement of owner’srevenues equity, and decreasing (debiting) unearned the income statement, and the statement of cash flows use data from the trial balance (and other financial statements) for their preparation.
Key Terms are bolded in the text and repeated at the end of the chapter. A complete glossary of key terms is available online through Connect. Key Terms
Complete a three-column table showing the following amounts for each asset: appraised value, percent of total value, and apportioned cost.
Explain the steps in processing transactions and the role of source documents. Transactions and events are the starting points in the accounting process. Source documents identify and describe transactions and events and provide objective and reliable evidence. The effects of transactions and events are recorded in journals. Posting along with a trial balance helps summarize and classify these effects.
years. The machinery’s original cost was $12,000 (estimated life of five years) and its salvage value was $2,000. No depreciation had been recorded for the fifth year when the disposal occurred. Journalize the fifth year of depreciation (straight-line method) and the asset’s disposal. 4. At the beginning of year 2018, Tulsa purchased a patent for $100,000 cash. The company estimated the patent’s useful life to be 10 years. Journalize the patent acquisition and its amortization for the year 2018. 5. Late in the year 2018, Tulsa acquired an ore deposit for $600,000 cash. It added roads and built mine shafts for an additional cost of $80,000. Salvage value of the mine is estimated to be $20,000. The company estimated 330,000 tons of available ore. In year 2018, Tulsa mined and sold 10,000 tons of ore. Journalize the mine’s acquisition and its first year’s depletion. 6.A (This question applies this chapter’s Appendix coverage.) On the first day of 2018, Tulsa exchanged the machinery that was acquired on July 14, 2016, along with $5,000 cash for machinery with a $210,000 market value. Journalize the exchange of these assets assuming the exchange has commercial substance. (Refer to background information in parts 1 and 2.)
Debt ratio Debtors Double-entry accounting General journal General ledger Journal Journalizing Ledger
Explain the alternatives in accounting for prepaids. P4ACharging all prepaid expenses to expense accounts when
they are purchased is acceptable. When this is done, adjusting entries must transfer any unexpired amounts from expense accounts to asset accounts. Crediting all unearned revenues to revenue accounts when cash is received is also acceptable. In this case, the adjusting entries must transfer any unearned amounts from revenue accounts to unearned revenue accounts.
Accounting period Accrual basis accounting Accrued expenses Accrued revenues Accumulated depreciation Adjusted trial balance Posting Adjusting entry Posting reference (PR) column Annual financial statements Source documents Book value
T-account Trial balance Unearned revenue
Cash basis accounting Contra account Depreciation Expense recognition (or matching) principle Fiscal year Interim financial statements Natural business year Plant assets
Prepaid expenses Profit margin Revenue recognition principle Straight-line depreciation method Time period assumption Unadjusted trial balance Unearned revenues
Multiple Choice Quiz 1. A company forgot to record accrued and unpaid em-
ployee wages of $350,000 at period-end. This oversight would
2. Prior to recording adjusting entries, the Supplies account
has a $450 debit balance. A physical count of supplies shows $125 of unused supplies still available. The required
assets. Unearned (or prepaid) revenues refer to cash received in advance of providing products and services. Unearned revenues are liabilities. Adjusting entries for unearned revenues involve increasing (crediting) revenues and decreasing (debiting) unearned
accounts to asset accounts. Crediting all unearned revenues to revenue accounts when cash is received is also acceptable. In this case, the adjusting entries must transfer any unearned amounts from revenue accounts to unearned revenue accounts.
Key Terms Prepaid expenses Cash basis accounting Profit margin Contra account Revenue recognition principle Depreciation Straight-line depreciation method Expense recognition (or matching) principle Time period assumption Fiscal year Unadjusted trial balance Interim financial statements Unearned revenues Chapter 1 Accounting in Business 37 Natural business year Plant assets
Accounting period Accrual basis accounting Accrued expenses Accrued revenues Accumulated depreciation Adjusted trial balance Adjusting entry Annual financial statements Book value
Helps Students Master Key Concepts
Use the information in Exercise 1-15 to prepare an October statement of owner’s equity for Ernst Consulting.
Multiple Choice Quiz questions quickly test chapter knowledge before a student moves on to complete Quick Studies, Exercises, and Problems.
Chapter Chapter 7 7
Preparing a statement of owner’s equity P2
Multiple Choice1-15 Quiz Use the information in Exercise to prepare an October 31 balance sheet for Ernst Consulting. Hint: Exercise 1-17 The solution to Exercise 1-16 can help. Preparing a balance sheet 2. Prior to recording adjusting entries, the Supplies account 1. A company forgot to record accrued and unpaid emP2 has a $450 debit balance. A physical count of supplies ployee wages of $350,000 at period-end. This oversight shows $125 of unused supplies still available. The required would Use the information in Exercise 1-15 to prepare an October 31 statement of cash flows for Ernst Exercise 1-18 adjusting entry is: a. Understate net income by $350,000. Consulting. Assume the following additional information. Preparing a statement of $125. a. Debit Supplies $125; Credit Supplies Expense b. Overstate net income by $350,000. cash flows a. The owner’s initial investment consists of $38,000 cash and $46,000 in land. b. Debit Supplies $325; Credit Supplies Expense $325. c. Have no effect on net income. b. The company’s $18,000 equipment purchase is paid in cash. P2 c. Debit Supplies Expense $325; Credit Supplies $325. d. Overstate assets by $350,000. c. The accounts payable balance of $8,500 consists of the $3,250 office supplies purchase $5,250Expense in d. Debitand Supplies $325; Credit Supplies $125. e. Understate assets by $350,000. employee salaries yet to be paid. e. Debit Supplies Expense $125; Credit Supplies $125. d. The company’s rent, telephone, and miscellaneous expenses are paid in cash. Check Net increase in cash, 31 $11,360 e. No cash has been collected on the $14,000 consulting fees earned.
Chapter 1 Accounting in Business
Accounting Accounting for for Receivables Receivables
Quick Study assignments are short exercises that
182 Chapter 4 Completing the Accounting Cycle 1. Use the accounting equation to compute the missing financial statement amounts (a), (b), and (c). QS 1-8 Indicate the section (O, I, or F) where each of the following transactions 1 through 8 would appear on the Exercise 1-19 statement of cash flows. Identifying sections of the 348 412 Chapter 9 7 Accounting for Receivables Applying the accounting Problem statement oftrial cash balance flows At 31, Company reports the following results for its year. O. Cash flows from Problem 4-6AAoperating activity Problem 7-2A 7-2A The following six-column table for Hawkeye Ranges includes the unadjusted as of At December December 31, 2017, 2017, Hawke Hawke its calendar calendar year. equation A B C Company reports the D following results for Estimating Preparing adjusting, Estimating and and reporting reporting December 31, 2017. I. Cash flows from investing activity P2 Company Assets4 Completing = Liabilities + Equity A1 178debts Chapter the Accounting Cycle 1 bad Cash sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,905,000 wiL36351_ch03_098-147.indd 124 reversing, and next period bad debts 9-2A Problem 7-2A At December 31, 2017, Hawke Company its calendar year. Cash sales . . . . . . . . . .reports . . . . . . . .the . . . .following . . . . . . . . . . .results . . . . for $1,905,000 F. Cash flows from financing activity 2 1 $ 75,000 $Credit(a) $ 40,000 5,682,000 entries Estimating reporting P2 P3 and Credit sales sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,682,000 A Cash paid on account payable B C D E F G 5. to supplier 1. Cash purchase of equipment 3 P2 P3 2 (b) 25,000 70,000 bad debts 1 Cash sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,905,000 P4 year. A 4 Exercise 4-17 3 85,000 20,000 for Trey Co. on (c) 6. Cash received fromHAWKEYE clients RANGES 2. Cash withdrawal by owner The following events occurred October 31,items. 2017, the end of its fiscal In addition, its two unadjusted trialsales balance includes the following 2 December 31, 2017 In addition, its unadjusted trial balance Credit . . . . . . includes . . . . . . . . . .the . . . .following . . . . . . . . . . .items. . . . . . 5,682,000 P2 P3 Preparing reversing entries 7. Cash investment by owner 3. Cashdelayed paid for advertising a. Trey rents a building from its owner for $2,800 per month. By a prearrangement, the company 3 Unadjusted Adjusted 2. Use P4 the expanded accounting equationpaying to compute the missing financial statement and (b). Accounts receivable . . . . . . . .5. . . . . . .On . . . .amounts . . . .this . . . . . . . . . .date, . . . . (a) . . . . . . . .the . . company $1,270,100 debit rent until November paid October 8. Cash paid for rent Cash paid for wages 4 Adjustments Trial Balance Trial Balance Accounts receivable $1,270,100 debitthe rent for4.both In addition, October’s its unadjusted trial balance includes the following items.
often focus on one learning objective. Most are included in Connect. There are at least 10–15 Quick Study assignments per chapter.
