(Solution Manual) Hospitality Industry Financial Accounting with Answer Sheet (AHLEI)

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Solution Manual

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Solution Manual for Hospitality Industry Financial Accounting with Answer Sheet (AHLEI), The downloadable file consists of 310 pages, and the total size of the file is 6.35 MB. Purchase now only for highly discounted price.

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Hospitality Industry Financial Accounting Fourth Edition Instructor’s Guide 00260TIG04 ENGE iii Suggestions for Using Your Instructor’s Guide This Instructor’s Guide for Hospitality Industry Financial Accounting, Fourth Edition, is designed to be a flexible, easy-to-use resourc e to help you plan the type of class that is best for you and your students. This guide can be adapted to a variety of teaching formats. You may wish to follow one of the course schedules suggested on pages v and vi, or develop your own. Keep in mind that the Educational Institute recommends holding class regularly —once a week or more frequently if desired. Instructor’s Guide Components This I nstructor’s Guide consists of 18 chapter sessions. More than one chapter session may be assigned to a class period. Each chapter session consists of a sample lesson plan and class activities. These contain components —key concepts, individual/group activities, an optional test, PowerPoint s, and so on —that can be used alone or in combination with other session components to help you create an interesting and exciting classroom presentation. Sample Lesson Plan The sample lesson plan contains competencies, key concepts, text exhibits, and PowerPoints . PowerPoint s and exhibits from the text can be used to illustrate key concepts. PowerPoint s are located on the Instructor’s Guide Disk. They may also be downloaded from our website ( www.ahlei.org ). Exhibits are located in the tex t. Class Activities The suggested class activities in this section are available for you to supplement your classroom presentation if you wish. These optional activities are designed to provide students with information, variety, and viewpoints from others in the hospitality industry. Class activities in clude an optio nal test, and individual/group activities. At least one of these categories will appear in each chapter session. Guest speakers can play an important role in the course, but arranging for guest speakers requires planning. Optional Test This section provides hard copy of the optional test questions found on the Instructor’s Guide Disk . Correct answers and the competencies where the answers may be found are provided in the Optional Test section of each session. The optional test questions provide a foundation upon which you can build a customized test to meet the unique requirements of your course. Alternatively, the test can simply be printed or photocopied and given to each student. v Suggested Course Schedule, Quarter System The length of a course at a school using the quarter system is typically 10 weeks, plus a one- week final exam period. For instructors operating under the quarter system, we suggest the following schedule: Week 1 Chapter 1 Introduction to Accounting Chapter 2 Accounting for Business Transactions Week 2 Chap ter 3 Accounting Adjustments Chapter 4 Completing the Accounting Cycle Week 3 Chapter 5 Income Statement Chapter 6 Balance Sheet Week 4 Chapter 7 Specialized Journals and Subsidiary Ledgers Chapter 8 Cash Week 5 Chapt er 9 Receivables and Payables Chapter 10 Inventory Week 6 Chapter 11 Property, Equipment, and Other Assets Chapter 12 Current Liabilities and Payroll Week 7 Chapter 13 Partnerships Chapter 14 Corporate Accounting Week 8 Chapter 15 Bonds, Leases, and Mortgages Payable Chapter 16 Investments in Corporate Securities Week 9 Chapter 17 Statement of Cash Flows Week 10 Chapter 18 Analysis and Interpretation of Financial Statements Week 11 FINAL EXAM vi Suggested Course Schedule, Semester System The length of a course at a school using the semester system is typically 15 weeks. For instructors operating under the semester system, we suggest the following schedule: Week 1 Chapter 1 Introduction to Accounting Chapter 2 Accounti ng for Business Transactions Week 2 Chapter 3 Accounting Adjustments Chapter 4 Completing the Accounting Cycle Week 3 Chapter 5 Income Statement Week 4 Chapter 6 Balance Sheet Week 5 Chapter 7 Specialized Journals and Subsidiary Ledgers Week 6 Chapter 8 Cash Chapter 9 Receivables and Payables Week 7 Chapter 10 Inventory Chapter 11 Property, Equipment, and Other Assets Week 8 Chapter 12 Current Liabilities and Payroll Week 9 Chapter 13 Partnerships Week 10 Chapter 14 Corporate Accounting Week 11 Chapter 15 Bonds, Leases, and Mortgages Payable Chapter 16 Investments in Corporate Securities Week 12 Chapter 17 Statement of Cash Flows Week 13 Chapter 18 Analysis and Interpretation of Financial Statements Week 14 REVIEW FOR FINAL EXAM Week 15 FINAL EXAM vii Instructional Aids Information Instructors can develop greater variety in their presentation by employing either an appropriate audiovisual aid or a different teaching -learning method. Brief information about some of the avai lable audiovisual aids and various teaching -learning methods that can be used advantageously is presented here. It is suggested that instructors who are interested in using a particular device or method obtain further information at local libraries or from the manufacturers of particular equipment. Chalkboard: Chalkboards are useful for developing lists based on the current group discussion or lecture and for presenting data for problems, diagrams, etc. Flip Chart: Where no chalkboard is available, a blank flip chart of newsprint or other paper can serve the same purpose. Colored crayon or laundry marker –type pens can be used for writing. When preprinted, these charts can serve to focus group attention on a subject or question for discussion. Topical content can be developed for accompanying a lecture. Care should be taken to make lettering large enough to be seen easily and to avoid putting too much writing on any one page. The flip chart also provides for a ready review, since the recording is more or less permanent. Film, Filmstrip, and Slides (with or without sound accompaniment): Various factors should be considered when selecting a film, a filmstrip, or a series of slides. These include appropriateness of the subject matter, age, running time, size (in m illimeters), whether color or black and white, and sound accompaniment. Appropriate projection equipment should be tested for operation and focus prior to the session. Be sure to have spare lamps, exciter bulbs, and an extension cord on hand. The room should be equipped with adequate electrical outlets and allow for maximum convenience in dimming the lights and projection. Overhead Projectors (opaque or transparency): Transparency projection does not require dimming of the room; opaque projection usually does. Special transparent slides must be secured or made in advance for transparency projectors. Methods for making low -cost transparencies from preprinted material or drawings are available. Opaque projections can be used to show large images from existing materials. Blank cellophane or clear plastic can be used with a transparency projector to project images of material being written by the instructor as a substitute for a chalkboard or flip chart. It should be convenient to dim room lights, electrical outlets should be available, and an extension cord and spare lamps should be on hand. If you have access to an LCD projector, you may wish to visit EI’s Internet site at www. ahlei .org to view additional resources. Supplemental Resources : Now is the time to be thinking of any supplemental resources you’d like to use in your classroom for this session or future sessions. The American Hotel & Lodging Educational Institute provides additional instructional resources, su ch as online materials and DVDs, on many hospitality industry topics. For a full list of products and to view available demos, please visit EI’s website at www.ahlei.org/products and select the topic of your choice. Displays: Displays are effective when dy namic, well -lighted, and colorful. Lectures must be carefully prepared to support displays. Displays require much preparation and are costly. Panel Presentations: Groups of experts can present information or answer questions. These presentations are useful for supplementing the instructor’s knowledge. Additional: Student reports, projects, reading assignments, and handout materials can be used to reinforce printed material or to prepare for succeeding sessions. viii Instructional Kit for Hospitality Industry Financial Accounting These Educational Institute materials are included in the Instructor’s Kit for this course: 1. Text: Hospitality Industry Financial Accounting, Fourth Edition, by Raymond S. Schmidgall and James W. Damitio . 2. Instructor’s Guide: Thi s guide includes 18 chapter sessions. 3. Optional test questions on hard copy and disk. Build Your Reputation for Classroom Excellence! The award -winning Certified Hospitality Educator (CHE) program —the only professional - development opportunity designed specifically for hospitality educators —enables you to: • Discover the newest, most effective instructional techniques • Receive recognition for your teaching abilities from students, colleagues, and the hospitality industry • Network with peers from around the world • Strengthen your students’ critical thinking skills When you become certified, you are entitled to use the CHE designation after your name to signify your status. You also receive an internationally recognized lap el pin and plaque —tangible proof of your commitment to excellence in hospitality education. The CHE program is recommended by the Council on Hotel, Restaurant and Institutional Education (CHRIE), the Club Managers Association of America (CMAA), and the American Culinary Federation’s Educational Institute. To learn more about the three -day, hands -on workshop that leads to certification —and how CHE certification can benefit your career as well as your students’ futures —contact EI’s Professional Certification Department at 1 -888-575-8726. Introduction to Accounting Sample Lesson Plan PowerPoint s: Slide 1: Competencies for Introduction to Accounting Competency 1: Define accounting and distinguish it from bookkeeping. (pp. 3–4) Key Concepts: Economic information is financial —stated in monetary terms Accounting process —record, classify, and summarize economic events Bookkeeping records and classifies; accounting also analyzes and interprets PowerPoint s: Slide 2: Accounting Is Much More than N umbers Slide 3: Definition of Accounting Slide 4: Accounting and Communication Slide 5: What Makes Hospitality Accounting Unique ? Slide 6: Differences Between Bookkeeping and Accounting Competency 2: Describe the six branches of accounting. (pp. 4–6) Key Concepts: Financial accounting Cost accounting Managerial accounting Tax accounting Auditing Accounting systems PowerPoint s: Slide 7: Branches of Accounting Slide 8: Financial Accounting Slide 9: Cost Accounting Slide 10: Managerial Accounting Slide 11: Tax Accounting Slide 12: Auditing Slide 13: Accounting Systems Competency 3: Identify and describe organizations that have influenced hospi tality accounting practices. (pp. 6–7) Key Concepts: American Institute of Certified Public Accountants (AICPA) Financial Accounting Standards Board (FASB) Securities and Exchange Commission (SEC) Internal Revenue Service (IRS) Hospitality Financial and Technology Professionals (HFTP) (formerly IAHA) International Accounting Standards Board PowerPoint s: Slide 14: Organizations that Influence Accounting Competency 4: Describe basic forms of business organization and their advantages and disadvantage s. (pp. 7–10) Key Concepts: Sole proprietorship— most common Partnership —owned by two or more people Limited partnership 2 Introduction to Accounting Limited liability company Corporation —legal entity cr eated by state or other political authority S corporation PowerPoint s: Slide 15: Forms of Business Organization Slide 16: Pros and Cons of Sole Proprietorships Slide 17: Pros and Cons of Partnerships Slide 18: Pros and Cons of Limited Partnerships Slide 19: Advantages of Limited Liability Companies Slide 20: Pros and Cons of Corporations Slide 21: Advantages of S Corporations Competency 5: Describe the responsibilities of a hospitality firm’s accountin g department. (pp. 11–15) Key Concepts: Provide infor mation and service Work closely with management and service departments Prepare financial statements Text Exhibits: Exhibit 1: Responsibilities of Hotel Controllers Exhibit 2: Responsibilities of Club Controllers Exhibit 3 : Organization Chart for Large Cor porate Accounting Staff Exhibit 4 : Controller’s Department Organization Chart Exhibit 5 : Management Reports PowerPoints: Slide 22: The Accounting Function at a Lodging Property Competency 6: Apply generally accepted accounting principles to hospitalit y situations. (pp. 15–19) Key Concepts: Cost Business entity Continuity of business unit Unit of measurement Objective evidence Full disclosure Consistency Matching (used in accrual accounting) Conservatism Materiality Revenue recognition Text Exhibits: Exhibit 6 : Types of Disclosure and Examples PowerPoint s: Slide 23: Generally Accepted Accounting Principles Slide 24: Generally Accepted Accounting Principles: Cost Slide 25: Generally Accepted Accounting Principles: Business Entity Slide 26: Generally Accepted Accounting Principles: Continuity of B usiness Unit Slide 27: Generally Accepted Accounting Principles : Unit of M easurement Slide 28: Generally Accepted Accounting Principles : Objective Evidence Slide 29: Generally Accepted Accountin g Principles : Full Disclosure Slide 30: Generally Accepted Accounting Principles : Consistency Slide 31: Generally Accepted Accounting Principles : Matching Slide 32: Generally Accepted Accounting Principles : Conservatism Slide 33: Generally Accepted Account ing Principles : Materiality Introduction to Accounting 3 Slide 34: Generally Accepted Accounting Principles : Revenue Recognition Competency 7: Describe the major types of financial statements: balance sheets, income statements, and statements o f cash flows. (pp. 19 –24) Key Concepts: Balance sheet or statement of financial position Outlines the fundamental accounting equation Income statement Also called profit & loss statement and other names Shows results of operations for a period Statement of cash flows (SCF) Shows cash inflows and outflows for a period Cash basis: recognizes accounting transaction at point of cash inflow or outflow Accrual basis: recognizes all revenues earned and records all expenses incurred; matches expenses with revenues; adjusting entries Text Exhibits: Exhibit 7 : Sample Simplified Balance Sheet Exhibit 8 : Sample Simplified Income Statement Exhibit 9 : Sample Statement of Cash Flows PowerPoint s: Slide 35: Major Financial Statements and Accounting Methods Competency 8: Describe the fundamental accounting equation and apply it to accountin g situations. (pp. 24 –29) Key Concepts: Assets = Liabilities + Owners’ Equity PowerPoint s: Slide 36: The Fundamental Accounting Equation Class Activities Suggested Guest Speaker Consider inviting a guest speaker to this class session. An appropriate speaker would be a hotel or restaurant accountant. Ask the speaker to bring an organization chart of the business. Help the speaker prepare by providing him or her with a copy of the c ompetencies for this chapter. Have the speaker discuss differences between branches of accounting and career paths for hospitality accounting. Optional Test A ready -to-use test containing questions related to the competencies covered by this chapter is included in this session. These questions are similar in format and content to the questions on the Final Exam that the Educational Institute provides and grades for students who are enrolled in this course with the Institute. (If your students are not enroll ed in the Institute’s course, they will not receive this Final Exam.) The answers to this session’s optional test are: 1-d-C1, 2 -d-C2, 3 -a-C3, 4 -c-C3, 5 -a-C4, 6 -a-C5, 7 -c-C6, 8 -b-C6, 9 -a-C7, 10- b-C8 Each question is linked to a competency. Competencies are listed on the first page of the textbook chapter and in the Sample Lesson Plan above. An answer reading 3 -b-C4 translates to: 3: the question number b: the correct answer C4: the competency number The pages in the text that are associated with this chapter’s competencies are as follows: 4 Introduction to Accounting C1: 3–4 C2: 4–6 C3: 6–7 C4: 7–10 C5: 11–15 C6: 15–19 C7: 19–24 C8: 24–29 Note that the answers to test questions may not appear verbatim on the referenced pages. Test questions may assess the examinees’ ability to apply a concept, not just their knowledge of the concept. These questions can also be found on the Instructor’s Guide disk in Rich Text Format (.rtf) files that most word processing programs can open and read. You can use these q uestions as a starter to create your own tests. Supplemental Resources Now is the time to be thinking of any supplemental resources you’d like to use in your classroom for this session or future sessions. The American Hotel & Lodging Educational Institute provides additional instructional resources, such as online materials and DVDs, on many hospitality industry topics. For a full list of products and to view available demos, please visit EI’s website at www.ahlei.org/products and select the topic of your c hoice. Solutions to Problems in Text The solutions to the problems found in the text can be found starting on page 8 of this session. Individual/Group Activities Activity 1: Small -Group Accounting Problems Divide the class into small groups and assign selected problems from the text or from the Extra Problems section found on page 7 of this session. The solutions to the extra problems are found on page 15 of this session. These solutions can be used as hando uts. Introduction to Accounting 5 Introduction to Accounting NAME: ________________________________________ DATE: ____________________ 1. Which of the following events would be recorded as an accounting event? a. A guest enters the dining room and is seated by a host. b. A guest complains to front office representatives about a dirty guestroom. c. A valet parks a guest’s vehicle. d. A guest purchases a meal in a food outlet. 2. The branch of accounting that involves reviewing and evaluating documents, records, and control systems is called: a. financial accounting. b. cost accounting. c. managerial accounting. d. auditing. 3. Which of the following groups has the most influence over the development of accounting principles in the private sector? a. Financial Accounting Stan dards Board (FASB) b. Securities and Exchange Commission (SEC) c. Internal Revenue Service (IRS) d. Hospitality Financial and Technology Professionals (HFTP) 4. The organization that administers the certification programs for Certified Hotel Account Execut ives and Certified Hotel Technology Professionals is: a. the Internal Revenue Service (IRS). b. the Securities and Exchange Commission (SEC). c. Hospitality Financial and Technology Professionals (HFTP). d. the Financial Accounting Standards Board (FASB). 5. The major disadvantage of the corporate form of business organization is: a. double taxation. b. limited liability. c. difficulty in raising capital. d. all of the above. 