Solution Manual for Corporate Financial Accounting, 12th Edition - Carl S. Warren.pdf

1. An account is a form designed to record changes in a particular asset, liability, stockholders’ equity, revenue, or expense. A ledger is a group of related accounts. 2. The terms debit and credit may signify either an increase or a decrease, depending upon the nature of the account. For example, debits signify an increase in asset and expense accounts but a decrease in liability, capital stock, retained earnings, and revenue accounts. 3. a. Assuming no errors have occurred, the credit balance in the cash account resulted from drawing checks for $1,850 in excess of the amount of cash on deposit. b. The $1,850 credit balance in the cash account as of December 31 is a liability owed to the bank. It is usually referred to as an “overdraft” and should be classified on the balance sheet as a liability. 4. a. The revenue was earned in October. b. (1) Debit Accounts Receivable and credit Fees Earned or another appropriately titled revenue account in October. (2) Debit Cash and credit Accounts Receivable in November. 5. No. Errors may have been made that had the same erroneous effect on both debits and credits, such as failure to record and/or post a transaction, recording the same transaction more than once, and posting a transaction correctly but to the wrong account. 6. The listing of $9,800 is a transposition; the listing of $100 is a slide. 7. a. No. Because the same error occurred on both the debit side and the credit side of the trial balance, the trial balance would not be out of balance. b. Yes. The trial balance would not balance. The error would cause the debit total of the trial balance to exceed the credit total by $90. 8. a. The equality of the trial balance would not be affected. b. On the income statement, total operating expenses (salary expense) would be overstated by $7,500, and net income would be understated by $7,500. On the retained earnings statement, the beginning and ending retained earnings would be correct. However, net income and dividends would be understated by $7,500. These understatements offset one another; ending retained earnings equity is correct. The balance sheet is not affected by the error. 9. a. The equality of the trial balance would not be affected. b. On the income statement, revenues (fees earned) would be overstated by $300,000, and net income would be overstated by $300,000. On the retained earnings statement, the beginning retained earnings would be correct. However, net income and ending retained earnings would be overstated by $300,000. The balance sheet total assets is correct. However, liabilities (notes payable) is understated by $300,000, and stockholders’ equity (retained earnings) is overstated by $300,000. The understatement of liabilities is offset by the overstatement of stockholders’ equity (retained earnings); total liabilities and stockholders’ equity is correct. 10. a. From the viewpoint of Surety Storage, the balance of the checking account represents an asset. b. From the viewpoint of Ada Savings Bank, the balance of the checking account represents a liability. PRACTICE EXERCISES PE 2–1A 1. Debit and credit entries, normal debit balance 2. Credit entries only, normal credit balance 3. Debit and credit entries, normal credit balance 4. Credit entries only, normal credit balance 5. Credit entries only, normal credit balance 6. Debit entries only, normal debit balance PE 2–1B 1. Debit and credit entries, normal credit balance 2. Debit and credit entries, normal debit balance 3. Debit entries only, normal debit balance 4. Debit entries only, normal debit balance 5. Debit entries only, normal debit balance 6. Credit entries only, normal credit balance PE 2–2A Feb. 12 Office Equipment 18,000 Cash 7,000 Accounts Payable 11,000 PE 2–2B Sept. 30 Office Supplies 2,500 Cash 800 Accounts Payable 1,700 PE 2–3A July 9 Accounts Receivable 12,000 Fees Earned 12,000 PE 2–3B Aug. 13 Cash 9,000 Fees Earned 9,000 PE 2–4A Jan. 25 Dividends 16,000 Cash 16,000 PE 2–4B June 30 Dividends 11,500 Cash 11,500 PE 2–5A Using the following T account, solve for the amount of cash receipts (indicated by ? below). Cash $15,200 = $14,750 + Cash receipts – $93,400