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5 Account Title Dr. Cr. Dr. Cr. Dr. Cr. 6 Cash $ 14,000 Exercise 1-20 Chapter 7 Accounting 7 Accounts receivablefor Receivables 0 Preparing an income 8 Supplies 6,500 Company Assets 9 December Equipment31, 2015. 135,000 statement for a global statement indefor the year ended of following 350 Chapter 7 Accounting for Receivables 1. Prepare the adjusting entry for this company to recognize bad debts debts under under each eachincome of the the following indeCheck Aug. 14, Dr. Cash, 10 Accumulated depreciation—Equipment 30,000 14 Received Carpenter’s check in full payment for$ the purchase of company August 4. 1 $ 40,000 $ 16,000 $ 20,000 $0 (a) $ 8,000 Required pendent Required pendent assumptions. assumptions. $3,700 11 Interest payable 0 15 Sold who used their Goldman 2 $ 80,000 $ 32,000 $ 44,000 (b)to be 1.5% $ 24,000 $ 18,000 Selling and12administrative costs$3,250 . . . . . . . of . . . merchandise . . . $ 14,999 (that had cost $1,758) 0to customers a. Bad are of sales. P2 1. the adjusting entry forthe this company to recognize debts under of the following indeSalaries payable a. Bad debts debts are estimated estimated to be 1.5% of credit credit sales. 1. Prepare Prepare adjusting entries that company must record forbad these events as each of October 31. cards. Check Aug. 14, Dr. Cash, 14 Received Carpenter’s check in full payment for the purchase of August 4. Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,041 13 Unearned member fees 15,000 pendent assumptions. b. Bad are estimated to be total Check Bad debts debts aredoes estimated be 1% 1% of ofentries, total sales. sales. $3,700 22 Wrote off the account of Craw Co. against the Allowance for Doubtful Accounts. The Goldman $498 bal2. b. Assuming Trey not usetoreversing prepare journal entries to record Trey’s payment of rent Check Bad Bad Debts Debts Expense: Expense: 15 Sold $3,250 of merchandise (that had cost $1,758) to customers who used their 75,000 Revenues 14 . . . .Notes . . . . . . payable . . . . . . . . . . . . . . . . . . . . . 149,558 a. Bad debtsanalysis are estimated to bethat 1.5% of credit sales. c. aging estimates of year-end accounts receivable (1a) ance Craw Co.’s account stemmed from a credit sale in November of last year. on An November 5 and the collection of5% the rent on November 8. are c. An aging analysis estimates that 5% oftenant’s year-end accounts receivable are uncollectible. uncollectible. (1a) $85,230, $85,230, (1c) (1c) $80,085 $80,085 cards.in 15 P. Hawkeye, Capital 50,250 Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,145 b. Bad debts estimated touses be 1% ofthe total sales. 2. how Accounts Receivable the Allowance Doubtful appear on 16 P.22 QSentries 1-9 Use Google’s 31, 2015, financial statements, in Appendix A and near endentries, of thefor book, toreversing an-Accounts Hawkeye, 21,125the Allowance for Doubtful Accounts. The $498 balWroteWithdrawals off the account of Craw Co. against 3. Show Assuming thatarethe company reversing prepare on November 1 and 31, the Check December Bad Debts Expense: 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its its December December 31, Required 2017, sheet given the in 1a. 17 Member feesinearned 42,000 and computing swer the(1a) following. c. An balance aging analysis estimates that 5%part ofofyear-end uncollectible. $85,230, (1c) $80,085 ance Craw Co.’s account stemmed from a credit sale in November of last year. journal entries to record Trey’s payment rent on accounts Novemberreceivable 5 andIdentifying theare collection of the tenant’s rent 2017, balance sheet given the facts facts in part 1a. 18 Depreciation expense—Equipment 0 assets,appear liabilities, equity 3. of Show how Accounts Accounts Receivable andand the (3) Allowance for Doubtful Doubtful Accounts Accounts appear onand its December 31, a through ePrepare onits November journal entries to record the preceding transactions and events. (The company uses the perpetual a. Identify the amounts (in $ millions) 2015 (1) 8. assets,Receivable (2) liabilities, equity. for B 2. 3. Show how and the Allowance on its December 31, Match each transaction to one of the following activities of an organization: Exercise 1-21 Salaries expense 30,000financing activity 19 Required 2017, balance sheet given the facts in part 1c. inventory system. Round amounts to the nearest dollar.) 1a. 2017, balance sheet given the facts in part 1c. A1 b. Using amounts from part a, verify that Assets = Liabilities + Equity. 5,625 20 Interest (F), investing activity (I), or operating activityexpense (O). Identifying business expense 0 21 Supplies Prepare journal entries to record the preceding transactions and events. (The company uses the perpetual 3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on itsa. December 31, activities An owner contributes cash to the business. $212,250 22 Totals system. Round amounts to the nearest inventory dollar.) $212,250 2017, balance sheet given the facts in part 1c.
Trey rents space in a building it owns to a tenant for $850 per month. By prearrangement, the tenant one of the world’s largest automakers, reports the following income statement Ford 350 Motor Company, Exercises are b.one book’s many delayed of paying this the October rent until November 8. On this date, the tenantaccounts paid thefor rent both theforyear ended December 31, 2015 ($ in millions). Use this information to prepare Ford’s A
Owner, Owner,for doubtful accounts . . . . . . . . . . . . . Allowance Liabilities Capital Withdrawals Expenses bad Octoberthe and November. 1. Prepare adjusting entry for this Revenues company to recognize
1 2 3 4
strengths and a competitive advantage. There are at least 10–15 per chapter, and most are included in Connect.
Problem 7-3A Problem 7-3ASET PROBLEM
Problem Sets A & B are proven problems that
GOOGLE Jarden Company sales of for year On 31, 2017, the company’s Problem 7-2B b. transactions An organization borrows from31, a bank. At money December 2017, Ingleton Company reports the following results forC5the year: On April 1, 2017,has Jirocredit Nozomi created a new travel Adventure Travel. The Jarden Company has credit sales of $3,600,000 $3,600,000 foragency, year 2017. 2017. On December December 31, following 2017, the company’s
can be assigned as homework or for in-class projects. All problems are coded according to the CAP model (see the “Innovative Textbook Features” section), and Set A is included in Connect.
Aging Allowance for Accounts has an schedule of Estimating and reporting Aging accounts accounts receivable receivable occurred during the company’s Allowance for Doubtful Doubtful Accountsfirst has month. an unadjusted unadjusted credit credit balance balance of of $14,500. $14,500. Jarden Jarden prepares prepares schedule of c.aa An organization advertises a new product. and accounting accounting for its December 31, accounts by On the basis past experience, it estimates the percent badthe Required and for bad bad 7-2B Problem 7-3A 9-3A December 31, 2017, 2017, accounts receivable by age. age. Onyear theequipment basis ofOn past experience, it estimates the percent At December 31, 2017, Ingleton Company for the year: Jarden has credit salesreceivable of cash $3,600,000 for 2017.of December company’s Cash sales . . . . . . . . . . .reports . . . . . . . .the . . . .following . . . . . . . . . . .results . . $1,025,000 d.debts An organization sells some of its land. Problem 4-1A April invested $30,000 and computer worth in2017, theProblem company. Create the following table similar to its the one1Company in Nozomi Exhibit 1.9. QS$20,000 1-1031,is debts of receivables in each age category that will become uncollectible. This information summarized here. debts Estimating and reporting Aging accounts receivable of receivables each age category that become uncollectible. This information isprepares summarized here. Allowance for in Doubtful Accounts anwill unadjusted of $14,500. Jarden aP3 schedule of trial purchases P2 Credittable sales .by . . . entering . . . . . . . . . .adjustments . . . . . . . . . . . . . that . . . . .reflect . . . 1,342,000 1. Complete the six-column the following information. Check (1)month’s Adjusted Applying the accounting 2 The company rented has furnished office credit spacebalance by paying $1,800 casheffects for the An organization equipment. Identifying ofe.first bad debts and accounting for bad P2 P3 its December 31, 2017, accounts receivable by age. On the basis of past experience, it estimates the percent balance totals, $239,625 cycle Cash sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,025,000 P2 P3 (April) rent. transactions using a. As of December 31, 2017, employees had earned $1,200 of unpaid and unrecorded salaries. The Assets = Liabilities + Equity B C debts of receivables eachA category that will of become This information is summarized A agepurchased B C P2 3 Theincompany $1,000 officeuncollectible. supplies for cash. P3 here. Credit sales .which . . . . .includes . .time . . . . . .$1,500 . the . . . . following . . .of . . salaries . . . . . . items: . . . will . . be1,342,000 In addition, its unadjusted trial balance accountingBMW equation— next payday is reports January 4, at paid. C1 C2 P2 P3 Exercise 1-22 Group, one of Europe’s largest manufacturers, the following income statement accounts December 2017, Age Expected Percent Cash P2 + P3 Accounts = Accounts1 + Owner, − 31, Owner, + Revenues − of 1 10 The company $2,400 cash for the premium on a 12-month insurance beDecember 31, paid 2017, Age of Expenses Expected Percent Revenues and Expenses The in cost of supplies still available at December 31, 2017, is $3,000.Preparing an income for policy. the yearCoverage ended December 31, 2015b.(euros millions). Accounts Receivable Accounts Uncollectible Accounts Receivable Accounts BReceivable Receivable Uncollectible Receivable Payable 2 Capital Withdrawals gins on April 11. A C 2 Accounts receivable . . . . .payment . . . the . . . . following . . .to . . be . . . made . . . items: $575,000 debitmonths. In addition, its unadjusted trial balance includes statement for The a global P1 c. The notes payable requires an interest every three amount of un$830,000 Not yet due 1.25% 3 company weeks’ 1 December 31, paid 2017,$1,600 cash for Expected Percent $830,000 Nottwo yet Age due of salaries earned by employees. 1.25% 3 14 The Allowanceatfor doubtful accounts . . . . . .is . .$1,875. . . . . . credit recorded accrued interest December 31, 2017, The7,500 nextcompany interest payment, at an amount . . . . € 92,175 254,000 1 to 30 days past due 2.00 4 Receivable Receivable Uncollectible The company collected $8,000 cash onindividual commissions from airlines on tickets obtained for customers. Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .Accounts 2 24theAccounts 254,000 1Accounts to 30 days past due 2.00 Then use additions and subtractions to show dollar effects of each transaction on items of the 4 receivable . . . . . . . . . . . . . . . . . . . . . . . $575,000 debit of $2,250, is due on January 15, 2018. P2 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,043 The company paidas$1,600 cash for two salaries 86,000 31 to 60 days past due 6.50 5 $830,000 Not yet due 1.25% 3 28 accounting equation (identify each revenue and expense type, such commissions revenue or rent expense). 86,000 31 to 60weeks’ days past due earned by employees. 6.50 5 Allowance Member for doubtfulFees accounts . . . . . . .shows . . . . . . $5,8007,500 credit Required d. Analysis account remaining unearned at December Selling and administrative costsof . . the . . . . Unearned . . . . . . . 8,633 29 The company paid $350 cash for61 repairs to earned. the company’s computer. 38,000 90 days past due 32.75 254,000 1 minor toto past 2.00 38,000 61 to30 90days dayscash pastdue due 32.75 a. The company completed consulting664 work for a client and immediately collected $5,500 31, 2017. 1. Prepare Ingleton Co. to recognize bad debts under each of the following indethis month’s telephone bill. Other expenses . . . . . . . the . . . . adjusting . . . . . . . . . . .entry . . . . for 3,103 12,000paid $750 cash forOver Over 90 days past due 68.00 7 30 The company 86,000 31 to 60 days past due 6.50 5 This icon 12,000 90 days past due 68.00 7 b. The company completed commission work for a client and sent$1,500 a bill for to be receivedfor within Required e. In addition to the member fees included in the revenue account balance, thehighlights company IFRShas earned pendent assumptions. 30 Nozomi withdrew cash$4,000 from the company personal use. assignments 38,000 61 to 90 days past due 32.75 6 30 days. another $9,300 in unrecorded fees that will be collected on Januaryrelated 31, 2018. The company is also
1. Prepare thestatement adjusting entry forbeIngleton Co. to recognize bad debts under each of the following indea. income Bad debts are estimated 2.5% of credit sales. Use this information to prepare BMW’s for the to year ended December 31, 2015. expected toare collect $10,000 on1.5% that same day for new fees earned in January 2018. pendent assumptions. b. Bad debts estimated to be of total sales. f. Bad Depreciation fortothe year isof $15,000. a. debtsanalysis areexpense estimated bethat 2.5% credit sales. c. An aging estimates 6% of year-end accounts receivable are uncollectible. 2. Prepare journal for the adjustments entered six-column table appear for parton1.its December 31, b. Badhow debts areentries estimated to be 1.5% total sales.in 2. Show Accounts Receivable and theofAllowance forthe Doubtful Accounts 3. 2017, Prepare journal entries to reverse the effects thatare involve accruals. c. An balance aging analysis estimates that 6% of year-end accounts entries receivable uncollectible. sheet given the facts in part 1a.of the adjusting 128 Prepaid Insurance receivable method. 637 Insurance Expense Expense, the aging of accounts Expense, $27,150 $27,150 4. Prepare journal entries to record the cash payments and cash collections described 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear onforitsJanuary. 3. December 31, Computer 640 Rent Expense Create the following table similar to Analysis the 167 one inComponent ExhibitEquipment 1.9. QS 1-11 Analysis Component 2. 168 Prepare the adjusting entry to recordEquip . bad debts expense at December 31, 2017.Expense Check (2) Dr. Bad Debts 1a. 2017, balance sheet given the facts in part 1c. Accumulated Depreciation—Computer 650 Office Supplies Identifying effects of 3. On 30, Jarden Company concludes that a customer’s $4,750 receivable (created in Expense, $27,150 3. 209 On June June 30, 2018, 2018, $4,750 receivable (created in 2017) 2017) is is 37 8/1/16 12:40 Salaries PayableJarden Company concludes that a customer’s 684 wiL36351_ch01_002-051.indd Repairs Expense using 3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, PM transactions Assets = Liabilities + that the Equity Analysis Component uncollectible and account should be written off. What effect will this action have on Jarden’s 301 J . Nozomi,and Capital 688 effect Telephone Expense uncollectible that the account should be written off. What will this action have on Jarden’s 2017, balance sheet given the facts in part 1c. accounting equation— 2018 net income? Explain. Problem 7-3BSET Hovak has Plume credit sales of a$4,500,000 for year 2017. At December 31,The 2017, the company’s On JulyCompany 1, 2017, Lula created new self-storage business, Safe Storage Co. following transacPROBLEM J . Nozomi, Withdrawals 901 $4,750 Incomereceivable Summary (created 2018 net income? 3. 302 On= June 30, 2018, Jarden that a −customer’s in 2017) is B Cash + Supplies + Equipment + Land Accounts + A .Explain. Carr, −Company A . Carr,concludes + Revenues Expenses Assets and Liabilities receivable Allowance for during Doubtful anmonth. unadjusted debit balance of $3,400. Hovak prepares a schedtions occurred theAccounts company’shas first uncollectible the account should be written off. What effect will this actionAging have accounts on Jarden’s Payable and that Capital Withdrawals P1 and accounting ule of its December 2017, accounts receivable age.2017. On the of past31, experience, estimates Required Problem 7-3B Hovak has31, credit sales of $4,500,000 forbyyear Atbasis December 2017, the itcompany’s 2018 net income? Explain. 4-1Bfor Problem Liang completed July 1Company Plume invested $30,000 cash and buildings worth $150,000 in the company. Problem 7-4A 7-4A Liang Company Company began began operations operations on on January January 1, 1, 2016. 2016. During During its its first first two two years, years, the the company company completed bad debts the percentfor of Doubtful receivables in eachhas ageancategory thatdebit will balance become uncollectible. This information is Aging accounts receivable Allowance Accounts unadjusted Hovak prepares Applying the accounting 1. Use the balance column format to set up each ledger account listed in its chart of accounts. Accounts receivable of transactions sales accounts receivable bad debts. 