Chapter 1
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232. Presented below are condensed data from the financial statements of Gallo Factory for 2017 and 2016. The figures
are expressed in thousands. Use this information to answer the questions that follow.
Statement A 2017 2016
Total current assets $ 82,309 $ 80,080
Property, plant, and equipment
(net of accumulated depreciation) 63,451 62,724
Investments 303 1,061
Other assets 3,438 2,606
Total assets $149,501 $146,471
Total current liabilities $ 33,928 $ 28,668
Long-term debt 20,491 25,676
Deferred income taxes and contingencies 4,174 5,208
Total liabilities $ 58,593 $ 59,552
Total stockholders’ equity 90,908 86,919
Total liabilities and stockholders’ equity $149,501 $146,471
Statement B 2017 2016
Net sales $209,203 $174,206
Cost of sales 136,225 114,284
Gross profit $ 72,978 $ 59,922
Selling, general, and administrative expenses 63,895 53,520
Other income (expense) 693 (118)
Income (loss) before income taxes $ 9,776 $ 6,284
Income tax expense 3,534 2,388
Net income (loss) $ 6,242 $ 3,896
Required: Based on the information provided, is Gallo Factory considered a business or nonbusiness entity? How do you
know by examining the financial statements?
Chapter 1
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233. In 2017, you and 5 other investors invested $12,000 in a new theatre, Rock-On, that offers Broadway play
productions. Because you live out of state, you have not been actively involved in the daily affairs of the theatre. On
January 10, 2018, you are excited because you received $12,000 as a dividend after the end of the first year of the
theatre’s existence. Included with your $12,000 check are financial statements and some supplemental information
regarding the accounting. The supplemental information explains:
(1) During the last three months of 2017, an aggressive advertising campaign resulted in the sale of 600 season tickets for
the 2018 productions. Each season ticket cost $120, and the resulting $72,000 was included in 2016 income.
(2) Along with the advertising campaign, the general manager was able to secure pledges of $7,500 for advertising by
local merchants in the playbills for the first two productions for 2018. This amount is included as advertising revenue in
the 2017 financial statements.
REQUIRED:
Are there any problems related to the supplementary disclosures? If so, explain and indicate what effects (over– or
understatements) these items will have on the financial statements.
Chapter 1
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Page 96
234. List three different groups of users of accounting information. Indicate the type of decisions each group typically
makes from accounting information.
235. What is the purpose of an income statement?
Chapter 1
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Page 97
236. List the four financial statements. Explain the connection between these four statements.
Chapter 1
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Page 98
237. Presented below are condensed data from the financial statements of Gallo Factory for 2017 and 2016. The figures
are expressed in thousands. Use this information to answer the questions that follow.
Statement A 2017 2016
Total current assets $ 82,309 $ 80,080
Property, plant, and equipment
(net of accumulated depreciation) 63,451 62,724
Investments 303 1,061
Other assets 3,438 2,606
Total assets $149,501 $146,471
Total current liabilities $ 33,928 $ 28,668
Long-term debt 20,491 25,676
Deferred income taxes and contingencies 4,174 5,208
Total liabilities $ 58,593 $ 59,552
Total stockholders’ equity 90,908 86,919
Total liabilities and stockholders’ equity $149,501 $146,471
Statement B 2017 2016
Net sales $209,203 $174,206
Cost of sales 136,225 114,284
Gross profit $ 72,978 $ 59,922
Selling, general, and administrative expenses 63,895 53,520
Other income (expense) 693 (118)
Income (loss) before income taxes $ 9,776 $ 6,284
Income tax expense 3,534 2,388
Net income (loss) $ 6,242 $ 3,896
REQUIRED:
1. What is the name of Statement A?
2. What is the name of Statement B?
Chapter 1
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Page 99
238. Presented below are condensed data from the financial statements of Gallo Factory for 2017 and 2016. The figures
are expressed in thousands. Use this information to answer the questions that follow.
Statement A 2017 2016
Total current assets $ 82,309 $ 80,080
Property, plant, and equipment
(net of accumulated depreciation) 63,451 62,724
Investments 303 1,061
Other assets 3,438 2,606
Total assets $149,501 $146,471
Total current liabilities $ 33,928 $ 28,668
Long-term debt 20,491 25,676
Deferred income taxes and contingencies 4,174 5,208
Total liabilities $ 58,593 $ 59,552
Total stockholders’ equity 90,908 86,919
Total liabilities and stockholders’ equity $149,501 $146,471
Statement B 2017 2016
Net sales $209,203 $174,206
Cost of sales 136,225 114,284
Gross profit $ 72,978 $ 59,922
Selling, general, and administrative expenses 63,895 53,520
Other income (expense) 693 (118)
Income (loss) before income taxes $ 9,776 $ 6,284
Income tax expense 3,534 2,388
Net income (loss) $ 6,242 $ 3,896
Required: Which statement indicates the financial position of the company? What information is provided on that
statement that indicates the “financial position” of the company? Explain.
Chapter 1
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Page 100
239. Presented below are condensed data from the financial statements of Gallo Factory for 2017 and 2016. The figures
are expressed in thousands. Use this information to answer the questions that follow.