6. Regardless of the size of an operation’s accounting department, the diversity o f its responsibilities, or the number and types of reports produced, the accounting staff is responsible for providing: a. service. b. clean rooms that are ready for sale. c. inventory counts. d. guest comment cards. 7. The generally accepted accounting pr inciple of matching requires that: a. accounting adjustments be made at least quarterly. b. balance sheet accounts and income statement accounts match. c. expenses be matched with the revenues they generate. d. hospitality businesses use the cash basis of accounting. 6 Introduction to Accounting 8. The Tech Hotel purchased a computer for $3,000. The retail value of the computer per the salesperson is $3,500; however, it is projected that the computer will have a market value of only $2,500 one year from now. The cost principle dicta tes that the computer purchase be recorded at the date of purchase for: a. $2,500. b. $3,000. c. $3,500. d. cannot be determined 9. Which of the following statements best describes the accounting principle of objective evidence? a. It requires supporting documents for accounting transactions whenever possible. b. It involves recording, classifying, and summarizing transactions in order to prepare reports. c. It requires that all events that would make a difference to the user of a financial report be accounted for. d. It assumes that the business will survive for the foreseeable future. 10. What happens to the fundamental accounting equation when the sole proprietor of a business invests more cash in it? a. Assets increase, liabilities increase, and owner’s equity decreases. b. Assets increase, liabilities remain the same, and owner’s equity increases. c. Assets remain the same, liabilities increase, and owner’ s equity increases. d. Assets increase, liabilities increase, and owner’s equity remains the same. Introduction to Accounting 7 Extra Problems Problem 1 Fill in the blanks below with the accounting principle that best applies. a. Cost c. Going Concern b. Business Entity d. Unit of Measurement e. Objective Evidence h. Matching f. Full Disclosure i. Conservatism g. Consistency j. Materiality 1. A lodging company pays a fire insurance premium of $40,000. The policy covers a two- year period. The $40,000 cash disbursement is recorde d as insurance expense. This violates the _______ principle. 2. A guestroom wastebasket costing $20 is expensed when it is purchased. The wastebasket should have a five- year life. This is probably acceptable accounting because of the _______ principle. 3. The food inventory is generally valued at its cost at the end of each year. However, this year it is written down at its market value because the market value is less than cost. The valuing of food inventory at the lower of cost or market is according to the _______ principle. 4. A. Dogg, the proprietor of Dogg’s Dining, takes a few steaks home from his business. He records the cost of the steaks taken for personal use as “A. Dogg, Drawing” in accordance with the _______ principle. 5. The Yorkshire Hotel, in addition to including its depreciation expense on the income statement, mentions its method of depreciation and the estimated lives of its property and equipment in a footnote. This is based on the _______ principle. Problem 2 The following are account names in the ledger of Ray’s Roadhouse: Notes Payable _________ Prepaid Rent _________ Equipment _________ Ray Brock, Capital _________ Accounts Payable _________ Accounts Receivable _________ Operating Supplies _________ Cash _________ Wages Payable _________ Roadhouse Roadster (Delivery Van) _________ Required: In the blanks above, indicate whether each account should be classified as an asset, liability, or owner’s equity account. Problem 3 Duane Schmidt opened a small café, which he called Schmidt’s Caf é. During the first week, he completed the following transactions: a. Sold a personal investment in Fork Motor Co. stock and deposited $100,000 of the proceeds in a bank account opened in the name of Schmidt’s Caf é. b. Purchased an old building converted into the caf é for $85,000. c. Purchased food and beverages for $3,000 on account from Jerry’s Wholesale Food Co. d. Sold meals for $150 total cash to Randall Construction Co. The entire amount was paid by Jim Randall. The cost of the food and beverages sold was $50. e. Paid the cook $50 for one day’s work. Required: 1. Arrange the following asset, liability, and proprietorship titles in an expanded accounting equation like that shown in the chapter: Cash, Food and Beverage Inventory, Building, Accounts Payable (Jerry’s Wholesale Food Co.), Duane Schmidt, Capital. 2. Show by additions and subtractions the effects of each transaction on the assets, liabilities, and proprietorship of Schmidt’ s Cafe. Show net totals for all items after each transaction. 