Chapter 01 – Financial Statements and Business Decisions
Financial Accounting, 8/e 1-17
© 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
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Total liabilities and stockholders’ equity $159,400
Chapter 01 – Financial Statements and Business Decisions
P1–3.
Req. 1 Req. 2–Explanation
Transaction Income Cash
(a) +$66,000 +$55,000 All services performed increase income;
cash received during the period was,
Income (loss) $100
Cash inflow
Chapter 01 – Financial Statements and Business Decisions
P1–4. (continued)
Req. 4
The amount of stockholders’ equity (i.e., assets minus liabilities) for Northwest
Company, assuming the amounts provided by the owners are acceptable, would be:
Chapter 01 – Financial Statements and Business Decisions
ALTERNATE PROBLEMS
AP1–1.
Req. 1
INFLUENCE CORPORATION
Income Statement
For the Year Ended June 30, 2014
Total sales revenue (given) $100,000
Statement of Stockholders’ Equity
For the Year Ended June 30, 2014
Common Stock Retained Earnings
Balance, July 1, 2013 $ 0 $ 0
Common stock issuance (given) 62,000
At June 30, 2014
Assets
Cash (given) $13,150
Receivables from customers (given) 10,900
Inventory of merchandise (given) 27,000
Total liabilities $ 33,000
Stockholders’ Equity
Common stock (given) $62,000
Chapter 01 – Financial Statements and Business Decisions
AP1–2.
Req. 1
LIST ELECTRIC REPAIR COMPANY, INC.
Income Statement
For the Three Months Ended December 31, 2014
Revenues from services:
Electric repair services–cash $32,000
Supplies used on jobs 9,500
Oil, gas, and maintenance on truck 1,200
Insurance 700
Rent ($500+$250) 750
Req. 2
Because the above report reflects only revenues, expenses, and net income, it is
reasonable to suppose that Sam would have need for the following:
(1) A statement that reports for the business, at the end of 2014, each asset (name
and amount such as Cash, $XX), and each liability (such as Income taxes
Chapter 01 – Financial Statements and Business Decisions
AP1–3.
Req. 1 Req. 2–Explanation
Transaction Income Cash
(a) +$85,000 +$70,000 All services performed increase income;
cash received during the period was,
Chapter 01 – Financial Statements and Business Decisions
CASES AND PROJECTS
ANNUAL REPORT CASES
CP1–1.
1. It sells its own brand of high quality, on-trend clothing, accessories, and personal
care products targeting 15 to 25 year-old customers.
2. The company’s most recent fiscal year ended on January 28, 2012.
4. Yes, it is audited by independent CPAs, as indicated by the ”Report of Independent
Registered Public Accounting Firm” on page 69 of the annual report.
$1,950,802,000 = $533,951,000 + $1,416,851,000
Chapter 01 – Financial Statements and Business Decisions
CP1–2.
1. Net income was $185,251 thousand or $185,251,000 for the year ended January 31,
2012. This is disclosed on the income statement. The instructor should note that
the reported numbers are in thousands. Some students will erroneously report
2. Net sales were $2,473,801,000. This is also disclosed on the income statement.
3. Inventory is $250,073,000. This is disclosed on the balance sheet.
5. The auditor is Deloitte & Touche LLP. This is found on the auditor’s report (in this
case, called the “report of independent registered public accounting firm”).
CP1–3.
1. American Eagle Outfitters had total assets of $1,950,802,000 at the end of the most
3. In the most recent year, Urban Outfitters had a decrease in total assets of
($1,483,708,000-$1,794,321,000)/($1,794,321,000) = -17.3%, while American Eagle
Outfitters had growth in total assets of ($1,950,802,000 –
Chapter 01 – Financial Statements and Business Decisions
FINANCIAL REPORTING AND ANALYSIS CASES
CP1–4.
Req. 1–Deficiencies:
(1) Heading: titles of the reports are missing and dates are not in proper form.
(2) Income statement should show revenues and expenses separately.
Chapter 01 – Financial Statements and Business Decisions
CRITICAL THINKING CASES
CP1–5.
Req. 1 You should forcefully assert the need for an independent audit of the financial
statements each year because this is the best way to assure credibility–
conformance with GAAP, completeness and absence of bias.
You should firmly reject “Uncle Ray” as the auditor because there is no evidence
Chapter 01 – Financial Statements and Business Decisions
CP1–6.
The textbook does not explicitly cover the elements of independence. The case is
1. Most students feel that there is no problem with independence if the stock held is
immaterial in amount. When asked about a possible headline that might read
2. This is an example of an indirect holding of stock. A materiality threshold is
5. The original Code indicated that a loan from a bank that was made under normal
FINANCIAL REPORTING AND ANALYSIS PROJECTS
CP1–7.
The solutions to this case will depend on the company and/or accounting period
selected for analysis.
Chapter 01 – Financial Statements and Business Decisions
CONTINUING CASE
CC1–1.
Req. 1
Penny’s Pool Service & Supply.
Income Statement
For the Year Ended December 31, 2014
Revenues
1-32 Solutions Manual
© 2014 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
CC1. (continued)
Req. 3
Penny’s Pool Service & Supply
Balance Sheet
At December 31, 2014
Assets:
Cash
Accounts receivable
Inventories
Equipment
Total assets
Liabilities and Stockholders’ Equity:
Liabilities
Accounts payable
Notes payable to banks
Total liabilities
Stockholders’ equity
Common Stock
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity