Solutions Guide: Please Reword The Answers To Essay Type Parts So As To Guarantee That Your Answer Is An Original. Do Not Submit As Your Own

Solutions Guide: Please reword the answers to essay type parts so as to guarantee that
your answer is an original. Do not submit as your own.
E7-2)
1.
Cash balance of $925,000. Only the checking account balance should be reported as
cash. The certificates of deposit of $1,400,000 should be reported as a temporary
investment, the cash advance to subsidiary of $980,000 should be reported as a
receivable, and the utility deposit of $180 should be identified as a receivable from
the gas company.
2.
Cash balance is $584,650 computed as follows:

Checking account balance
Overdraft
Petty cash
Coin and currency
$600,000
(17,000)
300
1,350
$584,650
Cash held in a bond sinking fund is restricted. Assuming that the bonds are
noncurrent, the restricted cash is also reported as noncurrent.
3.

Certified check from customer
$590,000
9,800
$599,800
The postdated check of $11,000 should be reported as a receivable. Cash restricted

due to compensating balance should be described in a note indicating the type of
arrangement and amount. Postage stamps on hand are reported as part of office
supplies inventory or prepaid expenses.
4.

Money market mutual fund
$37,000
48,000
$85,000
The NSF check received from customer should be reported as a receivable.

5.

Cash advance received from customer
$700,000
900
$700,900
Cash restricted for future plant expansion of $500,000 should be reported as a

noncurrent asset. Short-term treasury bills of $180,000 should be reported as a
temporary investment. Cash advance received from customer of $900 should also be
reported as a liability; cash advance of $7,000 to company executive should be
reported as a receivable; refundable deposit of $26,000 paid to federal government
should be reported as a receivable.
E7-8)
(a)
Allowance for Doubtful Accounts..........................................
6,000
Accounts Receivable....................................................
(b)
6,000
Accounts Receivable
$800,000
Less: Allowance for Doubtful Accounts
40,000
Net realizable value

(c)
$760,000
Accounts Receivable
$794,000
Less: Allowance for Doubtful Accounts
34,000
Net realizable value
$760,000
E8-5)
(a)
Inventory December 31, 2002 (unadjusted)

Transaction 2
Transaction 3
Transaction 4
Transaction 5
Transaction 6
Transaction 7
Transaction 8
Inventory December 31, 2002 (adjusted)
(b)
Transaction 3
Sales
$234,890
13,420
-0-08,540
(10,438)
(10,520)
1,500
$237,392
12,800
Accounts Receivable
(To reverse sale entry in 1999)
Transaction 4
Purchases (Inventory)
12,800
15,630
Accounts Payable
(To record purchase of merchandise
in 1999)
15,630
Transaction 8
Sales Returns
Accounts Receivable
2,600
2,600
E8-14)
(a)
(1)
LIFO
600 @ $6.00 =
$3,600
100 @ $6.08 =
608
$4,208
(2)
Average cost
Total cost
Total units
$33,655*
= $6.35 average cost per unit
5,300
700 @ $6.35 = $4,445

*Units
Price
Total Cost
600
$6.00
$ 3,600
1,500
$6.08
9,120
800
$6.40
5,120
1,200
$6.50
7,800
700
$6.60
4,620
500
$6.79
3,395
5,300
(b)
(1)
FIFO
$33,655
500 @ $6.79 =
$3,395
200 @ $6.60 =
1,320
$4,715
(2)
LIFO
100 @ $6.00 =
$ 600
100 @ $6.08 =
608
500 @ $6.79 =
3,395
$4,603
(c)
Total merchandise available for sale
$33,655
Less inventory (FIFO)
4,715
Cost of goods sold
(d)
$28,940
FIFO.
E8-25)
Current $
2004
2005
2006
2007
2008
2009
$ 80,000
115,500
108,000
122,200
154,000
176,900
Price Index
Base Year $
1.00
1.05
1.20
1.30
1.40
1.45
$ 80,000
110,000
90,000
94,000
110,000
122,000
Change from
Prior Year
$+30,000
(20,000)
+4,000
+16,000
+12,000
Ending InventoryDollar-value LIFO:

2004
2005
$80,000
2008
$80,000 @ 1.00 =
$ 80,000
10,000 @ 1.05 =
10,500
$80,000 @ 1.00 =
$ 80,000
4,000 @ 1.30 =
5,200
30,000 @ 1.05 =
31,500
16,000 @ 1.40 =
22,400
$111,500
2006
$80,000 @ 1.00 =
$ 80,000
10,000 @ 1.05 =
10,500
$118,100
2009
$80,000 @ 1.00 =
$ 80,000
10,000 @ 1.05 =
10,500
$ 90,500
2007
$80,000 @ 1.00 =
$ 80,000
10,000 @ 1.05 =
10,500
4,000 @ 1.30 =
5,200
4,000 @ 1.30 =
5,200
16,000 @ 1.40 =
22,400
12,000 @ 1.45 =
17,400
$135,500
$ 95,700
E15-13)
(a)
No entrysimply a memorandum note indicating the number of shares has increased

to 18 million and par value has been reduced from
$10 to $5 per share.
(b)
Retained Earnings ($10 X 9,000,000)..................................

Common Stock Dividend Distributable.......................
90,000,000
Common Stock Dividend Distributable..............................

Common Stock...............................................................
90,000,000
(c)
90,000,000
90,000,000
Stock dividends and splits serve the same function with regard to the securities
markets. Both techniques allow the board of directors to increase the quantity of
shares and reduce share prices into a desired trading range.
For accounting purposes the 20%25% rule reasonably views large stock dividends
as substantive stock splits. In this case, it is necessary to capitalize par value with a
stock dividend because the number of shares is increased and the par value remains
the same. Earnings are capitalized for purely procedural reasons.
E15-18)
(a)
1.
2.
Dividends PayablePreferred (2,000 X $10)..........................

Dividends PayableCommon (20,000 X $2)...........................
Cash.............................................................................
20,000
40,000
Treasury Stock........................................................................
Cash (1,700 X $40)......................................................
68,000
60,000
68,000
3.
4.
5.
Land.........................................................................................
..................................................................................................
Treasury Stock (700 X $40).......................................
Paid-in Capital From Treasury Stock......................
30,000
Cash (500 X $105)...................................................................

Preferred Stock (500 X $100)....................................
Paid-in Capital in Excess of Par
Preferred..................................................................
52,500
Retained Earnings (1,900* X $45)........................................

Common Stock Dividend Distributable
(1,900 X $5)..............................................................
Paid-in Capital in Excess of Par
Common...................................................................
85,500
28,000
2,000
50,000
2,500
9,500
76,000
*(20,000 1,700 + 700 = 19,000; 19,000 X 10%)

6.
7.
Common Stock Dividend Distributable...............................

Common Stock............................................................
9,500
Retained Earnings..................................................................
Dividends PayablePreferred
(2,500 X $10)............................................................
Dividends PayableCommon
(20,900* X $2)..........................................................
66,800
*(19,000 + 1,900)
(b)
Anne Cleves Company

Stockholders Equity
December 31, 2007
Capital stock
Preferred stock, 10%, $100 par, 10,000 shares
authorized, 2,500 shares issued and
9,500
25,000
41,800
outstanding
Common stock, $5 par, 100,000 shares
authorized, 21,900 shares issued, 20,900
shares outstanding
Total capital stock
Additional paid-in capital
Total paid-in capital
Retained earnings
$250,000
109,500
359,500
205,500
565,000
627,700
Total paid-in capital and retained earnings

