exercise 21 - ACCOUNTING Exercise 21 Time Warner 1 ECONOMIC...

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Unformatted text preview: ACCOUNTING Exercise 21 Time Warner 1 ECONOMIC EVENTS 2 1. Pay $1,000,000 for film rights to the screenplay. 2. Record compensation payments for cast, directors, producers and extras. Gross payroll is $70,000,000. Federal withholding is $10,000,000, state withholding $5,000,000, FICA 8%, SDI 1%. Withholdings are accrued. Net payroll is paid. 3. Accrue payroll taxes. FICA 8%, FUTA 2%, SUTA 4%. 4. Pay $2,000,000 for set construction. 5. Pay $3,000,000 for sound synchronization. 6. Pay $4,000,000 for rental facilities on location.. 7. Pay $5,000,000 for post production costs for music, special effects and editing. 8. Receive $20,000,000 invoice from advertising agency. 9. Pay $6,000,000 to manufacture DVDs. 10. Receive $1,000,000,000 film revenue from movie exhibition. 11. Amortize $40,000,000 of film cost. 12. Record $20,000,000 DVD sales, on credit. 13. Record $3,000,000 DVD cost of sales. 14. Pay $10,000,000 for treasury shares. 15. Accrue $5,000,000 estimated restructuring costs (3 year restructuring). 16. Sell treasury shares for $7,000,000. 17. Accrue interest on Notes Payable (12%). 18. Transfer $928,000,000 Net Income to Retained Earnings. JOURNAL ENTRIES 1. 2. 3. 4. 5. 3 JOURNAL ENTRIES 6. 7. 8. 9. 10. 4 JOURNAL ENTRIES 11. 12. 13. 14. 15. 5 JOURNAL ENTRIES 16. 17. 18. 19. 20. 6 7 Cash Reference Transaction Debit Beginning Current Balance Credit Debit 700,000,000 Credit 8 Notes Payable Reference Transaction Debit Beginning Current Balance Credit Debit Credit 200,000,000 9 Common Stock Reference Transaction Debit Beginning Current Balance Credit Debit Credit 100,000,000 10 Paid in Capital Reference Transaction Debit Beginning Current Balance Credit Debit Credit 200,000,000 Retained Earnings Reference Transaction Debit Beginning 11 Current Balance Credit Debit Credit 200,000,000 _________________ A/C Reference Transaction Debit 12 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 13 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 14 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 15 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 16 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 17 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 18 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 19 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 20 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 21 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 22 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 23 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 24 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 25 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 26 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 27 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 28 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 29 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 30 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 31 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 32 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 33 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 34 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 35 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 36 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 37 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 38 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 39 Current Balance Credit Debit Credit _________________ A/C Reference Transaction Debit 40 Current Balance Credit Debit Credit TRIAL BALANCE…page 1 41 Account Credit Debit TRIAL BALANCE….page 2 42 Account Credit Total Debit BALANCE SHEET Current Assets Current Liabilities Long Term Assets Long Term Liabilities Stockholders equity Total Total 43 INCOME STATEMENT Revenue Expense Unusual Events Net Income (Loss) 44 JOURNAL ENTRY ANSWERS 1. Dr Film Production Cost 1,000,000 Cr Cash 1,000,000 2. Dr Film Production Cost 70,000,000 Cr Federal Withholding Payable 10,000,000 Cr State Withholding Payable 5,000,000 Cr FICA Payable (70,000,000 x 8%) 5,600,000 Cr SDI Payable (70,000,000 x 1%) 700,000 Cr Cash 48,700,000 3. Dr Film Production Cost 9,800,000 Cr FICA Payable (70,000,000 x 8%) 5,600,000 Cr FUTA Payable (70,000,000 x 2%) 1,400,000 Cr SUTA Payable (70,000,000 x 4%) 2,800,000 4. Dr Film Production Cost 2,000,000 Cr Cash 2,000,000 5. Dr Film Production Cost 3,000,000 Cr Cash 3,000,000 45 JOURNAL ENTRY ANSWERS 6. Dr Film Production Cost 4,000,000 Cr Cash 4,000,000 7. Dr Film Production Cost 5,000,000 Cr Cash 5,000,000 8. Dr Advertising Expense 20,000,000 Cr Accounts Payable 20,000,000 9. Dr DVD Inventory 6,000,000 Cr Cash 6,000,000 10. Dr Cash 1,000,000,000 Cr Film Revenue 1,000,000,000 46 JOURNAL ENTRY ANSWERS 11. Dr Amortization Expense 40,000,000 Cr Accumulated Amortization 40,000,000 12. Dr Accounts Receivable 20,000,000 Cr DVD Sales 20,000,000 13. Dr DVD Cost of Sales 3,000,000 Cr DVD Inventory 3,000,000 14. Dr Treasury Stock 10,000,000 Cr Cash 10,000,000 15. Dr Restructuring Loss 5,000,000 Cr Restructuring Liability 5,000,000 47 JOURNAL ENTRY ANSWERS 16. Dr Cash 7,000,000 Dr Retained Earnings 3,000,000 Cr Treasury Stock 10,000,000 17. Dr Interest Expense (200,000,000 x 12%) 24,000,000 Cr Interest Payable 24,000,000 18. Dr Net Income 928,000,000 Cr Retained Earnings 928,000,000 48 49 Cash Reference Transaction Debit Current Balance Credit Beginning Debit 700,000,000 GJ1 1,000,000 699,000,000 GJ2 48,700,000 650,300,000 GJ4 2,000,000 648,300,000 GJ5 3,000,000 645,300,000 GJ6 4,000,000 641,300,000 GJ7 5,000,000 636,300,000 GJ9 6,000,000 630,300,000 GJ10 1,000,000,000 GJ11 GJ16 1,630,300,000 10,000,000 7,000,000 1,620,300,000 1,627,300,000 Credit 50 Notes Payable Reference Transaction Debit Beginning Current Balance Credit Debit Credit 200,000,000 51 Common Stock Reference Transaction Debit Beginning Current Balance Credit Debit Credit 100,000,000 52 Paid in Capital Reference Transaction Debit Beginning Current Balance Credit Debit Credit 200,000,000 Retained Earnings Reference Transaction Debit Current Balance Credit Beginning GJ16 GJ17 53 Debit Credit 200,000,000 3,000,000 197,000,000 928,000,000 1,125,000,000 Film Production Cost Reference