Transcript Slide 1

Exercise 2-9
Presented below are a number of business transactions that occurred
during the current year for Gonzales, Inc. In each of the situations, discuss
the appropriateness of the journal entries in terms of generally accepted
accounting principles.
a.
The president of Gonzales, Inc. used his expense account to purchase
a new Suburban solely for personal use. The following journal entry
was made.
Miscellaneous Expense
29,000
Cash
29,000
b.
Merchandise inventory that cost $620,000 is reported on the balance
sheet at $690,000, the expected selling price less estimated selling
costs. The following entry was made to record this increase in value.
Inventory
70,000
Sales Revenue
70,000
Exercise 2-9
c.
The company is being sued for $500,000 by a customer who claims
damages for personal injury apparently caused by a defective
product. Company attorneys feel extremely confident that the
company will have no liability for damages resulting from the
situation. Nevertheless, the company decides to make the
following entry.
Loss from Lawsuit
500,000
Liability for Lawsuit
500,000
d. Because the general level of prices increased during the current
year, Gonzales, Inc. determined that there was a $16,000
understatement of depreciation expense on its equipment and
decided to record it in its accounts. The following entry was made.
Depreciation Expense
16,000
Accum Depr – Equip
16,000
Exercise 2-9
e. Gonzales, Inc. has been concerned about whether intangible
assets could generate cash in case of liquidation. As a
consequence, goodwill arising from a purchase transaction during
the current year and recorded at $800,000 was written off as
follows.
Retained Earnings
800,000
Goodwill
800,000
f.
Because of a “fire sale,” equipment obviously worth $200,000 was
acquired at a cost of $155,000. The following entry was made.
Equipment
200,000
Cash
155,000
Sales Revenue
45,000
Discussion Question
Q4-17 Indicate the section of a multiple-step income
statement in which each of the following is shown.
a. Loss on inventory write-down.
b. Loss from strike.
Discussion Question
Q4-17 Indicate the section of a multiple-step income statement
in which each of the following is shown.
c. Bad debt expense.
d. Loss on disposal of a component of the business.
e. Gain on sale of machinery.
Discussion Question
Q4-17 Indicate the section of a multiple-step income statement
in which each of the following is shown.
f.
Interest revenue.
g. Depreciation Expense.
h. Material write-offs of notes receivable.
E4-6B
The following balances were taken from the books of Schimank Corp.
on December 31, 2014. Assume the total effective tax rate on all items
is 34%. Prepare a multiple-step income statement; 100,000 shares of
common stock were outstanding during the year.
Interest revenue
$ 120,400
Accum deprec—equipment $ 56,000
Cash
71,400
Accum deprec—building
39,200
Sales
1,932,000
Notes receivable
217,000
Accounts receivable
210,000
Selling expenses
271,600
Prepaid insurance
28,000
Accounts payable
238,000
Sales returns & allowances 210,000
Bonds payable
140,000
Allowance for bad debts
9,800
Admin & general expenses 135,800
Sales discounts
63,000
Accrued liabilities
44,800
Land
140,000
Interest expense
84,000
Equipment
280,000
Notes payable
140,000
Building
196,000
Loss from earthquake damage
Cost of goods sold
869,400
(extraordinary item)
210,000
Common stock
700,000
Retained earnings
29,400
E4-6B
Example 1
Bryant Co. reports the following information for 2012:
Sales revenue
$750,000
Cost of goods sold
$500,000
Operating expenses
$ 80,000
Unrealized holding loss on
available-for-sale securities
$ 50,000
Bryant declared and paid a cash dividend of $10,000 in 2012.
Bryant Co. has January 1, 2012, balances in common stock
$350,000; accumulated other comprehensive income $80,000;
and retained earnings $90,000. It issued no stock during 2012.
• Prepare a statement of stockholders’ equity.
Example 1
BRYANT CO.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2012
Total
Beginning balance
Comprehensive income
Net income*
Other comprehensive income
Unrealized holding loss
Comprehensive income
Dividends
Ending balance
Comprehensive
Income
Accumulated
Other
Retained Comprehensive Common
Earnings
Income
Stock
E4-17B
The following information was taken from the records of Cantu Inc. for the
year 2014. Income tax applicable to income from continuing operations
$261,800; income tax applicable to loss on discontinued operations
$35,700; income tax applicable to extraordinary gain $45,220; income tax
applicable to extraordinary loss $28,560; and unrealized holding gain on
available-for-sale securities $21,000.
Cash dividends declared $210,000
Extraordinary gain
$133,000
Ret earnings, 1/1/2014
840,000
Loss on disc ops
105,000
Cost of goods sold
1,190,000
Admin expenses
336,000
Selling expenses
420,000
Rent revenue
56,000
Sales
2,660,000
Extraordinary loss
84,000
Shares outstanding during 2014 were 100,000.
(a) Prepare a multiple-step income statement for 2014, (b) prepare a
retained earnings statement for 2014 and (c) show how comprehensive
income is reported using the one statement format.
E4-17B
E4-17B