2 The company rented equipment by paying $2,000 cash for of the$3,400. first month’s (July) rent.a schedThen use additions and subtractions aatonumber show the effectsinvolving of each transaction on individual of collections, Accounts receivable number of dollar transactions involving sales on on credit, credit, accounts items receivable collections, and and and badaccounting debts. These summarized here. 31, 2017, accounts receivable by age. On the basis of past experience, it estimates for ule of 5its December cycleaccounts. P2 P3 These transactions and bad transactions are summarized as follows. The company purchased $2,400 of office supplies for cash. 2. Prepare journal entries to record the transactions for April and post them to the ledger The the accounting equation. transactions and bad Problem 9-4A 7-4A transactions are summarized as follows. Liang Company began operations on January 1, 2016. During its first two years, the company completed bad debts the percent of receivables in each age category that will become uncollectible. This information is debts adjustments 10 The company paid $7,200 cash for the premium on a 12-month insurance policy. Coverage becompany records prepaid and unearned balance receivable sheet accounts. C2 P2 P3 Accounts receivable a number of transactions involving sales on items credit,inaccounts collections, and C1 bad debts. These a. The debts owneradjustments (Alex Carr) invested $15,000 cash in the company. summarized 2016 A 11. B C P2 P3 ginshere. on July 3. an trial Check Unadj. trial supplies2016 transactions P2 P3 transactions areunadjusted summarized as balance follows.as of April 30. follows: b. The C1 company for Prepare $500 cash. C1 P2 (3) purchased P3and bad 1 14 The company paid an employee $1,000 cash for two weeks’ salary earned. Age of Expected Percent December 31, 2017, balance totals, $58,000 a. $1,345,434 merchandise had on terms n∕30. debts adjustments 4. Sold Use of the followingof information to(that journalize and$975,000) post adjusting entries for the month: a. Sold $1,345,434 ofin merchandise (that had cost cost $975,000) on credit, credit, terms n∕30. c. The owner (Alex Carr) invested $10,000 equipment the company. Accounts Accounts Receivable 2 24 The company collected $9,800 cash for storage fees from customers. Uncollectible A BReceivable C 2016 b. Wrote off $18,300 of uncollectible accounts receivable. a. Two-thirds (or of one month’s insurance coverage has expired. P2 (4a)purchased P3Dr. Insurance Wrote off $18,300 of uncollectible accounts receivable. d. The C1 company $200 of b. additional supplies on$133) credit. company $1,000 cash for two 1 3 28 The 2.0% $396,400 Not yetweeks’ due of salary earned by an employee. Age Expected Percent December 31,paid 2017, Expense, $133 a. Sold $1,345,434 of merchandise (that had cost $975,000) onavailable. credit, terms n∕30. c. Received $669,200 cash in payment of accounts receivable. b. At the end of the month, $600 of office supplies are still c. Received $669,200 cash in payment of accounts receivable. company paid $950 cash for1Accounts minor to adue leaking roof. e. The company purchased land for $9,000 cash. Receivable Uncollectible Accounts Receivable 2 29 The 4 4.0 277,800 to 30 repairs days past Check b. In Wrote $18,300 of uncollectible receivable. d. In adjusting the accounts accounts on December December 31, the the company estimated estimated that 1.5% 1.5% of of accounts accounts receivable receivable c. adjusting Thisoffmonth’s depreciation on theaccounts computer equipment is $500. that paid $400 cash for31 this month’s telephone bill. Check (d) (d) Dr. Dr. Bad Bad Debts Debts d. the on 31, company 3 30 The company 2.0% $396,400 Not yet due 5 8.5 48,000 to 60 days past due Expense, will be uncollectible. uncollectible. c. will Received $669,200 cash in payment accounts receivable. Expense, $28,169 $28,169 31 Plume withdrew the company for personal use. be d. Employees earned $420 of unpaidofand unrecorded salaries as of month-end. 4 4.0 277,800 1 to days due 6 39.0 6,600 $2,000 cash from 61 to30 90 dayspast past due Check (d) Debts d. In the accounts on December 31, the company estimated that of accounts receivable e. adjusting The company earned $1,750 of commissions that are not yet billed at 1.5% month-end. (5) Dr. NetBad income, 5 8.5 48,000 31 to 90 60 days days past past due due 82.0 2,800 Over 7 Expense, will be uncollectible. $2,197; J.$28,169 Nozomi, Capital 5. Prepare the adjusted trial balance as of April 30. Prepare the income statement and the statement of
The company’s chart of accounts follows:
Required 12,000 Over 90 days past due 68.00Check Dr. Bad Debts 7 c. The company paid an assistant $1,400 cash as wages for the period. Required Expense: (1b) $35,505, Estimate the balance the Doubtful at 31, 2017, d. The company collected $1,000 cash1. a partial payment for the amountof by the clientfor in transaction b. Commissions Cash 405Accounts Earned (1c) 1.as101 Estimate the required required balance ofowed the Allowance Allowance for Doubtful Accounts at December December 31, 2017, using using $27,000 Check Dr. Bad Debts the aging of accounts receivable e. The company paid $700 cash forRequired this106 period’s cleaning services. Accounts Receivable 612 Depreciation Expense — Computer Equip . the aging of accounts receivable method. method. Expense: (1b) $35,505, 124 Office Supplies 622 Salaries Expense 2. Prepare the adjusting entry to record bad debts expense at December 31, 2017. Check (2) Dr. Bad Debts 1. Prepare Estimatethe theadjusting required entry balance of the bad Allowance for Doubtful Accounts December(1c)31, 2017, using 2. to record debts expense at December 31,at2017. Check (2) Dr. Bad Debts $27,000
owner’s equity for the month of April and the balance sheet at April 30, 2017.
6. Prepare journal entries to close the temporary accounts and post these entries to the ledger. 8/1/16 7. Prepare a post-closing trial balance.
7 Required 12:40 PM
61 to 90 days past due
Over 90 days past due
1. Compute the required balance of the Allowance for Doubtful Accounts at December 31, 2017, using
Required the aging of accounts receivable method.
9/27/16 1:07 PM wiL36351_ch04_148-191.indd 182 Check (2) Dr. Bad Debts9/27/16 1:07 1. PM Computethe theadjusting requiredentry balance of the bad Allowance for Doubtful Accounts December 2. Prepare to record debts expense at December 31,at2017.
8/11/16 9/27/16 11:53 1:07 AM Check (2) Dr. Bad Debts 2. PM Prepare the adjusting entry to record bad debts expense at December 31, 2017. Expense, $31,390 3. On July 31, 2018, Hovak concludes that a customer’s $3,455 receivable (created in 2017) is uncollect-
Analysis Component ible and that the account should be written off. What effect will this action have on Hovak’s 2018 net
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Explain. 3. income? On July 31, 2018, Hovak concludes that a customer’s $3,455 receivable (created in 2017) is uncollect-
and that the account should be written off. What effect will this action have on Hovak’s 2018 net “I like the layout of the text and the readability. The illustrationsible and comics in the book make the text income? Explain. seem less intimidating and boring for students. The PowerPoint slides are easy to understand and use, the pictorials are great, and the text has great coverage of accounting material. The addition of IFRS information and the updates to the opening stories are great. I like that the Decision Insights are about businesses the students can relate to.” wiL26703_ch07_320-355.indd 350
9/26/16 2:15 PM
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—JEANNIE LIU, Chaffey College xi
Outstanding Assignment Material . . . Beyond the Numbers exercises ask students to use accounting figures and understand their meaning. Students also learn how accounting applies to a variety of business situations. These creative and fun exercises are all new or updated and are di94 Chapter 2 Accounting for Business Transactions vided into nine types: Chapter 9 Accounting for Receivables 417 Chapter 7 Accounting for Receivables 353 • Reporting in Action Beyond the Numbers • Comparative Analysis BTN 9-2 Comparative figures for Apple and Google follow. COMPARATIVE • Ethics Challenge BTN Refer Apple’sfollow. financial statements in Appendix A for the followingANALYSIS questions. BTN 7-2 Comparative for2-1 Apple andtoGoogle COMPARATIVE REPORTING IN figures ANALYSIS ACTION • Communicating in Practice A1 P2 Apple Google Required A1 P2 A1 A2 Apple Google • Taking It to the Net Current One Yearof totalTwo Years Current One Year Two Years 1. What amount liabilities does Apple report for each of the fiscal years ended September 26, $ millions Year2015, and Prior Prior Year Prior Prior Current One Year Two Years Current One Year Two Years September 27, 2014? APPLE • Teamwork in Action $ millions YearWhat amount Prior Prior Year Prior Prior ended APPLE APPLE of the fiscal$ 8,882 years September 26, 2015, and Accounts receivable, net . . . $ 2. 16,849 $ 17,460of total $assets 13,102does it$ report 11,556 for each $ 9,383 GOOGLE • Hitting the Road September 27, 2014? Accounts 16,849 $182,795 17,460 $170,910 13,102 $ 11,556 $66,001 9,383 $55,519 8,882 Net sales receivable, . . . . . . . . . net . . . . . . $233,715 74,989 GOOGLE 3. Compute182,795 its debt ratio170,910 for each of the74,989 fiscal years 66,001 ended September 26, 2015, and September 27, 2014. • Entrepreneurial Decision Net sales . . . . . . . . . . . . . . . 233,715 55,519 (Report ratio in percent and round it to one decimal.) • Global Decision Required 4. In which fiscal year did it employ more financial leverage: September 26, 2015, or September 27, Chapter 6 Required Fraud, and Internal Controls 2014?turnover Explain.for315 1.Cash, Compute the accounts receivable Apple
and Google for each of the two most recent years
the data shown. receivable turnover for Apple and Google for each of the two most recent years 1. using Compute the accounts
Fast originally received from a customer, W. Sox, in payment of her account. company has shown. notfrom yet re-part using the 2. The Using thedata results 1, Forward compute how many days it takes each company, on average, to collect Hint: Average collection corded its return. The credit memorandum (CM) is from a $7,400 note thethe bank collected period equals collection 36526, divided by Hint: Average receivables. Compare the periods for Apple and Google, and suggeston at average, least oneyear 2. that Using results fromfor part 1, compute how financial many days it takes each company, toexplanacollect Access Apple’s statements (10-K report) for a fiscal ending after September 2015, 5.collection the company. The bank deducted a $50 collection expense and deposited the remainder in the company’s the accounts period equals 365 by tion for the difference. receivables. Compare the collection Apple andorGoogle, andEDGAR suggest at least one explana- Recompute from its periods website for (Apple.com) the SEC’s database (SEC.gov). itsreceivable debtdivided ratio for account. The collection and expense have not yet been recorded. turnover. Required
the accounts receivable forcompany the difference. any subsequent year’s data and receivable? compare it with the debt ratio for 2015 and 2014. 3. tion Which is more efficient in collecting its accounts Explain. turnover. 3. Which company is more efficient in collecting its accounts receivable? Explain.
