69. Barron Corporation
The accountant for Barron Corporation prepared the following list of account balances from the company’s
records for the year ended December 31, 2012.
Sales revenue
$1,650,000
Cash
$300,000
Accounts receivable
140,000
Selling expenses
440,000
Equipment
420,000
Common stock
170,000
Accounts payable
120,000
Interest income
30,000
Salaries & wages expense
400,000
Cost of sales
510,000
Inventories
220,000
Prepaid expenses
20,000
Income taxes payable
50,000
Income taxes expense
180,000
Notes payable
200,000
Retained earnings
?
Determine the following amounts for Barron Corporation.
A)
Current assets at the end of 2012
Total assets at the end of 2012
B)
Current liabilities at the end of 2012
C)
What parties have a claim on Barron Corporation’s assets? Explain your answer in the terms of the accounting equation.
70. Presented below are selected data from the balance sheet of Stuff Company for 2012. The figures are
expressed in millions.
Current assets
$400,000
Property, plant & equipment
600,000
Other assets
? ? ?
Current liabilities
250,000
Total long-term debt
550,000
Total stockholders’ equity
300,000
A)
Determine the amount of “Other assets” for Stuff’s 2012 balance sheet.
(Hint: you must use the accounting equation concept to determine your answer.)
B)
How much of Stuff Company is financed by creditors? How much is financed by the owners?
A)
Current assets = $680,000
$300,000 (Cash) + 140,000 (Accounts receivable) + 220,000 (Inventory) + 20,000 (Prepaid expenses) = $680,000
B)
Current liabilities = $370,000
$120,000 (Accounts payable) + 50,000 (Income taxes payable) + 200,000 (Notes payable) = $370,000
71. Presented below are selected data from the accounting records for Hot Rod Hanks Co. for 2012.
Sales
$900,000
Income tax expense
80,000
Cost of sales
550,000
Operating expenses
150,000
Dividends
75,000
A)
Calculate the net income or loss for 2012.
B)
Explain how the amount from part A will affect the financial position of Hot Rod Hanks Co.
C)
Is the company profitable? Explain your answer.
A)
$120,000
$900,000 (Sales) – 550,000 (Cost of sales) – 150,000 (Operating expenses) – 80,000 (Income tax expense) = $120,000
Net income will improve the company’s financial position, as it will increase the company’s retained earnings.
C)
Yes. The amount of revenues exceeds the amount of expenses by $120,000.
A)
$100,000 million
$1,100,000 (Total assets) – 400,000 (Current assets) – 600,000 (Property, plant & equipment) = $100,000
B)
Amount of financing by creditors: $800,000 million
$250,000 (Current liabilities) + 550,000 (Long-term debt) = $800,000
Amount of financing by owners’: $300,000 million
$275,000 (Stockholders’ equity)
72. Classify the following items according to the financial statement on which each belongs, either the income
statement (IS), statement of retained earnings (RE), or the balance sheet (BS). Also indicate whether each is a
revenue (R), expense (E), asset (A), liability (L), or stockholders’ equity (SE) item.
Appears on
Which
Type of
Statement?
Account
Retained earnings
Equipment
Common stock
Unearned revenue
Sales
Rent expense
Inventory
73. The following information is taken from Jackson Company’s balance sheet as December 31, 2012:
Cash
$240,000
Retained earnings
$140,000
Inventory
80,000
Accounts payable
70,000
Equipment
380,000
Bonds payable
230,000
Common stock
260,000
Using the information provided for Jackson Company, answer the following questions:
A)
How much did creditors provide to Jackson Company?
B)
On which financial statement would an investor look to see if any stock was issued during the year?
1.
Retained earnings
BS, RE
2.
Equipment
A
3.
Common stock
BS
4.
Unearned revenue
L
5.
Sales
R
6.
Rent expense
E
7.
Inventory
A
74. Stimulus Corporation
All of the items from Stimulus Corporation’s income statement for the year ending December 31, 2012, are
presented below.
2012
Net sales
$1,500,000
Selling, general and administrative expenses
900,000
Research and development expenses
100,000
Other income (net)
50,000
Refer to the informaion of Stimulus Corporation. How much is net income for the year ended December 31, 2012? If Stimulus Corporation had used
a single-step statement what would be their net income and by how much would net income be different than if the multi-step approach had been
used? Explain.
75. Listed below are several amounts from the accounting records of Dean, Inc. for the year ended December
31, 2012. Prepare a multi-step income statement in good form.
Service revenue
$1,000,000
Selling expenses
250,000
Income tax expense
108,000
General and administrative expenses
400,000
Interest revenue
10,000
$300,000
$70,000 (Accounts Payable) + $230,000 (Bond Payable)
76. Most financial 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 is 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
Prepared
Information
Verifiable/
Elements
Provided
Yes or No?
77. Comparative information taken from the Carson Company financial statements is shown below:
2012__
2011__
(a)
Notes receivable
$ 10,000
$ -0-
(b)
Accounts receivable
175,000
140,000
(c)
Retained earnings
30,000
(40,000)
(d)
Sales
840,000
750,000
(e)
Operating expenses
160,000
200,000
(f)
Income taxes payable
28,000
20,000
Dean, Inc.