Transaction Debit 54 Current Balance Credit Debit GJ1 1,000,000 1,000,000 GJ2 70,000,000 71,000,000 GJ3 9,800,000 80,800,000 GJ4 2,000,000 82,800,000 GJ5 3,000,000 85,800,000 GJ6 4,000,000 89,800,000 GJ7 5,000,000 94,800,000 Credit Federal Withholding Payable Reference Transaction Debit GJ2 55 Current Balance Credit 10,000,000 Debit Credit 10,000,000 State Withholding Payable Reference Transaction Debit GJ2 56 Current Balance Credit 5,000,000 Debit Credit 5,000,000 57 FICA Payable Reference Transaction Debit Current Balance Credit Debit Credit GJ2 5,600,000 5,600,000 GJ3 5,600,000 11,200,000 58 SDI Payable Reference Transaction Debit GJ2 Current Balance Credit 700,000 Debit Credit 700,000 59 FUTA Payable Reference Transaction Debit GJ3 Current Balance Credit 1,400,000 Debit Credit 1,400,000 60 SUTA Payable Reference Transaction Debit GJ3 Current Balance Credit 2,800,000 Debit Credit 2,800,000 61 Advertising Expense Reference Transaction Debit GJ8 20,000,000 Current Balance Credit Debit 20,000,000 Credit 62 Accounts Payable Reference Transaction Debit GJ8 Current Balance Credit 20,000,000 Debit Credit 20,000,000 63 DVD Inventory Reference Transaction Debit GJ9 GJ13 Current Balance Credit 6,000,000 Debit 6,000,000 3,000,000 3,000,000 Credit 64 Film Revenue Reference Transaction Debit GJ10 Current Balance Credit 1,000,000,000 Debit Credit 1,000,000,000 65 Amortization Expense Reference Transaction Debit GJ11 40,000,000 Current Balance Credit Debit 40,000,000 Credit Accumulated Amortization Reference Transaction Debit GJ11 66 Current Balance Credit 40,000,000 Debit Credit 40,000,000 67 Accounts Receivable Reference Transaction Debit GJ12 20,000,000 Current Balance Credit Debit 20,000,000 Credit 68 DVD Sales Reference Transaction Debit GJ12 Current Balance Credit 20,000,000 Debit Credit 20,000,000 69 DVD Cost of Sales Reference Transaction Debit GJ13 3,000,000 Current Balance Credit Debit 3,000,000 Credit 70 Treasury Stock Reference Transaction Debit GJ14 GJ16 Current Balance Credit 10,000,000 Debit Credit 10,000,000 10,000,000 0 71 Restructuring Loss Reference Transaction Debit GJ15 5,000,000 Current Balance Credit Debit 5,000,000 Credit 72 Restructuring Liability Reference Transaction Debit GJ15 Current Balance Credit 5,000,000 Debit Credit 5,000,000 73 Interest Expense Reference Transaction Debit GJ17 24,000,000 Current Balance Credit Debit 24,000,000 Credit 74 Interest Payable Reference Transaction Debit GJ17 Current Balance Credit 24,000,000 Debit Credit 24,000,000 75 Net Income Reference Transaction Debit GJ18 928,000,000 Current Balance Credit Debit 928,000,000 Credit TRIAL BALANCE…..page 1 Account Cash Debit 76 Credit 1,627,300,000 Notes Payable 200,000,000 Common Stock 100,000,000 Paid in Capital 200,000,000 Retained Earnings Film Production Cost 1,125,000,000 94,800,000 Federal Withholding Payable 10,000,000 State Withholding Payable 5,000,000 FICA Payable 11,200,000 SDI Payable 700,000 FUTA Payable 1,400,000 SUTA Payable 2,800,000 Advertising Expense 20,000,000 Accounts Payable DVD Inventory 20,000,000 3,000,000 Film Revenue Amortization Expense 1,000,000,000 40,000,000 Accumulated Amortization Accounts Receivable 40,000,000 20,000,000 TRIAL BALANCE….page 2 77 Account Credit Debit DVD Sales DVD Cost of Sales Treasury Stock Restructuring Loss 20,000,000 3,000,000 0 5,000,000 Restructuring Liability Interest Expense 5,000,000 24,000,000 Interest Payable Net Income Total 24,000,000 928,000,000 2,765,100,000 2,765,100,000 BALANCE SHEET Current Assets Cash 78 Current Liabilities 1,627,300,000 Federal WH Payable 10,000,000 A/R 20,000,000 State WH Payable 5,000,000 DVD Inventory 3,000,000 FICA Payable 11,200,000 SDI Payable 700,000 FUTA Payable SUTA Payable Accumulated Amortization Net Book Value 20,000,000 Interest Payable Film Production Cost 2,800,000 Accounts Payable Long Term Assets 1,400,000 24,000,000 Long Term Liabilities 94,800,000 (40,000,000) 54,800,000 Notes Payable Restructuring Liability 200,000,000 5,000,000 Stockholders equity Common Stock 100,000,000 Paid in Capital 200,000,000 Retained Earnings Total 1,705,100,000 1,125,000,000 Total 1,705,100,000 INCOME STATEMENT 79 Revenue DVD Sales 20,000,000 DVD Cost of Sales 3,000,000 Gross Profit 17,000,000 Film Revenue 1,000,000,000 Expense Advertising Expense 20,000,000 Amortization Expense 40,000,000 Restructuring Loss 5,000,000 Interest Expense 24,000,000 Unusual Events Net Income (Loss) 928,000,000 80 Return of the King Video 2. Asset Expense 0% 0% Ex pe ns e 1. 15 As se t Cost of film rights to the screenplay 81 Return of the King Video 2. Asset Expense 0% 0% Ex pe ns e 1. 15 As se t Compensation of cast, directors, producers, extras 82 Return of the King Video Cost of payroll taxes related to cast, directors, producers, extras 0% 0% Ex pe ns e 2. Asset Expense As se t 1. 15 83 Return of the King Video 2. Asset Expense 0% 0% Ex pe ns e 1. 15 As se t Costs of set construction, operations and wardrobe 84 Return of the King Video Costs of sound synchronization 15 0% 0% Ex pe ns e 2. Asset Expense As se t 1. 85 Return of the King Video Costs of rental facilities on location 0% 0% Ex pe ns e 2. Asset Expense As se t 1. 15 86 Return of the King Video 2. Asset Expense 0% 0% Ex pe ns e 1. 15 As se t Post production costs for music, special effects, editing 87 Return of the King Video Film revenue recognized ex hi bi te d 0% As re lea se d 0% he n 2. When released As exhibited W 1. 15 88 Return of the King Video Film production cost is amortized 0% on % cu rre nt ly. er an ti. . ov Ba se d in e tl 0% .. . ... re ff ilm St ra ig h 3. 0% fir st ye ar o 2. In first year of film release Straight line over anticipated theatre life of the film Based on %currently earned of total anticipated revenue to be earned In 1. 15 89 Return of the King Video DVD production cost 0% 0% Ex pe ns e 2. Asset Expense As se t 1. 15 90 Return of the King Video 0% m ad ea se ea .. . da te 0% re re l Ds a DV As 2. On film release date As DVDs are made available for sale in stores fil m 1. 15 On DVD inventory cost goes to Cost of Sales 91 Return of the King Video Film advertising/marketing costs 0% 0% Ex pe ns e 2. Asset Expense As se t 1. 15 92 Return of the King Video Return of the King first year worldwide box office 1. 2. 3. 4. 5. 