chapter 05 - financial accounting

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CHAPTER 5 ACCOUNTING SYSTEMS

DISCUSSION QUESTIONS

1. The individual accounts receivable ledger accounts provide business managers infor-mation on the status of individual customer accounts, which is necessary for managing collections. Managers need to know which customers owe money, how much they owe, and how long the amount owed has been outstanding.

2. The major advantages of the use of special journals are substantial savings in record-keeping expenses and a reduction of record-keeping errors.

3. a. 400 b. None

4. a. 250 b. 1

5. a. Sometime following the end of the current month, one of two things may happen: (1) an overdue notice will be received from Kelly Co., and/or (2) a let-ter will be received from Kelley Co., in-forming the buyer of the overpayment. (It is also possible that the error will be discovered at the time of making pay-ment if the original invoice is inspected at the time the check is being written.)

b. The schedule of accounts payable would not agree with the balance of the accounts payable account. The error might also be discovered at the time the invoice is paid.

c. The creditor will call the attention of the debtor to the unpaid balance of $800.

d. The error will become evident during the verification process at the end of the month. The total debits in the purchases journal will be less than the total credits by $3,600.

6. a. Purchases journal b. Cash payments journal

c. Purchases journal d. Cash payments journal e. Cash payments journal

7. An electronic form is a software window that provides the inputs for a particular transac-tion. For example, a check form provides the inputs (payee, amount, date) for a cash payment transaction. An electronic invoice provides the inputs (customer, amount sold, item sold) for recording revenues earned on account.

8. The use of controlling accounts to verify the accuracy of subsidiary accounts is used in a manual system. In a computerized system, it is assumed that the computer will accurately sum the individual transactions in the sub-sidiary accounts in determining the aggre-gate balance.

9. For automated systems that use electronic forms, the special journals are not used to record original transactions. Rather, elec-tronic forms capture the original transaction detail from an invoice, for example, and au-tomatically post the transaction details to the appropriate ledger accounts.

10. E-commerce can be used by a business to conduct transactions directly with custom-ers. Thus, an order can be received directly from the customer’s Internet input and cash can be received from the credit card. Many times, the cash is received prior to actually shipping the product, resulting in a faster revenue/collection cycle. Reducing paper-work throughout the cycle also improves the efficiency of the process. For example, all of the accounting transactions can be fed au-tomatically from the initial Internet-based inputs.



PRACTICE EXERCISES

PE 5–1A

REVENUE JOURNAL Invoice Post. Accounts Rec. Dr. Date No. Account Debited Ref. Fees Earned Cr.

Oct. 7 121 Darcy Co. ............................... 320 17 122 Triple A Inc. ........................... 470 21 123 Whaley Co. ............................ 530

PE 5–1B


May 6 78 Lemon Co. ............................. 1,240 9 79 Hitchcock Inc. ....................... 3,420 19 80 Conrad Inc. ............................ 1,470

PE 5–2A

June 20. Collected cash of $95 from Signal Communications Inc. (Invoice No. 579). Amount posted from page 106 of the cash receipts journal.

28. Provided $75 of services on account to Signal Communications Inc., itemized on Invoice No. 527. Amount posted from page 92 of the reve-nue journal.

PE 5–2B

Sept. 8. Provided $840 services on account to Mobility Products Inc., itemized on Invoice No. 119. Amount posted from page 24 of the revenue jour-nal.

17. Collected cash of $590 from Mobility Products Inc. (Invoice No. 106). Amount posted from page 46 of the cash receipts journal.



PE 5–3A

PURCHASES JOURNAL Accounts Party Other Post. Payable Supplies Accounts Post. Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount

Aug. 11 Party Zone Supplies Inc. ....... 390 390 ............................ ............ 14 Fun 4 All Supplies Inc. ........... 290 290 ............................ ............ 29 Office Space Inc. .................... 3,560 ............. Office Furniture 3,560

PE 5–3B

PURCHASES JOURNAL Accounts Office Other Post. Payable Supplies Accounts Post. Date Account Credited Ref. Cr. Dr. Dr. Ref. Amount

Dec. 6 Supply Hut Inc. ....................... 415 415 ............................ ............ 14 Zell Computer Inc. .................. 1,950 ............. Office Equipment 1,950 19 Supply Hut Inc. ....................... 450 450 ............................ ............



PE 5–4A

Nov. 11. Made purchases of $2,790 on account from Newton Computer Services Inc. (Invoice No. 75). Amount posted from page 8 of the purchases journal.

21. Paid $6,550 to Newton Computer Services Inc. on account (Invoice No. 43). Amount posted from page 46 of the cash payments journal.

PE 5–4B

Feb. 11. Paid $79 to Daisy Inc. on account (Invoice No. 122). Amount posted from page 71 of the cash payments journal.

20. Made purchases of $57 on account from Daisy Inc. (Invoice No. 139). Amount posted from page 55 of the purchases journal.

PE 5–5A

Horizontal analysis: Increase (Decrease) 2012 2011 Amount Percent

Retail ...................................... $ 80,000 $ 75,000 $ 5,000 6.7% Wholesale .............................. 120,000 140,000 (20,000) –14.3 Total revenue ........................ $200,000 $215,000 $ (15,000) –7.0

Vertical analysis: 2012 2011 Amount Percent Amount Percent

Retail ...................................... $ 80,000 40.0% $ 75,000 34.9% Wholesale .............................. 120,000 60.0 140,000 65.1 Total revenue ........................ $200,000 100.0% $215,000 100.0%



PE 5–5B

Horizontal analysis: Increase (Decrease) 2012 2011 Amount Percent

Camping ................................ $250,000 $280,000 $ (30,000) –10.7% Fishing ................................... 100,000 60,000 40,000 66.7 Total revenue ........................ $350,000 $340,000 $ 10,000 2.9

Vertical analysis: 2012 2011 Amount Percent Amount Percent

Camping ................................ $250,000 71.4% $280,000 82.4% Fishing ................................... 100,000 28.6 60,000 17.6 Total revenue ........................ $350,000 100.0% $340,000 100.0%



EXERCISES

Ex. 5–1

1. General ledger accounts: (e) 2. Subsidiary ledger accounts: (a), (b), (c), (d)

Ex. 5–2

a., b., and c. Accounts Receivable June 1 Bal. 530 June 30 6,445 June 30 Bal. 6,975

Eco-Systems Hazmat Safety Co.

June 18 1,600 June 1 2,625 June 30 Bal. 1,600 June 30 Bal. 2,625

Masco Co. Nero Enterprises June 10 980 June 1 Bal. 530 June 30 Bal. 980 June 27 1,240 June 30 Bal. 1,770 d.

GAMMA SERVICES INC. Accounts Receivable Subsidiary Ledger Balances

June 30, 2012

Eco-Systems........................................................................................ $1,600 Hazmat Safety Co. ............................................................................... 2,625 Masco Co.............................................................................................. 980 Nero Enterprises ................................................................................. 1,770 Total accounts receivable................................................................... $6,975



Ex. 5–3 a. General journal (not a revenue transaction) b. Cash receipts journal c. General journal d. Cash receipts journal e. Cash receipts journal

f. General journal g. Cash receipts journal h. Cash receipts journal i. Revenue journal j. Cash receipts journal

Ex. 5–4

a. Purchases journal b. Purchases journal c. Purchases journal d. General journal e. General journal f. Cash payments journal

g. Cash payments journal h. Cash payments journal i. General journal j. General journal k. Cash payments journal

Ex. 5–5

Feb. 3. Provided service on account; posted from revenue journal page 44.

6. Granted an invoice adjustment or corrected an error related to sale of February 3; posted from general journal page 11. This does not repre-sent a collection of cash since the credit was not posted from the cash receipts journal.

16. Received cash for balance due; posted from cash receipts journal page 81.



Ex. 5–6

a.


Apr. 2 201 Triple Play Corp. .................. 345 3 202 Mid States Inc. ...................... 410 14 203 Triple Play Corp. .................. 110 25 204 Parker Co. ............................. 830 30 1,695

b. $1,695 Debit to Accounts Receivable [from revenue journal column total in (a)].

$1,695 Credit to Fees Earned [from revenue journal column total in (a)].

c. $110 ($0 + $345 + $110 – $345)



Ex. 5–7

a. and b.

Astro Star Co. Borman Co. July 1 Bal. 805 July 4 1,960 14 1,490 22 2,650 Bal. 2,295 Bal. 4,610

Life Star Inc. July 9 3,220

Bal. 3,220

c.

Accounts Receivable Fees Earned July 1 Bal. 805 July 31 9,320 31 9,320 Bal. 9,320 Bal. 10,125

d. TECH-AID CONSULTING INC.

Accounts Receivable Subsidiary Ledger Balances July 31, 2012

Astro Star Co. .............................................................................. $ 2,295 Borman Co. .................................................................................. 4,610 Life Star Inc. ................................................................................. 3,220 Total accounts receivable............................................................ $10,125

The total in the schedule above agrees with the T account balance for the ac-counts receivable control account in part (c).

e. A computerized system would likely use an electronic form specially de-

signed for recording sales transactions, such as an electronic invoice form. The transaction details would be input into the form fields and submitted. Once submitted, the transaction would be saved and automatically posted as a debit to the individual customer accounts receivable account and a credit to the revenue account. There would be no control totals posted to a control ac-count.



Ex. 5–8

AMAZON PRODUCTIONS INC. Accounts Receivable Subsidiary Ledger Balances

May 31, 2012

Amber Communications Inc. .................................................................... $2,040 Bishop Studios Inc. ................................................................................... 1,250 Chandler Broadcasting Co. ...................................................................... 2,200 Gold Coast Media Inc. ............................................................................... 0 Total accounts receivable ......................................................................... $5,490

Accounts Receivable (Control)

Balance, May 1, 2012.................................................................................. $ 3,910 Total debits (from revenue journal) .......................................................... 12,440 Total credits (from cash receipts journal)................................................ (10,860) Balance, May 31, 2012................................................................................ $ 5,490

Ex. 5–9

REVENUE JOURNAL PAGE 8 Invoice Post. Accounts Rec. Dr. Date No. Account Debited Ref. Fees Earned Cr.

2012 Aug. 2 512 Boston Co. ............................ 780 8 513 Gabriel Co. ............................ 275 12 514 Dockers Inc. ......................... 690 22 515 Electronic Central Inc. .......... 150 31 Total ....................................... 1,895 CASH RECEIPTS JOURNAL PAGE 12 Fees Accts. Post. Earned Rec. Cash Date Account Credited Ref. Cr. Cr. Dr.

2012 Aug. 4 CMI Inc. ...................... ............ 195 195 19 Dockers Inc. ............... ............ 525 525 27 Fees Earned ............... 115 ............ 115 29 Boston Co. ................. ............ 780 780 31 Fees Earned ............... 65 ............ 65 31 Total............................ 180 1,500 1,680



Ex. 5–10

a. REVENUE JOURNAL PAGE 19 Invoice Post. Accounts Rec. Dr. Date No. Account Debited Ref. Fees Earned Cr.

2012 Dec. 3 622 Palace Corp. ........................ 1,920 8 623 Sunstream Aviation Inc. ..... 3,450 18 624 Amex Services Inc. ............. 2,600 28 625 Venus Co. ............................ 2,190 31 Total...................................... 10,160 CASH RECEIPTS JOURNAL PAGE 25 Fees Accts. Post. Earned Rec. Cash Date Account Credited Ref. Cr. Cr. Dr.

2012 Dec. 5 Chrystal Co. ................... 940 940 12 Venus Co. ....................... 1,350 1,350 23 Palace Corp.................... 1,920 1,920 30 Fees Earned ................... 80 80 31 Total................................ 80 4,210 4,290 b.

ESSENTIAL PARIS, INC. Accounts Receivable Subsidiary Ledger Balances

December 31, 2012

Amex Services Inc. ............................................................................. $2,600 Sunstream Aviation Inc. .................................................................... 3,450 Venus Co. ............................................................................................ 2,190 Total accounts receivable .................................................................. $8,240 The total of the customer accounts on December 31, 2012, $8,240, equals the bal-ance of the accounts receivable control account, shown as follows: Accounts Receivable Dec. 1 Bal. 2,290 Dec. 31 4,210 31 10,160 _____ Dec. 31 Bal. 8,240



Ex. 5–10 (Concluded)

c. The accounts receivable subsidiary ledger is needed to track customer ser-vices provided on account and customer collections. Without the subsidiary ledger, it would not be possible for Essential Paris to know who owes how much for services rendered. Furthermore, without the subsidiary ledger, it would be impossible to manage collections from individual customers.

Ex. 5–11

1. General ledger account: (c), (f), (h), (j), (k), (l) 2. Subsidiary ledger account: (a), (b), (d), (e), (g), (i) 3. No posting required: (m)

Ex. 5–12

1. General ledger account: (b), (c), (e), (f), (g), (i), (k), (l) 2. Subsidiary ledger account: (a), (d), (h) 3. No posting required: (j)

Ex. 5–13

Mar. 6. Purchased services, supplies, equipment, or other commodities on ac-count; posted from purchases journal page 44.

11. Received an invoice adjustment or corrected an error related to pur-chase of March 6; posted from general journal page 12. (A payment would be recorded in the cash payments journal.)

16. Paid balance owed; posted from cash payments journal page 23.



Ex. 5–14

a. PURCHASES JOURNAL

Accounts Office Other

Date

Account Credited Post. Ref.

Payable Cr.

Supplies Dr.

Accounts Dr.

Post. Ref.

Amount

Jan. 4 Office Universe Inc. ............. 550 550 ............................................... ......... 9 Tek Village, Inc. .................... 2,300 ....... Office Equipment 2,300

16 Office Universe Inc. ............. 90 90 ............................................... .........

21 Paper-to-Go Inc. ................... 170 170 ............................................... .........

30 Total ....................................... 3,110 810 ............................................... 2,300

b. $3,110 Credit to Accounts Payable [from purchases journal column total in (a)]. $810 Debit to Office Supplies [from purchases journal column total in (a)].

c. $90 ($0 + $550 + $90 – $550)



Ex. 5–15

a. and b.

Kleen-Mate Supplies Inc.

Little Co.

Jan. 4 570 Jan. 1 Bal. 365 26 330 15 250 Bal. 900 Bal. 615

Office Mate Inc. Jan. 19 2,700 Bal. 2,700

c.

Accounts Payable Cleaning Supplies Jan. 1 Bal. 365 Jan. 31 1,150 31 3,850 Bal. 1,150 Bal. 4,215 d.

CRYSTAL VIEW WINDOW CLEANERS INC. Accounts Payable Subsidiary Ledger Balances

January 31, 2012

Kleen-Mate Supplies Inc. ............................................................ $ 900 Little Co. ....................................................................................... 615 Office Mate Inc. ............................................................................ 2,700 Total supplier account balances ................................................. $4,215

The total in the schedule above agrees with the T account balance for the ac-counts payable control account in (c).

e. A computerized system would likely use an electronic form specially de-

signed for recording purchase transactions. The transaction details would be input into the form fields and submitted. Once submitted, the transaction would be saved and automatically posted as a debit to an appropriate asset account and a credit to the individual creditor accounts payable account. There would be no control totals posted to a control account.



Ex. 5–16

OUT OF EDEN LANDSCAPING CO. Accounts Payable Subsidiary Ledger Balances

June 30, 2012

Augusta Sod Co. ....................................................................................... $ 6,010 Concrete Equipment Co. .......................................................................... 2,650 Kopp Lumber Co. ...................................................................................... 7,200 Schott’s Fertilizer ....................................................................................... 0 Total accounts payable.............................................................................. $15,860

Accounts Payable (Control)

Balance, June 1, 2012 ................................................................................ $ 2,450 Total credits (from purchases journal)..................................................... 21,815 Total debits (from cash payments journal) .............................................. (8,405) Balance, June 30, 2012 .............................................................................. $15,860



Ex. 5–17

CASH PAYMENTS JOURNAL PAGE 41 Other Accounts Ck. Post. Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr.

2012 Aug. 1 57 Liquid Klean Supplies Inc. . ............. 275 275 8 58 Equipment ........................... 18 2,400 ............ 2,400 15 59 Abbott Laundry Service...... ............. 120 120 26 60 Sani-Fresh Products Inc. ... ............. 160 160 31 61 Salary Expense.................... 51 5,200 ............ 5,200 31 Total ..................................... 7,600 555 8,155 (21) (11)

PURCHASES JOURNAL PAGE 36

Accounts Cleaning Other

Date


Payable Cr.

Supplies Dr.

Accounts Dr.

Post. Ref.

Amount

2012 Aug. 3 Sani-Fresh Products Inc. ..... 160 160 ............................................... ..... 12 Porter Products Inc. ............. 250 250 ............................................... ..... 18 Liquid Klean Supplies Inc. .... 265 265 ............................................... ..... 20 Abbott Laundry Service ........ 140 ..... Laundry Service Expense 53 140 31 Total ........................................ 815 675 ............................................... 140 (21) (14)



Ex. 5–18

a. PURCHASES JOURNAL PAGE 16

Accounts Pet Other

Date


Payable Cr.

Supplies Dr.

Accounts Dr.

Post. Ref.

Amount

2012 Sept. 4 Best Friend Supplies Inc. ..... 230 230 ............................................... ........ 13 Poodle Pals Inc. .................... 660 660 ............................................... ........ 19 Office Helper Inc. .................. 2,250 ......... Office Equipment 13 2,250 27 Meow Mart Inc. ...................... 350 350 ............................................... ........ 31 ................................................. 3,490 1,240 2,250 (21) (14)


2012 Sept. 6 345 Labradore Inc. .................... ............. 340 340 18 346 Meow Mart Inc. ................... ............. 185 185 23 347 Best Friend Supplies Inc. .. ............. 230 230 30 348 Cleaning Expense ............... 54 50 50 31 .............................................. 50 755 805 (21) (11)




b. HAPPY TAILS INC.

Accounts Payable Subsidiary Ledger Balances September 30, 2012

Meow Mart Inc. ............................................................................. $ 350 Poodle Pals Inc. ........................................................................... 660 Office Helper Inc. ......................................................................... 2,250 Total supplier (creditor) accounts............................................... $3,260

The total of the creditor accounts on September 30, 2012, $3,260, equals the

balance of the accounts payable control account, shown as follows:

Accounts Payable Sept. 31 755 Sept. 1 Bal. 525 ___ 31 3,490 Bal. 3,260 c. Happy Tails uses a subsidiary for accounts payable to track its credit pur-

chases and payments to the individual supplier. This is needed so that it knows how much it owes to each individual supplier. Without the subsidiary ledger, it would be difficult for it to accurately pay suppliers for the amount owed in a timely manner.

