196. Listed below are several amounts from the accounting records of Bike Links for the year ended December
31, 2013. Prepare a multiple-step income statement in good form.
Service revenue
$960,000
Selling expense
176,000
Income tax expense
160,000
General and administrative expenses
280,000
Interest revenue
8,000
197. Listed below are several amounts from the accounting records of Big Tom’s Pawn Shops, for the year
ended December 31, 2013. Prepare a single-step income statement in good form.
Salaries expenses
$145,000
Rent expense
12,000
Sales
225,000
Retained earnings
100,000
Insurance expense
11,000
Income taxes expense
30,000
Sales
$225,000
Salaries expense
$145,000
Rent expense
12,000
Insurance expense
11,000
Income tax expense
30,000
Total Expenses
198,000
$ 27,000
Bike Links
Income Statement
For the Year Ended December 31, 2013
Service Revenue
$960,000
Operating Expenses:
Selling Expenses
$176,000
General and Administrative Expenses
280,000
Total Operating Expenses
456,000
Income from Operations
$ 504,000
Other Revenue and Expenses
Interest Revenue
8,000
Income Before Taxes
$ 512,000
Income Tax Expense
160,000
Net Income
$ 352,000
198. Blackbeard’s Restaurant began operations on January 1, 2011, with a total investment of $100,000 by its
stockholders. The restaurant had a net loss its first year of business of $15,000. During 2012 and 2013, the
business was profitable with net incomes of $25,000 and $50,000, respectively. The company paid $5,000 per
year in dividends to its shareholders in 2012 and 2013.
A)
In good form, prepare a statement of retained earnings for the year ended December 31, 2012.
B)
How much is total retained earnings on December 31, 2013?
C)
Explain the link between the statement of retained earnings and the balance sheet.
A)
Statement of Retained Earnings
For the Year Ended December 31, 2012
Beginning balance, January 1, 2012
$(15,000)*
Add: Net income for 2012
25,000
Less: Dividends paid during the year
(5,000)
Ending balance, December 31, 2012
$ 5,000
*
$-15,000 Net Loss for 2011 – $0 Dividends paid = $(16,000) Balance, January 1, 2012
B)
Retained earnings at December 31, 2013 = $50,000
199. Most annual reports contain the following list of basic elements. For each element identify the person(s)
who prepared the element and describe the information a user would expect to find in each element. Some
information is verifiable, while other information is subjectively chosen by management. Indicate whether the
information in each element is verifiable.
Prepared
Information
Verifiable/
Elements
By
Provided
Yes or No?
Management Discussion & Analysis
Financial Statements
Notes to Financial Statements
Report of Independent Accountants
200. List three different groups of users of accounting information. Indicate the type of decisions each group
typically makes from accounting information.
The groups and their decisions are:
Stockholders:
Is the company profitable enough to pay dividends?
Did the company make a profit for the period?
Management:
How should an item be priced? Should we continue operations?
Can we give employees raises?
Bankers:
Can the company pay interest and principal when it comes due?
Creditors:
Can the company pay bills when they are due?
Government:
How much did the company earn? (i.e., how much taxes should be paid?)
201. What is the purpose of an income statement?
Prepared
Information
Verifiable/
Elements
By
Provided
Yes or No?
202. List the four financial statements. Explain the connection between these four statements.
1.
Balance Sheet
2.
Income Statement
3.
Statement of Retained Earnings
4.
Statement of Cash Flows
203. Baker’s Pride Bakery
Condensed data from the company’s 2013 and 2012 financial statements are presented below. The figures are
expressed in thousands.
Statement A
2013
2012
Assets:
Total current assets
$219,560
$198,088
Property, plant & equipment (net of accumulated depreciation)
18,320
13,996
Investments
3,370
1,167
Other assets
12,220
11,667
Total assets
$253,470
$224,918
Liabilities:
Total current liabilities
$ 92,990
$ 95,260
Long-term debt
15,160
22,172
Total liabilities
$108,150
$117,432
Stockholders’ equity:
Contributed capital
$ 53,680
$ 35,475
Retained Earnings
91,640
72,011
Total stockholders’ equity
$145,320
$ 107,486
Total liabilities & stockholders’ equity
$253,470
$224,918
Statement B
2013
2012
Net Sales
$229,301
$203,171
Cost of sales
135,453
131,212
Gross margin
$93,848
$71,959
Selling, general and administrative expenses
64,832
57,442
Other income (expense)
693
(130)
Income (loss) before income taxes
$29,709
$14,387
Income tax expense
3,534
2,320
Net income (loss)
$ 26,175
$ 12,067
Refer to Baker’s Pride Bakery.
A)
What is the name of Statement A?
