Chapter 3 Operating Decisions and the Accounting System 1 Payson Sports Inc sells sports equipment to customers Its fiscal year ends on December 31 The following transactions occurred in 2015 Complete the following statements a Purchased 250 000 of new sports equipment inventory paid 90 000 in cash and owed the rest on account b Paid employees 180 300 in wages for work during the year an additional 3 700 for 2015 wages will be paid in January 2016 c Sold sports equipment to customers for 750 000 received 500 000 in cash and the rest on account The cost of the equipment was 485 000 d Paid 17 200 cash for utilities for the year e Received 70 000 from customers as deposits on orders of new winter sports equipment to be sold to the customers in January 2016 f Received a 1 930 bill for December 2015 utilities that will be paid in January 2016 Cash Basis Income Statement Accrual Basis Income Statement Revenues Cash sales Customer deposits Expenses Inventory purchases Wages paid Utilities paid Net Income Revenues Sales to customers Expenses Cost of sales Wages expense Utilities expense Net income 2 Which basis of accounting cash or accrual provides more useful information to investors creditors and other users 3 Revenues are normally recognized when the delivery of goods or services has occurred there is persuasive evidence of an arrangement for customer payment the price is fixed or determinable and collection is reasonably assured The amount recorded is the cash equivalent sales price The following transactions occurred in September 2016 For each of the transactions For each of the transactions if revenue is to be recognized in September indicate the revenue account title and amount If revenue is not recognized choose None Round Interest revenue answer to 2 decimal places a A popular ski magazine company receives a total of 12 345 today from subscribers The subscriptions begin in the next fiscal year Answer from the magazine company s standpoint b On September 1 2016 a bank lends 1 500 to a company the note principal and 150 1 500 10 percent annual interest are due in one year Answer from the bank s standpoint c Fucillo Hyundai Inc sells a truck with a list or sticker price of 20 050 for 19 500 cash d Macy s department store orders 1 000 men s shirts for 15 each for future delivery from Phillips Van Heusen Corporation manufacturer of Izod Arrow Van Heusen and Calvin Klein shirts The terms require payment in full within 30 days of delivery Answer from Phillips Van Heusen s standpoint e Phillips Van Heusen Corporation completes production of the shirts described in d and delivers the order Answer f Phillips Van Heusen receives payment from Macy s for the events described in d and e Answer from Phillips Van g A customer purchases a ticket from American Airlines for 780 cash to travel the following January Answer from h Ford Motors issues 15 million in new common stock i Michigan State University receives 19 500 000 cash for 80 000 five game season football tickets j Michigan State plays the first football game referred to in i k Precision Builders signs a contract with a customer for the construction of a new 1 500 000 warehouse At the signing Precision receives a check for 200 000 as a deposit on the future construction Answer from Precision s standpoint l A customer orders and receives 10 personal computers from Dell the customer promises to pay 9 600 within three m Sears a retail store sells a 300 lamp to a customer who charges the sale on his store credit card Answer from from Phillips Van Heusen s standpoint Heusen s standpoint American Airlines s standpoint months Answer from Dell s standpoint Sears s standpoint Revenue Account Affected Amount of Revenue a b c d e f g h i j l k m 3 The following transactions occurred in January 2016 For each of the transactions if an expense is to be recognized in January indicate the expense account title and the amount If expense is not recognized choose None a The McGraw Hill Companies Inc uses 3 800 worth of electricity and natural gas in its headquarters building for which it has not yet been billed b At the beginning of January Turner Construction Company pays 963 for magazine advertising to run in monthly publications each of the first three months of the year c Dell pays its computer service technicians 403 000 in salaries for the two weeks ended January 7 Answer from Dell s standpoint d The University of Florida orders 60 000 season football tickets from its printer and pays 8 340 in advance for the custom printing The first game will be played in September Answer from the university s standpoint e The campus bookstore receives 500 accounting texts at a cost of 95 each The terms indicate that payment is due within 30 days of delivery f During the last week of January the campus bookstore sold 500 accounting texts received in e at a sales price of 130 each g Fucillo Hyundai Inc pays its salespersons 13 800 in commissions related to December automobile sales Answer from Fucillo s standpoint h On January 31 Fucillo Hyundai Inc determines that it will pay its salespersons 15 560 in commissions related to January sales The payment will be made in early February Answer from Fucillo s standpoint i A new grill is purchased and installed at a Wendy s restaurant at the end of the day on January 31 a 12 750 cash payment is made on that day j Carousel Center Mall had janitorial supplies costing 3 500 in storage An additional 2 600 worth of supplies was purchased during January At the end of January 1 400 worth of janitorial supplies remained in storage k An Iowa State University employee works eight hours at 15 per hour on January 31 however payday is not until February 3 Answer from the university s point of view l Wang Company paid 4 800 for a fire insurance policy on January 1 The policy covers 12 months beginning on January Answer from Wang s point of view m Derek Incorporated has its delivery van repaired in January for 600 and charges the amount on account Expense Account Affected Amount of Expense a b c d e f g h i j l k n o p q m n Haas Company a farm equipment company receives its phone bill at the end of January for 154 for January calls The bill has not been paid to date o Martin Company receives and pays in January a 2 034 invoice bill from a consulting firm for services received in January Answer from Martin s Standpoint p Parillo s Taxi Company pays a 595 invoice from a consulting firm for services received and recorded in December q
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