Ex. 5–19

a. Two errors were made in balancing the accounts in the subsidiary ledger: (1) The Chester Chemical Supplies Inc. transaction of March 9 should have

resulted in a balance of $14,500 instead of $14,000, and the account bal-ance at March 12 should have been $14,200 instead of $13,700. The ac-count balance at March 20 should have been $8,400 instead of $7,900.

(2) The Montana Minerals Co. transaction of March 25 should have resulted in a balance of $2,800 instead of $1,800.




b. GOLD RUSH ASSAY SERVICES INC.

Accounts Payable Subsidiary Ledger Balances March 31, 2012

C. D. Greer and Son............................................................................. $ 15,750 Chester Chemical Supplies Inc. ......................................................... 8,400 Cutler and Powell ................................................................................ 7,800 Montana Minerals Co. ......................................................................... 2,800 Valley Power ........................................................................................ 3,150 Total accounts payable....................................................................... $ 37,900

Ex. 5–20

Revenue journal: (c) Cash receipts journal: (a) Purchases journal: (d) Cash payments journal: (b) General journal: (e)

Ex. 5–21

1. The Cash column is for debits (not credits). 2. The Other Accounts column is for credits (not debits). 3. A better order of columns would be to place the Other Accounts Cr. column

to the left of the Fees Earned Cr. column. A recommended and corrected cash receipts journal is as follows: CASH RECEIPTS JOURNAL PAGE 12 Other Fees Accts. Post. Accounts Earned Rec. Cash Date Account Credited Ref. Cr. Cr. Cr. Dr.



Ex. 5–22

a. In the electronic invoice form from QuickBooks® shown above, typical fields for data input can be identified as follows:

1. Customer name and address 2. Date and invoice number 3. Description of item sold 4. Amount of revenue b. The customer Accounts Receivable is debited, and Fees Earned is credited. A

computerized accounting system does not require posting to a separate ac-counts receivable control account. In this case, the total accounts receivable reported on the balance sheet is merely the sum of the balances of the indi-vidual customer account balances. That is, the accounts receivable account summarizes the customer accounts automatically.




c. Controlling accounts are not posted at the end of the month in a computer-ized accounting system. In addition, special journals are not normally used to accumulate transactions. Transactions are recorded through data input into electronic forms (or for infrequent transactions, by an electronic general journal). Balances of affected accounts are automatically posted and updated from the information recorded on the form. If desired, the computer can pro-vide a printout of the monthly transaction history for a particular account, which provides the same information as a journal. In addition, the controlling account is not separately posted. In a manual system, separate posting to the controlling account provides additional control by reconciling the controlling account balance against the sum of the individual customer account bal-ances. However, in a computerized accounting system, there are no separate postings to a controlling account because the computer is not going to make posting or mathematical errors. Therefore, there is no need for the additional control provided by posting a journal total to a controlling account.

Ex. 5–23

a. iTunes is an example of a B2C, or business-to-consumer e-commerce appli-cation. The B, or business, is Apple. The C, or consumers, would mostly be individuals who purchase digital products from the download store.

b. Cash..................................................................... 12 Fees Earned ................................................... 12 c. The cash receipts journal is used to record debits to cash from cash sales or

collections on account. d. The electronic invoice form can be used for either transactions on account,

as illustrated in the chapter, or for cash sales. The invoice form used for sales on account is different from the one used for cash sales. The latter invoice form makes a debit to Cash, rather than a debit to a customer account.

e. Sales made on B2C e-commerce transactions are computerized transactions so a special journal is inappropriate. On an e-commerce site, the consumer inputs the transaction information on the Web page; thus, there is no need for a separate electronic form for re-entering the same information to record the sale. Essentially, the e-commerce application is the form that originates the sales transaction inside the accounting system. Accounting transactions flow directly from the shopping cart information directly into the accounting sys-tem.



Ex. 5–24

a. Amazon.com B2C. Sells books, DVDs, and other products to individual consumers.

b. Dell Inc. B2C and B2B. Sells computer products to both individuals and corporations. Its site separates individual and corpo-rate sales.

c. DuPont B2B. Specialty chemicals. DuPont Direct® is its B2B Web application.

d. Intuit Inc. B2C and B2B. Arranges its site for both individuals and businesses, since its products are divided this way.

e. L.L. Bean, Inc. B2C. Consumer clothes e-retailer. f. W.W. Grainger, Inc. B2B. Sells maintenance, repair, and operating supplies to

manufacturing companies.

Ex. 5–25

a. 2009 2008 Increase (Decrease) (in millions) (in millions) Amount Percent

United States ............................. $7,104 $ 7,532 $(428) –5.7% International............................... 1,920 2,103 (183) –8.7 Global consumer products....... 750 748 2 0.3 Total revenues........................... $9,774 $10,383 $(609) –5.9

b. 2009 2008 Amount Percent Amount Percent

United States .................................. $7,104 72.7% $ 7,532 72.5% International.................................... 1,920 19.6 2,103 20.3 Global consumer products............ 750 7.7 748 7.2 Total revenues................................ $9,774 100.0% $10,383 100.0%




c. The horizontal analysis indicates that the total revenues of Starbucks declined by nearly 6%, (5.7%) from fiscal year 2008 to 2009. This decline is explained by the worldwide economic contraction experienced during this time. Starbucks was particularly impacted because its product is both pre-mium priced and discretionary. Thus, in difficult economic times, consumers reduced consumption and/or chose less expensive options. Revenues declined by 8.7% internationally, versus 5.7% in the United States. Thus, the impact of the economy appeared to be more severe for the international op-erations than the U.S. operations. Global consumer products (segment that sells Starbucks-licensed products) made little change between the two years. The vertical analysis indicates that the percent of U.S. revenues to total reve-nues increased from 72.5% in 2008 to 72.7% in 2009. In this same period, the percent of international revenues to total revenues declined from 20.3% in 2008 to 19.6% in 2009. Both analyses indicate that Starbucks’ international operations suffered during the economic decline more than did the U.S. op-erations. In addition, during the economic decline, Starbucks reduced its expansion efforts overseas in order to conserve capital.

Ex. 5–26

a. For the Year Ended June 30, 2009 Major Product Segments (in millions) Percent Filmed Entertainment....................................... $ 5,936 19.5%Television.......................................................... 4,602 15.1 Cable Network Programming .......................... 5,580 18.3 Direct Broadcast Satellite Television.............. 3,760 12.4 Magazines and Inserts ..................................... 1,168 3.8 Newspapers and Information Services........... 5,858 19.3 Book Publishing ............................................... 1,141 3.8 Other.................................................................. 2,378 7.8 Total revenues .................................................. $30,423 100.0%

b. News Corporation is very diversified. The Filmed Entertainment segment has the largest percent of revenues to total revenues at 19.5%. This is a low per-cent for a single segment, suggesting little concentration. In addition, four additional segments have a percent of revenues to total revenues in excess of 10% (Television, Cable Network Programming, Direct Broadcast Satellite Television, and Newspapers and Information Services). The three smallest segments total 15.4% (3.8% + 3.8% + 7.8%) of revenues to total revenues. Overall, News Corporation is a highly diversified entertainment company, deriving significant revenues from multiple sources.



Ex. 5–27

a. Horizontal analysis:

2009 2008 Increase (Decrease) (in millions) (in millions) Amount Percent United States......................... $ 7,943.8 $ 8,078.3 $(134.5) –1.7% Europe ................................... 9,273.8 9,922.9 (649.1) –6.5 APMEA................................... 4,337.0 4,230.8 106.2 2.5 Other Countries & Corporate 1,190.1 1,290.4 (100.3) –7.8 Total revenues ...................... $22,744.7 $23,522.4 $(777.7) –3.3

b. Vertical analysis:

2009 2008 Amount Amount (in millions) Percent (in millions) Percent United States ......................... $ 7,943.8 34.9% $ 8,078.3 34.3%Europe.................................... 9,273.8 40.8 9,922.9 42.2 APMEA ................................... 4,337.0 19.1 4,230.8 18.0 Other Countries & Corporate 1,190.1 5.2 1,290.4 5.5 Total revenues....................... $22,744.7 100.0% $23,522.4 100.0%

c. The United States segment revenues declined 1.7% from 2008 to 2009, while

Europe and Other countries declined 6.5% and 7.8%, respectively. Only the APMEA increased. This indicates that the recession of 2008–2009 generally had a negative impact on McDonald’s revenue. The vertical analysis indicates that Europe declined from 42.2% to 40.8% of total revenues, while APMEA increased from 18.0% to 19.1% of total revenues. The vertical analysis is con-sistent with the horizontal analysis showing steep revenue declines in Europe and modest increases in APMEA. The growth in APMEA is likely due to restaurant unit growth in this part of the world.



PROBLEMS

Prob. 5–1A

1. and 2. REVENUE JOURNAL PAGE 1 Invoice Post. Accounts Rec. Dr. Date No. Account Debited Ref. Fees Earned Cr.