Check (1) Reconciled 1. Prepare the May 31, 2017, bank reconciliation for Shamara Systems. 2. Prepare the journal entries (in dollars and cents) to adjust the book balance of cash to the reconciled balance, $22,071.50; (2) Cr. Notes Receivable, $7,400.00 2-2 Key comparative figures for COMPARATIVE balance. BTN 9-3 Anton Blair is theBTN manager of a medium-size company.
Apple and Google follow. A few years ago, Blair persuaded the ETHICS ANALYSIS owner to base a part of is histhe compensation the net income the company December BTN 7-3 Anton Blair manager of on a medium-size company. A fewearns yearseach ago,year. BlairEach persuaded the CHALLENGE ETHICS he estimates year-end figures inon anticipation of thethe bonus he will receive. If theEach bonusDecember is not Google as CHALLENGE owner a part offinancial his compensation the net income company earns each Appleyear. A1 A2to base P2 P3 The bank statement reveals that some of the prenumbered checks in thehigh sequence are missing. Describe as he would like, he offers several to the accountant year-end adjustments. One he estimates year-end financial figures recommendations in anticipation of the bonus he will for receive. If the bonus is not as three possible situations to explain this. P2PriorP3 Current of his favorite recommendations is for the controller to reduce the estimate of doubtful Prior accounts. Current
high as he would like, he offers several recommendations to the accountant for year-end adjustments. One
$ millions Year Year Year Year APPLE of his favorite recommendations is for the controller to reduce the estimate of doubtful accounts. Required Total liabilities . . . . . . . . . . . . . . . . . . . . $171,124 $120,292 $ 27,130 $ 25,327 Serial Problems use a continuous runGOOGLE Total assets . . . . . . . . . . . . . . . . . . . . . 290,479 231,839 147,461 129,187 Required
PROBLEM (This serial problem began in Chapter 1 and continues through most of the If previous chapter seg- SERIAL 1.book. What effect does lowering the estimate for doubtful accounts have on the income statement and balSolutions ments were not completed, the serial problem can begin at this point.) 1. ance Whatsheet? effect does lowering Business the estimate for doubtful accounts have on the income statement and bal-
ning case study to illustrate chapter con-
P3 in ais within familiar context. The Serial anceyou sheet? 2. Do believe Blair’s recommendation to adjust the allowance for cepts doubtful accounts his SP 6 Santana Rey receives the March bank statement for Business Solutions on April 11, 2018. The 1. What is the debt ratio for Apple in the current year and for the prior year? manager, or dorecommendation you believe this action is antheethics violation? Justify your response. 2. rights Do you believe Blair’s to adjust allowance forcurrent doubtful accounts his March 31 bank statement shows an ending cash balance of $67,566. A comparison ofasthe bank statement Problem be continuously from 2. What is the debt ratio for Google in the year andcan for is thewithin priorfollowed year? with the general ledger Cash account, No. 101, reveals the following. rights type as manager, or do you believe this ethics violation? Justify your 3. What of internal control(s) might beaction usefulisforanthis company in overseeing theresponse. manager’s recom3. Which of the two companies has the higher degree of financial leverage? does this up imply? the first chapter orWhat picked at any later a. S. Rey notices that the bank erroneously cleared a $500 check against account in of March that she for accounting changes? 3.hermendations What type internal control(s) might be useful for this company in overseeing the manager’s recomdid not issue. The check documentation included with the bank statement shows that this check was mendations for accounting changes? actually issued by a company named Business Systems.
point in the book; enough information is pro-
vided to ensure students can get right to work. BTN 2-3 Assume that you are a cashier and your manager requires that you immediately enter each sale ETHICS agreed to rent from the bank beginning March 25. BTN 9-4 As ordered the accountant for Pure-Air Distributing, attend sales managers’ meeting devoted to a manager COMMUNICATING it occurs. Recently, you lunch houratraffic has increased and the assistant asks you to avoid On March 26, the bank lists a $102 charge for printed checks that Business Solutions from the when CHALLENGE discussion of the credit policies.delays At the meeting, you reportyou that bad debts expense is estimated todevoted be $59,000 BTN 7-4 As accountant for Pure-Air Distributing, attend amaking sales managers’ meeting to a The COMMUNICATING IN PRACTICE bank. by taking customers’ cash and change without entering sales. assistant manager says C1 and accounts receivable at year-end amount to $1,750,000 less a $43,000 allowance for doubtful accounts. discussion of credit policies. At the meeting, you report that bad debts expense is estimated to be $59,000 IN PRACTICE On March 31, the bank lists $33 interest earned on Business Solutions’s checking account for the she will add up cash and enter sales after lunch. She says that, in this way, customers P2 will P3 be happy and the Sid a sales manager, expresses confusion over why bad debts expense andwhen thefor allowance for doubt- at three o’clock. month of March. and Omar, accounts receivable at year-end to $1,750,000 less the a $43,000 allowance doubtful accounts. registeramount record will always match cash amount the manager arrives P2 P3
b. On March 25, the bank lists a $50 charge for the safety deposit box expense that Business Solutions c. d.
debts expense as 2% of sales.her suggestion without the manager’s approval and to confront her on the ethics of her suggestion.
1. Prepare a bank reconciliation for Business Solutions for the month ended 2018. eBay’s February 1, 2016, filing of its 10-K report for the year ended December 31, TAKING BTNMarch 9-5 31, Access Propose and Check (1) Adj.evaluate bank bal., two other courses of action you might consider, and explain why. 2. Prepare any necessary adjusting entries. Use Miscellaneous Expenses, No. 7-5 677, for any bank charges. 2015, at SEC.gov. BTN Access eBay’s February 1, 2016, filing of its 10-K report for the year ended December 31, TAKING
IT TO THE NETIT TO
Use Interest Revenue, No. 404, for any interest earned on the checking account for the month of $67,938 2015, at SEC.gov. THE March. C1 P3NET Required C1 P3 Required 2-4 net Lila Corentine is an aspiring entrepreneur yourand friend. She is having difficulty understandCOMMUNICATING 1. What is the amount of BTN eBay’s accounts receivable at December 31,and 2015, at Decem-
the purposes of financial statements and how they fit together across time. IN ber 31, 1. PRACTICE What is2014? the amount of ing eBay’s net accounts receivable at December 31, 2015, and at December 31, 2014? 2. “Financial Statement Schedule II” of its 10-K report lists eBay’s allowance for doubtful accounts
C1 steps C2 in the A1 accounting P3 The General Ledger tool in Connect automates several of the procedural cycle Required GENERAL authorized credits). For theits two years ended December 31, 2015 and 2014, identify its 2. (including “Financial Statement Schedule II” of 10-K report lists eBay’s allowance for doubtful accounts so that the financial professional can focus on the impacts of each transaction on the various financial LEDGER allowance for doubtfulcredits). accounts (including authorized and 31, then compute itpurposes as aidentify percent offour financial statements and (including authorized the two years endedcredits), 2015 and its Write PROBLEM aFor one-page memorandum toDecember Corentine explaining the2014, of the reports.
gross accounts receivable. allowance for doubtful accounts how they(including are linked authorized across time.credits), and then compute it as a percent of
GL 6-1 General Ledger assignment GL 6-1, based on Problem 6-2A, focuses onaccounts transactions related Available only gross receivable. 3.netDo you believe that these are reasonable based on what you know about eBay? Explain. to the petty cash fund and highlights the impact each transaction has on income, if any. Prepare the percentages in Connect Do you believe that these percentages are reasonable based on what you know about eBay? Explain. journal entries related to the petty cash fund and assess the impact of3. each transaction on the company’s net income, if any.
“The Serial Problems are excellent. . . . I like the continuation of the same problem to the next chapters if applicable. I use the Quick Studies as practice problems. . . . Students have commented that this really works for them if they work (these questions) before attempting the assigned exercises and problems. I also like the discussion (questions) and make this an assignment. You have done an outstanding job presenting accounting to our students.” wiL26703_ch02_052-097.indd 94
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—JERRI TITTLE, Rose State College
Business Solutions had the following transactions and events in December 2017. Dec. 2 3 4 10 14 15 16 20 22–26 28 29 31
Paid $1,025 cash to Hillside Mall for Business Solutions’s share of mall advertising costs. Paid $500 cash for minor repairs to the company’s computer. Received $3,950 cash from Alex’s Engineering Co. for the receivable from November. Paid cash to Lyn Addie for six days of work at the rate of $125 per day. Notified by Alex’s Engineering Co. that Business Solutions’s bid of $7,000 on a proposed project has been accepted. Alex’s paid a $1,500 cash advance to Business Solutions. Purchased $1,100 of computer supplies on credit from Harris Office Products. Sent a reminder to Gomez Co. to pay the fee for services recorded on November 8. Completed a project for Liu Corporation and received $5,625 cash. Took the week off for the holidays. Received $3,000 cash from Gomez Co. on its receivable. Reimbursed S. Rey for business automobile mileage (600 miles at $0.32 per mile). S. Rey withdrew $1,500 cash from the company for personal use.
Helps Students Master Key Concepts The following additional facts are collected for use in making adjusting entries prior to preparing financial
statements Ledger for the company’s first three months: General Problems enable students to see how transac-
a. The December 31 inventory count of computer supplies shows $580 still available. tions are entered in the journal, post to the ledger, listed in a trial balb. Three months have expired since the 12-month insurance premium was paid in advance. ance, and reported in financial statements. Students can track an c. As of December 31, Lyn Addie has not been paid for four days of work at $125 per day. amount any system, financial statement the way back to the original d. The in computer acquired on October 1,all is expected to have a four-year life with no salvage value. journal entry. Critical thinking then challenge to value. e. The office equipment, acquired on components October 1, is expected to have a five-yearstudents life with no salvage analyze the business activities in has theexpired. problem. f. Three of the four months’ prepaid rent Required
1. Prepare journal entries to record each of the December transactions and events for Business Solutions. 2. 3. 4. 5. 6.
Post those entries to the accounts in the ledger. Prepare adjusting entries to reflect a through f. Post those entries to the accounts in the ledger. Prepare an adjusted trial balance as of December 31, 2017. Prepare an income statement for the three months ended December 31, 2017. Prepare a statement of owner’s equity for the three months ended December 31, 2017. Prepare a balance sheet as of December 31, 2017.
Check (3) Adjusted trial balance totals, $109,034
The General Ledger tool in Connect allows students to immediately see the financial statements as of a specific date. Each of the following questions begins with an unadjusted trial balance. Using transactions from the following assignment, prepare the necessary adjustments, and determine the impact each adjustment has on net income. The financial statements are automatically populated.
GL LEDGER PROBLEM
Based on the FastForward illustration in this chapter
(6) Total assets, $83,460
Available only in Connect
Using transactions from the following assignments, prepare the necessary adjustments, create the financial statements, and determine the impact each adjustment has on net income. GL 3-2
Based on Problem 3-3A
Extension of Problem 2-2A
Extension of Problem 2-1A
Based on Serial Problem SP 3
the Numbers ExcelBeyond Simulations allow you to practice your Excel skills, such as
basic formulas and formatting, within the context BTN 3-1 Refer to Apple’s financial statements in Appendix A to answerof the accounting. following. REPORTING IN These questions feature animated, narrated and inShow Me tuto1. Identify and write out the revenue recognition principle Help as explained the chapter. ACTION Review Apple’s footnotes (in Appendix A and/or from its 10-K on its website) to discover how it ap- C1 C2 A1 A2 rials2.(when enabled by your instructor). plies the revenue recognition principle and when it recognizes revenue. Report what you discover.
3. What is Apple’s profit margin for fiscal years ended September 26, 2015, and September 27, 2014.
[Continued on next page . . .]
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The End of the Chapter Is Only the Beginning Our valuable and proven assignments aren’t just confined to the book. From problems that require technological solutions to materials found exclusively online, this book’s end-of-chapter material is fully integrated with its technology package.
• Q uick Studies, Exercises, and Problems available in Connect are marked with an icon.
ssignments that focus on global A accounting practices and companies are often identified with an icon.
Assignments that involve decision analysis are identified with an icon.
Assignments that involve ethical or fraud risk are marked with an icon.
Assignments that involve sustainability issues are marked with an icon. xiii
Content Revisions Enhance Learning This edition’s revisions are driven by feedback from instructors and students. They include: ∙ Many new, revised, and updated assignments throughout, including entrepreneurial and real-world assignments. ∙ Many Need-to-Know (NTK) demonstrations added to each chapter at key junctures to reinforce learning. ∙ Updated Sustainability section for each chapter, with examples linked to the new chapter-opening company. ∙ New annual reports and comparative (BTN) assignments: Apple, Google, and Samsung.
Chapter 1 Updated opener—Apple and entrepreneurial assignment. Updated salary info for accountants and for those with college degrees. Streamlined “Fraud Triangle” section. Updated “Cooking the Books” Fraud box. Moved “Enforcing Ethics” section to earlier in chapter. Streamlined the “Fundamentals of Accounting” section. Streamlined the “International Standards” section. Updated the revenue recognition section. New margin point to highlight layout of statement of retained earnings. Updated Sustainability section for Apple’s renewable energy efforts, including SASB. Updated Decision Insight box on sustainability returns. New company, Verizon, for Decision Analysis section. Streamlined Appendix 1A and 1B. Added new Exercise. Chapter 2 NEW opener—Soko and entrepreneurial assignment. Simplified discussion on analyzing and recording process. Streamlined discussion of classified vs. unclassified balance sheet. Enhanced explanation of computing equity. Enhanced Exhibit 2.4 to identify account categories. Improved summary of transactions in the ledger. Streamlined explanation of error correction in entries. New accounting quality box with reference to KPMG data. Revised Sustainability section on cost savings for small business. Updated debt ratio analysis using Skechers. Added two Quick Study assignments. Updated Piaggio’s (IFRS) balance sheet.
Chapter 3 NEW opener—LuminAID and entrepreneurial assignment. Streamlined accrual-basis vs. cashbasis section. New box on how accounting is used to claw back false gains. Streamlined introduction to accounting adjustments. Continue to emphasize 3-step adjusting process. Simplified the “Explanation” section for each adjustment. Enhanced Exhibit 3.12 on summary of adjustments. New art distinguishing between temporary and permanent accounts. Enhanced Exhibit 3.19 on steps of the accounting cycle. Sustainability section on key to tracking numbers for LuminAID. Updated profit margin and current ratio analysis using L Brands. Added one Quick Study and one Exercise. Reorganized Global View section. Updated Piaggio’s classified balance sheet. Chapter 4 NEW opener—Sword & Plough and entrepreneurial assignment. Revised introduction for servicers vs. merchandisers using Liberty Tax and Nordstrom as examples. New NTK 4-1 to aid learning of merchandising. Reorganization of “Purchases” section to aid learning. Enhanced entries on payment of purchases within discount period vs. after discount period. Simplified purchase returns illustration. Reorganized explanation for FOB terms. Reorganized entries for sales with discounts vs. sales without discounts. Enhanced entries to explain sales returns and how to account for inventory returned. New section introducing adjusting entries for future sales discounts and
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Revised art program, visual infographics, and text layout. Updated ratio/tool analysis using data from well-known firms. Revised General Ledger assignments for most chapters. New and revised entrepreneurial examples and elements. New technology content integrated and referenced throughout. Revised Global View section moved to the very end of each chapter following assignments.
sales returns and allowances—details in new Appendix 4C. Introduced new accounts under new revenue recognition rules. Expanded Exhibit 4.12 to cover updated merchandising transactions. Updated “Shenanigans” box with data from KPMG. Sustainability section on accounting for merchandising as key to Sword & Plough. Updated acid-test ratio and gross margin analysis of JCPenney. New Appendix 4D showing entries for gross vs. net method. Added five Quick Study assignments and three Exercises. Updated Volkswagen income report in Global View.
