SMChap 007

Chapter 7
Accounting Information Systems
QUESTIONS
1. The five components of an accounting system are: source documents, input
devices, information processors, information storage, and output devices.
2. Source documents contain data about business transactions or events that are put
into the accounting system and processed. Examples of source documents are
invoices from suppliers, checks received from customers, and payroll forms filled
out by employees.
3. The five fundamental principles of accounting information systems are: (a) control
principle, (b) relevance principle, (c) compatibility principle, (d) flexibility principle,
and (e) cost-benefit principle.
4. An input device is used to transfer data from source documents to the information
processor(s). Examples of input devices for computer systems include keyboards,
scanners, and bar-code readers.
5. Data stored "off-line" are not immediately available to the information processor(s),
while "online" data are immediately available.
6. Output devices provide the means by which information is taken from the
accounting system and made available for use.
7. Four types of transactions usually recorded in special journals are: (a) sales on
credit, (b) purchases on credit, (c) cash receipts, and (d) cash disbursements.
8. The (a) initial and (b) page number of the journal from which the amount is posted is
entered in the Posting Reference column of the ledger account.
9. The double posting does not cause the trial balance to be out of balance because
only one credit is posted to the general ledgerthe subsidiary ledger posting and its
balances are not part of a trial balance (they give details of general ledger accounts).
10. When copies of the sales invoices are used as a sales journal, each invoice total is
posted to the proper customer account in the subsidiary Accounts Receivable
Ledger, after which the invoices are bound in numerical order. Then at the end of
the period the bound invoice copies are totaled and the total is debited to Accounts
Receivable and credited to Sales. This method is called direct posting of sales
invoices.
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Solutions Manual, Chapter 7 177
11. Both kinds of credits must not be placed in the same column because the sum of the
credits to the customer accounts must be posted to the Accounts Receivable
controlling account (the Other Accounts column total is not postedinstead, each
amount is individually posted to its general ledger account). Placing these credits in
separate columns makes it possible to post the Accounts Receivable column total to
its controlling account.
12. Immediate recording and posting of credit sales and cash receipts from customers
provides up-to-date information for use in decisions about granting credit to
customers. Also, up-to-date account balances are needed if customers inquire
about their balances.
13. In its note 12 (Segment Reporting), Polaris discusses its single reportable segment;
the Companys segments have similar (1) economic characteristics, (2) products and
services, (3) production processes, (4) customers, (5) distribution channels and (6)
regulatory environments. Therefore, Polaris reports one reportable business
segment.
14. Yes. Because Arctic Cat reports one business segment, the segment information on
its Income Statement is at the business segment level. As such, net income by
segment is not also included in its note K (Segment Reporting).
15. KTMs three reportable segments are: Europe, North America, and Others. Note that
segment information is found in the Enclosures to the Notes to the Consolidated
Financial Statements, as references in its note 29 (Segment Information).
16. No. Information regarding any assets owned by Piaggios business segments is not
reported on the balance sheet. However, certain information is detailed in the notes
to its financial statements (not reproduced in Appendix A).
QUICK STUDIES
Quick Study 7-1 (10 minutes)
1. A 4. E
2. C 5. B
3. D
1. batch
2. network
3. scanner
4. enterprise resource planning
178 Fundamental Accounting Principles, 21st Edition
1. B 7. B
2. E 8. B
3. E 9. A
4. E 10. D
5. A 11. B
6. C 12. D
a. Sales Journal
b. Purchases Journal
c. Cash Disbursements Journal
d. Cash Receipts Journal
e. Cash Receipts Journal
f. Purchases Journal
g. Cash Disbursements Journal
h. Cash Disbursements Journal
General Journal
Nov. 2 [In Purchases Journal]
Nov. 12 Automobiles............................................................. 17,000

T. Biloxi, Capital................................................ 17,000
Owner contributed an auto to the business.
Nov. 16 [In Sales Journal]
Nov. 19 Sales Returns and Allowances............................... 175

Accounts ReceivableK. Myer....................... 175
Customer returned (worthless) merchandise.
a) Accounts Receivable Ledger
ACCOUNTS RECEIVABLE LEDGER

Stern Company
Date Explanation PR Debit Credit Balance
Jan. 10 S1 4,000 4,000
20 R1 2,000 2,000
Diaz Brothers
Jan. 19 S1 1,600 1,600
28 R1 1,600 0
Rex Company
Jan. 23 S1 2,500 2,500
31 R1 1,300 1,200
b) General Ledger
GENERAL LEDGER
Accounts Receivable
Jan. 31 S1 8,100 8,100
31 R1 4,900 3,200
PURCHASES JOURNAL
Date Account Office Other
of s Inventory Supplies Accounts
Date Account Invoice Terms PR Payable Dr. Dr. Dr.
Cr.
May 1 5/01
Krause, Inc.................. n/30 10,100 10,100
14 Store Supplies/
Chang Co.................
5/14 n/30 240 240
17 Monder
5/17
Company.................... n/30 260 260
May 1 Purchases Journal

8 Sales Journal
14 Purchases Journal
24 Cash Receipts Journal
28 Cash Disbursements Journal
Part 1
Eric Horner Hong Jiang

July 8 11,100 July 14 20,500
Mary Mack Troy Wilson

July 2 8,600 July 10 13,400
29 7,300 20 11,200
Part 2
GENERAL LEDGER
Accounts Receivable Sales

July 30 72,100 July 30 72,100
Quick Study 7-9 (Concluded)
Part 3
WARTON COMPANY
Schedule of Accounts Receivable
July 30
Eric Horner......................................................... $11,100

Hong Jiang......................................................... 20,500
Mary Mack.......................................................... 15,900
Troy Wilson........................................................ 24,600
Total accounts receivable................................. $72,100
Segment Average Segment Return

Segment Operating Segment Assets on Assets
Income
Americas.......................
$13,538 $3,308 409.3%
Europe...........................11,528 2,456 469.4
Japan............................. 2,481 898 276.3
Interpretation: The Europe segment reports the highest return on segment

assets. However, each of its other segments has a relatively high return on
segment assets as well.
Quick Study 7-10 (Concluded)
Product Product Sales Percent of Total Sales
iPhone............................................ $ 47,057 43.5%
iPad................................................. 20,358 18.8
iPod................................................. 7,453 6.9
Desktops........................................ 6,439 5.9
Portables........................................ 15,344 14.2
Other............................................... 11,598 10.7
Total................................................ $108,249 100.0%
Interpretation: Sales of Apples iPhone make up its largest percentage of

total individual product sales. Desktops and iPods make up the smallest
percentage of total product sales.
General Journal
1. [In Purchases Journal]
2. [In Sales Journal]
3. Sales Returns and Allowances........................... 2,400

Accounts ReceivableCustomer.............. 2,400
Customer returned (worthless) merchandise.
EXERCISES
Exercise 7-1 (15 minutes)
SALES JOURNAL
Accounts Cost of Goods
Invoice Receivable Dr. Sold Dr.
Date Account Debited Number PR Sales Cr. Inventory Cr.
May 7 J. Dryer......................................
5704 1,250 800
12 R. Lamb.....................................
5705 340 200
25 5706 750 500
May 2 Cash Receipts Journal

5 Purchases Journal
7 Sales Journal
12 Sales Journal
25 Sales Journal
CASH RECEIPTS JOURNAL

Cost of
Account Goods
Sales s Other Sold Dr.
Cash Discount Recble. Sales Accounts Inventory
Date Account Credited Explanation PR Dr. Dr. Cr. Cr. Cr. Cr.
Nov. 9 Notes Payable.............

