BC
BC
LO2 E3-36. Inferring Transactions from Financial Statements
Inc. (GPS)
L03
iniemi
BC
E3-35.
BC
one-half complete.
Preparing Accounting Adjustments and Posting
Refer to the information in E3-34. Prepare adjusting journal entries for each transaction. Set up
T-accounts for each of the ledger accounts, and post the joumal entries to them.
LO2 E3-37. Inferring Transactions and Preparing Journal Entries
Refer to the information in E3-36. Prepare journal entries for
Inc. (GPS)
BC
The GAP is a global clothing retailer for men, women, children, and babies. The following information
is taken from The Gap's annual report for the fiscal year ended February 2, 2019.
Selected Balance Sheet Data (8 millions)
Merchandise inventory..
Accounts Payable.
LOS E3-38. Preparing Closing Journal Entries
Inc. (GPS)
iniemi
a. The Gap purchased inventories totaling $10,392 for the fiscal year ended February 2, 2019. Use
the financial statement effects template to record cost of goods sold for The Gap's fiscal year ended
February 2, 2019. (Assume accounts payable is used only for recording purchases of inventories and
all inventories are purchased on credit.)
with the financial state-
What amount did the company pay to suppliers during the year? Record
ment effects template.
Joel Tuckiem
$ millions
Net sales.
Cost of goods sold
Operating expenses (other than COGS)
Interest expense, not
Income tax expense....
Retained earings (beginning of year).
LO2 E3-39. Inferring Transactions from Financial Statements
Wholesale
Son (COST)
February February
2019
2018
The following selected accounts appear in The GAP Inc.'s financial statements for the fiscal year
February 2, 2019.
$2.131
1,126
Selected Balance Sheet Data (5 millions)
Merchandise inventories..
Deferred membership income (lability).
nsaction.
ien
Debit
$1,997
1,181
$10,258
4,960
40
319
3,081
Prepare entries to close these accounts in journal entry form. Set up T-accounts for each of the accounts,
and post the entries to them. After these entries are posted, what is the balance of the retained eamings
Credit
$16,580
2018
$11,040
1,624
el Tuinien
Costco Wholesale Corporation operates membership warehouses selling food, appliances, consumer
electronics, apparel, and other household goods at 762 U.S. and international locations. As of its fiscal
year-end 2018, Costco had approximately 94.3 million members. Selected fiscal-year information from
the company's balance sheets follows
2017
$9.834
1,498
JO
a. During fiscal 2018, Costco collected $3,268 million cash for membership fees. Use the financial
statement effects template to record the cash collected for membership fees.
& Costco recorded merchandise costs (cost of goods sold) of $123,152 million in fiscal 2018. Record
this transaction in the financial statement effects template.
c. Determine the value of merchandise Costco purchased during fiscal 2018. Use the financial state-
ment effects template to record these merchandise purchases. Assume all of Costco's purchases are
on account, and recorded in accounts payable.
jem/n02, 3, 4 MA3-63. Preparing Accounting Transactions and Adjustments and Financial Statements
niemi
Stocken Surf Shop began operations on July 1 with an initial investment of $50,000. During the first
three months of operations, the following cash transactions were recorded in the firm's checking account.
Deposits
Initial investment by owner.
Collected from customers.
Borrowings from bank..
niemi
Additional information:
1. Most sales were for cash; however, the store accepted a limited amount of credit sales at Septem-
ber 30, customers owed the store $9,000.
$ 50,000
81,000
10,000
$141,000
2. Rent was paid on July 1 for six months. (The company recorded prepaid expense, an asset, on
July 1.)
Joel Tuor
3. Salaries of $4,000 per month were paid on the first of each month for salaries camed in the month
price.
4. Inventories were purchased for cash; at September 30, inventory of $28,000 was still available.
5. Fixtures and equipment were expected to last five years (or 60 months), with zero salvage value.
6. The bank charges 12% annual interest (1% per month) on the $10,000 bank loan. Stocken took out
the loan on July 1.
Checks Drawn
Rent..
Fixtures and equipment
Merchandise inventory
Salaries.
Other expenses.
Required
a. Record all of Stocken's cash transactions, and prepare any necessary adjusting entries at
September 30. You may either use the financial statement effects template or journal entries
combined with T-accounts
b. Prepare the income statement for the three months ended September 30 and the balance sheet at
September 30.
c. Analyze the statements from part b, and assess the company's performance over its initial three
months.
LO3 MA3-64. Analyzing Adjustments, Impacts on Financial Ratios, and Loan Covenants
Assets
Cash..
Accounts receivable.
Supples.
Prepaid insurance.
Equipment, gross
Less: Accumulated
depreciation
Equipment, net.
Total assets
iemi
Kadous Consulting, a firm started three years ago by K. Kadous, offers consulting services for mate-
rial handling and plant layout. Its balance sheet at the close of the current year follows.
KADOUS CONSULTING
Balance Sheet
December 31
$ 3,400
20,875
13,200
6,500
68,500
$ 24,000
25,000
62,000
8,000
13,000
$132,000
23,975
44,525
$58,500
Liabilities
Notes payable.
Accounts payable......
Uneamed consulting fees.
Wages payable..
Total liabilities.
Equity
Common stock
Retained earnings
Total liabilities and equity
Joel Tuo
moriniem
$30.000
4,200
11.300
400
45.900
8.000
Jos
Jos
jem/nCopyright 2021 Cambridge Busin
ⒸCambridge Business Publishers
Publishers | For the Personal Use of Joel Turiniemi #55899
Module 3 Transactions, Adjustments, and Financial Statements
Earlier in the year, Kadous obtained a bank loan of $30,000 cash for the firm. A provision of the loon
is that the year-end debt-to-equity ratio (total liabilities to total equity) cannot exceed 1.0. Based on the
above balance sheet, the ratio at December 31 of this year is 1.06. Kadous is concerned about being in
violation of the loan agreement and requests assistance in reviewing the situation. Kadous believes she
might have overlooked some items at year-end. Discussions with Kadous reveal the following.
1. On January 1 of this year, the firm paid a $6,500 insurance premium for two years of coverage;
the amount in prepaid insurance has not yet been adjusted.
2. Depreciation on equipment should be 10% of cost per year, the company inadvertently recorded 1.5%
for this year.
3. Interest on the bank loan has been paid through the end of this year.
4. The firm concluded a major consulting engagement in December, doing a plant layout analysis for
a new factory. The $8,000 fee has not been billed or recorded in the accounts.
5. On December 1 of this year, the firm received an $11,300 cash advance payment from Dichev
Corp. for consulting services to be rendered over a two-month period. This payment was credited
to the unearned consulting fees account. One-half of this fee was eamed but unrecorded by De-
cember 31 of this year.
6. Supplies costing $4,800 were available on December 31; the company has made no adjustment of
its Supplies account.
Required
a. What is the correct debt-to-equity ratio at December 31?
b. Is the firm in violation of its loan agreement? Prepare computations to support the correct total
liabilities and total equity figures at December 31.
MA3-65. Ethics, Accounting Adjustments, and Auditors
oel Tu
emi
on viemi
It is the end of the accounting year for Anne Beatty, controller of a medium-sized, publicly held corpo-
ration specializing in toxic waste cleanup. Within the corporation, only Beatty and the president know
the firm has been negotiating for several months to land a large contract for waste cleanup in Western
Europe. The president has hired another firm with excellent contacts in Western Europe to help with
negotiations. The outside firm will charge an hourly fee plus expenses but has agreed not to submit a
bill until the negotiations are in their final stages (expected to occur in another three to four months).
Even if the contract falls through, the outside firm is entitled to receive payment for its services. Based
on her discussion with a member of the outside finn, Beatty knows its charge for services provided
to date will be $150.000. This is a material amount for the company.
Beatty knows the president wants negotiations to remain as secret as possible so competitors will
not learn of the contract the company is pursuing in Europe. In fact, the president recently stated to
her. "This is not the time to reveal our actions in Westem Europe to other staff members, our auditors,
or the readers of our financial statements; securing this contract is crucial to our future growth." No
entry has been made in the accounting records for the cost of contract negotiations. Beatly now faces
an uncomfortable situation. The company's outside auditor has just asked her if she knows of any
year-end adjustments that have not yet been recorded.
Required
a. What are the ethical considerations Beatty faces in answering the auditor's question?
b. How should Beatty respond to the auditor's question?
Joel Tuoriniemi
LO3
Joel Tus
