SOL. MAN. Chapter 10 CASH TO Accrual Basis OF Acctg MILLAN 2021 PDF

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Chapter 10Cash Basis to Accrual Basis of AccountingPROBLEM 1: FOR CLASSROOM DISCUSSION1. D2. C3. C4: Requirement (a):Accounts/Trade notes receivablebeg. (0 + 200K) 200, Gross credit sales 3,710,000 1,000,Collections on A/RRecoveries 10,000 2,000,Collections on trade N/R 100,000 Write-offs 20,000 Sal...

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Chapter 10 Cash Basis to Accrual Basis of Accounting

PROBLEM 1: FOR CLASSROOM DISCUSSION 1. D 2. C 3. C 4.Solutions: Requirement (a):

beg. (0 + 200K) Gross credit sales

Accounts/Trade notes receivable 200,000 3,710,000

1,000,000

10,000

2,000,000

Recoveries

100,000 20,000 800,000

Gross credit sales Sales returns Net sales - accrual

Collections on A/R Collections on trade N/R Write-offs Sales returns end. (800K + 0)

3,710,000 (20,000) 3,690,000

Requirement (b): Collections on A/R

1,000,000

Collections on trade N/R

2,000,000

Net sales - cash basis

3,000,000

5.Solutions:

Requirements (a) & (b): 1

Accounts payable COGS - cash basis

2,000,00 0

end.

800,000

beg.

200,000 2,800,00 0

2,800,00 0

beg. Net purchases (squeeze)

Inventory

Net purchases

3,000,00 0

COGS - accrual basis

-

end.

6.Solution: Prepaid/Accrued beg. - Prepaid utilities

100,000

80,000

beg. - Accrued payable

Payments for utilities (Cash basis)

270,000

220,00 0

Utilities expense (Accrual basis)

50,000

120,00 0

end. - Prepaid utilities

end. - Accrued payable

7.Solution: beg. - Rent receivable Rent income (Accrual basis) end. - Unearned rent

Receivable/Unearned 1,000,00 0 600,000 beg. - Unearned rent 2,100,00 2,420,00 Collections on rent 0 0 (Cash basis)

720,000

800,000

end. - Rent receivable

8.Solution: Net income under accrual basis (squeeze) Adjustments: Depreciation expense ................ Increase in accounts receivable ..... Decrease in merchandise inventory ...

2

₱ 50,000 ₱ 25,000 (8,000) 13,000

Decrease in accounts payable ........ Net cash provided by operating activities ........................... (start)

3

(10,000)

20,000 ₱70,000

PROBLEM 2: EXERCISES 1.Solutions: Requirement (a): beg. (0 + 240K) Credit sales gross

Accounts/Trade notes receivable 240,000 4,452,000

1,200,000

12,000

2,400,000

Recoveries

Collections on A/R Collections on trade N/R Write-offs

120,000 24,000

Sales returns

960,000 Gross credit sales

end. (960K + 0)

4,452,000

Sales returns

(24,000)

Net sales - accrual

4,428,000

Requirement (b): Collections on A/R

1,200,000

Collections on trade N/R

2,400,000

Net sales - cash basis

3,600,000

2.Solutions:

Requirements (a) & (b):

COGS - cash basis

Accounts payable 3,000,00 4,200,00 0 0

end.

1,200,00 0

beg. Net purchases

Inventory 300,000 4,200,00 4,500,00 0 0 -

4

beg. Net purchases (squeeze)

COGS - accrual basis end.

3.Solution: beg. - Prepaid utilities

Prepaid/Accrued 120,00 150,000 0 beg. - Accrued payable

Payments for utilities (Cash basis)

405,000

330,00 0

Utilities expense (Accrual basis)

75,000

180,00 0

end. - Prepaid utilities

end. - Accrued payable

4.Solution: beg. - Rent receivable Rent income (Accrual basis)

Receivable/Unearned 1,800,00 1,080,00 0 0 beg. - Unearned rent 3,780,00 4,356,00 Collections on rent 0 0 (Cash basis)

end. - Unearned rent

1,296,00 0

1,440,00 0

end. - Rent receivable

5.Solution: Accrual basis profit (squeeze) Depreciation expense (900K - 800K) Decrease in trade and other receivables Increase in inventory Increase in prepaid supplies Decrease in trade and other payables Increase in deferred tax liability

860,000 100,000 40,000 (50,000) (20,000) (10,000) 80,000 1,000,000

Cash basis profit

5

PROBLEM 3: MULTIPLE CHOICE – THEORY 1.

B

2.

A

3.

D

4.

B

5.

C

6.

D

7.

C

8.

D

9.

D

Proof: Case 1: Accounts increase during the period. Accounts payable COGS – Cash basis

50,000

beg.

Inventory 150,00 0

150,000

100,00 0

70,000

COGS – Accrual basis

80,000

Case 2: Accounts decrease during the period. Accounts payable Inventory 100,000 beg. 80,000 COGS – Cash basis

end.

150,00 0

50,000

50,000

-

130,00 0 -

6

COGS – Accrual basis

end.

10. B

Proof: Accounts receivable beg. Sales Accrual Basis

150,00 0

Sales Cash Basis

70,000 80,000

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL 1. B Solution:

beg. - Receivable Royalty income (squeeze) end. - Unearned 2.

Receivable/ Unearned 90,000 60,000 215,000

200,000

40,000

85,000

beg. - Unearned Collection remittances end. - Receivable

C

Solution:

beg. A/R Service revenue (squeeze)

end. Unearned 3.

Receivable/Unearne d 40,000 -

beg. Unearned

215,000 5,000

Collections end. A/R

200,000 60,000

B

Solution:

beg. Prepaid Payments end. Payable

Prepaid/Payabl e 55,000 80,000 300,00 305,00 0 0 75,000 45,000

7

beg. Payable Royalty expense (squeeze) end. Prepaid

4.

D

Solution: Accrual basis profit Increase in accounts receivable Decrease in accounts payable Cash basis profit 5.

95,000 (20,000) (15,000) 60,000





7.

(start)

C

Solution: Cash basis revenue Payments received but not earned Services performed but not yet collected Revenue - accrual basis 6.

(squeeze)

30,000 (2,100) 3,400 31,300

C Effect on 20x3 profit: overstated – understatement in beginning inventory (‘cannot be determined’) causes overstatement in profit – inverse relationship. Effect on 12/31/x3 equity: none – the error in beginning inventory has already counter-balanced. C

Solution: Initial investment Collection on services performed Drawings Capital - 3/31/x3

2,000 5,000 (1,000) 6,000

The expenses incurred are not accounted for because they were paid in the second quarter. 8.

D

Solution: beg. A/R

Accounts receivable 40,000

Net cash & credit sale (80K - 4K + 120K - 6K)

190,000

200,000 8

Collections - cash & credit (squeeze)

30,000 9.

end. A/R

D

Solution: Rent receivable beg. bal. Rent revenue (squeeze)

800,000 2,500,000

30,000

Write-offs

2,210,000

Collections

1,060,000

end. bal.

10. D

Solution: Accounts receivable beg. A/R

1,000,000

Net sales

4,600,000

20,000 4,280,000

Write-offs Collections (squeeze)

1,300,000

end. A/R

9...