Chapter 3 Financial Accounting Fifth Canadian Edition Instructors Solutions Manual 169

Chapter 3 Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 169 Copyright © 2015 Pearson Canada Inc.Chapter 3

Accrual Accounting and Income

Short Exercises

(10 min.) S 3-1

• (Millions)

Sales revenue ........................................................... $ 700 Cost of goods sold ................................................... (300) All other expenses ................................................... (350) Net income ................................................................ $ 50

b.Beginning cash ....................................................... $ 100 Collections ($700 – $30) .......................................... 670

Payments for: costs ............................................... (680)

Ending cash ............................................................. $ 90

Financial Accounting Canadian 15th Edition Harrison Solutions Manual Visit TestBankDeal.com to get complete for all chapters

Financial Accounting Fourth Canadian Edition Instructor’s Solutions Manual 170 Copyright © 2015 Pearson Canada Inc.(10 min.) S 3-2

Statement Reports (Amounts in millions) Income statement Interest expense ........................ $1.0

Balance sheet Notes payable

($4.0 + $2.6 – $2.5) ................. $4.1

Interest payable ......................... 0.2

Chapter 3 Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 171 Copyright © 2015 Pearson Canada Inc.

(10 min.) S 3-3

Ford Canada should record sales revenue when the revenue is earned by delivering automobiles to the auto rental companies. Ford should not record any revenue prior to delivery of the vehicles to the auto rental companies because Ford hasn’t earned the revenue yet. The revenue principle governs this decision.

When Ford records the revenue from the sale, at that time—and not before or after—Ford should also record cost of goods sold, the expense.

Financial Accounting Fourth Canadian Edition Instructor’s Solutions Manual 172 Copyright © 2015 Pearson Canada Inc.(10 min.) S 3-4

Req. 1a)

Dec. 31 Rent Expense ($6,000 × 2/3) ... 4,000 Prepaid Rent ........................ 4,000 To record rent expense.

Prepaid Rent Rent Expense Nov. 1 6,000 Dec. 31 4,000 Dec. 31 4,000 Bal. 2,000 Bal. 4,000

Req. 2

Dec. 31 Supplies Expense ($800 – $500) .... 300 Supplies ....................................... 300 To record supplies expense.

Supplies Supplies Expense Dec. 1 800 Dec. 21 300 Dec. 31 300 Bal. 500 Bal. 300