PROBLEM 5.

July 1 Inventory ....................................................... 1,620

Accounts Payable ................................. 1,620

3 Accounts Receivable ................................... 2,200

Sales Revenue ...................................... 2,200

Cost of Goods Sold ...................................... 1,400

Inventory ............................................... 1,400

9 Accounts Payable ........................................ 1,620

Inventory
(£1,620 × .02) ..................................... 32
Cash....................................................... 1,588

12 Cash .............................................................. 2,178

Sales Discounts (£2,200 × .01) .................... 22
Accounts Receivable ............................ 2,200

17 Accounts Receivable ................................... 1,400

Sales Revenue ...................................... 1,400

Cost of Goods Sold ...................................... 1,030

Inventory ............................................... 1,030

18 Inventory ....................................................... 1,900

Accounts Payable ................................. 1,900

Inventory ....................................................... 125

Cash....................................................... 125

20 Accounts Payable ........................................ 300

Inventory ............................................... 300

21 Cash .............................................................. 1,386

Sales Discounts (£1,400 × .01) .................... 14
Accounts Receivable ............................ 1,400
PROBLEM 5.1 (Continued)

July 22 Accounts Receivable ................................... 2,400

Sales Revenue ...................................... 2,400

Cost of Goods Sold ...................................... 1,350

Inventory ............................................... 1,350

30 Accounts Payable ........................................ 1,600

Cash....................................................... 1,600

31 Sales Returns and Allowances ..................... 200

Accounts Receivable ............................ 200

Inventory ....................................................... 120

Cost of Goods Sold .............................. 120
 *PROBLEM 5.6

HOTAI DEPARTMENT STORE

Income Statement (Partial)
For the Year Ended December 31, 2025

Sales
Sales revenue .................................... NT$21,540,000
Less: Sales returns and
allowances .......................... 510,000
Net sales .......................................... 21,030,000
Cost of goods sold
Inventory, January 1 ......................... NT$1,215,000
Purchases .......................................... NT$13,200,000
Less: Purchase returns
and allowances ................... NT$192,000
Purchase discounts............ 360,000 552,000
Net purchases ................................... 12,648,000
Add: Freight-in ................................ 165,000
Cost of goods purchased .................. 12,813,000
Cost of goods available
for sale .................................... 14,028,000
Less: Inventory, December 31.............. 1,950,000
Cost of goods sold ................... 12,078,000
Gross profit ................................................ NT$8,952,000

[(Sales rev. – Sales. rtns. ÷ allow.) – (Beg. Inv. + Purch. - Purch. rtns. & allow. – Purch. disc. + Freight-in – End inv.)]
[(NT$21,540,000 – NT$510,000) – (NT$1,215,000 + NT$13,200,000 – NT$192,000 – NT$360,000 + NT$165,000 – NT$1,950,000)]
EXERCISE 7.14

(a) Cash and cash equivalents should be reported at ₹88,500.

Cash in bank ................................................... ₹42,000
Cash on hand .................................................. 12,000
Petty cash ........................................................ 500
Highly liquid investments............................... 34,000
₹88,500
(b) “Cash in plant expansion fund” should be reported as part of long-term
investments (a noncurrent asset). “Receivables from customers” should be
reported as accounts receivable in the current assets. “Debt investments”
should also be reported in the current assets (because the intent is to sell
them in less than one year).
 PROBLEM 6.3

(a) COST OF GOODS AVAILABLE FOR SALE

Date Explanation Units Unit Cost Total Cost
1/1 Beginning Inventory 400 £ 8 £ 3,200
2/20 Purchase 200 9 1,800
5/5 Purchase 500 10 5,000
8/12 Purchase 600 11 6,600
12/8 Purchase 300 12 3,600
Total 2,000 £20,200

(b) FIFO
(1) Ending Inventory (2) Cost of Goods Sold
Unit Total Cost of goods
Date Units Cost Cost available for sale £20,200
12/8 300 £12 £3,600 Less: Ending
8/12 200 11 2,200 inventory 5800
500* £5,800 Cost of goods sold £14,400

*2,000 – 1,500 = 500

Proof of Cost of Goods Sold

Unit Total
Date Units Cost Cost
1/1 400 £ 8 £ 3,200
2/20 200 9 1,800
5/5 500 10 5,000
8/12 400 11 4,400
1,500 £14,400
PROBLEM 6.3 (Continued)

AVERAGE-COST
(1) Ending Inventory (2) Cost of Goods Sold
£20,200 ÷ 2,000 = £10.10 Cost of goods
available for sale £20,200
Unit Total Less: Ending
Units Cost Cost inventory
5,050
500 £10.10 £5,050 Cost of goods sold £15,150
Proof of Cost of Goods Sold
1,500 units × £10.10 = £15,150

(c) (1) Average-cost results in the lower inventory amount for the statement of
financial position, £5,050.

