Week 3 TUTE Chapter 2 Questions

ACCT3302 Financial Statement Analysis
Week 3 Chapter 2 Tutorial Questions
E2-1 In November and December 2017, Gee Company, a newly organized magazine
publisher, received $36,000 for 1,000 three-year subscriptions at $12 per year, starting with
the January 2018 issue of the magazine.
Required:
How much should Gee report in its 2017 income statement for subscriptions revenue on an
accrual basis? What are Gee’s cash receipts in 2017?
E2-2 Joel Hamilton, D.D.S., keeps his accounting records on the cash basis. During 2017,
he collected $200,000 in fees from his patients. At December 31, 2016, Dr. Hamilton had
accounts receivable of $18,000 and no liability for deferred fee revenue. At December 31,
2017, he had accounts receivable of $25,000 and a liability for deferred fee revenue of
$8,000.
Required:
On an accrual basis, what was Dr. Hamilton’s patient fee revenue for 2017?
E2-3 Under Hart Company’s accounting system, all insurance premiums paid are debited to
Prepaid insurance. For interim financial reports, Hart makes monthly estimated charges to
Insurance expense with credits to Prepaid insurance. Additional information for the year
ended December 31, 2017, follows:
Prepaid insurance at December 31, 2016 $210,000

Charges to Insurance expense during 2017, including
a year-end adjustment of $35,000 875,000
Prepaid insurance at December 31, 2017 245,000
Required:
What was the total amount of insurance premiums Hart paid during 2017?
E2-6 Krewatch, Inc., is a vertically integrated manufacturer and retailer of golf clubs and
accessories (gloves, shoes, bags, etc.). Krewatch maintains separate financial reporting
systems for each of its facilities. The company experienced the following events in 2017:
1. After several years of production problems at the accessories manufacturing plant,

Krewatch sold the plant to an investor group headed by a former manager at the plant.
2. Krewatch incurred restructuring costs of $12,562,990 when it eliminated a layer of
middle management.
1
3. Krewatch extinguished $200 million in 30-year bonds issued 18 years ago. Krewatch
recognized a gain on this transaction.
4. Krewatch changed its method of accounting for inventory from FIFO to the average
cost method. Sufficient information was available to determine the effect of this change
on prior years’ earnings numbers.
5. Due to technological advances in golf club manufacturing, management determined
that production equipment would need to be upgraded more frequently than in the past.
Consequently, the useful lives of equipment for depreciation purposes were reduced.
6. The company wrote off inventory that was not salable.
7. Equipment was sold at a loss.
Required:
For each event, (1) identify the appropriate reporting treatment from the following list
(consider each event to be material), and (2) indicate whether it would be included in income
from continuing operations, would appear on the income statement below that subtotal, or
would require retrospective application.
a. Change in accounting estimate.
b. Change in accounting principle.
c. Discontinued operation.
d. Unusual or infrequently occurring item.
P2-3 Following is selected information from the balance sheet for Flaps Inc. Solve for the
missing amounts for each of the five years.
Year
2016 2017 2018 2019 2020
Total liabilities and stockholders’ equity $13,765 F K P U
$3,46
Current liabilities A $3,420 7 $3,517 V
Common stock 138 139 L 142 $ 144
Contributed capital 2,340 G 2,387 2,422 W
Noncurrent assets 8,667 8,721 M 8,968 X
Retained earnings 2,795 2,813 2,851 Q Y
14,04
Total assets B H 0 R 14,351
Noncurrent liabilities 5,231 I 5,335 S 5,454
Additional paid-in capital C 2,216 2,247 T 2,296
Current assets D J 5,200 5,275 5,315
Total liabilities 8,630 8,683 N 8,929 Z
Total stockholders’ equity E 5,168 O 5,314 5,354
P2-4 The following is selected information from Bob Touret, Inc.’s financial statements.
Solve for the missing amounts for each of the five years. You may have to use some numbers
from the year before or the year after to solve for certain current year numbers. (NA = not
available.)
2
Year
2016 2017 2018 2019 2020
$2,73 $2,77
Current assets (CA) A 6 L 8 X
Noncurrent assets $4,002 F $3,900 R $4,805
Total assets 6,748 G M 7,008 Y
Current liabilities (CL) 1,536 H N S 1,463
Noncurrent liabilities B 2,345 O 2,206 2,252
Contributed capital 1,250 I P 1,300 Z
Retained earnings (ending) 1,750 J 1,756 T 1,924
Total stockholders’ equity C 3,091 3,056 U AA
Total liabilities and stockholders’ equity D K 6,916 7,008 BB
Working capital (CA–CL) E 935 1,331 V 771
Net income (loss) NA 105 Q 55 135
Dividends NA 14 9 W 12

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ACCT3302 Financial Statement Analysis

Week 3 Chapter 2 Tutorial Questions

Prepaid insurance at December 31, 2016 $210,000

1. After several years of production problems at the accessories manufacturing plant,

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