Solution Manual for Financial Accounting: An Integrated Approach, 6th Edition

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Chapter 1Introduction to financialaccountingPractice ProblemsPractice ProblemA1AccountClassificationCash at bankAssetInventoryAssetSalesRevenueWagesExpenseCost of goods soldExpenseShare capitalEquityAccounts payableLiability2Income StatementFor the year ending30 June2016$Sales210,000Cost of goods sold(70,000)Gross profit140,000Wages(40,000)Net Profit100,0003Balance SheetAs at 30 June2016AssetsLiabilities and shareholders’ equity$$Cash at bank210,000Accounts payable30,000Inventory60,000Share capital140,000Retained profits100,000*270,000270,000*Opening retained profit + profit–dividend = closing balance retained profit (0 +100,000–0 = 100,000)

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Trotman: Financial Accounting6e–Practice Problem SolutionsPractice ProblemB1Accrual profit= total sales–total expenses= $750,000 + 260,000–580,000–240,000= $190,0002Sales revenue= 2,000 x $8= $16,000Cost of goods sold= 2,000 x $5= $10,000Practice ProblemCShareholders’ equity= Assets–Liabilities=(Property, Plant and Equipment $1,500,000 + AccountsReceivable$400,000 + Cash $100,000 + Inventory $500,000)–(Bank loan $250,000 + Wages Payable $90,000)= $2,500,000–340,000= $2,160,000

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Chapter 2Measuring and evaluatingfinancial position and financialperformancePractice ProblemsPractice Problem A$Sales (300,000 + 100,000)400,000COGS(70,000)Other operating expenses (80,000 + 30,000)(110,000)Net profit before tax220,000Practice Problem BPSM LimitedBalance sheetas at 30 June2016$000CurrentassetsCash11,636Accounts receivable47,515Inventory66,479Prepayments3,958Investments3,371132,959Non-current assetsOther receivable361Investments2,087Property, plant and equipment67,760Other long term assets42,742112,950Total assets245,909Current liabilitiesAccounts payable43,091Provisions for employee entitlements30,91974,010Non-current liabilitiesLong-term borrowings30,866Provisions for employee entitlements3,96934,835Total liabilities108,845Net assets137,064Shareholders’ equityShare capital108,518Retained profits28,546Total shareholders’ equity137,064

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Trotman: Financial Accounting6e–Practice Problem SolutionsPractice Problem C1NE2+Revenue, +Net Profit3+Expense,–Net Profit4NE5NE6NE7NE8+Revenue, +Expense, +Net Profit9+Expense,–Net Profit10NE11+Expense,–Net Profit12NEPractice Problem DIncome Statementfor the Month of September2016$$Sales30,000Expenses:Wages7,000Cleaning1,000Rent2,00010,000Net Profit20,000Balance Sheetas at 30 September2016$$Cash1102,000Accounts Payable1,000Accounts Receivable219,0001,000Shareholders’ equityShare capital100,000Retained profits320,000120,000121,000121,0001100,000–2,000 + 11,000–7,000 = 102,000230,000–11,000 = 19,0003As there is no opening retained profits and no dividends, it is profit figure from the income statement

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Chapter 3The double-entry systemPractice ProblemsPractice Problem A1ASSETS= LIABILITIES+SHAREHOLDERS’ EQUITYCashAccountsreceivableInventoryAccountspayableRentpayableTaxpayableRetainedprofitsRevenueExpenses$$$$$$$$$1+10,000+10,0002+9,600-9,6003+6,100+6,1004-6,300-6,3005-6,400-6,40062,400-2,4007-2,900-2,9008350-3509-450-450Total-50400-300-200-500350-45010,000-9,15050=50NB. Increases in expenses have been entered as minus figures.2Flashy Fashions LtdIncome statementFor the year ended 30 September2016$Sales10,000LessCost of goods sold6,400Gross profit3,600LessOperating ExpensesRent2,400Profit before tax1,200Lesstax expense350Net Profit850Flashy Fashions LtdBalance sheetas at 30 September2016Current Assets$Current Liabilities$Cash750Accounts Payable400Accounts Receivable800Tax Payable350Inventory600Prepaid rent200Shareholders’ equityShare Capital500Retained Profits1,1002,3502,350

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Trotman: Financial Accounting 6e–Practice Problem SolutionsPractice Problem B1$160,000.2$105,000.3$180,000.4$140,000.

