To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Appendix E Reporting and Preparing Special Journals QUESTIONS 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 The five components of an accounting system are: source documents, input devices, information processors, information storage, and output devices 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 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 Data stored "off-line" are not immediately available to the information processor(s), while "online" data are immediately available Output devices provide the means by which information is taken from the accounting system and made available for use 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 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 The double posting does not cause the trial balance to be out of balance because only one credit is posted to the general ledger—the 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 ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 819 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 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 posted—instead, 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 10, Best Buy discusses its two reportable segments, Domestic and International Domestic is by far the larger of the two segments 14 No Information regarding the net income earned by business segments is not found on Circuit City’s Consolidated Statement of Operations (Income Statement) However, notes to the financial statements include the information regarding business segments, domestic and international 15 No Information regarding any assets owned by Apple’s business segments is not reported on the balance sheet However, the information is detailed in the notes to its financial statements QUICK STUDIES Quick Study E-1 (10 minutes) A E C B D Quick Study E-2 (5 minutes) batch network scanner enterprise resource planning ©McGraw-Hill Companies, 2008 820 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Quick Study E-3 (15 minutes) B B E B E A E 10 D A 11 B C 12 D Quick Study E-4 (10 minutes) a b c d e f g h Sales Journal Purchases Journal Cash Disbursements Journal Cash Receipts Journal Cash Receipts Journal Purchases Journal Cash Disbursements Journal Cash Disbursements Journal Quick Study E-5 (15 minutes) General Journal Nov [In Purchases Journal] Nov 12 Automobiles 17,000 Common Stock 17,000 Owner contributed an auto to the business Nov 16 [In Sales Journal] Nov 19 Sales Returns and Allowances Accounts Receivable—K Myer 175 175 Customer returned (worthless) merchandise ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 821 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Quick Study E-6 (15 minutes) Segment Segment Income Americas $465 Average Segment Assets $529 Segment return on Assets 87.9% Europe 280 256 109.4 Japan 115 122 94.3 Interpretation: The European segment reports the highest return on segment assets However, each of its other segments has a relatively high return on segment assets as well Product Product Sales iPod $1,306 Percent of Total Sales 15.8% Power Macintosh 1,419 17.1 PowerBook 1,589 19.2 iBook 961 11.6 iMac 954 11.5 Other 2,050 24.8 Total $8,279 100.0% Interpretation: Sales of Apple’s PowerBook, Power Macintosh, and the iPod make up its largest percentages of total individual product sales The iBook and iMac make up the smallest percentage of total individual product sales Sales of Apple’s ―Other‖ set of products makes up the remaining one-quarter of its total individual product sales ©McGraw-Hill Companies, 2008 822 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com EXERCISES Exercise E-1 (15 minutes) SALES JOURNAL Date Invoice Number Account Debited PR Mar J Dryer 5704 12 R Lamb 5705 25 T Taylor 5706 Accounts Receivable Dr Sales Cr 1,250 340 750 Cost of Goods Sold Dr Inventory Cr 800 200 