Statement A 2017 2016
Total current assets $ 82,309 $ 80,080
Property, plant, and equipment
(net of accumulated depreciation) 63,451 62,724
Investments 303 1,061
Other assets 3,438 2,606
Total assets $149,501 $146,471
Total current liabilities $ 33,928 $ 28,668
Long-term debt 20,491 25,676
Deferred income taxes and contingencies 4,174 5,208
Total liabilities $ 58,593 $ 59,552
Total stockholders’ equity 90,908 86,919
Total liabilities and stockholders’ equity $149,501 $146,471
Statement B 2017 2016
Net sales $209,203 $174,206
Cost of sales 136,225 114,284
Gross profit $ 72,978 $ 59,922
Selling, general, and administrative expenses 63,895 53,520
Other income (expense) 693 (118)
Income (loss) before income taxes $ 9,776 $ 6,284
Income tax expense 3,534 2,388
Net income (loss) $ 6,242 $ 3,896
Required: Was Gallo Factory profitable both years? What are the amounts of the total revenues and total expenses,
respectively, for 2017? Which financial statement provides this information to you?
Chapter 1
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Page 101
240. Presented below are condensed data from the financial statements of Gallo Factory for 2017 and 2016. The figures
are expressed in thousands. Use this information to answer the questions that follow.
Statement A 2017 2016
Total current assets $ 82,309 $ 80,080
Property, plant, and equipment
(net of accumulated depreciation) 63,451 62,724
Investments 303 1,061
Other assets 3,438 2,606
Total assets $149,501 $146,471
Total current liabilities $ 33,928 $ 28,668
Long-term debt 20,491 25,676
Deferred income taxes and contingencies 4,174 5,208
Total liabilities $ 58,593 $ 59,552
Total stockholders’ equity 90,908 86,919
Total liabilities and stockholders’ equity $149,501 $146,471
Statement B 2017 2016
Net sales $209,203 $174,206
Cost of sales 136,225 114,284
Gross profit $ 72,978 $ 59,922
Selling, general, and administrative expenses 63,895 53,520
Other income (expense) 693 (118)
Income (loss) before income taxes $ 9,776 $ 6,284
Income tax expense 3,534 2,388
Net income (loss) $ 6,242 $ 3,896
Required: How much of Gallo Factory is financed by owners at the end of December 2017?
Chapter 1
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Page 102
241. Presented below are condensed data from the financial statements of Gallo Factory for 2017 and 2016. The figures
are expressed in thousands. Use this information to answer the questions that follow.
Statement A 2017 2016
Total current assets $ 82,309 $ 80,080
Property, plant, and equipment
(net of accumulated depreciation) 63,451 62,724
Investments 303 1,061
Other assets 3,438 2,606
Total assets $149,501 $146,471
Total current liabilities $ 33,928 $ 28,668
Long-term debt 20,491 25,676
Deferred income taxes and contingencies 4,174 5,208
Total liabilities $ 58,593 $ 59,552
Total stockholders’ equity 90,908 86,919
Total liabilities and stockholders’ equity $149,501 $146,471
Statement B 2017 2016
Net sales $209,203 $174,206
Cost of sales 136,225 114,284
Gross profit $ 72,978 $ 59,922
Selling, general and administrative expenses 63,895 53,520
Other income (expense) 693 (118)
Income (loss) before income taxes $ 9,776 $ 6,284
Income tax expense 3,534 2,388
Net income (loss) $ 6,242 $ 3,896
Required: How much of Gallo Factory is financed by creditors at the end of December 2017? Evaluate the change from
2016 to 2017.
Chapter 1
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Page 103
242. The following accounting principles and assumptions are included in the conceptual framework of accounting:
Economic entity Going concern Cost principle
Monetary unit Time period
For each situation in A through C below, identify which assumption or principle applies by selecting from the list
provided above, and explain why that assumption or principle applies.
A) Global Corp. has divisions in several countries around the world. Each of these countries has a currency different
from the U.S. dollar. Global Corp. is a U.S. company and must include the financial data of its worldwide divisions in its
financial statements.
B) Steve and Mike operate a security business as a partnership. They are considering the advantages of changing over
to the corporate form of business.
C) Island Pasta is a locally owned and operated fast-food business. The owners have decided to expand into nearby
cities. Expansion will require more capital, but management doesn’t expect it will stay in business for more than a year or
so regardless of whether it expands or not.
Chapter 1
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Page 104
243. What is meant by generally accepted accounting principles?
244. Discuss the four steps in the ethical decision model used by accountants. Expand the discussion to include questions
that you would ask to analyze the key elements in the situation.
Chapter 1
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Page 105
245. From an ethical standpoint, if various alternatives are available to report a transaction, what are some of the questions
an accountant should ask about the alternatives?
246. Develop an ethical dilemma scenario that an accountant may face, and give examples of key elements (listed below)
that should be considered when analyzing the decision.
1. Those who may benefit or be harmed
2. What potential benefits or harm could result from the situation
3. The rights or claims violated
4. The specific interests in conflict
5. The responsibilities and obligations
ANSWER: Student answers will vary but may include some of the following: