AFM101 Chapter Notes - Chapter 4: Deferred Income, Deferral, Accrual
AFM101 Full Course Notes
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Chandler, Inc. is owned by Roscoe Chandler and providesappraisal services to individuals and companies wishing to purchaseand sell fine art. Chandler, Inc. began business on January 1,2016, and is just completing its first year of business. Roscoeasks for your help in completing the accounting cycle for thecompany by assisting with the closing process.
Before the closing entries are made, you begin with an adjustedtrial balance. The closing entries are essentially the link fromthe adjusted trial balance to the post-closing trial balance.
Chandler, Inc.
ADJUSTED TRIAL BALANCE
December 31, 2016
ACCOUNTTITLE | DEBIT | CREDIT | |
---|---|---|---|
1 | Cash | 76,000.00 | |
2 | Accounts Receivable | 29,000.00 | |
3 | Prepaid Insurance | 16,000.00 | |
4 | Equipment | 60,000.00 | |
5 | Accumulated Depreciation-Equipment | 40,000.00 | |
6 | Accounts Payable | 6,000.00 | |
7 | Salaries Payable | 8,000.00 | |
8 | Income Taxes Payable | 4,000.00 | |
9 | Common Stock | 2,000.00 | |
10 | Retained Earnings | 18,000.00 | |
11 | Dividends | 5,000.00 | |
12 | Income Summary | ||
13 | Fees Earned | 175,600.00 | |
14 | Rent Revenue | 92,000.00 | |
15 | Interest Revenue | 17,200.00 | |
16 | Salaries Expense | 71,000.00 | |
17 | Selling Expense | 25,600.00 | |
18 | Income Taxes Expense | 15,000.00 | |
19 | Depreciation Expense-Equipment | 47,200.00 | |
20 | Insurance Expense | 17,000.00 | |
21 | Miscellaneous Expense | 1,000.00 | |
22 | Totals | 362,800.00 | 362,800.00 |
The final step of the accounting cycle is the closing process.The main goal of this stage of the cycle is to ensure that thebalance of each temporary account is returned to zero and that netincome is transferred to the retained earnings account. The firststep in successfully undertaking the closing process is tounderstand the difference between a temporary account and apermanent account. Roscoe has some questions about the process.
Answer questions (1) - (3) below.
1. If a temporary account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?
2. If a permanent account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?
3. Roscoe will be preparing his yearly financial statementsafter completing Chandler, Inc.âs closing process, and is asomewhat confused about the characteristics of the accounts on hisChart of Accounts. He has started by creating the chart below, andasks for your help in completing it. For each account or type ofaccount listed, choose all descriptions that apply.
Temporary Account | Permanent Account | Closed to Income SummaryAccount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Yes | No | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset accounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retained Earnings account | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liability accounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends account | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Roscoe has attempted to prepare the closing entries forChandler, Inc. on this panel. Heâs not sure if heâs entered thejournal entries correctly, and asks you to review them. You findthat two of the entries are correct, but two are incorrect. Determine which entries are incorrect, and enter all four of theclosing entries for Chandler, Inc. as of Dec. 31 on the Journalpanel. PAGE 25 JOURNAL
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Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in Canada, it engages in some transactions through a branch in Mexico. Therefore, the subsidiary maintains a ledger denominated in Mexican pesos (Ps) and a general ledger in Canadian dollars (C$). As of December 31, 2017, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows:
Main OperationâCanada | |||||
Debit | Credit | ||||
Accounts payable | C$ | 41,555 | |||
Accumulated depreciation | 42,000 | ||||
Buildings and equipment | C$ | 182,000 | |||
Cash | 41,000 | ||||
Common stock | 65,000 | ||||
Cost of goods sold | 218,000 | ||||
Depreciation expense | 8,400 | ||||
Dividends, 4/1/17 | 34,000 | ||||
Gain on sale of equipment, 6/1/17 | 6,500 | ||||
Inventory | 94,000 | ||||
Notes payableâdue in 2020 | 84,000 | ||||
Receivables | 83,000 | ||||
Retained earnings, 1/1/17 | 150,590 | ||||
Salary expense | 38,000 | ||||
Sales | 327,000 | ||||
Utility expense | 10,500 | ||||
Branch operation | 7,745 | ||||
Totals | C$ | 716,645 | C$ | 716,645 | |
Branch OperationâMexico | |||||
Debit | Credit | ||||
Accounts payable | Ps | 67,500 | |||
Accumulated depreciation | 40,000 | ||||
Building and equipment | Ps | 55,000 | |||
Cash | 66,500 | ||||
Depreciation expense | 3,500 | ||||
Inventory (beginningâincome statement) | 38,000 | ||||
Inventory (endingâincome statement) | 35,500 | ||||
Inventory (endingâbalance sheet) | 35,500 | ||||
Purchases | 72,000 | ||||
Receivables | 36,000 | ||||
Salary expense | 10,500 | ||||
Sales | 139,000 | ||||
Main office | 35,000 | ||||
Totals | Ps | 317,000 | Ps | 317,000 | |
Additional Information
The Canadian subsidiaryâs functional currency is the Canadian dollar, and Sendelbachâs reporting currency is the U.S. dollar. The Canadian and Mexican operations are not viewed as separate accounting entities.
The building and equipment used in the Mexican operation were acquired in 2007 when the currency exchange rate was C$0.21 = Ps 1.
Purchases of inventory were made evenly throughout the fiscal year.
Beginning inventory was acquired evenly throughout 2016; ending inventory was acquired evenly throughout 2017.
The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$7,745 on December 31, 2017.
Currency exchange rates for 1 Ps applicable to the Mexican operation follow:
Weighted average, 2016 | C$ | 0.26 |
January 1, 2017 | 0.28 | |
Weighted average rate for 2017 | 0.30 | |
December 31, 2017 | 0.31 | |
The December 31, 2016, consolidated balance sheet reported a cumulative translation adjustment with a $51,950 credit (positive) balance.
The subsidiaryâs common stock was issued in 2004 when the exchange rate was $0.44 = C$1.
The subsidiaryâs December 31, 2016, retained earnings balance was C$150,590, an amount that has been translated into U.S.$70,363.
The applicable currency exchange rates for 1 C$ for translation purposes are as follows:
January 1, 2017 | US$ | 0.70 |
April 1, 2017 | 0.69 | |
June 1, 2017 | 0.68 | |
Weighted average rate for 2017 | 0.67 | |
December 31, 2017 | 0.65 | |
Remeasure the Mexican operationâs account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.)
Prepare financial statements (income statement, statement of retained earnings, and balance sheet) for the Canadian subsidiary in its functional currency, Canadian dollars.
Translate the Canadian dollar functional currency financial statements into U.S. dollars so that Sendelbach can prepare consolidated financial statements.
Complete this question by entering your answers in the tabs below.
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Req A
Remeasure the Mexican operationâs account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.) (Input all amounts as positive values.)
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b. Prepare financial statements (income statement, statement of retained earnings, and balance sheet) for the Canadian subsidiary in its functional currency, Canadian dollars.
c. Translate the Canadian dollar functional currency financial statements into U.S. dollars so that Sendelbach can prepare consolidated financial statements.
(Round U.S. Dollar values to 2 decimal places. Amounts to be deducted and losses should be indicated with a minus sign.)
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