Giáo trình financial accounting fundamentals 6e by wild 1

Financial
Accounting
Fundamentals

Sixth Edition

John J. Wild 


Financial
Accounting
Fundamentals



Financial
Accounting
Fundamentals

6

th

edition

John J. Wild
University of Wisconsin at Madison


To my students and family, especially Kimberly, Jonathan, Stephanie, and Trevor.

FINANCIAL ACCOUNTING FUNDAMENTALS, SIXTH EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGraw-Hill Education.
All rights reserved. Printed in the United States of America. Previous editions © 2016, 2013, and 2011. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without
the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage
or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 LWI 21 20 19 18 17
ISBN 978-1-259-72691-0
MHID 1-259-72691-6
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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

v


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.

vi

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

vii


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

Decision Analysis

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.

A1

2015

2014

Net income . . . . . . . . . . . . . . . . . .

$ 1,042

$

Net sales . . . . . . . . . . . . . . . . . . . .
Profit margin . . . . . . . . . . . . . . . .

$11,454
9.1%

$10,773
8.4%

Industry profit margin . . . . . . . . .

2 .8%

2 .5%

2013

903

$

753

2012
$

P2

2

EXHIBIT 3.23
adjusted trial balance.

2011

850

$ 805

$10,459
7.2%

$10,364
8.2%

$9,613
8.4%

2 .0%

2 .2%

2 .1%

L Brands’s Profit Margin

Ratio
wiL36351_ch08_340-383.indd
346

Millions

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.

Solution

1. a

2. b

3. c

4. b

5. b

6. a

7. b

8. c

9. b

10. b

11. c

12. a

13. b

14. a

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:

7.5%

2.5%

2015

2014

Net Income ($)

2013

2012

Net Sales ($)

Decision Maker

chapter

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.

Current Ratio

Chapter Preview

0.0%

Profit Margin (%)

wiL26703_ch03_098-167.indd 114

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.

2011

A2

Compute the current ratio
and describe what it reveals
about a company’s financial
condition.

Current Ratio

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

Repairs Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter Preview

Record ordinary repairs of equipment.

Accounting for betterments and extraordinary repairs is
similar—both are treated as capital expenditures.

Additional Expenditures

Examples

Expense Timing

Ordinary repairs

• Cleaning • Lubricating
• Adjusting • Repainting

Expensed currently

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 liabilities . . . . . . . . . . . . . . . . . . . .

Current ratio . . . . . . . . . . . . . . . . . . . . . .
Industry current ratio . . . . . . . . . . . . . . . .

2015

2014

2013

2012

2011

2010

$3,232
$1,679
1.9
1 .8

$3,150
$1,826
1.7
1 .7

$2,205
$1,538
1.4
1 .5

$2,368
$1,526
1.6
1 .6

$2,592
$1,504
1.7
1 .7

$3,250
$1,322
2.5
1 .9

Betterments and
extraordinary repairs

• Replacing main parts
• Major asset expansions
• Major asset overhauls

Expensed in future

11/9/16 2:10 PM

NTK 2-2

NTK 2-3

NTK 2-4
NTK 2-5Jan . 2
Learning Objectives
CONCEPTUAL

C1

Learning Objectives
CONCEPTUAL

C1

Explain the steps in processing
transactions and the role of source
documents.

C2

Describe an account and its use in
recording transactions.

C3

Describe a ledger and a chart of
accounts.

C4

Entry
Repairs Expense. . . . .

Cash . . . . . . . . . . . . .

#

Asset (such as Equip)
Cash . . . . . . . . . . . . .

#

#
#

L Brands’s Current Ratio

wiL26703_ch03_098-167.indd 127

NTK 2-1

11/9/16 2:10 PM

Assets = Liabilities + Equity
−9,500
−9,500

9,500

—RITA HAYS, Southwestern
University
Cash . . . . . . . . . . . . . . . . . . Oklahoma
. . . . . . . . . . . . . . . . . . . . . . State

.
9,500
Betterments and Extraordinary Repairs

EXHIBIT 3.24

Current assets
Current ratio =
Current liabilities

8/11/16 7:32 AM

Ordinary Repairs

5.0%

chapter

2

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.

$12,000
$11,000
$10,000
$9,000
$8,000

$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0

369

Adjusted Trial Balance

Compute profit margin and
describe its use in analyzing
company performance.

Explain and prepare an

$ millions

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.

TRIAL BALANCE ANDDecision
FINANCIAL
STATEMENTS

Maker

EXHIBIT 3.22

Net income
Net sales

Dr. (increase) Asset
Cr. (increase) Revenue

Accrued
revenues

Define debits and credits and explain
double-entry accounting.

ANALYTICAL

A1

Analyze the impact of transactions on
accounts and financial statements.

A2

Compute the debt ratio and describe its
use in analyzing financial condition.

Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C4

1,800

CAP Model

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.

P3

Prepare financial statements from
business transactions.

wiL26703_ch08_356-399.indd 369

viii

wiL36351_ch02_052-097.indd 52

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.

10/1/16 9:

8/3/16 9:31 AM


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

Decision Insight

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. ■

Hershey

HarleyDavidson

Reporting Operating
Cash Flows (Indirect)

P2

Net Income

$1,100

$752

$3,096

Nike

$3,760

$0

NEED-TO-KNOW 12-2

Operating
Cash Flows

$1,214

$513

$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

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

GLOBAL VIEW

Do More: QS 12-3, QS 12-4,
E 12-4, E 12-5, E 12-6

GLOBAL DECISION
A3

Samsung

APPLE

Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
33
Required
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .This
. . . . .section
. . . . . . discusses$53
differences between U.S. GAAP and IFRS in the items and costs making up merchan-

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.

wiL26703_ch12_532-585.indd 544

GLOBAL VIEW

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.

APPLE

APPLE

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 .

402

Chapter 9

Accounting for Receivables

Global View Assignments

SUSTAINABILITY AND ACCOUNTING

© Helen H. Richardson/The Denver Post via Getty Images

Decision Analysis

A1

Compute accounts
receivable turnover and

Discussion Questions 16 & 17
Quick Study
wiL26703_ch05_226-275.indd
275

5-23

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.

11/28/16 10:19 AM

11/28/16 10:19 AM

ix


380

Chapter 8

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

NEED-TO-KNOW 8-6

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.

COMPREHENSIVE

and a complete solution, allowing students to review the entire problemsolving process and achieve success.
The problems draw on material from
the entire chapter.

Asset

Appraised
Value

Salvage
Value

Useful
Life

Depreciation
Method

Land . . . . . . . . . . . . . . . . . . . . . . . .
Land improvements . . . . . . . . . . . .
Building . . . . . . . . . . . . . . . . . . . . .

$160,000
80,000
320,000

$
0
100,000

10 years
10 years

Not depreciated
Straight-line
Double-declining-balance

Machinery . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .

240,000
$800,000

20,000

10,000 units

Units-of-production*

* The machinery is used to produce 700 units in 2016 and 1,800 units in 2017.

Required

1. Allocate the total $600,000 purchase cost among the separate assets.
2. Compute the 2016 (six months) and 2017 depreciation expense for each asset, and compute the com-

pany’s total depreciation expense for both years.

3. On the last day of calendar-year 2018, Tulsa discarded machinery that had been on its books for five

78

Chapter 2

Analyzing and Recording Transactions

7. Debt ratio =

Total liabilities
$800
=
= 4.18%
Total assets
$19,130
8c. Cash debited

Cash credited
8b. Prepaid Insurance debited
Cash credited

Unearned Services Revenue credited
8d. Supplies debited
Accounts Payable credited

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

C3

C1

C2

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.

C3

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.

10/1/16 9:42 AM

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.

P1

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.

A2

P1

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

P2

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.

P3

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

x

Complete a three-column table showing the following amounts for each asset: appraised value, percent
of total value, and apportioned cost.

124

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.

Account
Account balance
Balance column account
Chart of accounts
Compound journal entry
Credit
Creditors
Debit

PLANNING THE SOLUTION

8a. Supplies debited

Summary

C4

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

P3

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.

Key Terms

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

348
348

Exercise 1-16

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.

and November.

8/1/16 12:57 PM

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.

Allowance
Allowance for
for doubtful
doubtful accounts
accounts . . . . . . . . . . . . . . . . . . . . . . . . . .
E receivable . . .F . . . . . . . . . . . . . G
Accounts
. . . . . . .

16,580
16,580 debit
debit
$1,270,100 debit
16,580 debit

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

B

C

Required
Required

D

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

A

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

(4/30/2017), $50,697; Total
assets, $51,117
(7) P-C trial balance
wiL36351_ch01_002-051.indd 31
totals, $51,617
wiL26703_ch07_320-355.indd 348
wiL26703_ch07_320-355.indd 348

6

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

39.0

2,800

Over 90 days past due

82.0

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.

Expense, $31,390

wiL26703_ch07_320-355.indd 412
wiL36351_ch09_384-419.indd
348

6,600

the aging of accounts receivable method.

31, 2017, using

8/1/16 12:46 PM

Analysis Component

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

wiL36351_ch04_148-191.indd 178

8/1/16 12:46 PM

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

wiL26703_ch07_320-355.indd 350

9/26/16 2:15 PM

—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

Analysis Component

3.

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.

are different
a one-page
him
explaining
why
a difference
in improved customer service,
e. S. Rey notices that the check she issued for $128 on March 31, 2018,ful
hasaccounts
not
yet cleared

the
bank. amounts.
Sid
Omar,
a sales
manager,
expresses
confusion
why
badproposed
debts to
expense
and
the allowance
for
doubtTheWrite
advantage
toover
the memorandum
process
by the
assistant
manager
includes
bad
debts
expense
and theamounts.
allowance
for adoubtful

accounts
is notThe
unusual.
The company
bad
fulbank
accounts
are different
Write
one-page
memorandum
to him
explaining
difference
inmanager could steal cash by
f. S. Rey verifies that all deposits made in March do appear on the March
statement.
fewer delays,
and
less work
for you.
disadvantage
iswhy
thataestimates
the
assistant
© Alexander Image/Shutterstock
RFaccounts is not unusual. The company estimates bad
debts
expense

2%and
of as
sales.
bad debts
expense
theofallowance
for
doubtful
g. The general ledger Cash account, No. 101, shows an ending cash balance
per
books
ofas$68,057
simply recording less sales than the cash received and then pocketing the excess cash. You decide to reject
March 31 (prior to any reconciliation).

debts expense as 2% of sales.her suggestion without the manager’s approval and to confront her on the ethics of her suggestion.

Required

Required

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.

GL

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

wiL26703_ch06_276-319.indd 315

12/1/16 9:12 AM

wiL36351_ch09_384-419.indd 417

8/11/16 11:53 AM

wiL26703_ch07_320-355.indd 353

9/26/16 2:15 PM

9/26/16 2:14 PM

—JERRI TITTLE, Rose State College

xii


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

GL 3-1

Based on the FastForward illustration in this chapter

(6) Total assets,
$83,460

GENERAL

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

GL 3-4

Extension of Problem 2-2A

GL 3-3

Extension of Problem 2-1A

GL 3-5

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 . . .]

APPLE

wiL36351_ch03_098-147.indd 143

8/1/16 12:57 PM

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.

xiv

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

∙
∙
∙
∙
∙
∙

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.

xv


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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

xix


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

xx

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

xxi



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