Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill

2-1 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Financial Reporting and Analysis (7 th Ed.) Chapter 2 Solutions Accrual Accounting and Income Determination Exercises Exercises E2-1. Distinguishing accrual-basis revenue from cash receipts (AICPA adapted) Because the subscription begins with the first issue of 2018, no revenue is recognized in 2017. No product or service has yet been provided by Gee Company to its customers.Gee received in cash the full amount of $36,000 in 2017.E2-2. Converting from cash receipts to accrual-basis revenue (AICPA adapted) We first analyze the activity in the Deferred fee revenue account, which is shown below. This account represents the liability to provide goods or services in exchange for consideration that has already been received. Once the goods or services are provided, the liability is relieved and the revenue is recognized in the income statement.Deferred Fee Revenue $0 Beginning balance X Payments received in advance of revenue recognition $8,000 Ending balance The account increased by $8,000, which is explained by $8,000 of payments received in advance of revenue being recognized. In total, Dr.Hamilton received $200,000 from patients, so $200,000 – $8,000 = $192,000 of the receipts were to pay off accounts receivable. Using that information and the amounts that are given for beginning and ending accounts receivable, we now analyze Accounts receivable and show that Sales revenues are $199,000.Financial Reporting and Analysis 7th Edition Revsine Solutions Manual Visit TestBankDeal.com to get complete for all chapters

2-2 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Accounts Receivable Beginning balance $18,000 Patient fee revenuesY $192,000 Collections on account Ending balance $25,000

$18,000 + Y - $192,000 = $25,000

Y = $199,000

E2-3. Distinguishing between accrual basis expense and cash disbursement (AICPA adapted) The amount of premiums paid can be determined from a T-account analysis of prepaid insurance.Prepaid Insurance Beginning balance $210,000 Premiums paid X$875,000 Amounts charged to insurance expense Ending balance $245,000

$210,000 + X - $875,000 = $245,000

X = $910,000

E2-4. Converting from cash to accrual basis We first determine sales revenue by analyzing Accounts receivable.Accounts Receivable Beginning balance $139,000 Sales revenue X$387,000 Collections on account Ending balance $141,000

$139,000 + X - $387,000 = $141,000

X = $389,000

In order to determine cost of goods sold, we must analyze two accounts – Inventory and Accounts payable. Each of these accounts explains a portion of the difference between cash payments and cost of goods sold because

2-3 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Inventory changes by the difference between cost of goods sold and purchases, and Accounts payable change by the difference between purchases and payments to suppliers.Accounts Payable BAP Beginning balance Payments on account $131,000X Inventory purchases BAP-19,000 Ending balance We do not know the amount of Accounts payable at either the beginning or the end of the year, but we do know Accounts payable declined by $19,000, which we represent above with the amounts BAP and BAP- 19,000 for the beginning and ending balances, respectively.

$BAP + X - $131,000 = $BAP-19,000

X = $112,000

The analysis indicates that knowing the change in Accounts payable is sufficient to determine the difference between purchases and payments.Now that we have determined the amount of inventory purchases, we can analyze the Inventory account.Inventory Beginning balance BI Inventory purchases 112,000Y Cost of goods sold Ending balance BI-39,000

$BI + $112,000 - Y = $BI - $39,000

Y = $151,000

As was the case for Accounts payable, we do not know the beginning and ending Inventory balances, but the change is sufficient for our analysis.Cost of goods sold is $151,000.Therefore, gross profit is $389,000 - $151,000 = $238,000.

2-4 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.E2-5. Preparing a multiple-step income statement Hardrock Mining Co.Income Statement Year Ended December 31, 2017 ($ in 000) Net sales $5,281,954 Cost of products sold (4,765,505) Gross Profit 516,449 Marketing, administrative and other expenses (193,147) Interest expense (17,143) Investment losses* (57,752) Restructuring charges (8,777) Earnings before income taxes 239,630 Provision for income taxes (71,889) Income from continuing operations 167,741 Profit on discontinued operations, net of income tax effect of $3,600** 8,400 Net income $176,141

Earnings per common share:

Income from continuing operations $16.77 Discontinued operations 0.84 Net income $17.61

The “Other, net” caption as originally reported is broken down as follows:

• “Other, net” as originally reported ($ in 000) $54,529

Less: Restructuring charge(8,777)

Plus: Discontinued operations12,000

Investment losses$57,752 Discontinued operations are presented “net of tax” as calculated below. The “restructuring loss” is infrequent, thus it is a separately disclosed component of operating income. Removing these two items from “Other, net” leaves only the investment losses in the original caption, which should be relabeled “investment losses.” ** Pretax profit from discontinued operations $12,000 Income taxes on discontinued operations (30% tax rate) 3,600 Discontinued operations, net of taxes $8,400