2012 Oct. 21 1 J. Dunlop ............................... 60 22 2 K. Todd .................................. 255 24 3 T. Patrick................................ 55 27 4 F. Mintz .................................. 150 30 5 D. Chase ................................ 135 30 6 K. Todd .................................. 105 31 7 T. Patrick................................ 70 31 830 (12) (41) JOURNAL PAGE 1 Post. Date Description Ref. Debit Credit

2012 Oct. 25 Supplies .................................................. 13 100 Fees Earned ....................................... 41 100



Prob. 5–1A (Continued)

ACCOUNTS RECEIVABLE LEDGER

D. Chase Post. Date Item Ref. Dr. Cr. Balance

2012 Oct. 30 ............................................ R1 135 ............. 135 J. Dunlop

2012 Oct. 21 ............................................ R1 60 ............. 60 F. Mintz

2012 Oct. 27 ............................................ R1 150 ............. 150 T. Patrick

2012 Oct. 24 ............................................ R1 55 ............. 55 31 ............................................ R1 70 ............. 125 K. Todd

2012 Oct. 22 ............................................ R1 255 ............. 255 30 ............................................ R1 105 ............. 360



Prob. 5–1A (Concluded)

2. GENERAL LEDGER

Accounts Receivable 12 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 Oct. 31 .......................................... R1 830 .......... 830 .......... Supplies 13

2012 Oct. 25 .......................................... J1 100 .......... 100 .......... Fees Earned 41

2012 Oct. 25 .......................................... J1 .......... 100 .......... 100 31 .......................................... R1 .......... 830 .......... 930 3. a. $830 ($135 + $60 + $150 + $125 + $360) b. $830 4. The computerized system is much more efficient. Each sales transaction

would be entered into an electronic invoice form. The postings to the ac-counts receivable subsidiary and fees earned ledgers would be automatic. Also, all sums and totals in the subsidiary ledgers are calculated automati-cally. There would be no separate postings to an accounts receivable control account, because there would be no need to verify the accuracy of account totals. There would not be a math or posting error. The computerized system would also provide management current customer account balance informa-tion, since the postings are automatic.



Prob. 5–2A

1. and 5. GENERAL LEDGER

Cash 11 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 June 1 Balance............................. .......... .......... 11,350 .......... 30 .......................................... CR36 32,870 .......... 44,220 .......... Accounts Receivable 12

2012 June 1 Balance............................. .......... .......... 13,860 .......... 25 .......................................... J1 .......... 2,000 11,860 .......... 30 .......................................... R40 22,030 .......... 33,890 .......... 30 .......................................... CR36 .......... 20,520 13,370 .......... Notes Receivable 14

2012 June 1 Balance............................. .......... .......... 6,000 .......... 25 .......................................... J1 2,000 .......... 8,000 .......... Fees Earned 41

2012 June 30 .......................................... R40 .......... 22,030 .......... 22,030 30 .......................................... CR36 .......... 12,350 .......... 34,380




2. and 4. ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

Mendez Co. Post. Date Item Ref. Dr. Cr. Balance

2012 June 1 Balance............................... ............ ............. 7,970 5 ............................................ CR36 ............ 7,970 — 22 ............................................ R40 7,240 ............. 7,240 Nickle Co.

2012 June 2 ............................................ R40 4,900 ............. 4,900 19 ............................................ CR36 ............ 4,900 — Preston Co.

2012 June 1 Balance............................... ............ ............. 5,890 6 ............................................ R40 1,760 ............. 7,650 15 ............................................ CR36 ............ 5,890 1,760 16 ............................................ R40 5,500 ............. 7,260 20 ............................................ CR36 ............ 1,760 5,500 Shilo Co. 2012 June 13 ............................................ R40 2,630 ............. 2,630 25 ............................................ J1 ............ 2,000 630




3., 4., and 5. REVENUE JOURNAL PAGE 40 Invoice Post. Accounts Rec. Dr. Date No. Account Debited Ref. Fees Earned Cr.

2012 June 2 793 Nickle Co. ............................. 4,900 6 794 Preston Co............................. 1,760 13 795 Shilo Co. ................................ 2,630 16 796 Preston Co............................. 5,500 22 797 Mendez Co. ........................... 7,240 30 22,030 (12) (41) CASH RECEIPTS JOURNAL PAGE 36 Fees Accts. Post. Earned Rec. Cash Date Account Credited Ref. Cr. Cr. Dr.

2012 June 5 Mendez Co. ................ ............ 7,970 7,970 15 Preston Co. ................ ............ 5,890 5,890 19 Nickle Co. ................... ............ 4,900 4,900 20 Preston Co. ................ ............ 1,760 1,760 30 Fees Earned ............... 12,350 ......... 12,350 30 12,350 20,520 32,870 (41) (12) (11) JOURNAL PAGE 1

Post. Date Description Ref. Debit Credit

2012 June 25 Notes Receivable ................................... 14 2,000 Accounts Receivable—Shilo Co. ..... 12/ 2,000

The subsidiary account of Shilo Co. must also be posted for a $2,000 credit. 6. The subsidiary ledger is in agreement with the controlling account. Both have

balances of $13,370 ($7,240 + $5,500 + $630).




7. In an automated system, individual sales transactions are posted automati-cally to the general ledger at the time of the original transaction. Thus, there is no need to post summary totals to the general ledger accounts. The ac-counts receivable account reported on the balance sheet is often merely the sum of the individual customer accounts.



Prob. 5–3A


Field Supplies 14 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 Jan. 1 Balance............................. .......... .......... 5,920 .......... 31 .......................................... P30 9,110 .......... 15,030 .......... Office Supplies 15

2012 Jan. 1 Balance............................. .......... .......... 750 .......... 31 .......................................... P30 900 .......... 1,650 .......... Office Equipment 18

2012 Jan. 1 Balance............................. .......... .......... 12,300 .......... 5 .......................................... P30 3,150 .......... 15,450 .......... Accounts Payable 21

2012 Jan. 1 Balance............................. .......... .......... .......... 1,035 31 .......................................... P30 .......... 13,160 .......... 14,195




2. and 3. ACCOUNTS PAYABLE SUBSIDIARY LEDGER

Executive Office Supply Co. Post. Date Item Ref. Dr. Cr. Balance

2012 Jan. 1 Balance............................... ............ ............. 340 9 ............................................ P30 ............ 290 630 29 ............................................ P30 ............ 260 890 Meade Co.

2012 Jan. 1 Balance............................... ............ ............. 695 2 ............................................ P30 ............ 350 1,045 Naples Co.

2012 Jan. 14 ............................................ P30 ............ 2,680 2,680 24 ............................................ P30 ............ 3,240 5,920 31 ............................................ P30 ............ 1,000 6,920 Peach Computers Co.

2012 Jan. 5 ............................................ P30 ............ 3,150 3,150 Yamura Co.

2012 Jan. 13 ............................................ P30 ............ 1,140 1,140 17 ............................................ P30 ............ 1,050 2,190




3. and 4. PURCHASES JOURNAL PAGE 30 Accounts Field Office Other Post. Payable Supplies Supplies Accounts Post. Date Account Credited Ref. Cr. Dr. Dr. Dr. Ref. Amount

2012 Jan. 2 Meade Co. .............................. 350 ............. 350 ............................ ............ 5 Peach Computers Co. ........... 3,150 ............. ............. Office Equipment 18 3,150 9 Executive Office Supply Co. 290 ............. 290 ............................ ............ 13 Yamura Co. ............................ 1,140 1,140 ............. ............................ ............ 14 Naples Co. ............................. 2,680 2,680 ............. ............................ ............ 17 Yamura Co. ............................ 1,050 1,050 ............. ............................ ............ 24 Naples Co. ............................. 3,240 3,240 ............. ............................ ............ 29 Executive Office Supply Co. 260 ............. 260 ............................ ............ 31 Naples Co. ............................. 1,000 1,000 ............. ............................ ............ 31 13,160 9,110 900 3,150 (21) (14) (15) ( ) 5. a. $14,195 ($890 + $1,045 + $6,920 + $3,150 + $2,190) b. $14,195 6. Supply chain management e-commerce applications are used to plan and coordinate suppliers.



Prob. 5–4A

1., 2., and 3. PURCHASES JOURNAL PAGE 1 Accounts Field Office Other Post. Payable Supplies Supplies Accounts Post. Date Account Credited Ref. Cr. Dr. Dr. Dr. Ref. Amount

2012 Nov. 16 Hydro Supply Co. ........... 4,380 4,380 ............. ............................ ............ 16 Test-Rite Equipment Co. 16,900 ............. ............. Field Equipment 17 16,900 17 Best Office Supply Co. .. 375 ............. 375 ............................ ............ 23 Best Office Supply Co. .. 580 ............. 580 ............................ ............ 30 Hydro Supply Co. ........... 5,900 5,900 ............. ............................ ............ 30 Test-Rite Equipment Co. 4,600 900 ............. Field Equipment 17 3,700 30 32,735 11,180 955 20,600 (21) (14) (15) ( )





2012 Nov. 16 1 Rent Expense ................... 71 1,700 ............ 1,700 19 2 Field Supplies................... 14 2,560 ............ 2,560 Office Supplies ................. 15 300 ............ 300 23 3 Land .................................. 19 45,000 ............ 45,000 24 4 Hydro Supply Co. ............ ............. 4,380 4,380 26 5 Test-Rite Equipment Co. . ............. 16,900 16,900 30 6 Best Office Supply Co. .... ............. 375 375 30 7 Salary Expense................. 61 22,400 ............ 22,400 30 Total .................................. 71,960 21,655 93,615 ( ) (21) (11) 1. and 2. JOURNAL PAGE 1 Post. Date Description Ref. Debit Credit

2012 Nov. 30 Land ........................................................ 19 8,000 Field Equipment................................. 17 8,000




1. ACCOUNTS PAYABLE SUBSIDIARY LEDGER

Best Office Supply Co. Post. Date Item Ref. Dr. Cr. Balance

2012 Nov. 17 ............................................ P1 ............ 375 375 23 ............................................ P1 ............ 580 955 30 ............................................ CP1 375 ............. 580 Hydro Supply Co.

2012 Nov. 16 ............................................ P1 ............ 4,380 4,380 24 ............................................ CP1 4,380 ............. — 30 ............................................ P1 ............ 5,900 5,900 Test-Rite Equipment Co.

2012 Nov. 16 ............................................ P1 ............ 16,900 16,900 26 ............................................ CP1 16,900 ............. — 30 ............................................ P1 ............ 4,600 4,600






2012 Nov. 30 .......................................... CP1 .......... 93,615 .......... 93,615 Field Supplies 14

2012 Nov. 19 .......................................... CP1 2,560 .......... 2,560 .......... 30 .......................................... P1 11,180 .......... 13,740 .......... Office Supplies 15

2012 Nov. 19 .......................................... CP1 300 .......... 300 .......... 30 .......................................... P1 955 .......... 1,255 .......... Field Equipment 17

2012 Nov. 16 .......................................... P1 16,900 .......... 16,900 .......... 30 .......................................... P1 3,700 .......... 20,600 .......... 30 .......................................... J1 .......... 8,000 12,600 .......... Land 19

2012 Nov. 23 .......................................... CP1 45,000 .......... 45,000 .......... 30 .......................................... J1 8,000 .......... 53,000 .......... Accounts Payable 21

2012 Nov. 30 .......................................... P1 .......... 32,735 .......... 32,735 30 .......................................... CP1 21,655 .......... .......... 11,080




GENERAL LEDGER

Salary Expense 61 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 Nov. 30 .......................................... CP1 22,400 .......... 22,400 .......... Rent Expense 71

2012 Nov. 16 .......................................... CP1 1,700 .......... 1,700 .......... 4.

GREEN MOUTAIN WATER TESTING SERVICE Accounts Payable Subsidiary Ledger Balances

November 30, 2012

Best Office Supply Co. ....................................................................... $ 580 Hydro Supply Co. ............................................................................... 5,900 Test-Rite Equipment Co. .................................................................... 4,600 Total accounts payable....................................................................... $11,080* *The total of the schedule of accounts payable is equal to the balance of the accounts payable control account.

5. A subsidiary ledger for the field equipment would allow the company to track each individual piece of equipment with respect to cost, location, useful life, and other data. Such information would be useful for safeguarding equipment and determining depreciation.



Prob. 5–5A

1., 3., and 4. GENERAL LEDGER


2012 July 1 Balance............................. .......... .......... 167,900 .......... 31 .......................................... CR31 58,160 .......... 226,060 .......... 31 .......................................... CP34 .......... 129,835 96,225 ..........

Accounts Receivable 12

2012 July 1 Balance............................. .......... .......... 15,180 .......... 31 .......................................... R35 24,740 .......... 39,920 .......... 31 .......................................... CR31 .......... 17,860 22,060 ..........

Maintenance Supplies 14

2012 July 1 Balance............................. .......... .......... 10,850 .......... 20 .......................................... J1 .......... 4,000 6,850 .......... 31 .......................................... P37 3,850 .......... 10,700 ..........

Office Supplies 15

2012 July 1 Balance............................. .......... .......... 4,900 .......... 31 .......................................... CP34 800 .......... 5,700 .......... 31 .......................................... P37 1,070 .......... 6,770 ..........

Office Equipment 16

2012 July 1 Balance............................. .......... .......... 28,500 .......... 6 .......................................... P37 5,200 .......... 33,700 ..........

Accumulated Depreciation—Office Equipment 17

2012 July 1 Balance............................. .......... .......... .......... 6,900




GENERAL LEDGER

Vehicles 18 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 July 1 Balance............................. .......... .......... 95,900 .......... 5 .......................................... P37 34,600 .......... 130,500 .......... 16 .......................................... CP34 42,100 .......... 172,600 .......... Accumulated Depreciation—Vehicles 19

2012 July 1 Balance............................. .......... .......... .......... 14,700 Accounts Payable 21

2012 July 1 Balance............................. .......... .......... .......... 5,435 31 .......................................... P37 .......... 44,720 .......... 50,155 31 .......................................... CP34 45,235 .......... .......... 4,920 J. Bourne, Capital 31

2012 July 1 Balance............................. .......... .......... .......... 296,195 J. Bourne, Drawing 32

2012 July 24 .......................................... CP34 3,000 .......... 3,000 .......... Fees Earned 41

2012 July 16 .......................................... CR31 .......... 18,900 .......... 18,900 31 .......................................... CR31 .......... 21,400 .......... 40,300 31 .......................................... R35 .......... 24,740 .......... 65,040




GENERAL LEDGER

Driver Salaries Expense 51 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 July 30 .......................................... CP34 18,900 .......... 18,900 .......... Maintenance Supplies Expense 52

2012 July 20 .......................................... J1 4,000 .......... 4,000 .......... Fuel Expense 53

2012 July 9 .......................................... CP34 900 .......... 900 .......... Office Salaries Expense 61

2012 July 30 .......................................... CP34 8,300 .......... 8,300 .......... Rent Expense 62

2012 July 1 .......................................... CP34 7,500 .......... 7,500 .......... Advertising Expense 63

2012 July 20 .......................................... CP34 2,350 .......... 2,350 .......... Miscellaneous Administrative Expense 64

2012 July 17 .......................................... CP34 750 .......... 750 ..........




2. and 4. PURCHASES JOURNAL PAGE 37 Accounts Maintenance Office Other Post. Payable Supplies Supplies Accounts Post. Date Account Credited Ref. Cr. Dr. Dr. Dr. Ref. Amount

2012 July 5 Browning Transportation .. 34,600 ............. ............. Vehicles 18 34,600 6 Austin Computer Co. ......... 5,200 ............. ............. Office Equipment 16 5,200 18 Essential Supply Co. ......... 1,950 1,950 ............. ............................ ............ 19 McClain Co. ....................... 2,370 1,900 470 ............................ ............ 23 Office To Go Inc. ............... 600 ............. 600 ............................ ............ 31 44,720 3,850 1,070 39,800 (21) (14) (15) ( ) CASH RECEIPTS JOURNAL PAGE 31 Other Accounts Post. Accounts Receivable Cash Date Account Credited Ref. Cr. Cr. Dr.

2012 July 3 Trimble Co. ................ ............ 6,700 6,700 10 Sing Co. ..................... ............ 3,980 3,980 12 Capps Co. .................. ............ 2,680 2,680 16 Fees Earned ............... 41 18,900 ............ 18,900 25 Trimble Co. ................ ............ 4,500 4,500 31 Fees Earned ............... 41 21,400 ............ 21,400 31 Total............................ 40,300 17,860 58,160 ( ) (12) (11)





2012 July 2 940 Capps Co. ............................. 2,680 6 941 Dawar Co. .............................. 5,970 10 942 Joy Co. .................................. 2,640 24 943 Sing Co. ................................ 7,000 25 944 Dawar Co. .............................. 6,450 31 24,740 (12) (41) 2. and 4. CASH PAYMENTS JOURNAL PAGE 34 Other Accounts Ck. Post. Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr.

2012 July 1 610 Rent Expense ................... 62 7,500 ............ 7,500 9 611 Fuel Expense.................... 53 900 ............ 900 10 612 Office To Go Inc. .............. ............. 1,040 1,040 11 613 Essential Supply Co......... ............. 3,670 3,670 11 614 Porter Co........................... ............. 725 725 13 615 Browning Transportation ............. 34,600 34,600 16 616 Vehicles ............................ 18 42,100 ............ 42,100 17 617 Misc. Admin. Expense ..... 64 750 ............ 750 20 618 Advertising Expense........ 63 2,350 ............ 2,350 24 619 J. Bourne, Drawing .......... 32 3,000 ............ 3,000 26 620 Austin Computer Co. ...... ............. 5,200 5,200 30 621 Driver Salaries Expense .. 51 18,900 ............ 18,900 Office Salaries Expense .. 61 8,300 ............ 8,300 31 622 Office Supplies ................. 15 800 ............ 800 31 84,600 45,235 129,835 ( ) (21) (11)




3. JOURNAL PAGE 1 Post. Date Description Ref. Debit Credit

2012 July 20 Maintenance Supplies Expense............ 52 4,000 Maintenance Supplies ....................... 14 4,000 5.

SURE N’ SAFE COURIER COMPANY Unadjusted Trial Balance

July 31, 2012

Debit Credit Balances Balances

Cash.............................................................................. 96,225 Accounts Receivable .................................................. 22,060 Maintenance Supplies................................................. 10,700 Office Supplies ............................................................ 6,770 Office Equipment......................................................... 33,700 Accumulated Depreciation—Office Equipment ........ 6,900 Vehicles........................................................................ 172,600 Accumulated Depreciation—Vehicles ....................... 14,700 Accounts Payable........................................................ 4,920 J. Bourne, Capital ........................................................ 296,195 J. Bourne, Drawing...................................................... 3,000 Fees Earned ................................................................. 65,040 Driver Salaries Expense.............................................. 18,900 Maintenance Supplies Expense ................................. 4,000 Fuel Expense ............................................................... 900 Office Salaries Expense.............................................. 8,300 Rent Expense............................................................... 7,500 Advertising Expense ................................................... 2,350 Miscellaneous Administrative Expense .................... 750 387,755 387,755



Prob. 5–1B


2012 Mar. 18 1 Murphy Co. ............................ 410

20 2 Qwik-Mart Co......................... 290 24 3 Goforth Co............................. 625 27 4 Carson Co.............................. 510 28 5 Amber Waves Co. ................ 100 30 6 Qwik-Mart Co......................... 140

31 7 Goforth Co............................. 245 31 2,320 (12) (41) JOURNAL PAGE 1 Post. Date Description Ref. Debit Credit

2012 Mar. 28 Supplies .................................................. 14 90 Fees Earned ....................................... 41 90



Prob. 5–1B (Continued)

1. ACCOUNTS RECEIVABLE LEDGER

Amber Waves Co. Post. Date Item Ref. Dr. Cr. Balance

2012 Mar. 28 ............................................ R1 100 ............. 100 Carson Co.

2012 Mar. 27 ............................................ R1 510 ............. 510 Goforth Co.

2012 Mar. 24 ............................................ R1 625 ............. 625 31 ............................................ R1 245 ............. 870 Murphy Co.

2012 Mar. 18 ............................................ R1 410 ............. 410 Qwik-Mart Co.

2012 Mar. 20 ............................................ R1 290 ............. 290 30 ............................................ R1 140 ............. 430



Prob. 5–1B (Concluded)

2. GENERAL LEDGER

Accounts Receivable 12 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 Mar. 31 .......................................... R1 2,320 .......... 2,320 .......... Supplies 14

2012 Mar. 28 .......................................... J1 90 .......... 90 .......... Fees Earned 41

2012 Mar. 28 .......................................... J1 .......... 90 .......... 90 31 .......................................... R1 .......... 2,320 .......... 2,410 3. a. $2,320 ($100 + $510 + $870 + $410 + $430) b. $2,320 4. The computerized system is much more efficient. Each sales transaction

would be entered into an electronic invoice form. The postings to the accounts receivable subsidiary and fees earned ledgers would be automatic. Also, all sums and totals in the subsidiary ledgers are calculated automati-cally. There would be no separate postings to an accounts receivable control account, because there would be no need to verify the accuracy of account totals. There would not be a math or posting error. The computerized system would also provide management current customer account balance informa-tion, since the postings are automatic.



Prob. 5–2B



2012 Apr. 1 Balance............................. .......... .......... 18,340 .......... 30 .......................................... CR36 7,690 .......... 26,030 .......... Accounts Receivable 12

2012 Apr. 1 Balance............................. .......... .......... 2,260 .......... 30 .......................................... J1 .......... 1,500 760 .......... 30 .......................................... R40 4,945 .......... 5,705 .......... 30 .......................................... CR36 .......... 3,740 1,965 .......... Office Equipment 18

2012 Apr. 1 Balance............................. .......... .......... 34,700 .......... 30 .......................................... J1 1,500 .......... 36,200 .......... Fees Earned 41

2012 Apr. 30 .......................................... R40 .......... 4,945 .......... 4,945 30 .......................................... CR36 .......... 3,950 .......... 8,895




2. and 4. ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

Auto-Flex Co. Post. Date Item Ref. Dr. Cr. Balance

2012 Apr. 1 Balance............................... ............ ............. 1,460 3 ............................................ CR36 ............ 1,460 — 23 ............................................ R40 790 ............. 790 Park Development Co.

2012 Apr. 1 Balance............................... ............ ............. 800 7 ............................................ R40 530 ............. 1,330 14 ............................................ CR36 ............ 800 530 16 ............................................ R40 325 ............. 855 20 ............................................ CR36 ............ 530 325 Ridge Communities

2012 Apr. 10 ............................................ R40 2,350 ............. 2,350 30 ............................................ J1 ............ 1,500 850 Yee Co.

2012 Apr. 2 ............................................ R40 950 ............. 950 18 ............................................ CR36 ............ 950 —




3., 4., and 5. REVENUE JOURNAL PAGE 40 Invoice Post. Accounts Rec. Dr. Date No. Account Debited Ref. Fees Earned Cr.

2012 Apr. 2 717 Yee Co. ................................. 950 7 718 Park Development Co. ......... 530 10 719 Ridge Communities .............. 2,350 16 720 Park Development Co. ......... 325 23 721 Auto-Flex Co. ........................ 790 30 4,945 (12) (41) CASH RECEIPTS JOURNAL PAGE 36 Fees Accts. Post. Earned Rec. Cash Date Account Credited Ref. Cr. Cr. Dr.

2012 Apr. 3 Auto-Flex Co. .................... ............ 1,460 1,460 14 Park Development Co. ..... ............ 800 800 18 Yee Co................................ ............ 950 950 20 Park Development Co. ..... ............ 530 530 30 Fees Earned ...................... 3,950 ............ 3,950 30 3,950 3,740 7,690 (41) (12) (11) JOURNAL PAGE 1 Post. Date Description Ref. Debit Credit

2012 Apr. 30 Office Equipment ........................................ 18 1,500 Accounts Receivable—Ridge Communities ...................................... 12/ 1,500

The subsidiary account for Ridge Communities must also be posted for a $1,500 credit. 6. The subsidiary ledger is in agreement with the controlling account. Both have

balances of $1,965 ($790 + $325 + $850).




7. In an automated system, individual sales transactions are posted automati-cally to the general ledger at the time of the original transaction. Thus, there is no need to post summary totals to the general ledger accounts. The ac-counts receivable account reported on the balance sheet is often merely the sum of the individual customer accounts.



Prob. 5–3B


Field Supplies 14 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr. 2012 Aug. 1 Balance............................. .......... .......... 6,200 .......... 31 .......................................... P30 14,410 .......... 20,610 .......... Office Supplies 15

2012 Aug. 1 Balance............................. .......... .......... 1,490 .......... 31 .......................................... P30 895 .......... 2,385 .......... Office Equipment 18

2012 Aug. 1 Balance............................. .......... .......... 19,400 .......... 19 .......................................... P30 7,350 .......... 26,750 .......... Accounts Payable 21

2012 Aug. 1 Balance............................. .......... .......... .......... 4,715 31 .......................................... P30 .......... 22,655 .......... 27,370




2. and 3. ACCOUNTS PAYABLE SUBSIDIARY LEDGER

Accu-Vision Supply Co. Post. Date Item Ref. Dr. Cr. Balance

2012 Aug. 1 Balance............................... ............ ............. 3,600 19 ............................................ P30 ............ 7,350 10,950 J-Mart Co.

2012 Aug. 1 Balance............................... ............ ............. 690 15 ............................................ P30 ............ 400 1,090 26 ............................................ P30 ............ 205 1,295 Lassiter Co.

2012 Aug. 1 Balance............................... ............ ............. 425 3 ............................................ P30 ............ 290 715 Ready Supplies

2012 Aug. 8 ............................................ P30 ............ 3,900 3,900 23 ............................................ P30 ............ 2,140 6,040 30 ............................................ P30 ............ 2,750 8,790 Wendell Co.

2012 Aug. 1 ............................................ P30 ............ 2,670 2,670 12 ............................................ P30 ............ 2,950 5,620




3. and 4. PURCHASES JOURNAL PAGE 30 Accounts Field Office Other Post. Payable Supplies Supplies Accounts Post. Date Account Credited Ref. Cr. Dr. Dr. Dr. Ref. Amount

2012 Aug. 1 Wendell Co. .................... 2,670 2,670 ............. ............................ ............ 3 Lassiter Co. .................... 290 ............. 290 ............................ ............ 8 Ready Supplies ............... 3,900 3,900 ............. ............................ ............ 12 Wendell Co. .................... 2,950 2,950 ............. ............................ ............ 15 J-Mart Co. ....................... 400 ............. 400 ............................ ............ 19 Accu-Vision Supply Co. 7,350 ............. ............. Office Equipment 18 7,350 23 Ready Supplies. .............. 2,140 2,140 ............. ............................ ............ 26 J-Mart Co. ....................... 205 ............. 205 ............................ ............ 30 Ready Supplies ............... 2,750 2,750 ............. ............................ ............ 31 22,655 14,410 895 7,350 (21) (14) (15) ( ) 5. a. $27,370 ($10,950 + $1,295 + $715 + $8,790 + $5,620) b. $27,370 6. Supply chain management e-commerce applications are used to plan and coordinate suppliers.