Chapter 5 NEW opener—Homegrown Sustainable Sandwich and entrepreneurial assignment. Simplified specific identification calculations in Exhibit 5.4. New image for each inventory method to show cost flows of goods at each sale date. Added colored arrow lines to weighted average in Exhibit 5.7 to show cost flows from purchase to sale. Updated box on purchasing kickbacks using KPMG data. Lower-of-cost-or-market section simplified. Enhanced layout to explain effects of inventory errors across years. Updated Sustainability section explains importance of perpetual inventory for organic producers. Updated inventory turnover and days’ sales in inventory analysis using Toys ‘R’ Us. Appendix 5A: New images show cost flow of goods at each period end for each inventory measurement method. Appendix 5B: Revised to be consistent with new revenue recognition rules. Updated global accounting to remove convergence project reference.
Chapter 6 NEW opener—Robinhood and entrepreneurial assignment. New image for certificate of bond coverage. New discussion of controls over social media with reference to Facebook’s “mood” posts. New discussion box on how fraud is detected. New evidence on how cash is stolen from companies. Simplified the petty cash illustration. Simplified the bank statement for learning. Simplified discussion of debit and credit memoranda. New table to identify timing differences for bank reconciliation. New pie chart on the top contributors to fraud. Updated Sustainability section highlights cash controls as necessary for Robinhood’s success. Updated days’ sales uncollected analysis using Hasbro and Mattel. Deleted Appendix 6B (now Appendix 4D). Chapter 7 NEW opener—ReGreen and entrepreneurial assignment. Updated data in Exhibit 7.1. New section for sales using store credit cards. Simplified section for sales using bank (third-party) credit cards to show only entries for cash received at point of sale. Revised NTK 7-1 for new credit card entries. Reorganized section on direct write-off method. New Exhibit 7.9 showing allowances set aside for future bad debts. Continued 3-step process to estimate allowance for doubtful accounts. New marginal T-account to show numbers flowing through Allowance account. Continued Exhibit 7.13 arriving at the accounting adjustment. New calendar graphic added as learning aid in Exhibit 7.15.
New Sustainability section on ReGreen’s efforts. Updated accounts receivable analysis using IBM and Oracle. Added one new Exercise. Chapter 8 NEW opener—Westland Distillery and entrepreneurial assignment. Updated data in Exhibit 8.1. Revised images for Exhibit 8.2. Simplified Exhibit 8.4 for lump-sum purchases. Enhanced Exhibit 8.7 with actual numbers. Added margin Excel computations for Exhibit 8.12. Added margin table to Exhibit 8.14 as learning aid. Updated Dale Jarrett Racing asset listing. Added table to explain additional expenditures, including examples and entries. New simple introduction to operating leases and capital leases. Added paragraph on R&D expenditures. Updated “In Control” fraud box with new KPMG data. Sustainability section on how Westland Distillery relies on accounting for its success. Updated asset turnover analysis using Molson Coors and Boston Beer. Simplified Appendix 8A by excluding exchanges without commercial substance. Chapter 9 NEW opener—Hello Alfred and entrepreneurial assignment. Updated data in Exhibit 9.2. Updated payroll tax rates and explanations. New explanation of Additional Medicare Tax. Updated unemployment tax rate section. New section on internal controls for payroll. New box on payroll fraud with KPMG data.
Simplified bonus explanation and computations. Updated NTK 9-2 and NTK 9-3. Sustainability section explains accounting for “Alfreds.” Updated payroll reports in Appendix 9A.
Chapter 10 NEW opener—Uber and entrepreneurial assignment. Simplified Exhibit 10.1 for ease of learning. Updated the IBM stock quote data. New bond image from Minnesota Vikings stadium bonds. New NTK 10-1 covering bonds issued at par. Simplified Exhibit 10.6 on discount bonds. New T-accounts with Exhibit 10.6 to show bonds payable and the discount on bonds payable. Simplified Exhibit 10.10 on premium bonds. Bond pricing moved to Appendix 10A. Simplified Exhibit 10.14 for note amortization schedule. Updated “Missing Debt” box using new data from KPMG. Sustainability section explains bond financing for Uber. Updated debt-to-equity analysis using Amazon. New margin Excel computations for bond pricing. Added margin T-accounts for bonds in Appendix 10B. Simplified lease example in Appendix 10C. Chapter 11 NEW opener—Tesla Motors and entrepreneurial assignment. Streamlined discussion of corporate characteristics. Updated the Target stock quote data. Simplified section on stock dividends.
Continued 5-step process for stock dividends. Revised Exhibit 11.8 to show dividend effects. New reference to Apple’s 7-for-1 stock split. Streamlined section on dividend preference of preferred stock. Updated the Apple statement of equity. Sustainability section explains how Tesla relies on accounting data to make energy-wise decisions. Updated PE and dividend yield ratios for Amazon and Altria. Simplified book value per share computations.
Chapter 12 NEW opener—Amazon and entrepreneurial assignment. Continued infographics on examples of operating, investing, and financing cash flows. Kept 5-step process for preparing statement of cash flows. New graphic on use of indirect vs. direct methods. New presentation to highlight indirect adjustments to income. Updated box comparing operating cash flows to income for companies. Kept “Summary T-Account” for learning statement of cash flows. New Sustainability section on Amazon’s initiatives. Updated cash flow on total assets analysis using Nike. Chapter 13 NEW opener—Morgan Stanley and entrepreneurial assignment. Streamlined the “Basics of Analysis” section. Simplified computations for comparative statements. Updated data for analysis of Apple using horizontal, vertical, and ratio analysis. Updated comparative analysis using Google and Samsung.
New evidence on accounting ploys by CFOs. New Sustainability section on Morgan Stanley’s initiatives. Revised “All Else Being Equal” Fraud box using KPMG data. Revised Appendix 13A to reflect new rules that remove separate disclosure of extraordinary items. Revised assignments for new standard on extraordinary items. Appendix A New financial statements for Apple, Google, and Samsung. Appendix B New organization with detailed subheadings. Added Excel computations for PV and FV of single amounts. Added Excel computations for PV and FV of annuity. Appendix C Updated data in Exhibit C.1. Continued 3-step process for fair value adjustment. Reorganized section on securities with significant influence. New Exhibit C.7 to describe accounting for equity securities by ownership level. Updated Google example for comprehensive income. Updated Sustainability section stresses investment accounting for Echoing Green. Updated component-returns analysis using Gap. Investments in international operations set online in Appendix C-A. Appendix D Streamlined discussion of partnership characteristics. New margin T-accounts for Exhibits D.1 and D.2. Updated Sustainability section describes accounting for nonprofit sales of Scholly. Added two Quick Study assignments, one Exercise, and one Problem.