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Trotman: Financial Accounting 6e–Practice Problem SolutionsPractice Problem C1Assets=Liabilities + Shareholders’ equityCashA/RInventoryPre-paymentsEquipAccum. DepA/PLoanShare CapitalOpeningRetainedProfitsRevenuesExpensesDividends90,000106,000118,00045,000400,000–125,000110,000240,000200,00084,0001+23,000–23,0002+80,000+80,0003+76,000–32,000+76,000–32,0004–4,000–4,0005–60,000–60,0006–7,000–7,0007–9,000–9,0008–13,000–13,0009–28,000+28,00010–6,000–6,00011–36,000–36,00043,000159,000114,00036,000400,000–129,00074,000180,000280,00084,00076,000–65,000–6,000

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Trotman: Financial Accounting 6e–Practice Problem SolutionsPractice ProblemC(cont’d)2Newcombe LtdIncome Statement for the month ended30 June 2016$$Sales76,000Cost of goods sold(32,000)Gross profit44,000Operating expensesWages13,000Prepaid expenses9,000Administrative7,000Depreciation4,000(33,000)Net profit11,000Newcombe LtdStatement of retained profits for the month ended30 June 2016$Opening retained profits84,000Add net profit for the month11,00095,000Less dividends declared(6,000)Closing retained profits89,000Newcombe LtdBalance Sheet as at30 June 2016Current assets$Current liabilities$Cash43,000Accounts payable74,000Accounts receivable159,000Inventory114,000Noncurrent liabilitiesPrepayments36,000Long-term loan180,000352,000254,000Noncurrent assetsShareholders’ equityEquipment400,000Share capital*280,000Accumulated depreciation(129,000)Retained profits89,000271,000369,000Total assets623,000Total liabilities and equity623,0003Net ProfitTotal AssetsTotal LiabilitiesShareholders’ Equity1No effectNo effectNo effectNo effect2No effectIncreaseNo effectIncrease3IncreaseIncreaseNo EffectIncrease4DecreaseDecreaseNo EffectDecrease5No EffectDecreaseDecreaseNo Effect6DecreaseDecreaseNo EffectDecrease7DecreaseDecreaseNo EffectDecrease8DecreaseDecreaseNo EffectDecrease9No EffectNo EffectNo EffectNo Effect10No EffectDecreaseNo EffectDecrease11No EffectDecreaseDecreaseNo EffectNB: If Net Profit increases it increases to Retained Profits and therefore Shareholders’ Equity increases.

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Trotman: Financial Accounting 6e–Practice Problem Solutions41DRCash$23,000CRAccounts receivable$23,0002DRCash80,000CRShare capital80,0003DRCost of Goods Sold32,000CRInventory32,000DR Accounts receivable76,000CRSales revenue76,0004DR Depreciation expense4,000CR Accumulated depreciation4,0005DR Long-term loan60,000CR Cash60,0006DR Administrative expense7,000CR Cash7,0007DR Prepayments9,000CRExpense9,0008DR Wages13,000CR Cash13,0009DR Inventory28,000CR Cash28,00010DR Retained profits6,000CR Cash6,00011DR Accounts payable36,000CR Cash36,000

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Chapter4Record-keepingPractice ProblemsPractice Problem A1No transaction since no exchange yet.2Yes, an exchange of money for advice.3No transaction for Bartlett as the exchanges that changed share price werebetween investors, not involving Bartlett.4Yes, an exchange of advertising received for a promise to pay, so a credittransaction.5Yes, for same reason as 4–work received in exchange for a promise to payfor it.6Yes, an exchange of a sort. The teenagerreceived cashand the companygot some benefit (e.g.avoided a later lawsuit or other problem).7Yes, goods received in exchange for a combination of cash and promise topay.8Yes, an exchange of cash for a removal of the promise to pay.9Yes, an exchange of cash for political benefit. The illegality doesn’t changethe fact that a transaction happened.10Yes, an exchange of cash for a promise to repay it.Practice Problem B1Journal entries:Hoad LtdGeneral journalNoDescriptionPost refDebitsCredits$$1Cash1200,000Share capital21200,0002Inventory320,000Cash120,0003Rent expense314,000Cash14,0004Inventory330,000Accounts payable1130,0005Advertising expense321,000Expenses payable121,0006Accounts receivable290,000

