
Concept explainers
1.
To identify: the amount deducted by each company on the income statement related to inventory.
1.

Answer to Problem 12.14E
The amount deducted by the each company on the income statement related to inventory is the amount of the cost of goods sold of each company. The amounts deducted by each company on the income statement are shown below.
Corporation A | B Unlimited | C Cycles | |
Cost of goods sold |
$ 175 | $ 175 | $ 350 |
Table (1)
Explanation of Solution
The amount deducted by the each company on the income statement related to inventory is the amount of cost of goods sold.
2.
To identify: the total amount, each company pay out in cash during the period related to inventory purchased with cash and on account.
2.

Explanation of Solution
The total amount, each company pay out in cash during the period related to inventory purchased with cash and on account are shown as below.
Corporation A | B Unlimited | C Cycles | |
Cash purchases | $ 200 | $ 0 | $ 200 |
Payments on account |
0 | 160 | 160 |
Total cash paid | $ 200 | $ 160 | $ 360 |
Table (2)
3.
the difference amount of the requirements 1 and 2 for each company.
3.

Explanation of Solution
The difference amount is determined as follows:
Corporation A | B Unlimited | C Cycles | |
Cost of goods sold |
$ 175 | $ 175 | $ 350 |
Total cash paid | 200 | 160 | 360 |
Difference | $ (25) | $ 15 | $ (10) |
Table (3)
4.
To identify: the amount of increase (decrease) for each company’s inventory and accounts payable.
4.

Answer to Problem 12.14E
The amount increased (decreased) by each company’s inventory and accounts payable.
Corporation A | B Unlimited | C Cycles | |
Inventory increase | $ 25 | $ 25 | $ 50 |
Accounts payable increase |
0 | 40 | 40 |
Table (4)
Explanation of Solution
Calculate the increase (decrease) inventory for each company.
Calculate the increase (decrease) inventory for each company.
5.
To identify: the amounts that each company added (deduct) from the net income to convert from accrual to cash basis using indirect method of presentation.
5.

Answer to Problem 12.14E
The amounts added or deducted under indirect method is as follows:
Corporation A | B Unlimited | C Cycles | |
Subtract : inventory increase |
$ (25) | $ (25) | $ (50) |
Add: accounts payable increase |
0 | 40 | 40 |
Total | $ (25) | $ 15 | $ (10) |
Table (5)
Explanation of Solution
To convert the net income from accrual basis to cash basis under indirect method is as follows:
Adjustments to the net income:
Add: accounts payable increased
Less: increase in inventory
6.
To describe: the similarities between the requirements 3 and 5. Explain the reasons.
6.

Explanation of Solution
Requirement 3 and 5 for each company should be similar. Because the requirement 3 is to determinethe difference amount of the requirements 1 and 2 for each company that is difference between the cash basis and accrual based amounts by identifying that were recorded during the year.
In the requirement 5 it was toidentify that the amounts each company added (deducted) from the net income to convert from accrual to cash basis using indirect method of presentation. It determines the changes in the year end balances of the accounts affected by the inventory purchases.
Both the requirements are having same goal which is to adjust the net income as per the cash basis. These two are having same goals but different directions to achieve the goal.
Want to see more full solutions like this?
Chapter 12 Solutions
Fundamentals of Financial Accounting
- Please explain the correct approach for solving this general accounting question.arrow_forwardUnion National Bank has an issue of preferred stock with a $6.20 stated dividend that just sold for $105 per share. What is the bank’s cost of preferred stock? Financial accounting problemarrow_forwardI need assistance with this general accounting question using appropriate principles.arrow_forward
- give me solution plzarrow_forwardWhat is the amount of total assets?arrow_forwardA man earned wages of $52,800, received $1,600 in interest from a savings account, and contributed $4,200 to a tax-deferred retirement plan. He was entitled to a personal exemption of $3,700 and had deductions totaling $5,400. Find his gross income, adjusted gross income, and taxable income. Accurate answerarrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning