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Acknowledgments John J. Wild and McGraw-Hill Education recognize the following instructors for their valuable feedback and involvement in the development of Financial Accounting Fundamentals, 6e. We are thankful for their suggestions, counsel, and encouragement. Khaled Abdou, Penn State University–Berks Anne Marie Anderson, Raritan Valley Community College Elaine Anes, Heald College–Fresno Jerome Apple, University of Akron Jack Aschkenazi, American Intercontinental University Sidney Askew, Borough of Manhattan Community College Lawrence Awopetu, University of Arkansas–Pine Bluff Jon Backman, Spartanburg Community College Charles Baird, University of Wisconsin–Stout Michael Barendse, Grossmont College Richard Barnhart, Grand Rapids Community College Beverly R. Beatty, Anne Arundel Community College Anna Beavers, Laney College Judy Benish, Fox Valley Technical College Patricia Bentley, Keiser University Teri Bernstein, Santa Monica College Jaswinder Bhangal, Chabot College Sandra Bitenc, University of Texas at Arlington Susan Blizzard, San Antonio College Marvin Blye, Wor-Wic Community College Patrick Borja, Citrus College Anna Boulware, St. Charles Community College Gary Bower, Community College of Rhode Island–Flanagan Leslee Brock, Southwest Mississippi Community College Gregory Brookins, Santa Monica College Regina Brown, Eastfield College Tracy L. Bundy, University of Louisiana at Lafayette Roy Carson, Anne Arundel Community College Deborah Carter, Coahoma Community College Roberto Castaneda, DeVry University Online Martha Cavalaris, Miami Dade College Amy Chataginer, Mississippi Gulf Coast Community College Gerald Childs, Waukesha County Technical College Colleen Chung, Miami Dade College–Kendall Shifei Chung, Rowan University Robert Churchman, Harding University Marilyn Ciolino, Delgado Community College Thomas Clement, University of North Dakota Oyinka Coakley, Broward College Susan Cockrell, Birmingham-Southern College
Lisa Cole, Johnson County Community College Robbie R. Coleman, Northeast Mississippi Community College Christie Comunale, Long Island University–C.W. Post Campus Jackie Conrecode, Florida Gulf Coast University Debora Constable, Georgia Perimeter College Susan Cordes, Johnson County Community College Anne Cordozo, Broward College Cheryl Corke, Genesee Community College James Cosby, John Tyler Community College Ken Couvillion, Delta College Loretta Darche, Southwest Florida College Judy Daulton, Piedmont Technical College Annette Davis, Glendale Community College Dorothy Davis, University of Louisiana–Monroe Walter DeAguero, Saddleback College Mike Deschamps, MiraCosta College Pamela Donahue, Northern Essex Community College Steve Doster, Shawnee State University Larry Dragosavac, Edison Community College Samuel Duah, Bowie State University Robert Dunlevy, Montgomery County Community College Jerrilyn Eisenhauer, Tulsa Community College–Southeast Ronald Elders, Virginia College Terry Elliott, Morehead State University Patricia Feller, Nashville State Community College Albert Fisher, College of Southern Nevada Annette Fisher, Glendale Community College Ron Fitzgerald, Santa Monica College David Flannery, Bryant and Stratton College Hollie Floberg, Tennessee Wesleyan College Linda Flowers, Houston Community College Jeannie Folk, College of DuPage Rebecca Foote, Middle Tennessee State University Paul Franklin, Kaplan University Tim Garvey, Westwood College Barbara Gershman, Northern Virginia Community College– Woodbridge Barbara Gershowitz, Nashville State Technical Community College Mike Glasscock, Amarillo College Diane Glowacki, Tarrant County College
Ernesto Gonzalez, Florida National College Lori Grady, Bucks County Community College Gloria Grayless, Sam Houston State University Ann Gregory, South Plains College Rameshwar Gupta, Jackson State University Amy Haas, Kingsborough Community College Pat Halliday, Santa Monica College Keith Hallmark, Calhoun Community College Rebecca Hancock, El Paso Community College–Valley Verde Mechelle Harris, Bossier Parish Community College Tracey Hawkins, University of Cincinnati–Clermont College Thomas Hayes, University of Arkansas–Ft. Smith Laurie Hays, Western Michigan University Roger Hehman, University of Cincinnati–Clermont College Cheri Hernandez, Des Moines Area Community College Margaret Hicks, Howard University Melanie Hicks, Liberty University James Higgins, Holy Family University Patricia Holmes, Des Moines Area Community College Barbara Hopkins, Northern Virginia Community College–Manassas Wade Hopkins, Heald College Aileen Huang, Santa Monica College Les Hubbard, Solano College Deborah Hudson, Gaston College James Hurst, National College Constance Hylton, George Mason University Christine Irujo, Westfield State University Tamela Jarvais, Prince George’s Community College Fred Jex, Macomb Community College Gina M. Jones, Aims Community College Jeff Jones, College of Southern Nevada Rita Jones, Columbus State University Odessa Jordan, Calhoun Community College Dmitriy Kalyagin, Chabot College Thomas Kam, Hawaii Pacific University Naomi Karolinski, Monroe Community College Shirly A. Kleiner, Johnson County Community College Kenneth A. Koerber, Bucks County Community College Jill Kolody, Anne Arundel Community College Tamara Kowalczyk, Appalachian State University Anita Kroll, University of Wisconsin–Madison David Krug, Johnson County Community College
Christopher Kwak, DeAnza College Tara Laken, Joliet Junior College Jeanette Landin, Empire College Beth Lasky, Delgado Community College Neal Leviton, Santa Monica College Danny Litt, University of California Los Angeles James L. Lock, Northern Virginia Community College Steve Ludwig, Northwest Missouri State University Debra Luna, El Paso Community College Amado Mabul, Heald College Lori Major, Luzerne County Community College Jennifer Malfitano, Delaware County Community College Maria Mari, Miami Dade College–Kendall Thomas S. Marsh, Northern Virginia Community College–Annandale Karen Martinson, University of Wisconsin–Stout Brenda Mattison, Tri-County Technical College Stacie Mayes, Rose State College Mark McCarthy, East Carolina University Clarice McCoy, Brookhaven College Tammy Metzke, Milwaukee Area Technical College Jeanine Metzler, Northampton Community College Theresa Michalow, Moraine Valley Community College Julie Miller, Chippewa Valley Tech College Tim Miller, El Camino College John Minchin, California Southern University Edna C. Mitchell, Polk State College Jill Mitchell, Northern Virginia Community College April Mohr, Jefferson Community and Technical College, SW Lynn Moore, Aiken Technical College Angela Mott, Northeast Mississippi Community College Andrea Murowski, Brookdale Community College Timothy Murphy, Diablo Valley College Kenneth F. O’Brien, Farmingdale State College Kathleen O’Donnell, Onondaga Community College Ahmed Omar, Burlington County College Robert A. Pacheco, Massasoit Community College Margaret Parilo, Cosumnes River College Paige Paulsen, Salt Lake Community College Yvonne Phang, Borough of Manhattan Community College Gary Pieroni, Diablo Valley College Debbie Porter, Tidewater Community College, Virginia Beach Kristen Quinn, Northern Essex Community College
James Racic, Lakeland Community College David Ravetch, University of California Los Angeles Ruthie Reynolds, Howard University Cecile Roberti, Community College of Rhode Island Morgan Rockett, Moberly Area Community College Patrick Rogan, Cosumnes River College Paul Rogers, Community College of Beaver County Brian Routh, Washington State University–Vancouver Helen Roybark, Radford University Alphonse Ruggiero, Suffolk County Community College Joan Ryan, Clackamas Community College Martin Sabo, Community College of Denver Arjan Sadhwani, South University Gary K. Sanborn, Northwestern Michigan College Kin Kin Sandhu, Heald College Marcia Sandvold, Des Moines Area Community College Gary Schader, Kean University Barbara Schnathorst, The Write Solution, Inc. Darlene Schnuck, Waukesha County Technical College Elizabeth Serapin, Columbia Southern University Geeta Shankhar, University of Dayton Regina Shea, Community College of Baltimore County–Essex James Shelton, Liberty University Jay Siegel, Union County College Gerald Singh, New York City College of Technology Lois Slutsky, Broward College–South Gerald Smith, University of Northern Iowa Kathleen Sobieralski, University of Maryland University College Charles Spector, State University of New York at Oswego Diane Stark, Phoenix College Thomas Starks, Heald College Carolyn L. Strauch, Crowder College Latazia Stuart, Fortis University Online
Gene Sullivan, Liberty University David Sulzen, Ferrum College Dominique Svarc, William Rainey Harper College Linda Sweeney, Sam Houston State University Carl Swoboda, Southwest Tennessee Community College, Macon Margaret Tanner, University of Arkansas–Ft. Smith Ulysses Taylor, Fayetteville State University Anthony Teng, Saddleback College Paula Thomas, Middle Tennessee State University Teresa Thompson, Chaffey Community College Leslie Thysell, John Tyler Community College Melanie Torborg, Globe University Shafi Ullah, Broward College Bob Urell, Irvine Valley College Adam Vitalis, Georgia Tech Patricia Walczak, Lansing Community College Terri Walsh, Seminole State College–Oviedo Shunda Ware, Atlanta Technical College Janis Weber, University of Louisiana–Monroe Dave Welch, Franklin University Jean Wells-Jessup, Howard University Christopher Widmer, Tidewater Community College Andrew Williams, Edmonds Community College Jonathan M. Wild, University of Wisconsin–Madison Wanda Wong, Chabot College John Woodward, Polk State College Patricia Worsham, Norco College, Riverside Community College Gail E. Wright, Stevenson University Lynnette Yerbury, Salt Lake Community College Judy Zander, Grossmont College Mary Zenner, College of Lake County Jane Zlojutro, Northwestern Michigan College
Brief Contents 1 Accounting in Business 2 2 Accounting for Business Transactions 52 3 Adjusting Accounts for Financial Statements 98 4 Accounting for Merchandising Operations 168 5 Inventories and Cost of Sales 226 6 Cash, Fraud, and Internal Controls 276 7 Accounting for Receivables 320 8 Accounting for Long-Term Assets 356 9 Accounting for Current Liabilities 400 10 Accounting for Long-Term Liabilities 446 11 Corporate Reporting and Analysis 488 12 Reporting Cash Flows 532 13 Analysis of Financial Statements 586 AFinancial Statement Information A-1 B Time Value of Money B C Investments C D* Partnership Accounting CA Chart of Accounts CA BR Brief Review BR-1
* Appendix D is available in McGraw-Hill Education Connect and as a print copy from a McGraw-Hill Education sales representative. xxiii