Unit 2 Homework Guidance

Unit 2 Homework Guidance - Unit 2 Homework LO 1,3 DECISION...

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Unit 2 Homework LO 1,3 DECISION CASE 3-3 READING AND INTERPRETING SOUTHWEST AIRLINES’ BALANCE SHEET 1. Southwest Airlines regularly sells tickets and cargo space in advance of when customers fly. At the time of a sale, Southwest records a liability: Air Traffic Liability. This is an external event because it involves someone outside the entity. 2. The effect on the accounting equation from an advance sale is as follows: B ALANCE S HEET I NCOME S TATEMENT Assets = Liabilities + Stockholders’ Equity+ Revenues Expenses Increase Increase 3. B ALANCE S HEET I NCOME S TATEMENT Assets = Liabilities + Stockholders’ Equity+ Revenues Expenses Cash 500 Air Traffic Liability 500 4. The liability is reduced when customers use their tickets or cargo space. At this point, Southwest will reduce the liability account, Air Traffic Liability, and increase a revenue account. This is an external event.
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LO 2,3,4 PROBLEM 4-8 CASH AND ACCRUAL INCOME STATEMENTS FOR A MANUFACTURER 1. Cash revenue: 500,000 components × $2 $1,000,000 Less: Amounts not yet received 150,000 Cash revenue $ 850,000 Accrual revenue: 500,000 components × $2 $1,000,000 2. Under the matching principle, Drysdale should match all expenses to revenues
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This note was uploaded on 01/07/2011 for the course MBA GB518 taught by Professor None during the Winter '10 term at Kaplan University.

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Unit 2 Homework Guidance - Unit 2 Homework LO 1,3 DECISION...

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