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Chapter 7, 8 & 15 Textbook Exercises
Edward Charfauros
Principles of Accounting ACC/280
February 7, 2012
Kurt Meyer

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Chapter 7:
1. (a) What are generally accepted accounting principles (GAAP)? (b)What bodies provide
authoritative support for GAAP?
1(a) Generally Accepted Accounting Principles (GAAP) is a set of principles recognized as a
general guide providing standardized rules with substantial authoritative support for reporting
organization’s finances.
1(b) GAAP’s governing bodies providing authoritative support is the Financial Accounting
Standards Board (FASB) and the Securities and Exchange Commission (SEC).
2. What elements comprise the FASB’s conceptual framework?
Four elements make up FASB’s conceptual framework: elements of financial statements,
objectives of financial statements, qualitative characteristics of accounting information, and
operating guidelines (Principles, Constraints and Assumptions).
Chapter 8:
Exercise E8-5
Listed below are five procedures followed by The Beat Company.
1. Several individuals operate the cash register using the same register drawer.
2. A monthly bank reconciliation is prepared by someone who has no other cash responsibilities.
3. Ellen May writes checks and also records cash payment journal entries.
4. One individual orders inventory, while a different individual authorizes payments.
5. Unnumbered sales invoices from credit sales are forwarded to the accounting department
every four weeks for recording.

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Procedure IC
Good or Weak?
Related Internal Control Principle
1.
Weak
Establishment of responsibility
2.
Good
Independent internal verification
3.
Weak
Segregation of duties
4.
Good
Segregation of duties
5.
Good
Documentation procedures
Chapter 15:
Exercise E15-1
December 31, 2009 December 31, 2008
Current assets
$125,000
$100,00
Plant assets (net)
396,000
330,000
Current liabilities
91,000
70,000
Long-term liabilities
133,000
95,000
Common stock, $1 par
161,000
115,000
Retained earnings
136,000
150,000
Amount
Percentage
Current assets:
$25,000
25%
Plant assets (net):
$66,000
20%
Current liabilities:
$21,000
30%
Long-term liabilities:
$38,000
40%
Common stock, $1 par:
$46,000
40%

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Retained earnings:
($14,000)
-9.3%
Exercise E15-2
2009
2008
Sales
$750,000
600,000
Cost of goods sold
465,000
390,000
Selling expenses 1
20,000
72,000
Administrative expenses
60,000
54,000
Income tax expense
33,000
24,000
Net income
72,000
60,000
2009
Amount
Percent
2008
Amount
Percent
Sales
$750,000
100.0%,
$600,000
100.0%,
Cost of goods sold
$465,000
62.0%,
$390,000
65.0%
Selling expenses 1
$20,000
16.0%,
$72,000
12.0%
Administrative expenses
$60,000
8.0%,
$54,000
9.0%
Income tax expense
$33,000
4.4%,
$24,000
4.0%
Net income
$72,000
9.6%
$60,000
Exercise E15-11
SCULLY CORPORATION
Balance Sheets
December 31
2008
Cash
2007
$ 4,300
$ 3,700
10.0%

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Accounts receivable
$21,200
$23,400
Inventory
$10,000
$7,000
Land
$20,000
$26,000
Building
$70,000
$70,000
Accumulated depreciation
($15,000)
($10,000)
Total
$110,500
$120,100
Accounts payable
$12,370
$ 31,100
Common stock
$75,000
$69,000
Retained earnings
$23,130
$20,000
Total
$110,500
$120,100
Scully’s 2008 income statement included net sales of $100,000, cost of goods sold of $60,000,
and net income of $15,000.
(a) Current ratio = (4300 + 21200 + 10000) 35,500/12,370 = 2.87:1
(b) Acid-test ratio = (4300 + 21200) 25,500/12,370 = 2.06:1
(c) Receivables turnover = 100,000/22,300 [(21200 + 23400)/2] = 4.48
(d) Inventory turnover = 60,000/8,500 [(10000 + 7000)/2] = 7.06
(e) Profit margin = 15,000/100,000 = 15%
(f) Asset turnover = 100,000/115,300 [(110500 + 120100)/2] = 0.87
(g) Return on assets = 15,000/115,300 [(110500 + 120100)/2] = 13.01%
(h) Return on common stockholders’ equity = 15,000/93,565 [(98130 + 89000)/2] = 16.03%
(i) Debt to total assets ratio = 12,370/110,500 = 11.19%

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Accounts receivable
$21,200
$23,400
Inventory
$10,000
$7,000
Land
$20,000
$26,000
Building
$70,000
$70,000
Accumulated depreciation
($15,000)
($10,000)
Total
$110,500
$120,100
Accounts payable
$12,370
$ 31,100
Common stock
$75,000
$69,000
Retained earnings
$23,130
$20,000
Total
$110,500
$120,100
Scully’s 2008 income statement included net sales of $100,000, cost of goods sold of $60,000,
and net income of $15,000.
(a) Current ratio = (4300 + 21200 + 10000) 35,500/12,370 = 2.87:1
(b) Acid-test ratio = (4300 + 21200) 25,500/12,370 = 2.06:1
(c) Receivables turnover = 100,000/22,300 [(21200 + 23400)/2] = 4.48
(d) Inventory turnover = 60,000/8,500 [(10000 + 7000)/2] = 7.06
(e) Profit margin = 15,000/100,000 = 15%
(f) Asset turnover = 100,000/115,300 [(110500 + 120100)/2] = 0.87
(g) Return on assets = 15,000/115,300 [(110500 + 120100)/2] = 13.01%
(h) Return on common stockholders’ equity = 15,000/93,565 [(98130 + 89000)/2] = 16.03%
(i) Debt to total assets ratio = 12,370/110,500 = 11.19%