8 Introduction to Accounting Solutions to Problems in the Text and the Extra Problems Problem 1 1. I 2. A 3. H 4. F 5. G Problem 2 1. cost 2. business entity 3. going concern 4. objective evidence 5. full disclosure 6. consistency 7. matching 8. materiality Problem 3 1. tax accounting 2. auditing 3. cost accounting 4. accounting systems 5. managerial accounting 6. financial accounting Problem 4 Blair’s Catering Balance Sheet [date] ASSETS Cash $ 1,000 Accounts Receivable 4,000 Food Supplies 2,000 Prepaid Rent 3,000 Equipment 10,000 Total Assets $ 20,000 LIABILITIES AND OWNER’S EQUITY Liabilities Accounts Payable $ 5,000 Owner’ s Equity Blair Douglas, Capital 15,000 Total Liabilities and Owner’s Equity $ 20,000 Introduction to Accounting 9 Problem 5 1. Increase in assets, increase in liabilities A = L + OE +$10,000 +$10,000 Furniture Loan 2. Increase in assets, increase in owners' equity A = L + OE +$5,000 +$5,000 Cash Capital 3. Decrease in assets, decrease in liabilities A = L + OE –$1,000 –$1,000 Cash Loan 4. Increase in assets, increase in liabilities A = L + OE +$50 +$50 Supplies Accounts Payable 5. Increase in assets, decrease in assets A = L + OE +$1,500 Computer –$1,500 Cash Problem 6 Cody’s Place Income Statement [date] Revenues: Sales $45,000 (1) Expenses: Cost of food $13,500 (2) Other expenses 8,000 Total expenses before taxes 21,500 Total income before taxes 23,500 Income tax expense 6,580 (3) Net Income $16,920 (1) 3,000 × $15 = $45,000 (2) $45,000 × .3 = $13,500 (3) $23,500 × .28 = $6,580 10 Introduction to Accounting Problem 7 Cody’s Place Statement of Cash Flows [date] Cash inflows: Invested by owner $ 20,000 Loan borrowed for equipment 80,000 (1) Cash sales 40,500 (2) Total cash inflows 140,500 Cash outflows: Purchased equipment $100,000 Payment to suppliers 5,000 Payment of other expenses 8,000 Total cash outflows 113,000 Increase in cash $ 27,500 (1) $100,000 – $20,000 = $80,000 (2) $45,000 × .9 = $40,500 Problem 8 ASSETS = LIABILITIES + OWNER'S EQUITY Cash + Guest Supplies + Prepaid Rent = Accounts Payable + D. Kent, Capital (a) $ 50,000 – – = – $ 50,000 (b) (2,000) – 2,000 – – 48,000 + – + 2,000 = – + 50,000 (c) 750 – – – 750 48,750 + – + 2,000 = – + 50,750 (d) – 300 – 300 – 48,750 + 300 + 2,000 = 300 + 50,750 (e) (500) – – (500) $ 48,250 + $ 300 + $ 2,000 = $ 300 + $50,250 $50,550 = $50,550 Introduction to Accounting 11 Problem 9 ASSETS = LIABILITIES + OWNER'S EQUITY Cash Operating Prepaid Prepaid Equipment Van Accounts Bank Natalie Ray, + Supplies + Insurance + Rent + + Payable + Loan + Capital (1) $50,000 + $ – + $ – + $ – + $ – + $ – = $ – $ – $ 50,000 (2) –5,000 – – – – 25,000 – 20,000 – 45,000 + + + + + 25,000 = + 20,000 + 50,000 (3) –1,000 1,000 – – – – – – – 44,000 + 1,000 + + + + 25,000 = + 20,000 + 50,000 (4) –2,000 – – 2,000 – – – – – 42,000 + 1,000 + + 2,000 + + 25,000 = + 20,000 + 50,000 (5) –2,000 – 2,000 – – – – – – 40,000 + 1,000 + 2,000 + 2,000 + + 25,000 = + 20,000 + 50,000 (6) – 5,000 – – – – 5,000 – – 40,000 + 6,000 + 2,000 + 2,000 + + 25,000 = 5,000 + 20,000 + 50,000 (7) –30,000 – – – 30,000 – – – – $ 10,000 + $ 6,000 + $ 2,000 + $ 2,000 + $ 30,000 + $ 25,000 = $ 5,000 + $20,000 + $ 50,000 Problem 10 ASSETS = LIABILITIES + OWNER'S EQUITY Cash + Food Inven. + Bev. Inven. + Office Supplies + Delivery Truck = Accounts Payable + Notes Payable, First Auto + Melvin Dwight, Capital Beginning $ 2,500 + $ 500 + $ 2,500 + $ 200 + $ 2,000 = $ 500 + $ 1,500 + $ 5,700 (A) 500 500 3,000 + 500 + 2,500 + 200 + 2,000 = 500 + 1,500 + 6,200 (B) 250 250 3,000 + 750 + 2,500 + 200 + 2,000 = 750 + 1,500 + 6,200 (C) 110 110 3,110 + 750 + 2,500 + 200 + 2,000 = 750 + 1,500 + 6,310 (C) (40) (15) (55) 3,110 + 710 + 2,485 + 200 + 2,000 = 750 + 1,500 + 6,255 (D) (20) (20) 3,090 + 710 + 2,485 + 200 + 2,000 = 750 + 1,500 + 6,235 (E) (15) (15) 3,075 + 710 + 2,485 + 200 + 2,000 = 750 + 1,500 + 6,220 (F) (450) (450) 2,625 + 710 + 2,485 + 200 + 2,000 = 750 + 1,050 + 6,220 (G) (300) (300) $ 2,325 + $ 710 + $ 2,485 + $ 200 + $ 2,000 = $ 750 + $ 1,050 + $ 5,920 $ 7,720 = $ 7,720 12 Introduction to Accounting Problem 11 Accounts Notes Melvin Food Bev. Office Del. Payable, Payable Dwight, Cash + Inv. + Inv. + Sup. + Truck = Lawrence + First Auto + Capital $2,325 $710 $2,485 $200 $2,000 $750 $1,050 $5,920 M.D.’s Catering Balance Sheet December 31, 20X2 ASSETS Cash $ 2,325 Food Inventory 710 Beverage Inventory 2,485 Delivery Truck 200 Office Supplies 2,000 Total Assets $ 7,720 LIABILITIES AND OWNER’S EQUITY Liabilities: Notes Payable, First Auto Bank $ 1,050 Accounts Payable, Lawrence Supply Company 750 Total Liabilities 1,800 Owner's Equity: Melvin Dwight, Capital 5,920 Total Liabilities and Owner’s Equity $ 7,720 Problem 12 Spring Valley Motel Balance Sheet December 31, 20X5 ASSETS Cash $ 250 Accounts Receivable 300 Inventory 50 Prepaid Insurance 50 Building 5,000 Total Assets $ 5,650 LIABILITIES AND OWNER’ S EQUITY Liabilities: Accounts Payable $ 200 Wages Payable 150 Notes Payable 2,500 Total Liabilities 2,850 Owner’ s Equity: Charlie Reps, Capital 2,800 Total Liabilities and Owner’s Equity $ 5,650 Introduction