(2) FIFO results in the lower cost of goods sold, £14,400.

 PROBLEM 8.2

(a) £33,000.

(b) £49,500 [(£875,000 × 6%) – £3,000].

[(£875,000 × 6%) - £3,000 = £49,500]

(c) £55,500 [(£875,000 × 6%) + £3,000].

[(£875,000 × 6%) + £3,000 = £55,500]

(d) The weakness of the direct write-off method is two-fold. First, it does not match
expenses with revenues. Second, the accounts receivable is not stated at
cash realizable value at the statement of financial position date.
 PROBLEM 8.4

(a) Total estimated bad debts

Number of Days Outstanding

Total 0–30 31–60 61–90 91–120 Over 120
Accounts
receivable ¥200,000 ¥77,000 ¥46,000 ¥39,000 ¥23,000 ¥15,000
% uncollectible 1% 4% 5% 8% 20%
Estimated
Bad debts ¥ 9,400 ¥ 770 ¥ 1,840 ¥ 1,950 ¥ 1,840 ¥ 3,000

(b) Bad Debt Expense ..................................................... 17,400

Allowance for Doubtful Accounts
[¥9,400 + ¥8,000] ............................................. 17,400

(c) Allowance for Doubtful Accounts ............................ 5,000

Accounts Receivable ........................................... 5,000

(d) Accounts Receivable ................................................ 5,000

Allowance for Doubtful Accounts ....................... 5,000

Cash ........................................................................... 5,000

Accounts Receivable ........................................... 5,000

(e) If Ho Publishers used 4% of total accounts receivable rather than aging the
individual accounts the bad debt expense adjustment would be ¥16,000
[(¥200,000 × 4%) + ¥8,000]. The rest of the entries would be the same as they
were when aging the accounts receivable.

Aging the individual accounts rather than applying a percentage to the total
accounts receivable should produce a more accurate allowance account and
bad debts expense.
 PROBLEM 9.3

(a) (1) Purchase price ................................................................. R$ 35,000

Sales tax ........................................................................... 2,200
Shipping costs ................................................................. 150
Insurance during shipping .............................................. 80
Installation and testing .................................................... 70
Total cost of machine............................................... R$ 37,500

Equipment ............................................................ 37,500

Cash .............................................................. 37,500

(2) Recorded cost .................................................................. R$ 37,500

Less: Residual value ..................................................... 5,000
Depreciable cost .............................................................. 32,500
Years of useful life ........................................................... ÷ 5
Annual depreciation ................................................. R$ 6,500

Depreciation Expense ......................................... 6,500

Accumulated Depreciation—Equipment .... 6,500

(b) (1) Recorded cost .................................................................. R$ 80,000

Less: Residual value ..................................................... 5,000
Depreciable cost .............................................................. 75,000
Years of useful life ........................................................... ÷ 4
Annual depreciation ................................................. R$ 18,750

(2) Book Value at Annual

Beginning DDB Depreciation Accumulated
Year of Year Rate Expense Depreciation
2025 R$80,000 *50%* R$40,000 R$40,000
2026 40,000 *50%* 20,000 60,000
2027 20,000 *50%* 10,000 70,000
2028 10,000 *50%* ** 5,000 75,000

**100% ÷ 4-year useful life = 25% × 2 = 50%.

PROBLEM 9.3 (Continued)

(3) Depreciation cost per unit = (R$80,000 – R$5,000)/125,000 units = R$0.60

per unit.

Annual Depreciation Expense

2025: R$0.60 × 42,000 = R$25,200

2026: 0.60 × 37,000 = 22,200
2027: 0.60 × 28,000 = 16,800
2028: 0.60 × 18,000 = 10,800

(c) The declining-balance method reports the highest amount of depreciation

expense the first year while the straight-line method reports the lowest. In the
fourth year, the straight-line method reports the highest amount of
depreciation expense while the declining-balance method reports the lowest.

These facts occur because the declining-balance method is an accelerated

depreciation method in which the largest amount of depreciation is
recognized in the early years of the asset’s life. If the straight-line method is
used, the same amount of depreciation expense is recognized each year.
Therefore, in the early years less depreciation expense will be recognized
under this method than under the declining-balance method while more will be
recognized in the later years.

The amount of depreciation expense recognized using the units-of-activity

method is dependent on production, so this method could recognize more or
less depreciation expense than the other two methods in any year
depending on output.

No matter which of the three methods is used, the same total amount of
depreciation expense will be recognized over the four-year period.
 PROBLEM 10.2

(a) Jan. 2 Inventory .................................................. 30,000

Accounts Payable............................ 30,000

Feb. 1 Accounts Payable ................................... 30,000

Notes Payable .................................. 30,000

Mar. 31 Interest Expense

(₩30,000 × 9% × 2/12) ......................... 450
Interest Payable ............................... 450
(Interest expense = Face value of note  interest rate  Fraction of yr. outstanding)
(₩450 = ₩30,000  .09  2/12)

Apr. 1 Notes Payable ......................................... 30,000

Interest Payable ...................................... 450
Cash ................................................. 30,450

July 1 Equipment ............................................... 71,000

Cash ................................................. 11,000
Notes Payable .................................. 60,000

Sept. 30 Interest Expense

(₩60,000 × 10% × 3/12)........................ 1,500
Interest Payable ............................... 1,500

Oct. 1 Notes Payable ......................................... 60,000

Interest Payable ...................................... 1,500
Cash ................................................. 61,500

Dec. 1 Cash ......................................................... 24,000

Notes Payable .................................. 24,000

Dec. 31 Interest Expense

(₩24,000 × 8% × 1/12) ......................... 160
Interest Payable ............................... 160
PROBLEM 10.2 (Continued)

(b)
Notes Payable
4/1 30,000 2/1 30,000
10/1 60,000 7/1 60,000
12/1 24,000
12/31 Bal. 24,000

Interest Payable
4/1 450 3/31 450
10/1 1,500 9/30 1,500
12/31 160
12/31 Bal. 160

Interest Expense
3/31 450
9/30 1,500
12/31 160
12/31 Bal. 2,110

(c) Current liabilities

Notes payable ................................................ ₩24,000
Interest payable.............................................. 160 ₩24,160

(d) Total interest is ₩2,110.

 PROBLEM 11.1

(a) 2025
May 1 Cash .................................................... 600,000
Bonds Payable ............................ 600,000

(b) Dec. 31 Interest Expense................................. 36,000

Interest Payable
(CHF600,000 × 9% × 8/12) ........... 36,000
(Interest expense = Face value of bond × Interest rate × Fraction of yr. outstanding)

[CHF36,000 = CHF600,000 × 9% × (8/12)]

(c) Non-current Liabilities

Bonds Payable, due 2030 ............................ CHF600,000
Current Liabilities
Interest Payable ............................................ CHF36,000

(d) 2026
May 1 Interest Payable .................................. 36,000
Interest Expense
(CHF600,000 × 9% × 4/12) ............... 18,000
Cash............................................. 54,000
(Interest expense = Face value of bond × Interest rate × Fraction of yr. outstanding)

[CHF18,000 = CHF600,000 × 9% × (4/12)]

(e) Dec. 31 Interest Expense................................. 36,000

Interest Payable
(CHF600,000 × 9% × 8/12) ....... 36,000
 PROBLEM 13.3

(a) 2025

Aug. 1 Cash (2,000 × ₤0.70) ................................. 1,400

Dividend Revenue ............................. 1,400

Sept. 1 Cash (2,000 × ₤8) ...................................... 16,000

Loss on Sale of Share Investments
(₤18,000 – ₤16,000) ............................... 2,000
Share Investments (2,000 × ₤9*) ...... 18,000
*₤45,000 ÷ 5,000 shs.

Oct. 1 Cash (800 × ₤33) ....................................... 26,400

Share Investments (800 × ₤30**) ...... 24,000
Gain on Sale of Share Investments
(₤26,400 – ₤24,000) ....................... 2,400
**₤60,000 ÷ 2,000 shs.

Nov. 1 Cash (1,500 × ₤1) ...................................... 1,500

Dividend Revenue ............................. 1,500

Dec. 15 Cash [(2,000 - 800) × ₤0.70] ...................... 840

Dividend Revenue ............................. 840

31 Cash [(5,000 – 2,000) × ₤1] ....................... 3,000

Dividend Revenue ............................. 3,000

Share Investments
2025 2025
Jan. 1 Balance 135,000* Sept. 1 18,000
Oct. 1 24,000
2025
Dec. 31 Balance 93,000

*(₤60,000 + ₤45,000 + ₤30,000)

 PROBLEM 13.4

2025
(a) Jan. 1 Share Investments ............................... 800,000
Cash .............................................. 800,000

Mar. 15 Cash ...................................................... 13,500

Dividend Revenue
(45,000 × ₤0.30) ......................... 13,500

June 15 Cash ...................................................... 13,500

Dividend Revenue ........................ 13,500

Sept. 15 Cash ...................................................... 13,500

Dividend Revenue ........................ 13,500

Dec. 15 Cash ...................................................... 13,500

Dividend Revenue ........................ 13,500

31 Fair Value Adjustment—Trading ......... 280,000

Unrealized Gain or Loss—Income
[₤800,000 – (₤24 × 45,000)] ....... 280,000
2025
(b) Jan. 1 Share Investments ............................... 800,000
Cash .............................................. 800,000

