Chapter4 financial accounting ifrs 3rd edition solutions manual

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Completing the Accounting CycleASSIGNMENT CLASSIFICATION TABLE

Learning Objectives Questions

Brief Exercises Do It! Exercises

A Problems

B Problems

* 2 Explain the process

of closing the books.

* 3 Describe the content and

* 4 State the required steps

in the accounting cycle.

*7 Prepare reversing entries 10, 20, 21 12 18, 19

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix * to the chapter.

ASSIGNMENT CHARACTERISTICS TABLE

Problem

1A Prepare worksheet, financial statements, and adjusting

2A Complete worksheet; prepare financial statements,

closing entries, and post-closing trial balance. Moderate 50–603A Prepare financial statements, closing entries, and post-

4A Complete worksheet; prepare classified statement of

financial position, adjusting and closing entries, and

post-closing trial balance.

Moderate 50–60

5A Complete all steps in accounting cycle Complex 70–90 6A Analyze errors and prepare correcting entries and trial

1B Prepare worksheet, financial statements, and adjusting

2B Complete worksheet; prepare financial statements,

closing entries, and post-closing trial balance. Moderate 50–603B Prepare financial statements, closing entries, and post-

4B Complete worksheet; prepare classified statement of

financial position, adjusting and closing entries, and

post-closing trial balance.

Moderate 50–60

5B Complete all steps in accounting cycle Complex 70–90 Comprehensive Problem: Chapters 2 to 4

COMPLETING THE ACCOUNTING CYCLE

COMPLETING THE ACCOUNTING CYCLE (Continued)

Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation

* 1 Prepare a worksheet BE4-1 Q4-1

Q4-2 Q4-3 Q4-4 Q4-5

BE4-3 DI4-1

E4-1 E4-2 E4-3 E4-17 P4-2A

P4-3A P4-2B P4-3B

BE4-2 E4-5 E4-6 P4-1A P4-4A

P4-5A P4-1B P4-4B P4-5B

* 2 Explain the process of closing

the books.

BE4-5 BE4-6 DI4-2 E4-4 E4-7

E4-8 E4-11 P4-2A P4-3A P4-2B P4-3B

E4-19 P4-1A P4-4A P4-5A P4-1B P4-4B

P4-5B

* 3 Describe the content and

purpose of a post-closing trial

balance.

Q4-8 Q4-9 BE4-7

E4-4 E4-7 E4-8 P4-2A

P4-3A P4-2B P4-3B

P4-4A P4-5A

P4-4B P4-5B

* 4 State the required steps in

the accounting cycle.

Q4-11 Q4-12 BE4-8

Q4-10 E4-10

E4-19 P4-5A P4-5B

* 5 Explain the approaches to

preparing correcting entries.

E4-12 E4-13

 4. The net income of €12,000 will appear in the income statement debit column and the statement

of financial position credit column A net loss will appear in the income statement credit column and the statement of financial position debit column.

 5. Formal financial statements are needed because the columnar data are not properly arranged and classified for statement purposes For example, the Dividends account is listed with assets.

 6. (1) (Dr) Individual revenue accounts and (Cr) Income Summary.

(2) (Dr) Income Summary and (Cr) Individual expense accounts.

(3) (Dr) Income Summary and (Cr) Retained Earnings.

(4) (Dr) Retained Earnings and (Cr) Dividends.

 7. Income Summary is a temporary account that is used in the closing process The account is debited for expenses and credited for revenues The difference, either net income or net loss, is then closed to the Retained Earnings account.

 8. The post-closing trial balance contains only statement of financial position accounts Its purpose

is to prove the equality of the permanent account balances that are carried forward into the next accounting period.

 9. The accounts that will not appear in the post-closing trial balance are: Depreciation Expense; Dividends; and Service Revenue.

10. A reversing entry is the exact opposite, both in amount and in account titles, of an adjusting entry and is made at the beginning of the new accounting period Reversing entries are an optional step in the accounting cycle.

11. The steps that involve journalizing are: (1) journalize the transactions, (2) journalize the adjusting entries, and (3) journalize the closing entries.

12. The three trial balances are the: (1) trial balance, (2) adjusted trial balance, and (3) post-closing trial balance.

13. Correcting entries differ from adjusting entries because they: (1) are not a required part of the accounting cycle, (2) may be made whenever an error is discovered, and (3) may affect any combination of accounts.

* 14 The standard classifications used in a statement of financial position are:

Property, Plant, and Equipment Non-current Liabilities

Long-term Investments Current Liabilities

Current Assets

* 15 The operating cycle of a company is the average time that it takes to purchase inventory, sell it on

account, and then collect cash from customers.

* 16 Current assets are assets that a company expects to convert to cash or use up in one year Some

companies use a period longer than one year to classify assets and liabilities as current because they have an operating cycle longer than one year Companies usually list current assets in the reverse order in which they expect to convert them into cash.

* 17 Long-term investments are generally investments in shares and bonds of other companies that

are normally held for many years and non-current assets such as land or buildings that a company is not using in its operating activities Property, plant, and equipment are assets with relatively long useful lives that a company is currently using in operating the business.

record investments of assets in the business by the owners (shareholders) through share

transactions (2) Retained Earnings is used to record net income retained in the business.

* 19 . TSMC’s current liabilities at December 31, 2013 and December 31, 2012 were NT$189,777.9 million and NT$148,473.9 million respectively TSMC’s current liabilities were lower than its current assets in both years.

*20 After reversing entries have been made, the balances will be Interest Payable, zero balance;

Interest Expense, a credit balance.

*21 (a) Jan 10 Salaries and Wages Expense 9,200

Cash 9,200 Because of the January 1 reversing entry that credited Salaries and Wages Expense for

£3,500, Salaries and Wages Expense will have a debit balance of £5,700 which equals the

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

The steps in using a worksheet are performed in the following sequence: (1) prepare a trial balance on the worksheet, (2) enter adjustment data, (3) enter adjusted balances, (4) extend adjusted balances to appropriate statement columns and (5) total the statement columns, compute net income (loss), and complete the worksheet Filling in the blanks, the answers are 1, 3, 4, 5, 2.

The solution to BRIEF EXERCISE 4-2 is on page 4-9.

BRIEF EXERCISE 4-3

Income Statement

Statement of Financial Position

(c)   800 (b) 1,100

(a) 1,300

25,800  1,100

62,100

25,800

1,100

BRIEF EXERCISE 4-5

Salaries and Wages

(3) 15,000

(3) 15,000 Bal 43,000

BRIEF EXERCISE 4-6

July 31 Service Revenue 19,200

31 Income Summary 11,300

Service Revenue

Salaries and Wages Expense

Maintenance and Repairs Expense

Prepaid insurance £ 3,600 Supplies 5,200 Accounts receivable 12,500 Short-term investments 4,900 Cash 6,700 Total current assets £ 32,900 BRIEF EXERCISE 4-11

CA

CA

*BRIEF EXERCISE 4-12

Nov 1 Salaries and Wages Payable 1,680

The balances after posting the reversing entry are Salaries and Wages

DO IT! 4-1

Income statement debit column—Utilities Expense

Income statement credit column—Service Revenue

Statement of financial position debit column—Accounts Receivable

Statement of financial position credit column—Notes Payable;

Accumulated Depreciation—Equipment; Share Capital—Ordinary

DO IT! 4-2

Dec 31 Income Summary 47,000

Dec 31 Retained Earnings 15,000

Dividends 15,000

DO IT! 4-3

1 Supplies 650

Equipment 210

Cash 440

2 Cash 400

Dividends 500

Salaries and Wages Expense 900

3 Accounts Payable 540

DO IT! 4-4

  equipment

EXERCISE 4-1

LIM COMPANY, LTD.

Worksheet For the Month Ended June 30, 2017

(in thousands)

Account Titles Trial Balance Adjustments Adj Trial Balance Income Statement Financial Position Statement of

Payable (c) 250 250 250 Totals 1,830 1,830 10,010 10,010 2,790 3,540 7,220 6,470 Net Income 750 750 Totals 3,540 3,540 7,220 7,220

EXERCISE 4-2

ALBANESE COMPANY, SPA (Partial) Worksheet For the Month Ended April 30, 2017

Adjusted Trial Balance

Income Statement

Statement of Financial Position

ALBANESE COMPANY, SPA Income Statement For the Month Ended April 30, 2017 Revenues

Service revenue €12,590 Expenses

Salaries and wages expense € 9,840

Rent expense 760

Depreciation expense 600

Interest expense 57

Total expenses 11,257 Net income € 1,333

ALBANESE COMPANY, SPA Retained Earnings Statement For the Month Ended April 30, 2017 Retained Earnings, April 1 €4,000 Add: Net income 1,333

5,333 Less: Dividends 3,000 Retained Earnings, April 30 €2,333

ALBANESE COMPANY, SPA Statement of Financial Position

April 30, 2017

EXERCISE 4-3 (Continued)

ALBANESE COMPANY, SPA Statement of Financial Position (Continued)

April 30, 2017

Equity and Liabilities Equity

Share capital—ordinary €22,000

Retained earnings 2,333 €24,333 Current liabilities

Notes payable 5,700

Accounts payable 5,672

Interest payable 57 11,429 Total equity and liabilities € 35,762

(c) ALBANESE COMPANY, SPA

Post-Closing Trial Balance

April 30, 2017

EXERCISE 4-5 (Continued)

(b)

Income Statement

Statement of Financial Position

Salaries and Wages Expense 5,000

(a) Service Revenue 4,300

Retained Earnings 2,636

R$7,096 R$7,096

EXERCISE 4-8

(a)

July 31 Service Revenue 400 64,000

(c) WINDSOR COMPANY, LTD.

Post-Closing Trial Balance

July 31, 2017

EXERCISE 4-9 (Continued)

WINDSOR COMPANY, LTD.

Retained Earnings Statement For the Year Ended July 31, 2017

Less: Net loss £ 3,800

Assets Property, plant, and equipment

Equipment £15,900

Less: Accumulated depreciation—

equipment 5,400 £10,500 Current assets

Accounts receivable 8,140

Cash 9,840 17,980 Total assets £28,480

Equity and Liabilities Equity

Share capital—ordinary £18,000

Retained earnings 4,460 £22,460 Current liabilities

Accounts payable 2,220

Unearned rent revenue 3,800 6,020

1 False “Analyze business transactions” is the first step in the accounting

at the end of a company’s annual accounting period.

7 False The step of “journalize the transactions” occurs before the step

of “post to the ledger accounts.”

8 False Closing entries are prepared after financial statements are prepared.

Statement of Financial Position

December 31, 2017

Assets Property, plant, and equipment

EXERCISE 4-14 (Continued)

PATEL BOWLING ALLEY, LTD.

Statement of Financial Position (Continued)

December 31, 2017

Equity and Liabilities Equity

Share capital—ordinary £80,000

Non-current liabilities

Note payable 80,000 Current liabilities

Accounts payable 12,300

Interest payable 2,600 29,900

*Net income = £19,180 – £780 – £7,360 – £2,600 = £8,440

(b) Current assets exceed current liabilities by only £360 (£30,260 –

£29,900) However, approximately 60% of current assets are in the form

of cash The company’s liquidity appears to be reasonably good, but some caution is needed.

EXERCISE 4-15

LTI Investments

SEXTON COMPANY, LTD.

Statement of Financial Position

December 31, 2017 (in thousands) Assets Property, plant, and equipment

Equity and Liabilities Equity

Share capital—ordinary £10,000

Retained earnings 4,750 £14,750 Non-current liabilities

EXERCISE 4-17

(a)

VAN DIJK COMPANY, NV Income Statement For the Year Ended July 31, 2017 Revenues

Less: Net loss €5,200

Dividends 3,000 8,200

VAN DIJK COMPANY, NV Statement of Financial Position

July 31, 2017

Assets Property, plant, and equipment

Equipment €30,000

Less: Accumulated depreciation—

equipment 6,000 €24,000 Current assets

Accounts receivable 9,240

Cash 14,200 23,440 Total assets €47,440

Equity and Liabilities Equity

Share capital—ordinary €25,000

Retained earnings 14,500 €39,500 Non-current liabilities

Note payable 1,800 Current liabilities

Accounts payable 4,100

Salaries and wages payable 2,040 6,140

*EXERCISE 4-18

(R$9,000 X 4/5) 7,200

Salaries and Wages Expense (R$9,000 X 1/5) 1,800 Cash 9,000

(a) HERCULES POIROT, P.I., SA

Worksheet For the Quarter Ended March 31, 2017

Adjusted Trial Balance

Income Statement

Statement of Financial Position

   600

 2,240  1,300  1,200    230 41,550

10,000 7,350 14,000 10,200

41,550

(e)   1,080

(a)   750

(c)   300 (d)   600 3,410

(a)   750 (d)   600

(e)   1,080

(c)   300 3,410

11,410  7,000    500  1,800 15,000

   600

 2,240  1,300  1,200    230    750  680

   300    600 43,610

10,000 7,350 14,000 11,280

 680    300 43,610

 2,240  1,300  1,200    230    750  680

   300    600  7,300   3,980 11,280

11,280

11,280 11,280

11,410  7,000    500  1,800 15,000

   600

36,310 36,310

10,000 7,350 14,000

 680    300 32,330 3,980 36,310 Key: (a) Supplies Used; (b) Depreciation Expensed; (c) Accrued Interest on note; (d) Insurance Expired; (e) Service Revenue

(b) HERCULES POIROT, P.I., SA

Income Statement For the Quarter Ended March 31, 2017 Revenues

Service revenue €11,280 Expenses

Salaries and wages expense €2,240

HERCULES POIROT, P.I., SA Retained Earnings Statement For the Quarter Ended March 31, 2017 Retained Earnings, January 1 € 0 Add: Net income 3,980

3,980 Less: Dividends 600 Retained Earnings, March 31 €3,380

PROBLEM 4-1A (Continued)

HERCULES POIROT, P.I., SA Statement of Financial Position

March 31, 2017

Assets Property, plant, and equipment

Equipment €15,000

Less: Accumulated depreciation—

equipment 680 €14,320 Current assets

Prepaid insurance 1,800

Supplies 500

Accounts receivable 7,000

Cash 11,410 20,710 Total assets € 35,030

Equity and Liabilities Equity

Share capital—ordinary €14,000

Retained earnings 3,380 €17,380 Current liabilities

Notes payable 10,000

Accounts payable 7,350

Interest payable 300 17,650 Total equity and liabilities € 35,030

(c) Mar 31Supplies Expense 750

Mar 31Accounts Receivable 1,080

PROBLEM 4-2A

Partial Worksheet For the Year Ended December 31, 2017

Trial Balance

Income Statement

Statement of Financial Position

(b) WATSON COMPANY, LTD.

Income Statement For the Year Ended December 31, 2017 Revenues

32,300 Less: Dividends 12,000 Retained Earnings, December 31 £20,300

PROBLEM 4-2A (Continued)

WATSON COMPANY, LTD.

Statement of Financial Position

December 31, 2017

Assets Property, plant, and equipment

Equipment £46,000

Less: Accumulated depreciation—

equipment 18,000 £28,000 Current assets

Prepaid insurance 4,400

Supplies 2,300

Accounts receivable 14,400

Cash 17,800 38,900 Total assets £66,900

Equity and Liabilities Equity

Share capital—ordinary £15,000

Retained earnings 20,300 £35,300 Non-current liabilities