to Accounting 13 Problem 13 Mel’s Diner Income Statement For the year ended December 31, 20X7 Revenues: Food and Beverage S ales $ 575,000 Expenses: Cost of F ood $ 165,000 Labor 190,000 General M aintenance 20,000 Other Operating E xpenses 90,000 Total Expenses 465,000 Net Income $ 110,000 Problem 14 Nathan Catering Balance Sheet January 31, 20X5 ASSETS Cash $ 995 (1) Accounts R eceivable 1,508 (2) Inventory 2,000 Total Assets $ 4,503 LIABILITIES AND OWNER’ S EQUITY Liabilities: Accounts payable $ 1,630 (3) Total Liabilities 1,630 Owner’ s Equity : Nathan Thom, Capital 2,873 (4) Total Liabilities and Owner’ s Equity $ 4,503 (1) $1,200 – $120 – $85 = $995 (2) $350 + $200 + $420 + $148 + $390 = $1,508 (3) $950 + $480 + $200 = $1,630 (4) $4,503 – $1,630 = $2,873 14 Introduction to Accounting Problem 15 1. The Carlos Inn Statement of Cash Flows For the year ended December 31, 20X3 Cash Inflows Cash Sales $ 155,000 Proceeds from Loan 25,000 Total Cash Inflows 180,000 Cash Outflows Payment of Wages $ 60,000 Purchase of Van 30,000 Purchase of Supplies 2,000 Payment of Operating Expenses 45,000 Payment of Fees 5,000 Withdrawal of Capital 10,000 Total Cash Outflows 152,000 Increase in Cash $ 28,000 2. Students’ answers may vary, but the point is to put the money to work for the owners by investing it in some way. For the most part, it will be idle if it sits in the checking account. The Carloses could withdraw more money for themselves. They could invest it in new or upgraded equipment. I f they wanted ready access to it and had a low risk tolerance, they could invest in short -term certificates of deposit; on the other hand, if they had a higher risk tolerance, they could invest the surplus in stocks. This option should be exercised with ca ution, as there are no guarantees that their investment will pay off. Problem 16 1. Recommend that he organize as either a corporation or an LLC, since either of these forms will limit his personal liability. If he organizes as a corporation, he should file his taxes as an S corporation to avoid double taxation. In either case, he will want to maintain a majority of equity ownership so as to maintain control. 2. Recommend that each location be separately organized to limit any potential losses due to lawsuits, etc. Again, either a corporation o r LLC will work using the reasoning given in part 1. Problem 17 Fountain Inn Income Statements [date] Part 1 Part 2 Cash Accrual Accounting Accounting Sales $4,800 $5,000 Cost of sales 1,000 800 Wages 1,500 1,700 Utilities - 50 Supplies 300 200 Rent 800 400 Net Income $1,200 $1,850 Introduction to Accounting 15 Extra Problem 1 1. H 2. J 3. I 4. B 5. F Extra Problem 2 1. liability 2. asset 3. asset 4. owners’ equity 5. liability 6. asset 7. asset 8. asset 9. liability 10. asset Extra Problem 3 ASSETS = LIABILITIES + OWNER’S EQUITY Cash + F&B Inventory + Building = Accounts Payable + Melvin Dwight, Capital (A) $ 100,000 + $ – + $ – = $ – + $ 100,000 (B) (85,000) 85,000 15,000 + – + 85,000 = – + 100,000 (C) 3,000 3,000 15,000 + 3,000 + 85,000 = 3,000 + 100,000 (D) 150 150 15,150 + 3,000 + 85,000 = 3,000 + 100,150 (D) (50) (50) 15,150 + 2,950 + 85,000 = 3,000 + 100,100 (E) (50) (50) $ 15,100 + $ 2,950 + $ 85,000 = $ 3,000 + $ 100,050 $ 103,050 = $ 103,050 Accounting for Business Transactions Sample L esson Plan PowerPoint s: Slide 1: Competencies for Accounting for Business Transactions Competency 1: Explain the functions of accounts and T -accounts, and classify accounts into the major account categories. (pp. 41 –45) Key Concepts: Account stores informa tion Classifies and summarizes T-account: debits on left, credits on right Asset, liability, and owners’ equity accounts PowerPoint s: Slide 2: Tools of a Double -Entry Accounting System Slide 3: Accounting Is Transaction -Based Slide 4: Setting Up Accounts Slide 5: Asset Accounts Slide 6: Liability Accounts Slide 7: Owners’ Equity Accounts Slide 8: Common Revenue Accounts for the Hospitality Industry Slide 9: Common Expense Accounts for the Hospitality Industry Competency 2: Define the terms debit and credit , explain the basis of the double -entry accounting system, and identify the normal balances of commonly used accounts. (pp. 45 –49) Key Concepts: Debit—entry on the left side of the account Credit —entry on the right side of the account Debits and credits mu st balance All transactions affect at least two accounts Normal balance is the side of the account that shows increases Debits increase assets Credits increase liabilities and owners ’ equity PowerPoint s: Slide 10: Debits and Credits Slide 11: Mechanics of Double- Entry Accounting Slide 12: Recording Changes in Revenues and Expenses Slide 13: Recording Owner’s Withdrawals Slide 14: Normal Account Balances Competency 3: Define general ledger , distinguish between balance sheet and nominal accounts, and describe the relationship between general ledger accounts an d the chart of