Mar. 15 Cash ...................................................... 13,500

Share Investments........................ 13,500

June 15 Cash ...................................................... 13,500

Share Investments........................ 13,500

Sept. 15 Cash ...................................................... 13,500

Share Investments........................ 13,500

Dec. 15 Cash ...................................................... 13,500

Share Investments........................ 13,500
PROBLEM 13.4 (Continued)

Dec. 31 Share Investments ............................... 96,000

Revenue from Share Investments
(₤320,000 × 30%) ....................... 96,000
 PROBLEM 14.3

TOBY ZED NV
Partial Statement of Cash Flows
For the Year Ended November 30, 2025

Cash flows from operating activities

Net income .......................................................... €1,450,000
Adjustments to reconcile net income
to net cash provided by operating activities
activities:
Depreciation expense ............................. € 85,000
Increase in accounts receivable .......... (200,000)
Decrease in inventory............................. 500,000
Increase in prepaid expenses ................ (175,000)
Decrease in accounts payable ............... (340,000)
Decrease in accrued expenses payable ............... (105,000)(235,000 )
Net cash provided by operating
activities .......................................... €1,215,000

[Net cash provided by oper. act. = Net inc. + (Depr. exp. – Incr. in accts. rec. + Decr. in inv. – Incr. in prepd. exp. – Decr. in accts.
pay. – Decr. in accrued exp. pay.)]

[€1,215,000 = €1,450,000 + (€85,000 - €200,000 + €500,000 - €175,000 - €340,000 - €105,000)]

 CT14.3 DECISION-MAKING ACROSS THE ORGANIZATION

(a) DEL CARPIO SLU

Statement of Cash Flows
For the Year Ended January 31, 2025

Cash flows from operating activities

Net loss ................................................... € (44,000)*
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense .................... € 75,000
Gain from sale of investment ........ (10,000) 65,000
Net cash provided by operating
activities ................................ 21,000

Cash flows from investing activities

Sale of investment ................................. 85,000
Purchase of investment......................... (75,000 )
Purchase of fixtures and equipment .... (320,000)
Net cash used by investing
activities ...................................... (310,000)*

Cash flows from financing activities

Sale of ordinary shares ......................... 405,000
Purchase of treasury shares ................. (15,000)
Net cash provided by financing
activities ...................................... 390,000
Net increase in cash ...................................... 101,000
Cash at beginning of period ......................... 140,000
Cash at end of period .................................... €241,000

Note 1:
Non-cash investing and financing activities
Issuance of note for truck ..................... € 25,000
CT14.3 (Continued)

*Computation of net income (loss)

Sales of merchandise .............................. €350,000
Interest revenue ....................................... 6,000
Gain on sale of investment
(€85,000 – €75,000) ............................... ___10,000
Total revenues and gains ................ 366,000
Merchandise purchased .......................... €245,000
Operating expenses
(€160,000 – €75,000) ............................. 85,000
Depreciation ............................................. 75,000
Interest expense....................................... 5,000
Total expenses ................................. 410,000
Net loss ..................................................... € (44,000)

(b) From the information given, it appears that from an operating standpoint, Del
Carpio Company did not have a superb first year, having suffered a €44,000
net loss. Sara is correct; the statement of cash flows is not prepared in
correct form. The correct format classifies cash flows from three activities—
operating, investing, and financing; and it also presents significant non-cash
investing and financing activities in a separate schedule. Sara is wrong,
however, about the actual increase in cash not being €101,000; €101,000 is the
correct increase in cash.
 PROBLEM 15.2

R$192,000
(a) Earnings per share = = R$3.20.
60,000

R$192,000
(b) Return on ordinary shareholders’ equity =
 R$465,400 + R$542,600 
 2 

R$ 192,000
=
R$ 504,000

= 38.1%.

R$ 192,000 R$192,000
(c) Return on assets = = = 21.3%.
 R$852,800 + R$946,100  R$899,450
 2 

R$345,800
(d) Current ratio = = 1.70:1
R$203,500

R$234,850
(e) Acid-test ratio = = 1.15:1
R$203,500

R$1,818,500
(f) Accounts receivable turnover =
 (R$102,800 + R$105,750 ) 
 2 

R$1,818,500
=
R$104,275

= 17.4 times.
PROBLEM 15.2 (Continued)

R$1,011,500 R$1,011,500
(g) Inventory turnover = =
 R$115,500 + R$110,950  R$113,225
 2 
= 8.9 times.

R$291,000
(h) Times interest earned = = 19.4 times.
R$15,000

R$1,818,500
(i) Asset turnover = = 2.0 times.
R$899,450*

*(R$852,800 + R$946,100) ÷ 2

R$403,500
(j) Debt to assets = = 42.6%.
R$946,100