B)
What is the name of Statement B?
A)
Statement A is the Classified Balance Sheet
B)
Statement B is the Multiple-Step Income Statement
204. Baker’s Pride Bakery
Condensed data from the company’s 2013 and 2012 financial statements are presented below. The figures are
expressed in thousands.
Statement A
2013
2012
Assets:
Total current assets
$219,560
$198,088
Property, plant & equipment (net of accumulated
depreciation)
18,320
13,996
Investments
3,370
1,167
Other assets
12,220
11,667
Total assets
$253,470
$224,918
Liabilities:
Total current liabilities
$ 92,990
$ 95,260
Long-term debt
15,160
22,172
Total liabilities
$108,150
$117,432
Stockholders’ equity:
Contributed capital
$ 53,680
$ 35,475
Retained Earnings
91,640
72,011
Total stockholders’ equity
$145,320
$ 107,486
Total liabilities & stockholders’ equity
$253,470
$224,918
Statement B
2013
2012
Net Sales
$229,301
$203,171
Cost of sales
135,453
131,212
Gross margin
$93,848
$71,959
Selling, general and administrative expenses
64,832
57,442
Other income (expense)
693
(130)
Income (loss) before income taxes
$29,709
$14,387
Income tax expense
3,534
2,320
Net income (loss)
$ 26,175
$ 12,067
Refer to Baker’s Pride Bakery. 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.
205. Baker’s Pride Bakery
Condensed data from the company’s 2013 and 2012 financial statements are presented below. The figures are
expressed in thousands.
Statement A
2013
2012
Assets:
Total current assets
$219,560
$198,088
Property, plant & equipment (net of accumulated
depreciation)
18,320
13,996
Investments
3,370
1,167
Other assets
12,220
11,667
Total assets
$253,470
$224,918
Liabilities:
Total current liabilities
$ 92,990
$ 95,260
Long-term debt
15,160
22,172
Total liabilities
$108,150
$117,432
Stockholders’ equity:
Contributed capital
$ 53,680
$ 35,475
Retained Earnings
91,640
72,011
Total stockholders’ equity
$145,320
$ 107,486
Total liabilities & stockholders’ equity
$253,470
$224,918
Statement B
2013
2012
Net Sales
$229,301
$203,171
Cost of sales
135,453
131,212
Gross margin
$93,848
$71,959
Selling, general and administrative expenses
64,832
57,442
Other income (expense)
693
(130)
Income (loss) before income taxes
$29,709
$14,387
Income tax expense
3,534
2,320
Net income (loss)
$ 26,175
$ 12,067
Refer to Baker’s Pride Bakery. Was the company profitable both years? What are the amounts of the total revenues and total expenses, respectively,
for 2013? Which financial statement provides this information to you?
206. Baker’s Pride Bakery
Condensed data from the company’s 2013 and 2012 financial statements are presented below. The figures are
expressed in thousands.
Statement A
2013
2012
Assets:
Total current assets
$219,560
$198,088
Property, plant & equipment (net of accumulated
depreciation)
18,320
13,996
Investments
3,370
1,167
Other assets
12,220
11,667
Total assets
$253,470
$224,918
Liabilities:
Total current liabilities
$ 92,990
$ 95,260
Long-term debt
15,160
22,172
Total liabilities
$108,150
$117,432
Stockholders’ equity:
Contributed capital
$ 53,680
$ 35,475
Retained Earnings
91,640
72,011
Total stockholders’ equity
$145,320
$ 107,486
Total liabilities & stockholders’ equity
$253,470
$224,918
Statement B
2013
2012
Net Sales
$229,301
$203,171
Cost of sales
135,453
131,212
Gross margin
$93,848
$71,959
Selling, general and administrative expenses
64,832
57,442
Other income (expense)
693
(130)
Income (loss) before income taxes
$29,709
$14,387
Income tax expense
3,534
2,320
Net income (loss)
$ 26,175
$ 12,067
Refer to Baker’s Pride Bakery. How much of the company is financed by owners at the end of December 2013?
207. Baker’s Pride Bakery
Condensed data from the company’s 2013 and 2012 financial statements are presented below. The figures are
expressed in thousands.