6. $400,000,000 $600,000,000 $900,000,000 $1,000,000,000 $1,100,000,000 $1,200,000,000 15 0% 0% 0% 0% 0% 0% $400,000 $600,000 $900,000 $1,000,0 $1,100,0 $1,200,0 ,000 ,000 ,000 00,000 00,000 00,000 93 1. Pay $1,000,000 for film rights to the screenplay. 15 0 0 ,00 ,00 00 0 1, h Ca s Dr Dr Ca s h 1, tio n 00 0 C. .. .. 0. Fi lm Pr od uc 1,0 pe ns e Dr 4. 0% 0% 0% 0% Ex 3. Fi lm 2. Dr Film Expense 1,000,000 Cr Cash 1,000,000 Dr Film Production Cost 1,000,000 Cr Cash 1,000,000 Dr Cash 1,000,000 Cr Film Production Cost 1,000,000 Dr Cash 1,000,000 Cr Film Expense 1,000,000 Dr 1. 94 2. Record compensation payments for cast, directors, producers and extras. Gross payroll is $70,000,000. Federal withholding is $10,000,000, State withholding $5,000,000, FICA 8% x 70,000,000 = 5,600,000 SDI 1% x 70,000,000 = 700,000. Net payroll is paid to employees. 70,000,000 – 10,000,000 – 5,000,000 – 5,600,000 – 700,000 = 48,700,000 15 0% Dr Film Pro Exp duc tion ens e. . Co. . 0% Sal arie s 2. Dr Salaries Expense 70,000,000 Cr Fed WH Payable 10,000,000 Cr State WH payable 5,000,000 Cr FICA Payable 5,600,000 Cr SDI Payable 700,000 Cr Cash 48,700,000 Dr Film Production Cost 70,000,000 Cr Fed WH Payable 10,000,000 Cr State WH payable 5,000,000 Dr 1. 95 3. Accrue payroll taxes. Gross payroll is 70,000,000. FICA 8% x 70,000,000 = 5,600,000 FUTA 2% x 70,000,000 = 1,400,000 SUTA 4% x 70,000,000 = 2,800,000. 15 0% D rF ilm lT ax Pr od uc tio n C. .. Ex pe n. . 0% rP ay ro l 2. Dr Payroll Tax Expense 9,800,000 Cr FICA Payable 5,600,000 Cr FUTA Payable 1,400,000 Cr SUTA Payable 2,800,000 Dr Film Production Cost 9,800,000 Cr FICA Payable 5,600,000 Cr FUTA Payable 1,400,000 Cr SUTA Payable 2,800,000 D 1. 96 4. Pay $2,000,000 for set construction. 15 0% Dr Film Pro duc tion Co. . 0% Set Con stru ctio n.. 2. Dr Set Construction Expense 2,000,000 Cr Cash 2,000,000 Dr Film Production Cost 2,000,000 Cr Cash 2,000,000 Dr 1. 97 5. Pay $3,000,000 for sound synchronization. 15 0% Dr Fil m nd Pr od uc Ex pe tio n ns e3 C. .. ... 0% So u 2. Dr Sound Expense 3,000,000 Cr Cash 3,000,000 Dr Film Production Cost 3,000,000 Cr Cash 3,000,000 Dr 1. 98 6. Pay $4,000,000 for rental facilities on location. 15 0% Fi lm Dr tE xp en Pr od uc se tio n 4,0 0.. . Co . . 0% Re n 2. Dr Rent Expense 4,000,000 Cr Cash 4,000,000 Dr Film Production Cost 4,000,000 Cr Cash 4,000,000 Dr 1. 99 7. Pay $5,000,000 for post production costs for music, special effects and editing. 15 0% Dr Fil m Pr od uc cti tio n on ... C. .. 0% Po st Pr od u 2. Dr Post Production Expense 5,000,000 Cr Cash 5,000,000 Dr Film Production Cost 5,000,000 Cr Cash 5,000,000 Dr 1. 100 8. Receive $20,000,000 invoice from advertising agency. 15 0% Dr Film Pro rtis in gE duc tion xpe .. C... 0% Adv e 2. Dr Advertising Expense 20,000,000 Cr Accounts Payable 20,000,000 Dr Film Production Cost 20,000,000 Cr Accounts Payable 20,000,000 Dr 1. 101 9. Pay $6,000,000 to manufacture DVDs. 0% Dr Fil m Inv Pr od uc en to tio n ry 6 ,0. C. .. .. 0% DV D 2. Dr DVD Inventory 6,000,000 Cr Cash 6,000,000 Dr Film Production Cost 6,000,000 Cr Cash 6,000,000 Dr 1. 15 102 10. Receive $1,000,000,000 film revenue from movie exhibition. 15 0% Dr Fi lm 1, Re ve nu e 00 0, 00 0 1, 00 ,0 ... 00 0% Ca sh 2. Dr Cash 1,000,000,000 Cr Film Revenue 1,000,000,000 Dr Film Revenue 1,000,000,000 Cr Cash 1,000,000,000 Dr 1. 103 11. Amortize $40,000,000 of film cost. 15 Dr Am ort iza tio n Ex p. . . on 0% Ex p .. . 0% Am ort iza ti 2. Dr Amortization Expense 40,000,000 Cr Film Production Cost 40,000,000 Dr Amortization Expense 40,000,000 Cr Accumulated Amortization 40,000,000 Dr 1. 104 12. Record $20,000,000 DVD sales, on credit. 15 0% 00 s2 0,0 Sa le Dr nt s Re c ei v ab .. ,00 0 0% Ac co u 2. Dr Accounts Receivable 20,000,000 Cr Sales 20,000,000 Dr Sales 20,000,000 Cr Accounts Receivable 20,000,000 Dr 1. 105 13. Record $3,000,000 DVD cost of sales. .. ,0. ... DV D In v en to ry 3 en to ry E Dr Dr DV D In v ,0. .. ... en to ry 3 ale s In v fS DV D Co st o 4. 0% 0% 0% 0% Dr 3. DV D 2. Dr DVD Cost of Sales 3,000,000 Cr DVD Inventory 3,000,000 Dr DVD Inventory 3,000,000 Cr DVD Cost of Sales 3,000,000 Dr DVD Inventory Expense 3,000,000 Cr DVD Inventory 3,000,000 Dr DVD Inventory 3,000,000 Cr DVD Inventory Expense 3,000,000 Dr 1. 15 106 14. Pay $10,000,000 for treasury shares. k1 ... Ca sh 10 ,00 Dr 0,0 Ca 00 sh 10 ,00 0,0 00 Dr Sto c t .. . Tre as ury es tm en Dr 4. 0% 0% 0% 0% kI nv 3. 15 Sto c 2. Dr Stock Investment 10,000,000 Cr Cash 10,000,000 Dr Treasury Stock 10,000,000 Cr Cash 10,000,000 Dr Cash 10,000,000 Cr Stock Investment 10,000,000 Dr Cash 10,000,000 Cr Treasury Stock 10,000,000 Dr 1. 107 15. Accrue $5,000,000 estimated restructuring costs (three year restructuring). 15 0% ing Re str uct ur Dr tur ing Los Los .. s. . 0% Re str uc 2. Dr Restructuring Loss 5,000,000 Cr Cash 5,000,000 Dr Restructuring Loss 5,000,000 Cr Restructuring Liability 5,000,000 Dr 1. 108 16. Sell treasury shares for $7,000,000. Loss…..Cost 10,000,000 – Sale 7,000,000 = 3,000,000 000 ,000 Dr C ash 7, 000 ,000 Dr C ash 7, 3. 0% 0% 0% 000 ,000 2. Dr Cash 7,000,000 Dr PIC Treasury Stock 3,000,000 Cr Treasury Stock 10,000,000 Dr Cash 7,000,000 Dr Retained Earnings 3,000,000 Cr Treasury Stock 10,000,000 Dr Cash 7,000,000 Dr Loss on Sale 3,000,000 Cr Treasury Stock 10,000,000 Dr C ash 7, 1. 15 109 17. Accrue interest on Notes Payable (12%). 200,000,000 x 12% = 24,000,000 15 Pa ya bl e2 4, ... 2.. . Dr No te s tP ay a ns Dr In te re s xp e tE bl e e2 ... ... e2 ns xp e In te re s tE 4. 0% 0% 0% 0% Dr 3. In te re s 2. Dr Interest Expense 24,000,000 Cr Notes Payable 24,000,000 Dr Interest Expense 24,000,000 Cr Interest Payable 24,000,000 Dr Interest Payable 24,000,000 Cr Interest Expense 24,000,000 Dr Notes Payable 24,000,000 Cr Interest Expense 24,000,000 Dr 1. 110 18. Transfer $928,000,000 Net Income to Retained Earnings. 15 0% Dr Re ta in ed co me 9 28 ,0 Ea rn ing 0.. . ... 0% Ne t In 2. Dr Net Income 928,000,000 Cr Retained Earnings 928,000,000 Dr Retained Earnings 928,000,000 Cr Net Income 928,000,000 Dr 1. 111 THE RETURN OF THE KING 112 BAD PLANNING 113 DREAM IS ALIVE 2 114 ...
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This note was uploaded on 11/03/2010 for the course ACCT 325 taught by Professor Anderson,p during the Winter '09 term at Azusa Pacific.

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