500 Exercise E-2 (10 minutes) Mar 12 16 19 25 Cash Receipts Journal Purchases Journal Sales Journal Cash Receipts Journal Sales Journal Cash Receipts Journal Cash Receipts Journal Sales Journal Exercise E-3A (15 minutes) SALES JOURNAL Date Mar 12 25 Invoice Account Debited Number PR J Dryer 5704 R Lamb 5705 T Taylor 5706 Accounts Receivable Dr Sales Cr 1,250 340 750 Exercise E-4 (20 minutes) CASH RECEIPTS JOURNAL Date Account Credited Cost of Sales Accounts Other Goods Cash Discount Recble Sales Accounts Sold Dr Explanation PR Dr Dr Cr Cr Cr Inventory Cr Nov Notes Payable Note to bank 13 Common Stock Contribution 18 Sales Cash sale 27 J Than Invoice, 11/7 3,750 5,000 330 980 3,750 5,000 330 20 250 1,000 ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 823 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise E-5 (10 minutes) Nov 13 18 22 27 30 Purchases Journal Sales Journal Cash Receipts Journal Cash Receipts Journal Cash Receipts Journal Cash Disbursements Journal Cash Receipts Journal Cash Disbursements Journal Exercise E-6A (25 minutes) CASH RECEIPTS JOURNAL Account Date Credited Explanation PR Nov Notes Payable Note to bank 13 Common Stock Contribution 18 Sales Cash sale 27 J Than Invoice, 11/7 Sales Discount Dr Cash Dr 3,750 5,000 330 980 Accts Rec Cr Sales Cr Other Accounts Cr 3,750 5,000 330 20 1,000 Exercise E-7 (20 minutes) PURCHASES JOURNAL Date Account Date of Invoice Terms PR Accounts Payable Cr June Lucas, Inc 6/01 n/30 9,100 14 Store Supplies/ Park Co 6/14 n/30 340 17 Ray Company 6/17 n/30 380 Inventory Dr Office Supplies Dr Other Accounts Dr 9,100 340 380 Exercise E-8 (10 minutes) June Purchases Journal Sales Journal 14 Purchases Journal 17 Purchases Journal 24 Cash Receipts Journal 28 Cash Disbursements Journal 29 Cash Disbursements Journal ©McGraw-Hill Companies, 2008 824 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise E-9A (20 minutes) PURCHASES JOURNAL Date Account Date of Invoice Terms PR Accounts Payable Cr Purchases Dr 9,100 June Lucas, Inc 6/01 n/30 9,100 14 Store Supplies/ Park Co 6/14 n/30 340 17 Ray Company 6/17 n/30 380 Office Supplies Dr Other Accounts Dr 340 380 Exercise E-10 (25 minutes) CASH DISBURSEMENTS JOURNAL Date Ck No Payee Account Debited PR Cash Cr Other Accounts Inventory Accounts Payable Cr Dr Dr Apr 210 Kitt Corp Store Supplies 650 650 17 211 City Bank Notes Payable 1,400 1,400 28 212 Lite Lite 4,410 90 4,500 29 213 B Dock Salaries Expense 1,800 1,800 30 214 Seth, Inc Seth, Inc 2,950 2,950 Exercise E-11 (10 minutes) April 12 17 20 28 29 30 Purchases Journal Cash Disbursements Journal Sales Journal Cash Disbursements Journal Purchases Journal Cash Disbursements Journal Cash Disbursements Journal Cash Disbursements Journal ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 825 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise E-12A (25 minutes) CASH DISBURSEMENTS JOURNAL Date Ck No Payee Account Debited PR Purchases Other Accounts Cash Discounts Accounts Payable Cr Cr Dr Dr Apr 210 Kitt Corp Store Supplies 650 650 17 211 City Bank Notes Payable 1,400 1,400 28 212 Lite Lite 4,410 90 4,500 29 213 B Dock Salaries Expense 1,800 1,800 30 214 Seth Inc Seth, Inc 2,950 2,950 Exercise E-13 (10 minutes) a (i) The June 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 ©McGraw-Hill Companies, 2008 826 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise E-14 (30 minutes) Part ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Anna Page May 17 1,850 May 20 350 May 10 25 Sara Reed 2,940 1,340 Aaron Reckers May 3,880 Part GENERAL LEDGER Accounts Receivable May 31 10,010 May 20 350 Inventory May 31 8,000 Sales May 31 10,010 Sales Returns and Allowances May 20 350 Cost of Goods Sold May 31 8,000 Part MOUNTAIN VIEW Schedule of Accounts Receivable 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 ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 827 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise E-15 (30 minutes) Part ACCOUNTS RECEIVABLE LEDGER June Eric Horner 7,100 June 29 Joe Mack 4,600 8,300 June 14 Hong Jiang 21,500 June 10 20 Tess Cox 14,400 12,200 Part GENERAL LEDGER Accounts Receivable June 30 68,100 Sales June 30 68,100 Part KEELER COMPANY Schedule of Accounts Receivable June 30 Eric Horner $ 7,100 Hong Jiang .21,500 Joe Mack 12,900 Tess Cox 26,600 Total accounts receivable $68,100 ©McGraw-Hill Companies, 2008 828 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-5B (Continued) Date Nov 26 Date Nov 17 26 30 30 Date Nov Date Nov Date Nov Date Nov 30 30 Explanation Explanation Office Equipment PR Debit P2 5,058 G2 Acct No 163 Credit Balance 5,058 922 4,136 Accounts Payable PR Debit G2 557 G2 922 P2 D2 35,500 Acct No 201 Credit Balance (557) (1,479) 42,614 41,135 5,635 Long-Term Notes Payable Explanation PR Debit R2 Acct No 251 Credit Balance 88,500 88,500 Explanation Common Stock PR Debit Acct No 307 Credit Balance 4,000 Explanation Retained Earnings PR Debit Acct No 318 Credit Balance 36,000 Sales PR Debit S2 R2 Acct No 413 Credit Balance 33,275 33,275 34,873 68,148 Explanation Sales Discounts PR Debit R2 506 Acct No 415 Credit Balance 506 Date Nov 30 30 Costs of Goods Sold Explanation PR Debit S2 19,050 R2 19,200 Acct No 502 Credit Balance 19,050 38,250 Date Nov 15 30 Sales Salaries Expense Explanation PR Debit D2 6,585 D2 6,585 Acct No 621 Credit Balance 6,585 13,170 Date Nov 30 Explanation ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 879 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-5B (Continued) ACCOUNTS RECEIVABLE LEDGER Date Nov 10 19 22 Date Nov 18 Explanation Explanation Carlos Mantel PR Debit S2 13,500 R2 S2 3,695 Cyd Rounder PR Debit S2 6,550 R2 Credit 13,500 Credit 6,550 Balance 13,500 3,695 Balance 6,550 Tori Tripp Date Nov 15 24 25 Explanation PR S2 S2 R2 Debit 5,250 4,280 Credit 5,250 Balance 5,250 9,530 4,280 ACCOUNTS PAYABLE LEDGER Date Nov 12 Date Nov 26 Date Nov 16 Date Nov 11 17 19 Explanation BLR Industries PR Debit P2 D2 33,500 Credit 33,500 Balance 33,500 Explanation Brun Supply PR Debit P2 G2 922 Credit 5,058 Balance 5,058 4,136 Credit 1,040 459 Balance 1,040 1,499 Credit 2,557 Balance 2,557 2,000 Explanation Explanation Grebe Company PR Debit P2 P2 Lo Company PR Debit P2 G2 557 D2 2,000 ©McGraw-Hill Companies, 2008 880 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-5B (Concluded) Part GRASSLEY COMPANY Trial Balance November 30 Debit Cash $100,207 Accounts receivable 7,975 Inventory 36,540 Office supplies 459 Store supplies 1,040 Office equipment 4,136 Accounts payable Long-term notes payable Common Stock Retained Earnings Sales Sales discounts 506 Costs of goods sold 38,250 Sales salaries expense 13,170 Totals $202,283 Credit $ 5,635 88,500 4,000 36,000 68,148 _ $202,283 GRASSLEY COMPANY Schedule of Accounts Receivable November 30 Carlos Mantel $3,695 Tori Tripp 4,280 Total accounts receivable $7,975 GRASSLEY COMPANY Schedule of Accounts Payable November 30 Brun Supply $4,136 Grebe Company 1,499 Total accounts payable $5,635 ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 881 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-6BA (100 minutes) Parts and Date Account Debited SALES JOURNAL Invoice Number Nov Cyd Rounder 439 10 15 22 24 30 Carlos Mantel 440 Tori Tripp 441 Carlos Mantel 442 Tori Tripp 443 Totals PR Page Accounts Receivable Dr Sales Cr      6,550 13,500 5,250 3,695 4,280 33,275 (106/413) PURCHASES JOURNAL Date Account Date of Invoice Nov Office Equip./Brun Supply 11/1 BLR Industries 11/3 Store Supplies/Grebe Company 11/5 Terms PR Accounts Payable Cr n/10, EOM 163/ 5,058  33,500 n/10, EOM 125/ 1,040 2/10, n/30 Office Purchases Supplies Dr Dr Page Other Accounts Dr 5,058 33,500 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 42,614 36,057 459 6,098 (201) (505) (124) () 30 Totals ©McGraw-Hill Companies, 2008 882 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-6BA (Continued) CASH RECEIPTS JOURNAL Account Credited Date Explanation PR Cash Dr Page Sales Discount Dr Accounts Receivable Cr Sales Cr 251/ Nov L.T Notes Pay Note to bank 88,500 Other Accts Cr 88,500  15 Sales Cash sales 18,170 18,170  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 _ 30 Totals 148,167 506 25,300 34,873 88,500 (101) (415) (106) (413) () CASH DISBURSEMENTS JOURNAL Date Ck No Payee Nov 12 633 Account Debited PR Cash Cr Page Purchases Discounts Cr Other Accounts Dr  BLR Industries BLR Industries 32,830 670 Accounts Payable Dr 33,500 15 634 621 Payroll Sales Salaries Expense 6,585 6,585 19 635  Lo Co Lo Company 1,960 40 30 636 621 Payroll Sales Salaries Expense 6,585 _ 6,585 _ 30 Totals 2,000 47,960 710 13,170 35,500 (101) (507) () (201) ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 883 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-6BA (Continued) GENERAL JOURNAL Page Nov 17 Accounts Payable—Lo Co 201/ Purchases Returns and Allowances 506 557 557 Received a credit memo for returns 26 Accounts Payable—Brun Supply 201/ Office Equipment 163 922 922 Received a credit memo for returns GENERAL LEDGER Date Nov 30 30 Date Nov 30 30 Date Nov Date Nov 30 Date Nov Date Nov 26 Cash PR Debit R2 148,167 D2 Acct No 101 Credit Balance 148,167 47,960 100,207 Accounts Receivable Explanation PR Debit S2 33,275 R2 Acct No 106 Credit Balance 33,275 25,300 7,975 Explanation Inventory PR Debit Acct No 119 Credit Balance 40,000 Explanation Office Supplies PR Debit P2 459 Acct No 124 Credit Balance 459 Explanation Store Supplies PR Debit P2 1,040 Acct No 125 Credit Balance 1,040 Office Equipment PR Debit P2 5,058 G2 Acct No 163 Credit Balance 5,058 922 4,136 Explanation Explanation ©McGraw-Hill Companies, 2008 884 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-6BA (Continued) Date Nov 17 26 30 30 Date Nov Date Nov Date Nov Date Nov 30 30 Date Nov 30 Date Nov 30 Accounts Payable PR Debit G2 557 G2 922 P2 D2 35,500 Acct No 201 Credit Balance (557) (1,479) 42,614 41,135 5,635 Long-Term Notes Payable Explanation PR Debit R2 Acct No 251 Credit Balance 88,500 88,500 Explanation Explanation Common Stock PR Debit Acct No 307 Credit Balance 4,000 Explanation Retained Earnings PR Debit Acct No 318 Credit Balance 36,000 Sales PR Debit S2 R2 Acct No 413 Credit Balance 33,275 33,275 34,873 68,148 Explanation Explanation Sales Discounts PR Debit R2 506 Acct No 415 Credit Balance 506 Explanation Purchases PR Debit P2 36,057 Acct No 505 Credit Balance 36,057 Date Nov 17 Purchases Returns and Allowances Acct No 506 Explanation PR Debit Credit Balance G2 557 557 Date Nov 30 Purchases Discounts Explanation PR Debit D2 Acct No 507 Credit Balance 710 710 ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 885 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-6BA (Continued) Date Nov 15 30 Sales Salaries Expense Explanation PR Debit D2 6,585 D2 6,585 Acct No 621 Credit Balance 6,585 13,170 ACCOUNTS RECEIVABLE LEDGER Date Nov 10 19 22 Date Nov 18 Date Nov 15 24 25 Explanation Explanation Explanation Carlos Mantel PR Debit S2 13,500 R2 S2 3,695 Cyd Rounder PR Debit S2 6,550 R2 Tori Tripp PR Debit S2 5,250 S2 4,280 R2 Credit 13,500 Credit 6,550 Credit 5,250 Balance 13,500 3,695 Balance 6,550 Balance 5,250 9,530 4,280 ACCOUNTS PAYABLE LEDGER Date Nov 12 Date Nov 26 Explanation BLR Industries PR Debit P2 D2 33,500 Credit 33,500 Balance 33,500 Explanation Brun Supply PR Debit P2 G2 922 Credit 5,058 Balance 5,058 4,136 ©McGraw-Hill Companies, 2008 886 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-6BA (Continued) Date Nov 16 Date Nov 11 17 19 Explanation Explanation Grebe Company PR Debit P2 P2 Lo Company PR Debit P2 G2 557 D2 2,000 Credit 1,040 459 Balance 1,040 1,499 Credit 2,557 Balance 2,557 2,000 Part GRASSLEY COMPANY Trial Balance November 30 Debit Cash $100,207 Accounts receivable 7,975 Inventory 40,000 Office supplies 459 Store supplies 1,040 Office equipment 4,136 Accounts payable Long-term notes payable Common Stock Retained Earnings Sales Sales discounts 506 Purchases 36,057 Purchases returns and allowances Purchases discounts Sales salaries expense 13,170 Totals $203,550 Credit $ 5,635 88,500 4,000 36,000 68,148 557 710 $203,550 ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 887 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Problem E-6BA (Concluded) Part 3—continued GRASSLEY COMPANY Schedule of Accounts Receivable November 30 Carlos Mantel $3,695 Tori Tripp 4,280 Total accounts receivable $7,975 GRASSLEY COMPANY Schedule of Accounts Payable November 30 Brun Supply $4,136 Grebe Company 1,499 Total accounts payable $5,635 ©McGraw-Hill Companies, 2008 888 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Reporting in Action — BTN E-1 Best Buy’s Note 10 identifies the Company’s two reported business segments Best Buy identifies and describes its two reported segments as: Domestic segment, comprised of Best Buy and Magnolia Audio Video operations International segment, comprised of Future Shop and Best Buy operations in Canada Solution depends on the most recent information obtained Comparative Analysis — BTN E-2 Best Buy - Current Year Return on Segment Assets Domestic segment: $1,393 / [($8,372 + $7,547)/2] = 17.5% International segment: $49 / [($1,922 + $1,105)/2] = 3.2% Best Buy – One Year Prior Return on Segment Assets Domestic Segment: $1,267 / [($7,547 + $6,282)/2] = 18.3% International Segment: $37 / [($1,105 + $858)] = 3.8% Circuit City – Current Year Return on Segment Assets Domestic Segment: $58 / [($3,355 + $ 3,129)/2] = 1.8% International Segment: $32 / $435 = 7.4%* *Depending on interpretation of ―–‖, an alternate solution is: $32/[($435+$0)/2]=14.7% Circuit City – One Year Prior Return on Segment Assets Domestic Segment: $(34)/ [($3,129 + $3,122)/2] = (1.1)% Best Buy’s return on domestic segment assets is much higher in both years than Circuit City’s For the current year (the only year available for Circuit City’s International Segment), Circuit City’s return on international segment assets is higher than Best Buy’s Best Buy’s Domestic Segment’s return on segment assets is much higher than its International Segment Circuit City’s International Segment, however, has a higher return on segment assets than its Domestic Segment ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 889 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ethics Challenge — BTN E-3 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 While auditors are hired by their clients to perform audits, auditors have a responsibility to the company’s ―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 public’s trust Since Erica Gray is a sole practitioner it is questionable whether she can consult on the client’s 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 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 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 E-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 ©McGraw-Hill Companies, 2008 890 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Taking It to the Net — BTN E-5 (See Dell’s Note – Segment Information) Americas, Europe, and Asia Pacific/Japan The Americas reports $2,978 million of operating income and $3,724 million in identifiable assets These totals are substantially larger than its next largest segment, which is Europe with $818 million in operating income and $1,817 million in identifiable assets Dell’s Operating Income and Total Assets by Segment ($ millions) Operating Income 2005 Total Assets 2005 / Total Assets 2004 Segment Return on Assets Americas $2,978 $3,724/ $3,134 86.8% Europe 818 Asia PacificJapan 458 $1,817/ $1,510 49.2% $1,075 / $860 47.3% The Americas had the highest segment return on assets for the fiscal year ended January 28, 2005 with a 86.8% return The other two geographic areas showed returns on assets of almost 50% Product groups reported by Dell include desktop computer systems, notebook computers, and enterprise systems ($ millions) Fiscal Year Ended January 28, 2005 Desktop Systems $24,631 50.1% Notebook Computers 14,057 Enterprise Systems 10,517 Totals $49,205 January 30, 2004 $21,026 50.7 28.6 11,380 27.5 21.4 9,038 21.8 100.0%* $41,444 100.0% * difference due to rounding In both years, Dell earned markedly more—in both dollars and returns— from desktop systems in comparison to the notebook and enterprise systems product groups ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 891 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Teamwork in Action — BTN E-6 For check figures in the implementation of this activity see the solution to Problem E-5A or E-5B BusinessWeek Activity — BTN E-7 According to the author, the growth in IT spending is expected to be in the range of 4% to 6% in 2006 Selling software to large companies has become more difficult because they are susceptible to delays and disruptions due to long sales cycles In addition, the number of approvals needed to close such sales is increasing Relying on a few large sales can make a company’s results go from great to not so great The SMB market is not subject to these problems, and it appears to be an untapped market These factors make the SMB market a target for the enterprise-software vendors The author believes that SAP has achieved great success in this market They have developed a network of partners, and increased their overall growth from indirect sales from the partners, which the authors view as a proxy for the SMB sales This means that SAP’s growth is about 17%, which beats the 4% to 6% average growth rate for the industry ©McGraw-Hill Companies, 2008 892 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Entrepreneurial Decision — BTN E-8 The following special journals are likely to be used by Ring Masters: 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 Ring Masters is likely to use the following subsidiary ledgers: Accounts receivable subsidiary ledger to track amounts owed by individual customer Accounts payable ledger to track amounts owed to individual vendors Inventory ledger to keep track of all different inventory items (including rings ready to sell, rings in the process of being completed, and materials to be used in the production of rings) Year One Year Hence Two Years Three Years Four Years Hence Hence Hence Five Years Hence Sales $3,000,000 3,600,000 $4,140,000 $5,175,000 $6,210,000 Computations Year 2: $3,000,000 x 120% = $3,600,000 Year 3: $3,600,000 x 115% = $4,140,000 Year 4: $4,140,000 x 125% = $5,175,000 Year 5: $5,175,000 x 120% = $6,210,000 If Lee’s sales follow the growth projected, Ring Masters will have more than doubled the current $3,000,000 in annual sales to $6,210,000 Global Decision — BTN E-9 Dixons has the following two reported geographic segments: UK Retail International Retail Dixons discloses dollar amounts by the following segments: Turnover and operating profit Net assets Yes On all financial measures reported, Dixons’ UK Retail segment dominates its International Retail segment ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 893 ... ©McGraw-Hill Companies, 2008 822 Financial Accounting, 4th Edition To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com EXERCISES Exercise E-1 (15 minutes)... 1,000 ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 823 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise E-5 (10 minutes) Nov 13... Journal ©McGraw-Hill Companies, 2008 Solutions Manual, Appendix E 825 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Exercise E-12A (25 minutes) CASH