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Trotman: Financial Accounting 6e–Practice Problem SolutionsSales2690,000Cost of goods sold3040,000Inventory340,0007Accounts payable (current)1125,000Cash125,0008Cash130,000Accounts receivable230,0009Wages expense3315,000Cash115,00010Sales commission34900Cash190011Office equipment66,000Cash13,000Accounts payable (noncurrent)163,00012Wages expense332,000Expenses payable122,0002General ledger postings:Hoad LtdGeneral LedgerCash11Share capital200,0002Inventory20,0008Accounts receivable30,0003Rent4,0007Accounts payable25,0009Wages15,00010Sales commission90011Office equipment3,000Balance c/d162,100230,000230,000Balance b/d162,100Accounts Receivable26Sales90,0008Cash30,000Balance c/d60,00090,00090,000Balance b/d60,000

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Trotman: Financial Accounting 6e–Practice Problem SolutionsInventory32Cash20,0006Cost of goods sold40,0004Accounts payable30,000Balance c/d10,00050,00050,000Balance b/d10,000Office Equipment611Cash3,000Accounts payable(noncurrent)3,0006,000Accounts Payable—Current117Cash25,0004Inventory30,000Balance c/d5,00030,00030,000Balance b/d5,000Expenses Payable125Advertising1,00012Wages2,0003,000Accounts Payable—Noncurrent1611Office equipment3,000Share Capital211Cash200,000

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Trotman: Financial Accounting 6e–Practice Problem SolutionsSales266Accounts receivable90,000Cost of Goods Sold266Inventory40,000Rent Expense313Cash4,000Advertising Expense325Expenses payable1,000Wages Expense339Cash15,00012Expenses payable2,00017,000Sales Commission3410Cash900

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Trotman: Financial Accounting 6e–Practice Problem Solutions3Trial balance:Hoad LtdTrial balanceas at 30 November2016AccountDebitCredit$$1Cash162,1002Accounts receivable60,0003Inventory10,0006Office equipment6,00011Accounts payable—current5,00012Expenses payable3,00016Accounts payablenoncurrent3,00021Share capital200,00026Sales90,00030Cost of goods sold40,00031Rent4,00032Advertising1,00033Wages17,00034Sales commission900301,000301,0004Closing entries:DR Sales90,000CRP & L Summary90,000DR P & L Summary62,900CRCost of goods sold40,000CRRent4,000CRAdvertising1,000CRWages17,000CRSales commission900DR P & L Summary27,100CRRetained profits27,100

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Trotman: Financial Accounting 6e–Practice Problem Solutions5Hoad LtdIncome statementFor the month of November 2016$$Sales90,000LessCost of goods sold40,000Gross profit50,000LessOperating ExpensesRent4,000Advertising1,000Wages17,000Sales Commission90022,900Net Profit27,100Hoad LtdBalance sheetas at 30 November 2016Current Assets$Current Liabilities$Cash162,100Accounts Payable5,000Accounts Receivable60,000Expenses Payable3,000Inventory10,0008,000232,100NoncurrentLiabilitiesNoncurrentAssetsAccounts Payable3,000Office Equipment6,000Total Liabilities11,000Shareholders’ equityShare Capital200,000Retained Profits27,100227,100Total Assets238,100Total Liabilities and Equity238,100Practice ProblemCDRCR30/6Sales Revenue270,000Investment Revenue36,000Cost of Goods Sold121,000Wages Expense98,000General Expense7,000P&L Summary80,000P&L Summary80,000Retained profits80,0002(a) Sales Revenue: $0(b) Retained Earnings= $125,000 (Opening balance) + $80,000=$205,000

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Chapter5Accrual accounting adjustmentsPractice ProblemsPractice Problem AAdjust?Journal entry$$aYDRAccounts receivable3,200CRRevenue3,200bYDRCost of goods sold expense1,900CRInventory1,900cYDRUnearned revenue3,900CRRevenue3,900dYDRStore building (asset)62,320CRMaintenance expense62,320eYDRAudit expense2,350CRAccounts payable2,350fYDRAutomobile (asset)17,220CRAccounts payable17,220Practice ProblemB1Revenues:Sales$340,0002Expenses:$COGS120,000Interest (200,000 x 10%)20,000Wages (180,000 + 40,000)220,000Electricity22,000Insurance (24,000 x 9/12)18,0003600,000–56,000 + 220,000–60,000 + 200,000–8,000–180,000 + 80,000–24,000 = $772,000Practice ProblemC118,000 (17,000 + 3,000–2,000)28,00035,000 (4,500 + 3,000–2,500)

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Trotman: Financial Accounting 6e–Practice Problem Solutions42,000 (0 + 2,000–0)51,000(2,000÷2)61 January 2011, i.e. motor vehicle depreciation is $5,000 per year (change inaccumulated depreciation)

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Chapter6Financial reporting, principles,accounting standards andauditingPractice ProblemsPractice Problem A1Investments $85002Deposit on equipment, $50003Inventory, $9004Nil, past transaction has not occurred5Nil, past transaction has not occurred6Inventory, 98% x $1200 =$1176Practice Problem B1No liability, no present obligation2Liability–unearned revenue (also called ‘revenue received in advance’)$2403Unearned revenue $200 0004Wages payable$24 500Payroll tax payables$1 9605Nil, at this point. Potentially a contingent liability

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Chapter7Internal control and cashPractice ProblemsPractice Problem AThe answer to this problem could be quite wide-ranging. One approach is to say thatinternal control involves managing and safeguarding assets and that managers suchas Janet, should care about internal control because they are responsible for thesemanagement and safeguarding activities, on behalf of the owners. Some details thatmight be included would be to list particular components of internal control and notemanagement’s responsibility for each. Some such components are as follows:•Keeping control over the company is part of management’s general objective andso internal control is consistent with and helpful to managers’ general purposes.•Some specific aspects of internal control Janet may want to think about:−physical protection of assets (fences, safes, locks, passwords on computers)−economic protection of assets (avoiding obsolescence, keeping assetsmaintained and so on)−insurance against loss (probably cheaper the better the control is)−generally staying aware of the location, condition, economic value and otherimportant features of assets.•Some techniques that are helpful to managers like Janet:−segregation of duties−good, reliable records−timely reports on assets’ use and condition−periodic verification of records−cost-effective physical protection−proper motivation and monitoring of employees, customers and others withaccess to assets.

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Trotman: Financial Accounting6e–Practice Problem SolutionsPracticeProblemB1Bank reconciliation statement:Johnson LtdBank reconciliation statement30 September2016$$EndingBalance as per bank statement8,401CRAdd:Deposit not credit by bank4308,831Less:Outstanding chequesNo 597260No 613214No 615357No 6162621,093Adjusted:Balance as per Cash at Bank account7,738DREndingBalance per company records8,061DRAdd:Increase reported bank statement but notentered in company records:Error in recording Cheque 610278,088Deduct:Decreases reported on bank statement butnot entered in company records:Accounts receivable—dishonoured cheque335Bank charges15350Adjusted:Balance as per Cash at Bank account7,738DR2General journal entries:DateDescriptionDebitCredit2016Sep30Cash at bank27Repairs expense27To correct error in recording $258 cheque as $285.30Accounts receivable—D Lewis335Cash at bank335To record dishonoured cheque.30Bank charges15Cash at bank15To record bank service charge.3Points to note:●A business could dispense with its own cash records and rely entirely on bankstatements but, in most cases, such an arrangement would fail to provideinformation that would be adequate for internal control purposes.●Bank errors are rare, but possible,due to the rigid internal checks in force sothat the bank statements provided would generally be accurate records.Problems would arise in respect of lack of detail and absence of an up-to-daterecord.●The bank statement furnishes adequate details of charges levied by the bank.However, it provides a minimum of information concerning cheques that have

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Trotman: Financial Accounting6e–Practice Problem Solutionsbeen cleared and deposits that have been made. Businesses require detailsof other parties involved in transactions, and about the accounts affected bythese transactions, and these are not forthcoming from the bank.●The information shown on the bank statement may not be sufficiently up-to-date for internal control purposes. Such statements are normally obtainedfrom the bank on a weekly or monthly basis but if they constituted a firm’ssole cash record it would be necessary to arrange for them to be furnishedmore frequently.●Sums deposited are normally recorded by the bank very promptly. However,cheques that are written by the customer can only be debited to his or heraccount when presented for payment. Delay inpresentation will inevitablylead to an overstatement of cash at bank and could mislead management.Decisions could be made on the assumption that ample funds were available;this could lead to financialproblemswhen all cheques had been cleared.●In general, most businesses prefer to maintain their own cash records. This isso that the records will:•be in a form that is useful to the enterprise•be in sufficient detail•be kept up-to-date•as a form of control.

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Chapter8Accounts receivable and furtherrecord-keepingPractice ProblemPractice Problem A1To determine the desired closing amount of the Allowance for DoubtfulDebts, the CFO prepares a schedule as follows:Age CategoryAmountPercentageEstimatedUncollectableNot yet due$95,0001%9501-30 days overdue$25,0003%75031-60 days overdue$11,00010%1,10061-90 days overdue$4,00025%1,000Over 90 days overdue$2,00050%1,000Total$137,000$4,8002Don’t forget that the Allowance for Doubtful Debts has an openingbalance of $1,000 CR (in the question). As the calculated desired closingbalance for the Allowance for Doubtful Debts is $,4800, an additional$,3800 will need to be added to this account using the following journalentry:DR Bad debts expense $3,800CR Allowance for Doubtful Debts $3,800

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Practice ProblemB1Postings to general ledger and subsidiary ledgers:GENERAL LEDGERDebtorsBalance2,100Bank1,500Sales1,600Balance b/d2,200CreditorsBank1,400Balance1,800Purchases6,600Balance b/d7,000DEBTORS LEDGERXavierBalance400Bank400Sales700YoungBalance800Bank800Sales300ZoellerBalance900Bank300Sales600Balance b/d1,200CREDITORS LEDGERAdlerBank600Balance1,000Purchases5,000Balance b/d5,400BarnesBank800Balance800Purchases1,600Balance b/d1,6002Supporting schedules:Schedule of debtors at 31 January 2016$Xavier700Young300Zoeller1,2002,200Schedule of creditors at 31 January 2016$Adler5,400Barnes1,6007,000

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Chapter9InventoryPractice ProblemsPractice Problem A1Cost of goods sold:$= Beginning inventory246720+ Purchases1690000–Ending inventory(324800)16119202If the correct COGS is $1548325, this means that some of what appeared tohave been sold was not. It was lost or stolen, or it strayed! The amount lost is$63595, which could be left in the COGS expense or could be shownseparately, so that the COGS expense would be the accurate, smalleramount. Total expense would not be different; the perpetual method justallows it to be split into $1548325 COGS and $63595 loss, which werelumped together under the periodic method. The need for the $63595adjustment indicates that the company has what seems a serious problemsomewhere: there are errors in the records, inventories are being lostsomehow or there are more sinister things going on, such as employee theft.Practice Problem B1aFlows of physical units:DatePurchasesSalesBalance$$$Apr1150210025067018013120601520026018200602350110350390Available cost: (150 × $4) + (100 × $5) + (200 × $6) + (50 × $7) = $2650Cost of goods sold (periodic basis):LIFO= most recently purchased 390 units= (50 × $7) = (200 × $6) + (100 × $5) + (40 × $4)= $2210

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Trotman: Financial Accounting6e–Practice Problem Solutions(or= $2650–ending inventory= $2650–(110 × $4)= $2210)bFIFO= earliest purchased 390 units= (150 × $4) + (100 × $5) + (140 × $6)= $1940(or= $2650–ending inventory= $2650–[(50 × $7) + (60 × $66]= $1940cWeighted average= average of available cost= 390 × ($2650 ÷ 500 units)= $390 × $5.30= $2067(or= $2650–ending inventory= $2650–(110 × $5.30)= $2067)2aEnding inventories (calculated in part1):LIFO = 110 × 4 = $440bFIFO = (50 × $7) + (60 × $6) = $710cAverage = (110 × $5.30)= $5833aUsing lower of cost or market: LIFO would not be affected, because itsunit cost of $4 is already below market.bFIFO cost is above market, so the inventory value would be reducedto $5 per unit, or $550. The $160 difference would be transferred to anexpense account.cAverage cost is also above market, so the inventory value would alsobe reduced to $550. The $33 difference would be transferred to anexpense account (This would leave profit under FIFO and averagecost the same, since both begin with the same inventory value (150 ×$4) and end with the same value ($550).)4EndinginventoryCOGSaLIFO:Ending = (60 × $4) + (50 × $7)$590COGS = $2650–ending$2060bFIFO:Same as1and2$710$1940cMoving average:First average: $4Second average:150$4()100$5()+150100+---------------------------------------------------------$4.40=Third average:60$4.40()200$6()+60200+--------------------------------------------------------------$5.63=Fourth average:60$5.63()50$7()+6050+-----------------------------------------------------------$6.25=