Prob. 5–4B

1., 2., and 3. PURCHASES JOURNAL PAGE 1 Accounts Field Office Other Post. Payable Supplies Supplies Accounts Post. Date Account Credited Ref. Cr. Dr. Dr. Dr. Ref. Amount

2012 July 16 Petro Services Inc. ......... 26,400 ............. ............. Field Equipment 17 26,400 17 Culver Supply Co. .......... 8,750 8,750 ............. ............................ ............ 20 A-One Office Supply Co. 1,200 ............. 1,200 ............................ ............ 28 A-One Office Supply Co. 2,970 ............. 2,970 ............................ ............ 30 Petro Services Inc. ......... 27,180 22,980 ............. Office Equipment 18 4,200 30 Culver Supply Co. .......... 10,200 10,200 ............. ............................ ............ 31 76,700 41,930 4,170 30,600 (21) (14) (15) ( )




1. and 2. JOURNAL PAGE 1

Post. Date Description Ref. Debit Credit

2012 July 31 Prepaid Rent ........................................... 16 14,000 Field Equipment................................. 17 14,000 1., 2., and 3. CASH PAYMENTS JOURNAL PAGE 1 Other Accounts Ck. Post. Accounts Payable Cash Date No. Account Debited Ref. Dr. Dr. Cr.

2012 July 16 1 Rent Expense ..................... 71 6,000 ............ 6,000 18 2 Field Supplies..................... 14 3,150 ............ 3,150 Office Supplies ................... 15 500 ............ 500 24 3 Petro Services Inc. ............. ............. 26,400 26,400 26 4 Culver Supply Co. .............. ............. 8,750 8,750 28 5 Land .................................... 19 190,000 ............ 190,000 30 6 A-One Office Supply Co. ... ............. 1,200 1,200 31 7 Salary Expense................... 61 29,000 ............ 29,000 31 Total .................................... 228,650 36,350 265,000 ( ) (21) (11)




1. ACCOUNTS PAYABLE LEDGER

A-One Office Supply Co. Post. Date Item Ref. Dr. Cr. Balance

2012 July 20 ............................................ P1 ............ 1,200 1,200 28 ............................................ P1 ............ 2,970 4,170 30 ............................................ CP1 1,200 ............. 2,970 Culver Supply Co.

2012 July 17 ............................................ P1 ............ 8,750 8,750 26 ............................................ CP1 8,750 ............. — 30 ............................................ P1 ............ 10,200 10,200 Petro Services Inc.

2012 July 16 ............................................ P1 ............ 26,400 26,400 24 ............................................ CP1 26,400 ............. — 30 ............................................ P1 ............ 27,180 27,180






2012 July 31 .......................................... CP1 .......... 265,000 .......... 265,000

Field Supplies 14

2012 July 18 .......................................... CP1 3,150 .......... 3,150 .......... 31 .......................................... P1 41,930 .......... 45,080 ..........

Office Supplies 15

2012 July 18 .......................................... CP1 500 .......... 500 .......... 31 .......................................... P1 4,170 .......... 4,670 ..........

Prepaid Rent 16

2012 July 31 .......................................... J1 14,000 .......... 14,000 ..........

Field Equipment 17

2012 July 16 .......................................... P1 26,400 .......... 26,400 .......... 31 .......................................... J1 .......... 14,000 12,400 .......... Office Equipment 18

2012 July 30 .......................................... P1 4,200 .......... 4,200 .......... Land 19

2012 July 28 .......................................... CP1 190,000 .......... 190,000 ..........




GENERAL LEDGER

Accounts Payable 21 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 July 31 .......................................... P1 .......... 76,700 .......... 76,700 31 .......................................... CP1 36,350 .......... .......... 40,350 Salary Expense 61

2012 July 31 .......................................... CP1 29,000 .......... 29,000 .......... Rent Expense 71

2012 July 16 .......................................... CP1 6,000 .......... 6,000 .......... 4.

TEXAS TEA EXPLORATION CO. Accounts Payable Subsidiary Ledger Balances

July 31, 2012

A-One Office Supply Co. ............................................................. $ 2,970 Culver Supply Co.......................................................................... 10,200 Petro Services Inc. ...................................................................... 27,180 Total accounts payable................................................................ $40,350* *The total of the schedule of accounts payable is equal to the balance of the accounts payable control account.

5. A subsidiary ledger for the field equipment would allow the company to track each individual piece of equipment with respect to cost, location, useful life, and other data. Such information would be useful for safeguarding equipment and determining depreciation.



Prob. 5–5B

1., 3., and 4. GENERAL LEDGER


2012 May 1 Balance............................. .......... .......... 65,200 .......... 31 .......................................... CR31 84,390 .......... 149,590 .......... 31 .......................................... CP34 .......... 117,805 31,785 ..........

Accounts Receivable 12

2012 May 1 Balance............................. .......... .......... 28,890 .......... 31 .......................................... R35 35,450 .......... 64,340 .......... 31 .......................................... CR31 .......... 34,890 29,450 ..........

Maintenance Supplies 14

2012 May 1 Balance............................. .......... .......... 7,240 .......... 20 .......................................... J1 .......... 4,200 3,040 .......... 31 .......................................... P37 4,290 .......... 7,330 ..........

Office Supplies 15

2012 May 1 Balance............................. .......... .......... 3,690 .......... 31 .......................................... CP34 560 .......... 4,250 .......... 31 .......................................... P37 2,790 .......... 7,040 ..........

Office Equipment 16

2012 May 1 Balance............................. .......... .......... 17,300 .......... 3 .......................................... P37 640 .......... 17,940 ..........

Accumulated Depreciation—Office Equipment 17

2012 May 1 Balance............................. .......... .......... .......... 4,250




GENERAL LEDGER

Vehicles 18 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 May 1 Balance............................. .......... .......... 62,400 .......... 2 .......................................... P37 23,700 .......... 86,100 .......... 16 .......................................... CP34 24,000 .......... 110,100 ..........

Accumulated Depreciation—Vehicles 19

2012 May 1 Balance............................. .......... .......... .......... 17,800

Accounts Payable 21

2012 May 1 Balance............................. .......... .......... .......... 2,325 31 .......................................... P37 .......... 31,420 .......... 33,745 31 .......................................... CP34 26,665 .......... .......... 7,080

J. Wu, Capital 31

2012 May 1 Balance............................. .......... .......... .......... 160,345

J. Wu, Drawing 32

2012 May 27 .......................................... CP34 3,500 .......... 3,500 ..........

Fees Earned 41

2012 May 16 .......................................... CR31 .......... 24,600 .......... 24,600 31 .......................................... CR31 .......... 22,400 .......... 47,000 31 .......................................... R35 .......... 35,450 .......... 82,450

Rent Revenue 42

2012 May 18 .......................................... CR31 .......... 2,500 .......... 2,500




GENERAL LEDGER

Driver Salaries Expense 51 Post. Balance Date Item Ref. Dr. Cr. Dr. Cr.

2012 May 30 .......................................... CP34 29,300 .......... 29,300 ..........

Maintenance Supplies Expense 52

2012 May 20 .......................................... J1 4,200 .......... 4,200 ..........

Fuel Expense 53

2012 May 9 .......................................... CP34 710 .......... 710 ..........

Office Salaries Expense 61

2012 May 31 .......................................... CP34 19,400 .......... 19,400 ..........

Rent Expense 62

2012 May 1 .......................................... CP34 1,500 .......... 1,500 ..........

Advertising Expense 63

2012 May 20 .......................................... CP34 7,810 .......... 7,810 ..........

Miscellaneous Administrative Expense 64

2012 May 17 .......................................... CP34 4,360 .......... 4,360 ..........




2. and 4. PURCHASES JOURNAL PAGE 37 Accounts Maintenance Office Other Post. Payable Supplies Supplies Accounts Post. Date Account Credited Ref. Cr. Dr. Dr. Dr. Ref. Amount

2012 May 2 McIntyre Sales Co. .......... 23,700 ............ ............. Vehicles 18 23,700 3 Office Mate Inc. .............. 640 ............ ............. Office Equipment 16 640 18 Bastille Co. ..................... 1,790 1,790 ............. ............................ ............ 19 Master Supply Co. .......... 4,500 2,500 2,000 ............................ ............ 21 Office City........................ 790 ............ 790 ............................ ............ 31 Total ................................. 31,420 4,290 2,790 24,340 (21) (14) (15) ( ) CASH RECEIPTS JOURNAL PAGE 31 Other Accounts Post. Accounts Receivable Cash Date Account Credited Ref. Cr. Cr. Dr.

