2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in

©2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Solutions Manual, Chapter 2 59 Chapter 2 Accounting for Business Transactions

QUESTIONS

• Common asset accounts: cash, accounts receivable, notes receivable, prepaid

expenses (rent, insurance, etc.), office supplies, store supplies, equipment, building, and land.

b. Common liability accounts: accounts payable, notes payable, and unearned

revenue, wages payable, and taxes payable.

c. Common equity accounts: common stock and dividends.

• A note payable is formal promise, usually denoted by signing a promissory note to

pay a future amount. A note payable can be short-term or long-term, depending on when it is due. An account payable also references an amount owed to an entity. An account payable can be oral or implied, and often arises from the purchase of inventory, supplies, or services. An account payable is usually short-term.

• There are several steps in processing transactions: (1) Identify and analyze the

transaction or event, including the source document(s), (2) apply double-entry accounting, (3) record the transaction or event in a journal, and (4) post the journal entry to the ledger. These steps would be followed by preparation of a trial balance and then with the reporting of financial statements.

• A general journal can be used to record any business transaction or event.
• Debited accounts are commonly recorded first. The credited accounts are commonly

indented.

• A transaction is first recorded in a journal to create a complete record of the

transaction in one place. (The journal is often referred to as the book of original entry.) This process reduces the likelihood of errors in ledger accounts.

• Expense accounts have debit balances because they are decreases to equity (and

equity has a credit balance).

• The recordkeeper prepares a trial balance to summarize the contents of the ledger

and to verify the equality of total debits and total credits. The trial balance also serves as a helpful internal document for preparing financial statements and other reports.

• The error should be corrected with a separate (subsequent) correcting entry. The

entry’s explanation should describe why the correction is necessary.Financial Accounting Fundamentals 6th Edition Wild Solutions Manual Visit TestBankDeal.com to get complete for all chapters

©2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Financial & Managerial Accounting, 7th Edition 60

• The four financial statements are: income statement, balance sheet, statement of

retained earnings, and statement of cash flows.

• The balance sheet provides information that helps users understand a company’s

financial position at a point in time. Accordingly, it is often called the statement of financial position. The balance sheet lists the types and dollar amounts of assets, liabilities, and equity of the business.

• The income statement lists the types and amounts of revenues and expenses, and

reports whether the business earned a net income (also called profit or earnings) or a net loss.

• An income statement user must know what time period is covered to judge whether

the company’s performance is satisfactory. For example, a statement user would not be able to assess whether the amounts of revenue and net income are satisfactory without knowing whether they were earned over a week, a month, a quarter, or a year.

• (a) Assets are probable future economic benefits obtained or controlled by a specific

entity as a result of past transactions or events. (b) Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. (c) Equity is the residual interest in the assets of an entity that remains after deducting its liabilities. (d) Net assets refer to equity.

• The balance sheet is sometimes referred to as the statement of financial position.

16. Debit balance accounts on the Apple balance sheet include: Cash and cash

equivalents; Short-term marketable securities; Accounts receivable; Inventories; Deferred tax assets; Vendor non-trade receivables; Other current assets; Long-term marketable securities; Property, plant and equipment, net; Goodwill; Acquired intangible assets, net; Other assets.

Credit balance accounts on the Apple balance sheet include: Accounts Payable;

Accrued expenses; Deferred revenue; Commercial paper; Current portion of long- term debt; Deferred revenue, non-current; Long-term debt; Other non-current liabilities; Common stock; Retained earnings; Accumulated other comprehensive income (current year abnormal debit balance).

• The asset accounts with receivable in its account title are: Accounts receivable, net;

Receivable under reverse repurchase agreements; Income taxes receivable, net. The liabilities with payable in the account title are: Accounts payable; Securities lending payable; Income taxes payable, net; Income taxes payable, non-current.

• Samsung’s balance sheet lists the following current liabilities: Trade and other

payables; Short-term borrowings; Other payables; Advances received; Withholdings; Accrued expenses; Income tax payable; Current portion of long-term liabilities; Provisions; Other current liabilities; Liabilities held-for-sale.Samsung’s balance sheet lists the following noncurrent liabilities: Debentures; Long-term borrowings; Long-term other payables; Net defined benefit liabilities; Deferred income tax liabilities; Provisions; Other non-current liabilities.

©2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Solutions Manual, Chapter 2 61

QUICK STUDIES

Quick Study 2-1 (10 minutes)

The likely source documents include:

• Sales ticket
• Telephone bill
• Invoice from supplier
• Bank statement

Quick Study 2-2 (5 minutes)

• A Asset
• A Asset
• A Asset
• A Asset
• A Asset
• EQ Equity
• L Liability
• L Liability
• EQ Equity

Quick Study 2-3 (5 minutes)

• E Expense 655
• R Revenue 406
• A Asset 110
• A Asset 191
• L Liability 208
• A Asset 161
• L Liability 245
• EQ Equity 307
• E Expense 690

©2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.Financial & Managerial Accounting, 7th Edition 62 Quick Study 2-4 (10 minutes)

• Credit d. Debit g. Credit
• Debit e. Debit h. Debit
• Debit f. Debit i. Credit

Quick Study 2-5 (10 minutes)

• Debit e. Debit i. Credit
• Debit f. Credit j. Debit
• Credit g. Credit k. Debit
• Credit h. Debit l. Credit

Quick Study 2-6 (15 minutes) a.

1) Analyze:

Assets = Liabilities + Equity Cash Equipment Common Stock

7,000 + 3,000 = 0 + 10,000

2) Record:

Date Account Titles and Explanation PR Debit Credit May 15Cash 101 7,000 Equipment 167 3,000 Common Stock30710,000 Owner invests cash & equipment for stock.3) Post Cash 101 7,000 Common Stock 307

10,000

Equipment 167 3,000