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Trotman: Financial Accounting6e–Practice Problem SolutionsEnding: 110 × $6.25$688COGS = $2650–ending$1962Regarding lower of cost or market, there would now be no difference in profitfor any of the methods, because all have ending inventory costs higher thanmarket ($550) and all ending inventories would therefore be reduced to that$550.

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Chapter10Noncurrent assetsPractice ProblemsPractice Problem A1Depreciation would be 10per centof cost per year: $10,000 in2015and2016.The entry would debit depreciation expense and credit accumulated depreciationwith the $10,000.2Depreciation for2015would be 20per centof $100,000 = $20,000Depreciation for2016would be 20per centof ($100,000-$20,000) = $16,0003(a)Accumulated depreciation increases by $10,000.Retained profits decreases by $6,000 ($10,000-$4,000 tax).(b)Depreciation expense under SL = $10,000Depreciation expense under reducing balance =($100,000-$20,000) x 20% = $16,000. Therefore difference is $6,000before tax and $3,600 after tax.(c)Accumulated depreciation increases by $16,000; retained profits decreasesby $9,600.Practice Problem B1Schedules:$LandAt cost320,000BuildingAt cost180,000Demolition1,200Construction costs40,000Architects fees4,000Legal fees500225,700Less salvage200225,500MachineryAt cost200,000New machinery50,000Sales tax (4%)2,000Freight and installation750Improvement to existing machine500253,2502Shareholders’ equity would decline by $400, being repairs to machinery damagedduring demolition.

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Chapter 11LiabilitiesPractice ProblemsPractice Problem A1Estimated Expense= $78,500 + $62,000 = $140,500Liability = $50,000 + $140,500–($84,000 + $78,000) = $28,5002DR Warranty expense$140,500CRProvision for warranty$140,500DRProvision for warranty$162,000CR Inventory$78,000CR Cash (or Wages payable)$84,000Practice Problem B6 AprDr. Cash4,400Cr.GST payable400Cr.Consulting revenue4,0008 AprDr. Cash4,950Cr.GST payable450Cr.Consulting revenue4,50015 AprDr. GST payable256Cr. Cash256Practice Problem C$1Accrued salaries:10,000 + 630,000–600,00040,0002Bill payable48,000Interest payable960[$48,0002/1212/100]3Unearned rental revenue3,000[1312$6,000]4GST payable21,200[$212,00010%]5Electricity payable40,000

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Trotman: Financial Accounting6e–Practice Problem Solutions6Portion of long-term debt due within 1 year22,000[110 0005,]7Provision for warranties17,100Provision for warranties$$Cash payments25,200Opening balance10,600Closing balance17,100Expense31,70042,30042,300Balance17,100Practice Problem DExpense = $147,600. Liability = $42,000 + $147,600-$157,400 = $32,200

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Chapter 12Completing the balance sheetPractice ProblemsPractice Problem A1aRevenue=dividends received=23%$160,000=$36,800bInvestment account would remain unchanged at $1,500,000.2aRevenue since acquisition = $400,00023% = $92,000.bPresent balance in balance sheet investment account:$Initial investment1,500,000Share of profit (above)92,000Less dividends ($160,00023%)(36,800)Present balance1,555,200Practice Problem B1$900,0002100,000 x 1.20 =$120,0003No record would have been made.4$1,130,000, i.e. 900,000 + (2.00–1.20 + 1.50) x 100,0005Would show revenue under the equity method, i.e. $3.50x 100,000 (but it wouldnot be called dividend revenue)6Increasesinvestment in P Ltd by $150,000 ($1.50 x 100,000)

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