Less: Cost of treasury stock (1,000 shares common)
Total stockholders equity
1,192,700
40,000
$1,152,700
Computations:
Preferred stock
$200,000 + $50,000 = $250,000
Common stock
$100,000 + $ 9,500 = $109,500
Additional paid-in capital: $125,000 + $2,000 + $2,500 + $76,000 = $205,500
Retained earnings: $450,000 $85,500 $66,800 + $330,000 = $627,700
Treasury stock $68,000 $28,000 = $40,000
E16-20)
(a)
Revenues
Expenses:
Other than interest
Bond interest (60 X $1,000 X .08)
Income before income taxes
Income taxes (40%)
Net income
$17,500
$8,400
4,800
13,200
4,300
1,720
$ 2,580
Diluted earnings per share:

$2,580 + (1.40)($4,800)
2,000 + 6,000
(b)
Revenues
Expenses:
$5,460
8,000
$.68
$17,500
Other than interest

Bond interest (60 X $1,000 X .08 X 4/12)
Income taxes (40%)
Net income
$8,400
1,600
10,000
7,500
3,000
$ 4,500
Diluted earnings per share:

$4,500 + (1.40)($1,600)
2,000 + (6,000 X 1/3 yr.)
(c)
$5,460
4,000
$1.37
Revenues
Expenses:
Other than interest
Income taxes (40%)
Net income
$17,500
$8,400
2,400
1,600
12,400
5,100
2,040
$ 3,060
Diluted earnings per share (see note):

$3,060 + (1.40)($4,000)
2,000 + (2,000 X 1/2 yr.) + 4,000 + (2,000 X 1/2)
$5,460
8,000
P16-7)
(a)
Basic EPS
$1,200,000 ($3,000,000 X .06)

600,000*
= $1.70 per share

*$6,000,000 $10
(b)
Diluted EPS
(Net income Preferred dividends) + Interest

savings (net of tax)
Average common shares + Potentially dilutive
common shares
$.68
$1,200,000 $180,000a + $96,000b

600,000 + 10,000c + 80,000d
$1,116,000
690,000
= $1.62 per share

a
$3,000,000 X .06; Preferred stock is not assumed converted since conversion would
be antidilutive.
$2,000,000 X .08 X (1 .40)

c
Market price Option price

Market price
$25 $20
$25
d
X Number of options = incremental shares
X 50,000 = 10,000
($2,000,000 $1,000) X 40 shares/bond

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Solutions Guide: Please reword the answers to essay type parts so as to guarantee that

your answer is an original. Do not submit as your own.

Cash balance is $584,650 computed as follows:

Cash balance is $599,800 computed as follows:

The postdated check of $11,000 should be reported as a receivable. Cash restricted

Cash balance is $85,000 computed as follows:

The NSF check received from customer should be reported as a receivable.

Cash balance is $700,900 computed as follows:

Cash restricted for future plant expansion of $500,000 should be reported as a

Allowance for Doubtful Accounts..........................................

Less: Allowance for Doubtful Accounts

Net realizable value

Less: Allowance for Doubtful Accounts

Net realizable value

Inventory December 31, 2002 (unadjusted)

= $6.35 average cost per unit

700 @ $6.35 = $4,445

Total merchandise available for sale

Less inventory (FIFO)

Cost of goods sold

Ending InventoryDollar-value LIFO:

No entrysimply a memorandum note indicating the number of shares has increased

Retained Earnings ($10 X 9,000,000)..................................

Common Stock Dividend Distributable..............................

Dividends PayablePreferred (2,000 X $10)..........................

Cash (500 X $105)...................................................................

Retained Earnings (1,900* X $45)........................................

*(20,000 1,700 + 700 = 19,000; 19,000 X 10%)

Common Stock Dividend Distributable...............................

Anne Cleves Company

Total paid-in capital and retained earnings

Diluted earnings per share:

Other than interest

Diluted earnings per share:

Diluted earnings per share (see note):

$1,200,000 ($3,000,000 X .06)

= $1.70 per share

(Net income Preferred dividends) + Interest

$1,200,000 $180,000a + $96,000b

= $1.62 per share

$2,000,000 X .08 X (1 .40)

Market price Option price

X Number of options = incremental shares

($2,000,000 $1,000) X 40 shares/bond

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