Income Statement
For the Year Ended December 31, 2012
Service revenue
$1,000,000
Operating expenses:
Selling expenses
$250,000
General and administrative expenses
400,000
Total operating expenses
650,000
Income from operations
350,000
Other revenue and expenses
Interest revenue
10,000
Income before taxes
360,000
Income tax expense
108,000
Net income
252,000
78. The comparative balance sheet of Ramos Company appears below:
RAMOS COMPANY
Comparative Balance Sheet
December 31, 2012
Assets
2012
2011
Current assets
$ 440
$ 280
Fixed assets
675
520
Total assets
$1,115
$ 800
Liabilities and stockholders’ equity
Current liabilities
$ 280
$ 120
Long-term debt
250
160
Common stock
325
320
Retained earnings
260
200
Total liabilities and stockholders’ equity
$1,115
$ 800
Instructions
(a)
Using horizontal analysis, show the percentage change for each balance sheet item using 2011 as a base year.
(b)
Using vertical analysis, prepare a common-size comparative balance sheet.
(a)
Base year is zero. Not possible to compute.
$35,000 $140,000 = 25% increase
(c)
Base year is negative. Not possible to compute.
$90,000 $750,000 = 12% increase
$40,000 $200,000 = 20% decrease
79. Revenue and expense data for Martinez Company are as follows:
2012
2011
Administrative expenses
$ 35,000
$ 25,000
Cost of goods sold
350,000
300,000
Income tax
103,500
82,500
Net sales
900,000
700,000
Selling expenses
170,000
100,000
(a)
Prepare a comparative income statement, with vertical analysis, stating each item for both 2012 and 2011 as a percent of sales.
(b)
Comment upon significant changes disclosed by the comparative income statement.
Amount
Percent
Amount
Percent
Net sales
$900,000
100.0%
$700,000
100.0%
Cost of goods sold
350,000
38.9%
300,000
42.9%
Gross profit
550,000
68.8%
400,000
57.1%
Selling expenses
170,000
21.3%
100,000
14.3%
Administrative expenses
35,000
4.4%
25,000
3.6%
Total operating expenses
205,000
25.6%
125,000
17.9%
Income before income tax
345,000
43.1%
275,000
39.3%
Income tax
103,500
12.9%
82,500
11.8%
Net income
$241,500
30.2%
$192,500
27.5%
(b)
(b)
(a)
Assets
Amount
Percent
Amount
Percent
Change
Current assets
$ 440
$280
35%
57%
Fixed assets
675
65%
30%
Total assets
$1,115
100%
$800
100%
Liabilities and stockholders’ equity
Current liabilities
$ 280
$120
15%
133%
Long-term debt
56%
Common stock
40%
Retained earnings
260
23%
200
25%
80. Fargo Manufacturing
Condensed data from the financial statements of Fargo Manufacturing for 2012 and 2011 are presented below.
The figures are expressed in thousands.
Statement A
2012
2011
Total current assets
$219,560
$180,080
Property, plant & equipment
(net of accumulated depreciation)
18,320
12,724
Investments
3,370
1,061
Other assets
12,220
10,606
Total assets
$253,470
$204,471
Total current liabilities
92,990
86,600
Long-term debt
15,160
20,156
Total liabilities
108,150
106,756
Stockholders’ equity:
Contributed capital
53,680
32,250
Retained earnings
91,640
65,465
Total stockholders’ equity
145,320
97,715
Total liabilities & stockholders’ equity
$253,470
$204,471
Statement B
2012
2011
Net sales
$229,301
$184,701
Cost of sales
135,453
119,284
Gross margin
93,848
65,417
Selling, general and administrative expenses
64,832
52,220
Other income (expense)
693
(118)
Income (loss) before income taxes
29,709
13,079
Income tax expense
3,534
2,109
Net income (loss)
$ 26,175
$ 10,970
Refer to the information provided for Fargo Manufacturing.
A)
What is the name of Statement A?
B)
What is the name of Statement B?
Statement A is the classified balance sheet.
Statement B is the multi-step income statement.
81. Fargo Manufacturing
Condensed data from the financial statements of Fargo Manufacturing for 2012 and 2011 are presented below.
The figures are expressed in thousands.
Statement A
2012
2011
Total current assets
$219,560
$180,080
Property, plant & equipment
(net of accumulated depreciation)
18,320
12,724
Investments
3,370
1,061
Other assets
12,220
10,606
Total assets
$253,470
$204,471
Total current liabilities
92,990
86,600
Long-term debt
15,160
20,156
Total liabilities
108,150
106,756
Stockholders’ equity:
Contributed capital
53,680
32,250
Retained earnings
91,640
65,465
Total stockholders’ equity
145,320
97,715
Total liabilities & stockholders’ equity
$253,470
$204,471
Statement B
2012
2011
Net sales
$229,301
$184,701
Cost of sales
135,453
119,284
Gross margin
93,848
65,417
Selling, general and administrative expenses
64,832
52,220
Other income (expense)
693
(118)
Income (loss) before income taxes
29,709
13,079
Income tax expense
3,534
2,109
Net income (loss)
$ 26,175
$ 10,970
Refer to the information provided for Fargo Manufacturing. 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.