Note to bank 3,750 3,750
13 J. Ali, Capital..............
Contribution 5,000 5,000
1 Sales..........................
Cash sale 330 330 250
8
27 J. Than.......................
Invoice, 11/7 980 20 1,000
November 3 Purchases Journal

7 Sales Journal
a) Accounts Payable Ledger
ACCOUNTS PAYABLE LEDGER

Bailey Company
Jan. 9 P1 14,000 14,000
19 D1 10,100 3,900
Johnson Brothers
Jan. 18 P1 6,600 6,600
27 D1 6,600 0
Preston Company
Jan. 22 P1 6,200 6,200
31 D1 5,400 800
b) General Journal
GENERAL JOURNAL
Accounts Payable
Jan. 31 P1 26,800 26,800
31 D1 22,100 4,700
CASH DISBURSEMENTS JOURNAL

Other Accounts
Ck. Account Cash Inventory Accounts Payable
Date No. Payee Debited PR Cr. Cr. Dr. Dr.
Apr. 210 Kitt Corp............................
Store Supplies..............................................
650 650
9
17 211 City Bank........................... 1,400
Notes Payable.............................................. 1,400
28 212 Lite...................................
Lite..............................................................
4,410 90 4,500
29 213 B. Dock............................. 1,800
Salaries Expense........................................... 1,800
30 214 Seth, Inc.............................
Seth, Inc.......................................................
2,950 2,950
April 3 Purchases Journal

12 Sales Journal
1. When crossfooting the Purchases Journal.

2. When the schedule of accounts payable is prepared.
3. When the trial balance is prepared.
a. (i) The June 5 purchase would be recorded in the Purchases Journal.
(ii) The June 14 payment would be recorded in the Cash

Disbursements Journal.
b. The error in journalizing the June 14 transaction should be discovered

in the process of crossfooting the Cash Disbursements Journal.
Part 1
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
Anna Page Sara Reed Aaron Reckers

May 1,850 May 20 350 May 2,940 May 6 3,880
17 10
25 1,340
Part 2
GENERAL LEDGER
Sales Returns and

Accounts Receivable Sales Allowances
May 10,010 May 350 May 10,010 May 20 350
31 20 31
Inventory Cost of Goods Sold

May 8,000 May 31 8,000
31
Part 3
MOUNTAIN VIEW
May 31
Anna Page.............................................. $ 1,500
Sara Reed............................................... 4,280
Aaron Reckers....................................... 3,880
Total accounts receivable.................... $ 9,660
Accounts Receivable Controlling Account

Total debit...................................................
$10,010
Credit for return.......................................... (350)
Balance as of May 31................................. $ 9,660
Segment Income Segment Assets Segment Return

(in $ mil.) (in $ mil.) on Assets
Segment 2013 2012 2013 2012 2013
Specialty
Skiing Group.............. $ 72 $ 68 $ 591 $ 450 13.8%
Skating Group............ 19 16 63 52 33.0%
Specialty Footwear....... 32 29 165 146 20.6%
Other Specialty........... 21 14 47 34 51.9%
Subtotal....................... 144 127 866 682
General Merchandise
South America............ 42 46 315 284 14.0%
United States.............. 17 18 62 45 31.8%
Europe......................... 15 13 24 22 65.2%
Subtotal....................... 74 77 401 351
Total............................... $218 $204 $1,267 $1,033
Analysis and interpretation: This company shows solid profitability in all

segments based on segment return on assets.
For the specialty segments, the Other Specialty has the highest segment
return on assets at 51.9% in 2013, whereas the skiing segment has the
lowest return on segment assets at 13.8%.
For the geographic segments, the highest segment return on assets is
produced by the European segment with 65.2% in 2013, whereas the South
American segment has the lowest return of 14.0%.
PROBLEM SET A
Problem 7-1A (70 minutes)
Parts 1, 2 and 3
SALES JOURNAL Page 3

Invoice Accounts Receivable Dr. Cost of Goods Sold Dr.
760
Apr. 3 Page Alistair......................................... 4,000 3,000
761
5 Paula Kohr........................................... 8,000 6,500
762
11 Nic Nelson........................................... 10,500 7,000
763
13 Page Alistair......................................... 5,100 3,600
764
27 Paula Kohr........................................... 3,170 2,520
765
27 Nic Nelson........................................... 6,700 4,305
30 Totals................................................... 37,470 26,925
(106/413) (502/119)
CASH RECEIPTS JOURNAL Page 3

Sales Accounts Other Cost of Goods
Cash Discoun Receivable Sales Accts. Sold Dr.
Date Account Credited Explanation PR Dr. t Cr. Cr. Cr. Inventory Cr.
Dr.
Apr.13 Page Alistair.........................................
Sale of 4/3 3,920 80 4,000
14 Paula Kohr...........................................
Sale of 4/5 7,840 160 8,000
16 Sales....................................................
Cash Sales 52,840 52,840 35,880
18 L.T. Notes Payable.................................
Note to bank 251 60,000 60,000
20 Nic Nelson...........................................
Sale of 4/11 10,290 210 10,500
23 Page Alistair.........................................
Sale of 4/13 4,998 102 5,100
30 Sales....................................................
Cash sales 73,975 ___ _____ 73,975 _____ 58,900
30 Totals................................................... 213,863 552 27,600 126,815 60,000 94,780
McGraw-Hill Companies, 2013

190 Fundamental Accounting Principles, 20th Edition
(101) (415) (106) (413) () (502/119)
McGraw-Hill Companies, 2011

Problem 7-1A (Continued)
Parts 2 and 3
GENERAL LEDGER
Cash Acct. No. 101

Mar. 31 85,000
Apr. 30 R3 213,863 298,863
Accounts Receivable Acct. No. 106

Apr. 30 S3 37,470 37,470
30 R3 27,600 9,870
Inventory Acct. No. 119

Mar. 31 125,000
Apr. 30 S3 26,925 98,075
30 R3 94,780 3,295
Long-Term Notes Payable Acct. No. 251

Mar. 31 110,000
Apr. 18 R3 60,000 170,000
B. Wiset, Capital Acct. No. 301

Mar. 31 100,000
Sales Acct. No. 413

Apr. 30 S3 37,470 37,470
30 R3 126,815 164,285
Sales Discounts Acct. No. 415

Apr. 30 R3 552 552
Cost of Goods Sold Acct. No. 502

Apr. 30 S3 26,925 26,925
30 R3 94,780 121,705
Parts 2 and 3 (continued)

Page Alistair
Apr. 3 S3 4,000 4,000
13 R3 4,000 0
13 S3 5,100 5,100
23 R3 5,100 0
Paula Kohr
Apr. 5 S3 8,000 8,000
14 R3 8,000 0
27 S3 3,170 3,170
Nic Nelson
Apr. 11 S3 10,500 10,500
20 R3 10,500 0
27 S3 6,700 6,700
Part 4
WISET COMPANY
Trial Balance
April 30
Debit Credit
Cash...................................................................... $298,863
Accounts receivable............................................ 9,870
Inventory............................................................... 3,295
Long-term notes payable.................................... $170,000
B. Wiset, Capital................................................... 100,000
Sales...................................................................... 164,285
Sales discounts.................................................... 552
Cost of goods sold.............................................. 121,705 _______
Totals..................................................................... $434,285 $434,285
Problem 7-1A (Concluded)
Part 4 (continued)
WISET COMPANY
April 30
Paula Kohr.................................................. $3,170
Nic Nelson................................................... 6,700
Total accounts receivable.......................... $9,870
Part 5
Analysis component
To find the error(s), first re-add the account balances on the schedule of
accounts receivable to confirm that the addition is correct. Then, trace the
balances listed on the schedule of accounts receivable back to the
subsidiary accounts to confirm that they are listed correctly on the
schedule. Next, recalculate the balance of each subsidiary account to
confirm that the additions and subtractions are correct. Next, trace the
postings from each subsidiary account and from the controlling account
back to the appropriate journals. Since the sales and cash receipts
journals were footed and crossfooted before posting, the previous steps
should disclose the error.
Parts 1 and 3
PURCHASES JOURNAL Page 3
Accounts Office Other
Date of Payable Inventory Supplies Accounts
Date Account Invoice Terms PR Cr. Dr. Dr. Dr.
Apr. 2 Noth Company.......................................
4/2 2/10, n/60 14,300 14,300
4/2 n/10, EOM
3 Office Supplies/Custer Inc...................... 1,480 1,480
9 Store Equip./Hals Supply.......................
4/9 n/10, EOM 165/ 12,125 12,125
17 Grant Company.....................................
4/17 2/10, n/30 13,750 13,750
4/19 n/10, EOM 125/
20 Store Supplies/Hals Supply................... 830 830
25 Noth Company............................. 4/24 2/10, n/60 11,375 11,375 ____ _____
30 Totals........................................... 53,860 39,425 1,480 12,955
(201) (119) (124) ()
CASH DISBURSEMENTS JOURNAL Page 3

Other Accounts
Ck. Cash Inventory Accounts
Date No. Payee Account Debited PR Cr. Dr. Payable
Cr. Dr.
Apr. 4 587 World View.............................................
Advertising Expense.............................................................
655 899 899
12 588 Noth Company.........................................
Noth Company......................................................................
14,014 286 14,300
16 589 Payroll...................................................
Sales Salaries Expense.........................................................
621 10,750 10,750
26 590 Grant Company.....................................
Grant Company.....................................................................
12,740 260 13,000
30 591 Payroll...................................................
621 10,750 ___ 10,750 _____
2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
30 Totals..................................................... 49, 546 22,399 27,300
153
(101) (119) () (201)
Parts 1 and 3continued
GENERAL JOURNAL Page 3
Apr. 6 Accounts Payable--Custer Inc.................................