accounts. (pp. 49– 52) Key Concepts: Ledger as group of accounts; general ledger as the group of general accounts Balance sheet accounts are real —they are permanent and ne ver close Temporary or nominal accounts are periodically closed into Owners’ Equity Chart of accounts lists all account numbers and titles Text Exhibits: Exhibit 1: Assets Section from a Sample Chart of Accounts PowerPoints: Slide 15: The General Ledger 2 Accounting for Business Transactions Slide 16: Charts of Accounts Slide 17: Account Numbers Competency 4: Demonstrate how to journalize and post accounting entries, and prepare a tri al balance for accounts. (pp. 52– 64) Key Concepts: Journal —book of original entry Ledger —book of final entry Information in journals must be transferred or posted to ledgers Standard account forms Posting Compound entries Text Exhibits: Exhibit 2: Transactions 1 and 2 for the Mable Motel Exhibit 3: Account Form Used with Manual Accounting Systems Exhibit 4: Illustration of Relation of Journal and Ledger Accounts Exhibit 5: Mable Motel Accounts and Trial Balance Exhibit 6: General Journal, Carson Catering Exhibit 7: General Ledger, Carson C atering Exhibit 8: Trial Balance of Carson Catering PowerPoints: Slide 18: Why Are Transactions Usually Not Recorded Directly in Ledger Accounts? Slide 19: Journalizing Slide 20: General Journals Slide 21: General Journal Entry Format Slide 22: Standard A ccount Forms Slide 23: Posting Slide 24: The Trial Balance Slide 25: Compound Journal Entries Class Activities Optional Test A ready -to-use test containing questions related to the competencies covered by this chapter is included in this session. These questions are similar in format and content to the questions on the Final Exam that the Educational Institute provides and grades for students who are enrolled in this course with the Institute. (If your students are not enrolled in the Institute’s course, they will not receive this Final Exam.) The answers to this session’s optional test are: 1-a-C1, 2 -d-C1, 3 -b-C1, 4 -b-C2, 5 -b-C2, 6 -a-C3, 7 -d-C3, 8 -c-C4, 9 -b-C4, 10- a-C4 Each question is linked to a competency. Competencies are listed on the first page of the chapter. An answer reading 3-b-C4 translates to: 3: the question number b: the correct answer C4: the competency number The pages in the text that are associated with this chapter’s competencies are as follows: C1: 41–45 C2: 45–49 C3: 49–52 C4: 52–64 Note that the answers to test questions may not appear verbatim on the referenced pages. Test questions may assess the examinees’ ability to apply a concept, not just their knowledge of the concept. Accounting for Business Transactions 3 These questions can also be found on the Instructor’s Guide disk in Rich Text Format (.rtf) files that most word processing programs can open and read. You can use these questions as a starter to create your own tests. Solutions to Problems in Text The solutions to the problems found in the text can be found starting on page 7 of this session. Individual/Group Activities Activity 1: Small -Group Accounting Problems Divide the class into small groups and assign selected pr oblems from the text or from the Extra Problems section found on page 6 of this session. The solutions to the extra problems are found starting on page 19 of this session. These solutions can be used as handouts. 4 Accounting for Business Transactions Accounting for Business Transactions NAME : ________________________________________ DATE: ____________________ 1. T-accounts are so named because of: a. their appearance. b. the kinds of information they provide. c. their relevance to trade analysis. d. their inventor, whose first initial was T. 2. Jerry accepts a formal, written promise from an employee of his hotel to pay a certain sum. The employee plans to repay the hotel within the current fiscal year, and states this intention in the note. Notes Receivable are classified as: a. liabilitie s. b. owners’ equity. c. expenses. d. assets. 3. The basic element used in an accounting system to classify and summarize business transactions is the: a. T-account. b. account. c. liability. d. marketable security. 4. Sara totals the credits and debits fo r a certain account and finds that the account carries a debit balance. All of the following types of accounts typically carry a debit balance except: a. asset accounts. b. liability accounts. c. drawing accounts. d. expense accounts. 5. Revenue from cash sales ultimately affects which two balance sheet accounts? a. assets and liabilities b. assets and owner’s equity c. liabilities and owner’s equity d. assets and expenses 6. All of the following are balance sheet accounts except : a. revenue accounts. b. asset accounts. c. liability accounts. d. owners’ equity accounts. 7. Which of the following kinds of accounts would appear in a general ledger? a. asset accounts b. drawing accounts c. owners’ equity accounts d. all of the above