82. Fargo Manufacturing
Condensed data from the financial statements of Fargo Manufacturing for 2012 and 2011 are presented below.
The figures are expressed in thousands.
Statement A
2012
2011
Total current assets
$219,560
$180,080
Property, plant & equipment
(net of accumulated depreciation)
18,320
12,724
Investments
3,370
1,061
Other assets
12,220
10,606
Total assets
$253,470
$204,471
Total current liabilities
92,990
86,600
Long-term debt
15,160
20,156
Total liabilities
108,150
106,756
Stockholders’ equity:
Contributed capital
53,680
32,250
Retained earnings
91,640
65,465
Total stockholders’ equity
145,320
97,715
Total liabilities & stockholders’ equity
$253,470
$204,471
Statement B
2012
2011
Net sales
$229,301
$184,701
Cost of sales
135,453
119,284
Gross margin
93,848
65,417
Selling, general and administrative expenses
64,832
52,220
Other income (expense)
693
(118)
Income (loss) before income taxes
29,709
13,079
Income tax expense
3,534
2,109
Net income (loss)
$ 26,175
$ 10,970
Refer to the information provided for Fargo Manufacturing. Was Fargo Manufacturing profitable both years? What are the amounts of the total
revenues and total expenses, respectively, for 2012? Which financial statement provides this information to you?
83. How is a classified balance sheet useful to decision makers?
84. How does the definition of a current liability relate to that of a current asset?
85. 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 expenses
Cash
Depreciation expense
Income taxes
Common stock
Land held for future expansion
Dividends
Retained earnings
Loss on the sale of equipment
Net income
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.
86. What information is provided in an annual report in addition to the financial statements?
87. What is meant by “generally accepted accounting principles”?
88. The three forms of business organizations are ____________________, ____________________, and
____________________.
89. The step of listing the liabilities of the company in order of their time to maturity is performed for a
financial statement called ____________________.
90. ____________________ are cash and other assets that are reasonably expected to be realized in cash
withing one year.
91. Property, plant and equipment is classified as ____________________ assets on the balance sheet.
92. In a(n) ____________________-step income statement, all expenses and losses are added together, then
deducted from the sum of all revenues and gains.
93. The ____________________ is the U.S. federal government agency with the ultimate authority to
determine the accounting rules for companies whose stock is sold to the public.
94. The ____________________ is the private sector group with authority to set accounting standards in the
United States.
95. The various rules and conventions that have evolved over time to guide the preparation of financial
statements in the U.S. are called ____________________.
96. In ____________________ analysis, each financial statement line item is expressed as a percent of a base
year, which is typically the earliest year shown.
97. In ____________________ analysis, each financial statement line item is expressed as a percent of the base
amount on the statement, which is net sales or total assets for the income statement or balance sheet,
respectively.
98. ____________________ is a part of issued stock that is repurchased by the corporation but not retired.
99. Revenue and expense data for Tower Technologies are as follows:
2012
2011
Sales
$500,000
$440,000
Cost of goods sold
325,000
242,000
Selling expenses
70,000
79,200
Administrative expenses
75,000
70,400
Income tax expense
25,000
26,400
Required:
(1)
Prepare an income statement in comparative form, stating each item for both 2012 and 2011 as a percent of sales.
(Round your answers to one decimal place.)
(2)
Comment on the significant changes disclosed by the comparative income statement.
(1)
100. The cash and accounts receivable balances for a company are provided below:
2012
2011
Cash
$75,000
$50,000
Accounts receivable (net)
$76,800
$80,000
Based on this information, what is the amount and percentage of increase or decrease that would be shown in a balance sheet with horizontal
analysis?
Cash
$25,000 increase ($75,000 – $50,000), or 50%
Accounts receivable (net)
$ 3,200 decrease ($80,000 – $76,800), or –4%
101. Income statement information for Yvonne Company is provided below:
Sales
$150,000
Cost of goods sold
105,000
Gross profit
$ 45,000
Prepare a common-size income statement for Yvonne Company.
Amount
Percentage
Sales
$150,000
100%
($150,000 / $150,000)
2012 Amount
2012 Percent
2011 Amount
2011 Percent
Sales
$500,000
100.0%
$440,000
100.0%
Cost of goods sold
325,000
65.0%
242,000
55.0%
Gross profit
175,000
35.0%
198,000
45.0%
Selling expenses
70,000
14.0%
79,200
18.0%
Administrative expenses
75,000
15.0%
70,400
16.0%
Total operating expenses
145,000
29.0%
149,600
34.0%
Income from operations
30,000
6.0%
48,400
11.0%
Income tax expense
25,000
5.0%
26,400
6.0%
Net income
$ 5,000
1.0%
$ 22,000
5.0%