2012 May 6 Chavez Co. ................ ............ 6,890 6,890 10 Sajeev Co. .................. ............ 9,500 9,500 12 Martin Co.................... ............ 6,000 6,000 16 Fees Earned ............... 41 24,600 ............ 24,600 18 Rent Revenue ............ 42 2,500 ............ 2,500 25 Chavez Co. ................ ............ 12,500 12,500 31 Fees Earned ............... 41 22,400 ............ 22,400 Total............................ 49,500 34,890 84,390 ( ) (12) (11)





2012 May 5 91 Martin Co. ............................. 6,000 7 92 Trent Co. ................................ 8,650 11 93 Jarvis Co................................ 6,900 24 94 Sajeev Co. ............................. 8,000 25 95 Trent Co. ................................ 5,900 31 Total ....................................... 35,450 (41) (12)


2012 May 1 205 Rent Expense ................... 62 1,500 ............ 1,500 9 206 Fuel Expense.................... 53 710 ............ 710 10 207 Office City ......................... ............. 500 500 10 208 Bastille Co......................... ............. 1,450 1,450 11 209 Porter Co. ......................... ............. 375 375 13 210 McIntyre Sales Co. ........... ............. 23,700 23,700 16 211 Vehicles ............................ 18 24,000 ............ 24,000 17 212 Misc. Admin. Expense ..... 64 4,360 ............ 4,360 20 213 Advertising Expense........ 63 7,810 ............ 7,810 26 214 Office Mate Inc. ................ ............. 640 640 27 215 J. Wu, Drawing ................. 32 3,500 ............ 3,500 30 216 Driver Salaries Expense .. 51 29,300 ............ 29,300 31 217 Office Salaries Expense .. 61 19,400 ............ 19,400 31 218 Office Supplies ................. 15 560 ............ 560 31 Total .................................. 91,140 26,665 117,805 ( ) (21) (11)




3. JOURNAL PAGE 1 Post. Date Description Ref. Debit Credit

2012 May 20 Maintenance Supplies Expense............ 52 4,200 Maintenance Supplies ....................... 14 4,200

5. BY TOMORROW EXPRESS COMPANY

Unadjusted Trial Balance May 31, 2012

Debit Credit Balances Balances

Cash.............................................................................. 31,785 Accounts Receivable .................................................. 29,450 Maintenance Supplies................................................. 7,330 Office Supplies ............................................................ 7,040 Office Equipment......................................................... 17,940 Accumulated Depreciation—Office Equipment ........ 4,250 Vehicles........................................................................ 110,100 Accumulated Depreciation—Vehicles ....................... 17,800 Accounts Payable........................................................ 7,080 J. Wu, Capital ............................................................... 160,345 J. Wu, Drawing............................................................. 3,500 Fees Earned ................................................................. 82,450 Rent Revenue............................................................... 2,500 Driver Salaries Expense.............................................. 29,300 Maintenance Supplies Expense ................................. 4,200 Fuel Expense ............................................................... 710 Office Salaries Expense.............................................. 19,400 Rent Expense............................................................... 1,500 Advertising Expense ................................................... 7,810 Miscellaneous Administrative Expense .................... 4,360 274,425 274,425



CASES & PROJECTS

CP 5–1

a. The half-price offer is a normal business practice, so long as it is not the result of price collusion with other competitors or considered “unfair pricing” ac-cording to federal statutes. Many businesses will offer low initial offers to en-tice customers to a subscription service. For example, cable and satellite companies will often offer premium channels, such as HBO, for free for the first several months of service. The business objective of low initial pricing is to demonstrate the value of the service so that customers will elect to con-tinue the service at the full subscription price. Thus, there is nothing inher-ently unethical about such a practice, and it would be considered a fairly typi-cal business practice.

b. Customer “lock in” can be unethical if it is the result of price fixing or acquir-ing competitors in order to achieve monopolistic concentration within an industry. However, in this case, the customer lock in is a function and nature of the product. Namely, the data that are created by the product cannot be eas-ily migrated to another application. Note, E-Biz Financial is not denying the customer ownership of the data, rather it is making it costly to switch. Such lock in is not considered an unethical business practice. Indeed, we see such lock in characteristics in many settings. For example:

Razor blades are designed to be used only by the handle of the manufacturer.

Thus, customers become locked in to the razor blades of the handle manufac-turer. This is such a common strategy in many arenas that it has been termed the “razor blade strategy.”

Movie theaters prevent customers from walking in with refreshments, thus

locking theater goers in to the popcorn and refreshment stand of the theater. Theater pricing of refreshments reflects this lock in.

Sony designs video games so that they only work on its Play Station® equip-

ment. Therefore, the games are locked in to the consoles. This allows Sony and its licensees to limit and control competition for games.

Many manufacturers control replacement parts for equipment by custom

designing the parts. Customers then become locked into the original manufac-turer for replacement parts.

Apple Computer’s iTunes can only be played on an iTunes compatible player.

Thus, Apple reduces competition for songs for its player and locks customers into its music platform. Apple employs the same lock in strategy for its Mac operating system.



CP 5–2

Dan is missing some of the principal benefits of the computerized system. There are three primary advantages of a computerized system. First, the computerized system is much more efficient and accurate at transaction processing. In the computerized system, once the transaction data have been input, the information is simultaneously recorded in the electronic journal (file) and posted to the ledger accounts. This saves a significant amount of time in recording and posting trans-actions. Second, the computerized environment is less prone to mathematical, posting, and recording errors. The computer does not make these types of mis-takes. Thus, the computerized environment should require less time correcting errors. Third, the computerized system provides more timely information to man-agement because account balances are always kept current. Under the manual system, ledger accounts will only be as current as the latest posting date, but the computerized system posts every transaction when it is journalized or recorded on a form. Thus, management has more current information with which to make decisions.

As an additional note, Dan may be reacting out of some fear of the unknown. This is a common reaction to change. Thus, Dan may be overreacting to the new com-puter environment because it will require significant change in the way the job is done as compared to the manual approach.

CP 5–3

a. The accounts receivable and accounts payable accounts consist of transac-tions made to individual customers and vendors. In both cases, the subsidiary ledger tracks what is collectible from customers or owed to suppliers. Thus, the subsidiary ledger is required for tracking the collection and payment proc-ess to individual customers and vendors, respectively.

b. The equipment account could use a subsidiary ledger. The subsidiary ledger

for equipment would track individual items of equipment, including their cost, location, and useful lives. The subsidiary ledger would be useful to determin-ing equipment depreciation and safeguarding equipment assets.



CP 5–4

1. Special journals are used to reduce the processing time and expense to re-cord transactions. A special journal is usually created when a specific type of transaction occurs frequently enough so that the use of the traditional two-column journal becomes cumbersome. The frequency of transactions for PHS would probably justify the following special journals:

Purchases journal Cash payments journal Revenue journal Cash receipts journal

Note to Instructors: The number and nature of the special journals to be es-tablished for PHS involve judgment. Differences of opinion may exist as to whether all the preceding special journals are necessary or cost-efficient. You may wish to use this time to comment further on the costs of establishing special journals and the potential benefits of reducing the processing time to record transactions.



CP 5–4 (Concluded)

2. PURCHASES JOURNAL PAGE 1 Accounts Medical Office Other Post. Payable Supplies Supplies Accounts Post. Date Account Credited Ref. Cr. Dr. Dr. Dr. Ref. Amount REVENUE JOURNAL PAGE 1 Invoice Post. Accounts Rec. Dr. Date No. Account Debited Ref. Fees Earned Cr. 3. The business should maintain subsidiary ledgers for customer accounts receivable, supplier accounts pay-

able, and medical equipment.



CP 5–5

MEMORANDUM

To: Senior Management

From: Student

Re: Internet-based accounting software

A new approach to automating our accounting requirements is now available. It is called Internet-based accounting using an application service provider (ASP). Ra-ther than purchasing our accounting software and loading it on our own com-puters, Internet-based accounting software is rented and resides on the pro-vider’s computers. Our data, along with the accounting software, stay with the provider. There are several advantages to this approach.

1. We don’t need to administer the application or data on our own computers. This becomes the job of the service provider, thus saving us computer sys-tem personnel costs. All we need is a desktop computer and browser to use the software.

2. Our people can work with our data anytime or anyplace. We don’t need to rely on our own internal computer network for accounting-related work. Instead, the Internet-based product is available on the Internet. This means that we can enter transactions and access our accounting data from anywhere in the world, rather than having to be plugged into our corporate network. This also will save us network support costs.

3. We never need to purchase and load software upgrades. All upgrades are provided on the provider’s server when they are available. Thus, we are al-ways using the latest version.

4. Providers promise a highly secure environment for our data. 5. An Internet-based accounting system should help us when passing data,

such as orders, between ourselves and our customers and suppliers. There are also a number of disadvantages we need to consider.

1. The cost of the software is recurring. Thus, we are trading off the recurring costs of maintaining our system infrastructure for the recurring cost of the service. A financial analysis should be conducted to determine if the service is cost effective.

2. The Internet can be slow. During busy times, we may experience slow re-sponse times.

3. Our data physically reside with the service provider. Thus, we don’t control the security of our own data; the provider does. Our data are our lifeblood, so confidence in the provider’s controls is paramount.

4. Once we begin, we will become “locked in” to the provider. It will be hard to change our mind at a later date. However, this is also true for purchased software to some extent.



CP 5–6

Note to Instructors: While the list of functions can be quite large, the key func-tions are identified below. The purpose of these functions will be fairly advanced for most students. The activity asks for a listing rather than an explanation be-cause most students would have very limited experience by which to provide much explanation. Use this case to demonstrate the scope and basic nature of these application tools. Selected I2 Technologies Supply Chain Management Solutions

• Collaborative material management • Collaborative replenishment • Collaborative supply chain execution • Collaborative supply execution • Consolidated procurement • Customer order management • Forecast optimization • Inventory optimization • Multi-enterprise interactive • Replenishment planner • Supply chain visibility Selected Salesforce.com Customer Relationship Management Solutions

• Provide the sales force with real-time information about all customer contacts with the firm in order to improve the effectiveness of the sales call.

• Provide real-time forecast estimation and accumulation tools. • Support promotion plans and integrate the plans with forecasting and manu-

facturing. • Decision tools for evaluating marketing campaign effectiveness. • Tools to support call center responsiveness.