201/ 80
Office Supplies..................................................
124 80
Received a credit memorandum.
23 Accounts Payable--Grant Co.................................

201/ 750
Inventory............................................................
119 750
Parts 2 and 3
GENERAL LEDGER
Cash Acct. No. 101
Mar. 31 85,000
Apr. 30 D3 49,153 35,847

Mar. 31 125,000
Apr. 23 G3 750 124,250
30 P3 39,425 163,675
30 D3 546 163,129
Office Supplies Acct. No. 124

Apr. 3 P3 1,480 1,480
6 G3 80 1,400
Store Supplies Acct. No. 125

Apr. 20 P3 830 830
General Ledgercontinued
Store Equipment Acct. No. 165
Apr. 9 P3 12,125 12,125
Accounts Payable Acct. No. 201

Apr. 6 G3 80 (80)
23 G3 750 (830)
30 P3 53,860 53,030
30 D3 27,300 25,730

Mar. 31 110,000
B. Wiset, Capital Acct. No. 301

Mar. 31 100,000
Sales Salaries Expense Acct. No. 621

Apr. 16 D3 10,750 10,750
30 D3 10,750 21,500
Advertising Expense Acct. No. 655

Apr. 4 D3 899 899

Custer, Inc.
Apr. 3 P3 1,480 1,480
6 G3 80 1,400
Grant Company
Apr. 17 P3 13,750 13,750
23 G3 750 13,000
26 D3 13,000 0
Accounts Payable Ledgercontinued
Hals Supply
Apr. 9 P3 12,125 12,125
20 P3 830 12,955
Noth Company
Apr. 2 P3 14,300 14,300
12 D3 14,300 0
25 P3 11,375 11,375
Part 4
WISET COMPANY
Trial Balance
April 30
Debit Credit
Cash............................................................. $ 35,847
Inventory..................................................... 163,129
Office supplies............................................ 1,400
Store supplies............................................. 830
Store equipment.......................................... 12,125
Accounts payable....................................... $ 25,730
Long-term notes payable........................... 110,000
B. Wiset, Capital.......................................... 100,000
Sales salaries expense............................... 21,500
Advertising expense................................... 899
Totals............................................................ $235,730 $235,730
WISET COMPANY
Schedule of Accounts Payable
April 30
Custer, Inc.................................................... $ 1,400
Hals Supply................................................. 12,955
Noth Company............................................ 11,375
Total accounts payable............................... $25,730
Parts 1 and 2
Mar. 2 Min Cho...............................................
854 16,800 8,400
3 Linda Witt............................................
855 10,200 5,800
10 Jovita Albany.......................................
856 5,600 2,900
27 Jovita Albany.......................................
857 14,910 7,220
28 Linda Witt............................................
858 4,315 3,280
31 Totals................................................... 51,825 27,600
(106/413) (502/119)

Mar. 1 Van Industries........................................
3/1 2/15, n/30 43,600 43,600
3 Gabel Company.....................................
3/3 n/10, EOM 1,230 1,230
9 Office Equip./Spell Supply......................
3/9 n/10, EOM 163/ 21,850 21,850
14 The CD Company...................................
3/13 2/10, n/30 32,625 32,625
16 Store Supplies/Gabel Company...............
3/16 n/10, EOM 125/ 1,770 _____ ____ 1,770
31 Totals..................................................... 101,075 76,225 1,230 23,620
(201) (119) (124) ()
Account Credited Cash Discoun Receivable Sales Accts. Sold Dr.
Date Explanation PR Dr. t Cr. Cr. Cr. Inventory Cr.
Dr.
251
Mar. 6 L.T. Notes Pay.........................................
Note to bank..........................................................................
82,000 82,000
12 Min Cho.................................................
Invoice, 3/2............................................................................
16,464 336 16,800
13 Linda Witt...............................................
Invoice 3/3.............................................................................
9,996 204 10,200
15 Sales......................................................
Cash sales.............................................................................
34,680 34,680 20,210
20 Jovita Albany.........................................
Invoice, 3/10...........................................................................
5,488 112 5,600
31 Sales......................................................
Cash sales.............................................................................
30,180 ___ _____ 30,180 _____ 16,820
31 Totals..................................................... 178,808 652 32,600 64,860 82,000 37,030
(101) (415) (106) (413) () (502/119)

Other Accounts
Ck. Cash Inventory Accounts Payable
Date No. Payee Account Debited PR Cr. Cr. Dr. Dr.
Mar. 13 416 Van Industries........................................
Van Industries.......................................................................
42,728 872 43,600
15 417 Payroll................................................... 621
Sales Salaries Expense...........................................................
18,300 18,300
23 418 The CD Co..............................................
The CD Company..................................................................
29,596 604 30,200
31 419 Payroll................................................... 621
Sales Salaries Expense...........................................................
18,300 ____ 18,300 _____
31 Totals..................................................... 108,924 1,476 36,600 73,800
(101) (119) () (201)
Mar. 17 Accounts PayableCD Co........................................

201/ 2,425
Inventory................................................................
119 2,425
Received a credit memo for returns.
19 Accounts PayableSpell Supply.............................

201/ 630
Office Equipment...................................................
163 630
GENERAL LEDGER
Cash Acct. No. 101

Mar. 31 R2 178,808 178,808
31 D2 108,924 69,884

Mar. 31 S2 51,825 51,825
31 R2 32,600 19,225

Mar. 1 10,000
17 G2 2,425 7,575
31 P2 76,225 83,800
31 D2 1,476 82,324
31 S2 27,600 54,724
31 R2 37,030 17,694

Mar. 31 P2 1,230 1,230

Mar. 16 P2 1,770 1,770
Office Equipment Acct. No. 163
Mar. 9 P2 21,850 21,850
19 G2 630 21,220

Mar. 17 G2 2,425 (2,425)
19 G2 630 (3,055)
31 P2 101,075 98,020
31 D2 73,800 24,220

Mar. 6 R2 82,000 82,000
Z. Church, Capital Acct. No. 301

Mar. 1 10,000
Sales Acct. No. 413

Mar. 31 S2 51,825 51,825
31 R2 64,860 116,685

Mar. 31 R2 652 652

Mar. 31 R2 37,030 37,030
Mar. 31 S2 27,600 64,630

Mar. 15 D2 18,300 18,300
31 D2 18,300 36,600
Jovita Albany
Mar. 10 S2 5,600 5,600
20 R2 5,600 0
27 S2 14,910 14,910
Min Cho
Mar. 2 S2 16,800 16,800
12 R2 16,800 0
Linda Witt
Mar. 3 S2 10,200 10,200
13 R2 10,200 0
28 S2 4,315 4,315
CD Company
Mar. 14 P2 32,625 32,625
17 G2 2,425 30,200
23 D2 30,200 0
Gabel Company
Mar. 3 P2 1,230 1,230
16 P2 1,770 3,000
Spell Supply
Mar. 9 P2 21,850 21,850
19 G2 630 21,220
Van Industries
Mar. 1 P2 43,600 43,600
13 D2 43,600 0
Part 3
CHURCH COMPANY
Trial Balance
March 31
Debit Credit
Cash......................................................................
$ 69,884
Inventory............................................................... 17,694
Office supplies.....................................................1,230
Store supplies......................................................1,770
Office equipment.................................................. 21,220
Accounts payable................................................ $ 24,220
Long-term notes payable.................................... 82,000
Z. Church, Capital................................................ 10,000
Sales...................................................................... 116,685
Sales discounts.................................................... 652
Cost of goods sold.............................................. 64,630
Sales salaries expense........................................ 36,600 ________
Totals.....................................................................
$232,905 $232,905
CHURCH COMPANY
March 31
Jovita Albany..........................................................
$14,910
Linda Witt................................................................
4,315
Total accounts receivable......................................$19,225
CHURCH COMPANY
March 31
Gabel Company......................................................
$ 3,000
Spell Supply............................................................
21,220
Total accounts payable..........................................
$24,220
PROBLEM SET B
Problem 7-1B (70 minutes)
Parts 1 and 2
918
July Kim Nettle.............................................. 19,200 10,500
5
919
6 Ruth Blake............................................. 7,500 4,300
13 Ashton Moore........................................
920 8,550 5,230
921
14 Kim Nettle.............................................. 5,100 3,800
29 Ruth Blake.............................................
922 17,500 10,850
923
30 Ashton Moore........................................ 16,820 9,840
31 Totals..................................................... 74,670 44,520
(106/413) (502/119)

Cash Discoun Receivable Sales Accts. Sold Dr.
Date Account Credited Explanation PR Dr. t Cr. Cr. Cr. Inventory Cr.
Dr.
July 15 Kim Nettle..............................................
Sale of 7/5..............................................................................
18,816 384 19,200
15 Sales......................................................
Cash sales.............................................................................
118,350 118,350 76,330
16 Ruth Blake.............................................
Sale of 7/6..............................................................................
7,350 150 7,500
21 L.T. Notes Pay.........................................
Note to bank..........................................................................
251 15,000 15,000
23 Ashton Moore........................................
Sale of 7/13............................................................................
8,379 171 8,550
24 Kim Nettle..............................................
Sale of 7/14............................................................................
4,998 102 5,100
31 Sales......................................................
Cash sales.............................................................................
80,244 ___ _____ 80,244 _____ 53,855
31 Totals..................................................... 253,137 807 40,350 198,594 15,000 130,185
(101) (415) (106) (413) () (502/119)
Problem 7-1B (Continued)
Parts 2 and 3
GENERAL LEDGER
Cash Acct. No. 101

June 30 100,000
July 31 R3 253,137 353,137

July 31 S3 74,670 74,670
31 R3 40,350 34,320

June 30 200,000
July 31 S3 44,520 155,480
31 R3 130,185 25,295

June 30 200,000
July 21 R3 15,000 215,000
R. Acorn, Capital Acct. No. 301

June 30 100,000
Sales Acct. No. 413

July 31 S3 74,670 74,670
31 R3 198,594 273,264

July 31 R3 807 807

July 31 S3 44,520 44,520
31 R3 130,185 174,705
Parts 2 and 3 (continued)
Ruth Blake
July 6 S3 7,500 7,500
16 R3 7,500 0
29 S3 17,500 17,500
Ashton Moore
July 13 S3 8,550 8,550
23 R3 8,550 0
30 S3 16,820 16,820
Kim Nettle
July 5 S3 19,200 19,200
14 S3 5,100 24,300
15 R3 19,200 5,100
24 R3 5,100 0
Part 4
ACORN INDUSTRIES
Trial Balance
July 31
Debit Credit
$353,137
Cash......................................................................
Inventory...............................................................25,295
Long-term notes payable.................................... $215,000
R. Acorn, Capital.................................................. 100,000
Sales...................................................................... 273,264
Sales discounts.................................................... 807
Cost of goods sold.............................................. 174,705 _______
$588,264
Totals..................................................................... $588,264
Problem 7-1B (Concluded)
Part 4continued
ACORN INDUSTRIES
July 31
Ruth Blake...............................................................
$17,500
Ashton Moore.........................................................
16,820
Total accounts receivable......................................
$34,320
Part 5
Analysis component
To find the error(s), first re-add the account balances on the schedule of
accounts receivable to confirm that the addition is correct. Then, trace the
balances listed on the schedule of accounts receivable back to the
subsidiary accounts to confirm that they are listed correctly on the
schedule. Next, recalculate the balance of each subsidiary account to
confirm that the additions and subtractions are correct. Next, trace the
postings from each subsidiary account and from the controlling account
back to the appropriate journals. Since the sales and cash receipts
journals were footed and crossfooted before posting, the previous steps
should disclose the error.
Problem 7-2B (80 minutes)
Parts 1 and 3
July 1 Teton Company.....................................
6/30 2/10, n/30 6,500 6,500
7 Store Supp./Plaine Inc............................
7/7 n/10, EOM 125/ 1,250 1,250

9 Store Equip./Charms Supply....................
7/8 n/10, EOM 165/ 38,220 38,220

17 Drake Company.....................................
7/17 2/10, n/30 7,200 7,200
20 Office Supp./Charms Supply....................
7/19 n/10, EOM 650 650
26 Teton Company.....................................
7/26 2/10, n/30 9,770 9,770 ___ _____
31 Totals 63,590 23,470 650 39,470
(201) (119) (124) ()

Other Accounts
Cr. Dr.
July 300 The Weekly ...........................................
Advertising Expense.............................................................
655 625 625
3
10 301 Teton Company.....................................
Teton Company.....................................................................
6,370 130 6,500
15 302 Payroll....................................................
621 31,850 31,850
27 303 Drake Company.....................................
Drake Company.....................................................................
4,704 96 4,800
31 304 Payroll...................................................
621 31,850 ___ 31,850 _____
31 Totals..................................................... 75,399 226 64,325 11,300
(101) (119) () (201)
July 8 Accounts PayablePlaine.................... 201/ 250

Store Supplies.................................. 125 250
24 Accounts PayableDrake.................... 201/ 2,400

Inventory.......................................... 119 2,400
Parts 2 and 3
GENERAL LEDGER
Cash Acct. No. 101

June 30 100,000
July 31 D3 75,399 24,601

June 30 200,000
July 24 G3 2,400 197,600
31 P3 23,470 221,070
31 D3 226 220,844

July 31 P3 650 650

July 7 P3 1,250 1,250
8 G3 250 1,000
General Ledgercontinued
July 9 P3 38,220 38,220

July 8 G3 250 (250)
24 G3 2,400 (2,650)
31 P3 63,590 60,940
31 D3 11,300 49,640

June 30 200,000
R. Acorn, Capital Acct. No. 301

June 30 100,000

July 15 D3 31,850 31,850
31 D3 31,850 63,700
Advertising Expense Acct. No. 655

July 3 D3 625 625

Charms Supply
July 9 P3 38,220 38,220
20 P3 650 38,870
Drake Company
July 17 P3 7,200 7,200
24 G3 2,400 4,800
27 D3 4,800 0
Accounts Payable Ledgercontinued
Plaine, Inc.
July 7 P3 1,250 1,250
8 G3 250 1,000
Teton Company
July 1 P3 6,500 6,500
10 D3 6,500 0
26 P3 9,770 9,770
Part 4
ACORN INDUSTRIES
Trial Balance
July 31
Debit Credit
$ 24,601
Cash......................................................................
220,844
Inventory...............................................................
Office supplies..................................................... 650
Store supplies......................................................1,000
Store equipment................................................... 38,220
R. Acorn, Capital.................................................. 100,000
Sales salaries expense........................................ 63,700
Advertising expense............................................ 625 ________
$349,640
Totals..................................................................... $349,640
ACORN INDUSTRIES
July 31
Charms Supply...................................... $38,870
Plaine, Inc................................................ 1,000
Teton Company...................................... 9,770
Total accounts payable.......................... $49,640
Problem 7-3B (100 Minutes)
Parts 1 and 2
Nov. 8 Cyd Rounder.......................................
439 6,550 3,910
10 Carlos Mantel.......................................
440 13,500 8,500
15 Tori Tripp.............................................
441 5,250 2,450
22 Carlos Mantel.......................................
442 3,695 2,060
24 Tori Tripp.............................................
443 4,280 2,130
30 Totals................................................... 33,275 19,050
(106/413) (502/119)

Nov. 1 Office Equip./Brun Supply......................

11/1 n/10, EOM 163/ 5,058 5,058
4 BLR Industries......................................
11/3 2/10, n/30 33,500 33,500
11/5 n/10, EOM 125/

5 Store Supplies/Grebe Company................. 1,040 1,040
11 Lo Company..........................................
11/10 2/10, n/30 2,557 2,557
16 Grebe Company.....................................
11/16 n/10, EOM 459 _____ 459 ____
30 Totals..................................................... 42,614 36,057 459 6,098

(201) (119) (124) ()

Account Cash Discoun Receivable Sales Accts. Sold Dr.
Date Credited Explanation PR Dr. t Cr. Cr. Cr. Inventory Cr.
Dr.
251/
Nov. 2 L.T. Notes Pay.........................................
Note to bank..........................................................................
88,500 88,500
15 Sales......................................................
Cash sales.............................................................................
18,170 18,170 9,000
18 Cyd Rounder..........................................
Invoice, 11/8...........................................................................
6,419 131 6,550
19 Carlos Mantel.........................................
Invoice, 11/10..........................................................................
13,230 270 13,500
25 Tori Tripp................................................
Invoice, 11/15..........................................................................
5,145 105 5,250
30 Sales......................................................
Cash sales.............................................................................
16,703 ___ _____ 16,703 _____ 10,200
30 Totals..................................................... 148,167 506 25,300 34,873 88,500 19,200
(101) (415) (106) (413) () (502/119)

Other Accounts
Nov. 12 633 BLR Industries.......................................

BLR Industries......................................................................
32,830 670 33,500
15 634 Payroll................................................... 621
6,585 6,585
19 635 Lo Co.....................................................
Lo Company..........................................................................
1,960 40 2,000
30 636 Payroll................................................... 621
6,585 ___ 6,585 _____
30 Totals..................................................... 47,960 710 13,170 35,500
(101) (119) () (201)
Nov. 17 Accounts PayableLo Co........................... 201/ 557

Inventory.................................................
119 557
26 Accounts PayableBrun Supply................ 201/ 922

Office Equipment.....................................
163 922
GENERAL LEDGER
Cash Acct. No. 101

Nov. 30 R2 148,167 148,167
30 D2 47,960 100,207

Nov. 30 S2 33,275 33,275
30 R2 25,300 7,975

Nov. 1 40,000
17 G2 557 39,443
30 P2 36,057 75,500
30 D2 710 74,790
30 S2 19,050 55,740
30 R2 19,200 36,540

Nov. 30 P2 459 459

Nov. 5 P2 1,040 1,040
Nov. 1 P2 5,058 5,058
26 G2 922 4,136

Nov. 17 G2 557 (557)
26 G2 922 (1,479)
30 P2 42,614 41,135
30 D2 35,500 5,635

Nov. 2 R2 88,500 88,500
C. Grassley, Capital Acct. No. 301

Nov. 1 40,000
Sales Acct. No. 413

Nov. 30 S2 33,275 33,275
30 R2 34,873 68,148

Nov. 30 R2 506 506
Costs of Goods Sold Acct. No. 502

Nov. 30 S2 19,050 19,050
30 R2 19,200 38,250

Nov. 15 D2 6,585 6,585
30 D2 6,585 13,170
Carlos Mantel
Nov. 10 S2 13,500 13,500
19 R2 13,500 0
22 S2 3,695 3,695
Cyd Rounder
Nov. 8 S2 6,550 6,550
18 R2 6,550 0
Tori Tripp
Nov. 15 S2 5,250 5,250
24 S2 4,280 9,530
25 R2 5,250 4,280
BLR Industries
Nov. 4 P2 33,500 33,500
12 D2 33,500 0
Brun Supply
Nov. 1 P2 5,058 5,058
26 G2 922 4,136
Grebe Company
Nov. 5 P2 1,040 1,040
16 P2 459 1,499
Lo Company
Nov. 11 P2 2,557 2,557
17 G2 557 2,000
19 D2 2,000 0
Part 3
GRASSLEY COMPANY
Trial Balance
November 30
Debit Credit
Cash......................................................................
$100,207
Accounts receivable............................................7,975
Inventory............................................................... 36,540
Office supplies..................................................... 459
Store supplies......................................................1,040
Office equipment..................................................4,136
C. Grassley, Capital.............................................. 40,000
Sales...................................................................... 68,148
Sales discounts.................................................... 506
Costs of goods sold............................................ 38,250
Sales salaries expense........................................ 13,170 _______
Totals.....................................................................
$202,283 $202,283
GRASSLEY COMPANY
November 30
Carlos Mantel....................................................... $3,695
Tori Tripp...............................................................4,280
Total accounts receivable................................... $7,975
GRASSLEY COMPANY
November 30
Brun Supply..........................................................
$4,136
Grebe Company...................................................1,499
Total accounts payable....................................... $5,635
SERIAL PROBLEM SP 7
Serial Problem, Success Systems (100 minutes) Parts 1 and 2

Jan. 13 Liu Corp...............................................
n/a 5,200 3,560
26 KC, Inc.................................................
n/a 5,800 4,640
Feb. 23 Delta Co...............................................
n/a 3,220 2,660
Mar. 25 Wildcat Services..................................
n/a 2,800 2,002
30 IFM Company......................................
n/a 2,220 1,100
31 Totals................................................... 19,240 13,962
(106/413) (502/119)

Sales Accounts Services Other Cost of Goods
Account Credited Cash Discoun Receivable Revenue Accts. Sold Dr.
Date Explanation PR Dr. t Cr. Cr. Cr. Inventory Cr.
Dr.
Jan. Gomez Co..............................................
Invoice, n/a 2,668 2,668
9
16 Services Revenue...................................
Cash Sales 4,000 4,000
22 Liu Corp.................................................
Invoice, 1/13 4,653 47 4,700
Feb.11 Alexs Eng. Co........................................
Invoice, 1/11 5,500 5,500
Mar. 9 Delta Co.................................................
Invoice, 2/23 3,220 3,220
16 Services Revenue...................................
Cash Sales 5,260 __ _____ 5,260 _ _
31 Totals..................................................... 25,301 47 16,088 9,260 0 0
(101) (415) (106) (403) () (502/119)
Serial Problem, Success Systems (Continued)

Accounts Computer Other
Jan. 7 Kansas Corp........................................
1/7 1/10, n/30 5,800 5,800
26 Kansas Corp........................................
1/26 1/10, n/30 9,000 9,000
Mar. 8 Harris Office Products......................... 3/8 2,730 _____ 2,730
31 Totals................................................... 17,530 14,800 2,730 0
(201) (119) (126) ()

Other Accounts
Cr. Dr.
Jan. n/a Lyn Addie.............................................
Wages Expense 623/210 625 125
4 Wages Payable 500
15 n/a Not specified........................................
Merchandise Inventory 119 600 600
17 n/a Kansas Corp........................................
Kansas Corp 5,742 58 5,800
31 n/a Lyn Addie.............................................
Wages Expense 623 1,250 1,250
Feb. 1 n/a Hillside Mall.........................................
Prepaid Rent 131 2,475 2,475
3 n/a Kansas Corp........................................
Kansas Corp 8,414 90 8,504
5 n/a Not specified........................................
Advertising Expense 655 600 600
15 n/a A. Lopez...............................................
A. Lopez, Withdrawals 302 4,800 4,800
26 n/a Lyn Addie.............................................
Wages Expense 623 1,000 1,000
27 n/a A. Lopez...............................................
Mileage Expense 676 192 192
Mar. 11 n/a Not Specified.......................................
Repairs Expense 684 960 960
19 n/a Harris Off. Prod....................................
Harris Office Products 3,830 3,830
31 n/a A. Lopez...............................................
Mileage Expense 676 128 ___ 128 _____
31 Totals................................................... 30,616 148 12,630 18,134
(101) (119) () (201)
Serial Problem, Success Systems (Concluded)
Part 3
2014
Jan. 5..............................................................................Cash 101
25,000
...................................................................A. Lopez, Capital 301
25,000
Additional investment by owner.
11 Accounts ReceivableAlexs Eng. Co......106.1 5,500

Unearned Computer Services Revenue....236 1,500
...................................................................Computer Services
Revenue 403 ................................................................ 7,000
Completed work on project.
20*Sales Returns and Allowances...................414 500

...................................................................Accounts Receivable
Liu Corp 106.5..............................................................500
Customer returned defective goods.
* An optional additional entry for Jan. 20 is to debit Loss from

Defective Merchandise and credit Cost of Goods Sold for $320.
24 Accounts PayableKansas Corp..............201 496

...................................................................Merchandise
Inventory 119 ................................................................496
Returned merchandise for credit.
29 No entry recorded in the journal (but memorandum noted).
Mar. 24 Accounts ReceivableEasy Leasing........106.3 8,900

...................................................................Computer Services
Revenue 403 ................................................................8,900
Billed customer for services.
Comprehensive Problem
Comprehensive Problem, Colo Company (150 minutes)
Part 1

May 2 Hensel Company......................................

8785 6,100 4,100
16 Hensel Company......................................
8786 3,990 1,890
22 Lee Services.............................................
8787 6,850 4,990
26 Crane Corp...............................................
8788 14,210 8,230
31 Totals................................................... 31,150 19,210

(106/413) (502/119)
Comprehensive Problem, Colo Company (Part 1Continued)

May 4 Store Supp./Gear Supp............................. 5/04 n/10, EOM 125/ 37,729 37,072 83 574
10 Office Equip./Gear Supp........................... 5/10 n/10, EOM 163/ 4,074 4,074
11 Garcia, Inc................................................
5/10 2/10, n/30 8,800 8,800
17 Fink Corp.................................................
5/14 2/10, n/60 13,650 13,650
24 Store Supp./Gear Supp............................. 5/24 n/10, EOM 125/ 9,030 8,120 280 630
25 Peyton Products.......................................
5/23 2/10, n/30 3,080 3,080 ___ ____
31 Totals....................................................... 76,363 70,722 363 5,278
(201) (119) (124) ()

Account CashDiscoun Receivable Sales Accts. Sold Dr.
Date Credited Explanation PR Dr. t Cr. Cr. Cr. Inventory Cr.
Dr.
Sale of Apr. 28.................................................................................
May 5 Knox, Inc..................................................
4,459 91 4,550
9 Store Supplies..........................................
Sold store 125
supplies....................................................................................
350 350
11 Hensel Company......................................
Sale of May 2.............................................................................

5,978 122 6,100
15 Sales........................................................
Cash sales
May 1-15...................................................................................
59,220 59,220 38,200
30 Sale of May
Lee Services.............................................
6,713 137 6,850
22.....................................................................................
31 Sales........................................................
Cash sales,
May 16-31.................................................................................
66,052 ___ _____ 66,052 ___ 42,500
31 Totals....................................................... 142,772 350 17,500 125,272 350 80,700
McGraw-Hill Companies, Inc., 2013

(101) (415) (106) (413) () (502/119)
Comprehensive Problem, Colo Company (Part 1Continued)

Other Accounts
May 1 3410 S&P Mgmt. Co..........................................
Rent Exp.Selling Space...........................................................
642 2,968
Rent Exp.Office Space.............................................................
641 3,710 742
8 3411 Peyton Products.......................................
Peyton Products.......................................................................
6,174 126 6,300
15 3412 Payroll......................................................
Sales Salaries Expense.............................................................
621 5,320
Office Salaries Expense............................................................
620 8,470 3,150
19 3413 Garcia, Inc................................................
Garcia, Inc.................................................................................
8,624 176 8,800
23 3414 Fink Corp.................................................
Fink Corp..................................................................................
13,377 273 13,650
26 3415 Perennial Power.......................................
Utilities Expense.......................................................................
690 1,283 1,283
29 3416 Jenny Colo...............................................
J. Colo, Withdrawals.................................................................
302 7,000 7,000
30 3417 Payroll......................................................
Sales Salaries Expense.............................................................
621 5,320
Office Salaries Expense............................................................
620 8,470 ___ 3,150 _____
31 Totals....................................................... 57,108 575 28,933 28,750
(101) (119) () (201)

May 2 Sales Returns and Allow...................................................
414 175
Accounts ReceivableKnox, Inc................................
106/ 175
Issued a credit memo for returns.
3 Accounts PayablePeyton Products............................. 201/ 798

Inventory.........................................................................
119 798
12 Accts. PayableGear Supply Co.....................................

201/ 854
Office Equipment..........................................................
163 854

Comprehensive Problem, Colo Company (Continued) Part 2
COLO COMPANY
Work Sheet for Month Ended May 31, 2013
Unadjusted Trial Income Balance Sheet or State-
Balance Adjustments Statement ment of Owners Equity
Account Debit Credit Debit Credit Debit Credit Debit Credit
Cash........................................................ 135,911 135,911
Accounts receivable.............................. 18,200 18,200
Merchandise inventory......................... 189,519 189,519
Office supplies....................................... 793 (c) 289 504
Store supplies........................................ 3,301 (b) 669 2,632
Prepaid insurance.................................. 3,318 (a) 553 2,765
Office equipment................................... 25,690 25,690
Accum. depr. Office equipment......... 9,898 (e) 329 10,227
Store equipment.................................... 38,920 38,920
Accumulated depr. Store equip......... 17,556 (d) 567 18,123
Accounts payable.................................. 53,059 53,059
Jenny Colo, Capital............................... 308,085 308,085
Jenny Colo, Withdrawals...................... 7,000 7,000
Sales........................................................ 156,422 156,422
Sales discounts..................................... 350 350
Sales returns and allowances.............. 175 175
Cost of goods sold................................ 99,910 99,910
Depr. ExpenseOffice equipment........ (e) 329 329
Depr. ExpenseStore equipment......... (d) 567 567
Office salaries expense......................... 6,300 6,300
Sales salaries expense......................... 10,640 10,640
Insurance expense................................ (a) 553 553
Rent expense, office space.................. 742 742
Rent expense, selling space................. 2,968 2,968
Office supplies expense....................... (c) 289 289
Store supplies expense........................ (b) 669 669
Utilities expense.................................... 1,283 ______ _____ _____ 1,283 ______ ______ ______
Totals....................................................... 545,020 545,020 2,407 2,407 124,775 156,422 421,141 389,494
Net income............................................. 31,647 ______ ______ 31,647
Totals....................................................... 156,422 156,422 421,141 421,141
Comprehensive Problem, Colo Company (Continued)
Part 2continued
Adjusting entries (Part 2)
May 31 Insurance Expense.....................................................

637 553
Prepaid Insurance.................................................
128 553
To adjust for expired insurance.
31 Store Supplies Expense............................................

651 669
Store Supplies.......................................................
125 669
To adjust for store supplies used.
31 Office Supplies Expense...........................................

650 289
Office Supplies......................................................
124 289
To adjust for office supplies used.
31 Depreciation ExpenseStore Equip.........................

613 567
Accumulated Depr.Store Equip..........................
166 567
To record depreciation of store eq.
31 Depreciation ExpenseOffice Equip........................

612 329
Accumulated Depr.Office Equip........................
164 329
To record depreciation of office eq.
Part 2continued
Closing entries (Part 2)
May 31 Sales............................................................................
413 156,422
Income Summary..................................................
901 156,422
To close temporary accounts with
credit balances.
May 31 Income Summary.......................................................

901 124,775
Sales Returns and Allowances............................
414 175
Sales Discounts.....................................................
415 350
Cost of Goods Sold...............................................
502 99,910
Depr. Expense, Office Equipment........................
612 329
Depr. Expense, Store Equipment.........................
613 567
Office Salaries Expense........................................
620 6,300
Sales Salaries Expense........................................
621 10,640
Insurance Expense................................................
637 553
Rent Expense, Office Space.................................
641 742
Rent Expense, Selling Space...............................
642 2,968
Office Supplies Expense......................................
650 289
Store Supplies Expense.......................................
651 669
Utilities Expense....................................................
690 1,283
To close temporary accounts with
debit balances.
May 31 Income Summary......................................901 31,647

J. Colo, Capital.....................................301 31,647
To close income summary to
owners capital.
May 31 J. Colo, Capital..........................................301 7,000

J. Colo, Withdrawals............................302 7,000
To close withdrawals to owners capital.
Part 2continued
GENERAL LEDGER
Cash Acct. No. 101

Apr. 30 Balance 50,247
May 31 R2 142,772 193,019
31 D2 57,108 135,911

May 2 G2 175 4,550
31 S2 31,150 35,700
31 R2 17,500 18,200
Merchandise Inventory Acct. No. 119

May 3 G2 798 219,282
31 D2 575 218,707
31 P2 70,722 289,429
31 R2 80,700 208,729
31 S2 19,210 189,519

Apr. 30 Balance 430
May 31 P2 363 793
31 G2 289 504

May 4 P2 574 3,021
9 R2 350 2,671
24 P2 630 3,301
31 G2 669 2,632
Part 2continued
Prepaid Insurance Acct. No. 128

May 31 G2 553 2,765

May 10 P2 4,074 26,544
12 G2 854 25,690
Accumulated DepreciationOffice Equipment Acct. No. 164

May 31 G2 329 10,227

Accumulated DepreciationStore Equipment Acct. No. 166

May 31 G2 567 18,123

May 3 G2 798 6,300
12 G2 854 5,446
31 P2 76,363 81,809
31 D2 28,750 53,059
Jenny Colo, Capital Acct. No. 301

May 31 G2 31,647 339,732
31 G2 7,000 332,732
Part 2continued
Jenny Colo, Withdrawals Acct. No. 302

May 29 D2 7,000 7,000
31 G2 7,000 0
Sales Acct. No. 413

May 31 S2 31,150 31,150
31 R2 125,272 156,422
31 G2 156,422 0
Sales Returns and Allowances Acct. No. 414

May 2 G2 175 175
31 G2 175 0

May 31 R2 350 350
31 G2 350 0

May 31 S2 19,210 19,210
31 R2 80,700 99,910
31 G2 99,910 0
Depreciation ExpenseOffice Equipment Acct. No. 612

May 31 G2 329 329
31 G2 329 0
Depreciation ExpenseStore Equipment Acct. No. 613

May 31 G2 567 567
31 G2 567 0
Part 2continued
Office Salaries Expense Acct. No. 620

May 15 D2 3,150 3,150
30 D2 3,150 6,300
31 G2 6,300 0

May 15 D2 5,320 5,320
30 D2 5,320 10,640
31 G2 10,640 0
Insurance Expense Acct. No. 637

May 31 G2 553 553
31 G2 553 0
Rent Expense, Office Space Acct. No. 641

May 1 D2 742 742
31 G2 742 0
Rent Expense, Selling Space Acct. No. 642

May 1 D2 2,968 2,968
31 G2 2,968 0
Office Supplies Expense Acct. No. 650

May 31 G2 289 289
31 G2 289 0
Store Supplies Expense Acct. No. 651

May 31 G2 669 669
31 G2 669 0
Part 2continued
Utilities Expense Acct. No. 690

May 26 D2 1,283 1,283
31 G2 1,283 0
Income Summary Acct. No. 901

May 31 G2 124,775 124,775
31 G2 156,422 31,647
31 G2 31,647 0
Crane Corp.
May 26 S2 14,210 14,210
Hensel Company
May 2 S2 6,100 6,100
11 R2 6,100 0
16 S2 3,990 3,990
Knox, Inc.
Apr. 28 S2 4,725 4,725
May 2 G2 175 4,550
5 R2 4,550 0
Lee Services
May 22 S2 6,850 6,850
30 R2 6,850 0
Part 2continued
Fink Corp.
May 17 P2 13,650 13,650
23 D2 13,650 0
Garcia, Inc.
May 11 P2 8,800 8,800
19 D2 8,800 0
Gear Supply Co.

May 4 P2 37,729 37,729
10 P2 4,074 41,803
12 G2 854 40,949
24 P2 9,030 49,979
Peyton Products
Apr. 29 P2 7,098 7,098
May 3 G2 798 6,300
8 D2 6,300 0
25 P2 3,080 3,080
Part 3
COLO COMPANY
Income Statement
For Month Ended May 31, 2013
Revenue
Sales........................................................................... $156,422
Less: Sales discounts............................................ $ 350
Sales returns and allowances..................... 175 525
Net sales..................................................................... 155,897
Less: Cost of goods sold.......................................... 99,910
Gross profit on sales................................................... 55,987
Operating expenses
Selling expenses
Depreciation expenseStore equipment............. 567
Sales salaries expense........................................... 10,640
Rent expenseSelling space................................ 2,968
Store supplies expense.......................................... 669
Total selling expenses............................................ 14,844
General and administrative expenses
Depreciation expenseOffice equipment............ 329
Office salaries expense.......................................... 6,300
Insurance expense.................................................. 553
Rent expenseOffice space.................................. 742
Office supplies expense......................................... 289
Utilities expense...................................................... 1,283
Total general and administrative expenses.......... 9,496
Total operating expenses......................................... 24,340
Net income................................................................... $ 31,647
Part 3continued
COLO COMPANY
Statement of Owners Equity
For Month Ended May 31, 2013
Jenny Colo, Capital, April 30, 2013................. $308,085
Plus: Net income............................................. 31,647
339,732
Less: Withdrawals by owner.......................... (7,000)
Jenny Colo, Capital, May 31, 2013.................. $332,732
COLO COMPANY
Balance Sheet
May 31, 2013
Assets
Current assets
Cash............................................................... $135,911
Accounts receivable.................................... 18,200
Merchandise inventory................................ 189,519
Office supplies.............................................. 504
Store supplies............................................... 2,632
Prepaid insurance........................................ 2,765
Total current assets..................................... $349,531
Plant assets
Office equipment.......................................... 25,690
Less accumulated depreciation.................. 10,227 15,463
Store equipment........................................... 38,920
Less accumulated depreciation.................. 18,123 20,797
Total plant assets......................................... 36,260
Total assets..................................................... $385,791
Liabilities
Current liabilities
Accounts payable......................................... $ 53,059
Equity
Jenny Colo, Capital........................................ 332,732
Total liabilities and equity.............................. $385,791
Comprehensive Problem, Colo Company (Concluded)
Part 4
COLO COMPANY
Post-Closing Trial Balance
May 31, 2013
Cash.......................................................................$135,911
Merchandise inventory........................................ 189,519
Office supplies...................................................... 504
Store supplies....................................................... 2,632
Prepaid insurance................................................ 2,765
Office equipment.................................................. 25,690
Accumulated depreciationOffice equip.......... $ 10,227
Store equipment................................................... 38,920
Accumulated depreciationStore equip........... 18,123
Accounts payable................................................. 53,059
Jenny Colo, Capital.............................................. _______ 332,732
Totals.....................................................................$414,141 $414,141
COLO COMPANY
May 31, 2013
Crane Corp.................................................... $14,210
Hensel Company ......................................... 3,990
Total accounts receivable............................ $18,200
COLO COMPANY
May 31, 2013
Peyton Products........................................... $ 3,080
Gear Supply Co............................................. 49,979
Total accounts payable................................ $53,059
Reporting in Action BTN 7-1
1. Polariss Note 12 identifies its single reported business segment.
2. Polaris identifies and describes its single reportable segment in its

Note 1 as follows: its engaged in the design, engineering,
manufacturing and marketing of innovative, high-quality, high-
performance Off-Road Vehicles, Snowmobiles, and On-Road Vehicles,
including motorcycles and Small Electric Vehicles.
3. Solution depends on the most recent information obtained.
Comparative Analysis BTN 7-2
1. Polaris - Current Year Revenue/Segment Assets
Domestic segment: $1,864,099 / [($957,497 + $873,183)/2] = 203.7%
International segment: $792,850 / [($270,527 + $188,464)/2] = 345.5%
Polaris One Year Prior Revenue/Segment Assets
Domestic Segment: $1,405,966 / [($873,183 + $630,420)/2] = 187.0%
International Segment: $585,173 / [($188,464 + $133,233)/2] = 363.8%
Arctic Cat Current Year Revenue/Segment Assets
Domestic Segment: $218,560 / [($271,163 + $244,020)/2] = 84.8%
Arctic Cat One Year Prior Revenue/Segment Assets
Domestic Segment: $215,460/ [($244,020 + $248,625)/2] = 87.5%
2. Polariss domestic revenue as a percent of its domestic assets is

markedly higher than of Arctic Cats for both years for the domestic
segment. However, for the international segment, Arctic Cats revenue
as a percent of assets is markedly higher than Polariss for both years.
Fortunately for Polaris, its domestic sales are roughly triple its
international sales; thus, the domestic revenue/assets ratio has greater
impact. For Arctic Cat, its sales are roughly split between domestic
and international; thus, its higher revenue/assets ratio is very
meaningful and positive for its performance assessment.
Ethics Challenge BTN 7-3
1. Independence in fact means that the auditor maintains an objective

point of view of the client. Independence in appearance means that a
third party viewing the relationship between the auditor and client
would have no reason to believe that the auditor is not independent of
the client.
2. While auditors are hired by their clients to perform audits, auditors

have a responsibility to the companys stakeholders and the public.
In our society, auditors provide credibility to financial reporting by
offering professional audit opinions about companies financial
statements. While it is sometimes difficult to be responsible to clients,
as well as to the stakeholders and the public, auditors must maintain
their independence to keep the publics trust.
3. Since Erica Gray is a sole practitioner it is questionable whether she

can consult on the clients accounting system and then remain
objective in subsequent years when she performs the audit of the
company. Large firms often separate consulting and auditing
engagements for the same client by having staff stationed in two
different geographic branches of the firm do the work. Or a large local
firm might be able to perform consulting and auditing for the same
client by assigning different personnel to the two jobs. In this
scenario, Erica Gray would need to do both jobs herself, making it
difficult to maintain independence in fact and appearance.
(Note to instructors: The Sarbanes-Oxley Act specifically prohibits auditors

from providing financial information and system designs for their SEC audit
clients. This was codified by the SEC [Final Ruling 68].)
Communicating in Practice BTN 7-4
The memo should recommend the use of special journals and subsidiary
ledgers. It should explain the time-saving aspect of journalizing in labeled
columns and also the posting of column totals representing the impact of
groups of like transactions. The memo should discuss the timely
information provided by subsidiary ledgers regarding customer and
creditor balances. A discussion of the uses of a schedule for verifying the
accuracy of subsidiary ledgers should also be included.
Taking It to the Net BTN 7-5
(See Dells Note 14 Segment Information)
1. Large Enterprise; Public; Small and Medium Business; and Consumer.
2. The Large Enterprise segment reports $1,854 million of operating income

and the Large Enterprise segment reports $3,108 million of assets.
These totals are larger than its next largest segments, which is Small
and Medium Business segment with $1,665 million in operating income
and the Public segment with $2,330 million in assets.
3. Dells Operating Income and Total Assets by Segment
Operating Total Assets 2012 : Segment Return

($ millions) Income 2012 Total Assets 2011 on Assets
Large Enterprise...........$ 1,854 $3,108 : $2,934 61.4%
Public.............................$ 1,644 $2,330 : $2,545 67.4%
Small & Medium
$ 1,665 $1,421 : $1,398 118.1%
Business.....................
Consumer......................$ 324 $1,503,: $1,458 21.9%
The Small and Medium Business had the highest segment return on
assets for the fiscal year ended 2012 with a 118.1% return. The other
three showed returns on assets ranging from 21% to 67%.
4. The six product groups reported by Dell include: Desktop PCs, Mobility,
Software and peripherals, Servers and networking, Enhanced services,
and Storage.
($ millions) 2012 Fiscal Year
Mobility................................................................ $19,104 30.8%
Desktop PCs ....................................................... 14,144 22.8
Software and peripherals................................... 10,222 16.5
Servers and networking..................................... 8,336 13.4
Services............................................................... 8,322 13.4
Storage................................................................. 1,943 3.1
Totals.................................................................... $62,071 100.0%
Dell earned morein both dollars and returnsfrom its Mobility group;
its Desktop PCs was second in both categories.
Teamwork in Action BTN 7-6
For check figures in the implementation of this activity see the solution
to Problem 7-3A or 7-3B.
Entrepreneurial Decision BTN 7-7
1. The following special journals are likely to be used:

Sales journal to record credit sales
Cash receipts journal to record all cash receipts
Purchases journal to record credit purchases
Cash disbursements journal to record all cash payments
General journal to record all transactions not in special journals
The company also is likely to use the following subsidiary ledgers:

Accounts receivable subsidiary ledger to track amounts owed by
individual customers
Accounts payable ledger to track amounts owed to individual vendors
Inventory ledger to keep track of all different inventory items
(including inventory ready to sell, inventory in the process of being
completed, and materials to be used in the production of inventory)
2.
One Year Two Years Three Years Four Years Five Years
Year Hence Hence Hence Hence Hence
Sales..............................
$100.0 mil 120.0 mil $138.0 mil $172.5 mil $207.0 mil
Computations Year 2: $100.0 mil x 120% = $120.0 mil

Year 3: $120.0 mil x 115% = $138.0 mil
Year 4: $138.0 mil x 125% = $172.5 mil
Year 5: $172.5 mil x 120% = $207.0 mil
If sales follow the growth projected, the company will have more than
doubled the current $100 mil in annual sales to $207 mil annually.
Global Decision BTN 7-8
1. KTM has the following reported segments:

Europe
North America
Others
2. KTM discloses dollar amounts for the following line items:

Profit and Loss Information
i. Net sales
ii. External net sales
iii. EBIT
Balance sheet information
i. Assets
ii. Liabilities
iii. Investments
iv. Depreciation
3. Yes. On most financial measures reported, the Europe segment

appears to dominate KTMs other segments.

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Chapter 7

Accounting Information Systems

Quick Study 7-2 (5 minutes)

Quick Study 7-4 (10 minutes)

Quick Study 7-5 (15 minutes)

Nov. 2 [In Purchases Journal]

Nov. 12 Automobiles............................................................. 17,000

Nov. 16 [In Sales Journal]

Nov. 19 Sales Returns and Allowances............................... 175

a) Accounts Receivable Ledger

ACCOUNTS RECEIVABLE LEDGER

Quick Study 7-7 (20 minutes)

May 1 Purchases Journal

Quick Study 7-9 (30 minutes)

ACCOUNTS RECEIVABLE LEDGER

Eric Horner Hong Jiang

Mary Mack Troy Wilson

Accounts Receivable Sales

Eric Horner......................................................... $11,100

Quick Study 7-10 (15 minutes)

Segment Average Segment Return

Europe...........................11,528 2,456 469.4

Japan............................. 2,481 898 276.3

Interpretation: The Europe segment reports the highest return on segment

Product Product Sales Percent of Total Sales

iPhone............................................ $ 47,057 43.5%

iPad................................................. 20,358 18.8

iPod................................................. 7,453 6.9

Desktops........................................ 6,439 5.9

Portables........................................ 15,344 14.2

Other............................................... 11,598 10.7

Total................................................ $108,249 100.0%

Interpretation: Sales of Apples iPhone make up its largest percentage of

Quick Study 7-11 (15 minutes)

1. [In Purchases Journal]

2. [In Sales Journal]

3. Sales Returns and Allowances........................... 2,400

Exercise 7-1 (15 minutes)

25 5706 750 500

Exercise 7-2 (10 minutes)

May 2 Cash Receipts Journal

CASH RECEIPTS JOURNAL

Nov. 9 Notes Payable.............

Exercise 7-4 (10 minutes)

November 3 Purchases Journal

a) Accounts Payable Ledger

ACCOUNTS PAYABLE LEDGER

Exercise 7-6 (25 minutes)

CASH DISBURSEMENTS JOURNAL

April 3 Purchases Journal

Exercise 7-8 (10 minutes)

1. When crossfooting the Purchases Journal.

Exercise 7-9 (10 minutes)

a. (i) The June 5 purchase would be recorded in the Purchases Journal.

(ii) The June 14 payment would be recorded in the Cash

b. The error in journalizing the June 14 transaction should be discovered

ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER

Anna Page Sara Reed Aaron Reckers

Sales Returns and