Statement A
2013
2012
Assets:
Total current assets
$219,560
$198,088
Property, plant & equipment (net of accumulated
depreciation)
18,320
13,996
Investments
3,370
1,167
Other assets
12,220
11,667
Total assets
$253,470
$224,918
Liabilities:
Total current liabilities
$ 92,990
$ 95,260
Long-term debt
15,160
22,172
Total liabilities
$108,150
$117,432
Stockholders’ equity:
Contributed capital
$ 53,680
$ 35,475
Retained Earnings
91,640
72,011
Total stockholders’ equity
$145,320
$ 107,486
Total liabilities & stockholders’ equity
$253,470
$224,918
Statement B
2013
2012
Net Sales
$229,301
$203,171
Cost of sales
135,453
131,212
Gross margin
$93,848
$71,959
Selling, general and administrative expenses
64,832
57,442
Other income (expense)
693
(130)
Income (loss) before income taxes
$29,709
$14,387
Income tax expense
3,534
2,320
Net income (loss)
$ 26,175
$ 12,067
Refer to Baker’s Pride Bakery. How much of the company is financed by creditors at the end of December 2013? Evaluate the change from 2012 to
2013.
208. Baker’s Pride Bakery
Condensed data from the company’s 2013 and 2012 financial statements are presented below. The figures are
expressed in thousands.
Statement A
2013
2012
Assets:
Total current assets
$219,560
$198,088
Property, plant & equipment (net of accumulated
depreciation)
18,320
13,996
Investments
3,370
1,167
Other assets
12,220
11,667
Total assets
$253,470
$224,918
Liabilities:
Total current liabilities
$ 92,990
$ 95,260
Long-term debt
15,160
22,172
Total liabilities
$108,150
$117,432
Stockholders’ equity:
Contributed capital
$ 53,680
$ 35,475
Retained Earnings
91,640
72,011
Total stockholders’ equity
$145,320
$ 107,486
Total liabilities & stockholders’ equity
$253,470
$224,918
Statement B
2013
2012
Net Sales
$229,301
$203,171
Cost of sales
135,453
131,212
Gross margin
$93,848
$71,959
Selling, general and administrative expenses
64,832
57,442
Other income (expense)
693
(130)
Income (loss) before income taxes
$29,709
$14,387
Income tax expense
3,534
2,320
Net income (loss)
$ 26,175
$ 12,067
Refer to Baker’s Pride Bakery. Based on the information provided, is the company considered a business or non-business entity? How do you know
by examining the financial statements?
209. What financial statement items are investors and creditors most interested in and why?
210. How is a classified balance sheet useful to decision makers?
211. How does the definition of a current liability relate to that of a current asset?
212. Potential stockholders and lenders are interested in a company’s financial statements. Several financial
statement items appear below. Answer the questions that follow.
Accounts receivable
Accounts payable
Advertising expense
Cash
Depreciation expense
Income taxes
Common stock
Land held for future expansion
Dividends
Retained earnings
Loss on the sale of equipment
Service revenue
Office supplies
Patent amortization expense
Sales
Unearned revenue
Utilities expense
A)
List the two items from above in which stockholders would be most interested. Explain why the two you selected are important to
stockholders.
B)
In which one item would lenders be most interested? Explain why this item is important.
A)
Stockholders are interested in net income and dividends. They want to make sure the company is profitable. If a company is
213. What information is provided in an annual report in addition to the financial statements?
214. Assume that you have received copies of the financial statements for Best Buy for the years ending
December 31, 2013 and 2012. Answer the following questions:
A)
If you were a banker, why would you need information from the company’s financial statements?
B)
If you were a potential investor in Best Buy stock, what information would you want from their financial statements?
C)
If you were a labor negotiator for a union that represents a group of Best Buy employees, which financial statement would provide
you with the most useful information?
215. You Decide Essay
You are the chairman of the board of directors of NuWave Technology. You are in Vegas attending the
company’s annual meeting and it is now time for the question and answer session with shareholders. The very
first question you take is this: “I own stock in a dozen companies. Everyone of them pays me dividends except
NuWave. Why is that?” How do you respond?
216. You Decide Essay
A friend of yours is seeking advice on which stocks to buy. Right now, she is looking for a stock that pays cash
dividends on a regular basis. She has obtained six years worth of financial statements for the two stocks under
consideration. Describe at least one item on each financial statement that she should study to determine which
stock is more likely to pay future cash dividends.
A labor negotiator needs to know how much profit the company has made. This information is found on the Income Statement.
217. Refer to Baker’s Pride Bakery. Based on the information provided, is the company legally organized as a
sole proprietorship, partnership, or corporation? How can you tell?
218. Each of the four statements that comprise a full set of financial statements has an underlying equation or
formula. List the statements in the order they are prepared and the underlying equation of each.
219. Complete the following table to compare and contrast sole proprietorships and corporations
Item
Proprietorship
Corporation
Ease of formation
Ability to raise large sums of capital
Taxable entity
Extent of owner liability
Double taxation of profits?
Proprietorship
Corporation
Easy
More difficult
Limited
Easier
Yes
Unlimited
Limited
Yes