Chapter 02 – Investing and Financing Decisions and the Accounting System
AP2–2. (continued)
Req. 2
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Long-Term
Investments
Building
Long-Term
Notes
Payable
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Beg.
120,000
310,000
=
60,000
20,000
200,000
80,000
(a)
+110,000
=
+110,000
(b)
–3,000
=
(c)
+100,000
=
+10,000
+90,000
(d)
–5,000
=
(e)
–2,000
=
(f)
–200,000
+200,000
=
(g)
–85,000
+85,000
=
(h)
=
(i)
No effect
=
+35,000
+85,000
+510,000
=
+170,000
+30,000
+290,000
+80,000
$739,000 $339,000 $400,000
Chapter 02 – Investing and Financing Decisions and the Accounting System
AP2–3.
Req. 1 and 2
Cash and Cash
Equivalents
Short-Term
Investments
Accounts
Receivable
Beg.
78,519
Beg.
12,909
Beg.
15,036
(a)
1,020
3,400
(b)
(e)
2,980
(d)
4,020
2,980
(e)
15,889
15,036
(g)
310
1,830
(f)
300
(h)
Inventories
Beg.
141,692
75,359
141,692
Prepaid Expenses and
Other Current Assets
Property, Plant,
and Equipment
Intangibles
Beg.
20,372
Beg.
294,853
Beg.
45,128
(f)
11,230
4,020
(d)
(b)
3,400
20,372
302,063
48,528
Other Assets
Accounts
Payable
Accrued Expenses
Payable
Beg.
19,816
26,958
Beg.
127,639
Beg.
310
(g)
19,506
26,958
127,639
Long-Term
Debt*
Other Long-Term
Liabilities
Common
Stock
165,032
Beg.
27,009
Beg.
484
Beg.
9,400
(f)
16
(a)
174,432
27,009
500
Additional
Paid-in Capital
359,728
Beg.
1,004
(a)
360,732
* Current portion is $19.
Retained
Earnings
501,908
Beg.
(h)
300
501,608
Other
Stockholders’ Equity Items
Beg.
580,433
580,433
Chapter 02 – Investing and Financing Decisions and the Accounting System
AP2–3. (continued)
Req. 5
Ethan Allen Interiors, Inc.
Balance Sheet
At September 30, 2011
(in thousands of dollars)
Assets
Current assets
Cash and cash equivalents
$ 75,359
Short-term investments
15,889
Accounts receivable
15,036
Inventories
141,692
Prepaid expenses and other current assets
20,372
Total current assets
268,348
Property, plant, and equipment
302,063
Intangibles
48,528
Other assets
19,506
Total Assets
$638,445
Liabilities
Current liabilities
Accounts payable
$ 26,958
Accrued expenses payable
127,639
Current portion of long-term debt
19
Total current liabilities
154,616
Long-term debt
174,413
Other long-term liabilities
27,009
Total Liabilities
356,038
Stockholders’ Equity
Common stock ($0.01 par value)
500
Additional paid-in capital
360,732
Retained earnings
501,608
Other stockholders’ equity items
(580,433)
Total Stockholders’ Equity
282,407
Total Liabilities and Stockholders’ Equity
$638,445
Req. 6
Current
=
Total Current Assets
=
$268,348
=
1.74
Ratio
Total Current Liabilities
$154,616
Ethan Allen maintains a relatively high current ratio, indicating that they are highly liquid.
Chapter 02 – Investing and Financing Decisions and the Accounting System
5. The company spent $100,135,000 on purchasing property and equipment in the
CP2–2.
1. Assets = Liabilities + Shareholders’ Equity
$1,483,708,000 = $417,440,000 + $1,066,268,000
2. No – shareholders’ equity is a residual balance, meaning that the shareholders will
receive what remains in cash and assets after the creditors have been satisfied. It is
3. The company’s only noncurrent liability is Deferred Rent and Other Liabilities.
4.
Current
=
Current Assets
=
$596,992,000
=
2.56
Ratio
Current Liabilities
$233,466,000
5. The company had a net cash inflow from investing activities of $55,292,000,
primarily because the company sold investments (sold marketable securities for
Chapter 02 – Investing and Financing Decisions and the Accounting System
FINANCIAL REPORTING AND ANALYSIS CASES
CP2–4.
Dollars are in thousands:
1. (a) Chipotle’s total assets reported for the quarter ended June 30, 2012 are
$1,648,409.
(b) Current liabilities decreased over six months from $157,453 at December 31,
2. (a) For the three months ended June 30, 2012, Chipotle spent $90,332 on the
purchase of leasehold improvements, property, and equipment. Its largest use of
CP2–5.
The major deficiency in this balance sheet is the inclusion of the owner’s personal
residence as a business asset. Under the separate-entity assumption, each business
must be accounted for as an individual organization, separate and apart from its
owners. The improper inclusion of this asset as part of Frances Sabatier’s business:
Chapter 02 – Investing and Financing Decisions and the Accounting System
CRITICAL THINKING CASES
CP2–7.
Req. 1
Dewey, Cheetum, and Howe, Inc.
Balance Sheet
December 31, 2015
Assets
Current Assets:
Cash
$ 1,000
Accounts receivable
8,000
Inventory
8,000
Total current assets
17,000
Furniture and fixtures
52,000
Delivery truck (net)
12,000
Buildings (net)
60,000
Total assets
$141,000
Liabilities
Current Liabilities:
Accounts payable
$ 16,000
Payroll taxes payable
13,000
Total current liabilities
29,000
Notes payable (due in three years)
15,000
Mortgage payable
50,000
Total liabilities
94,000
Stockholders’ Equity
Contributed capital
80,000
Accumulated deficit
(33,000)
Total stockholders’ equity
47,000
Total liabilities and stockholders’ equity
$141,000
Chapter 02 – Investing and Financing Decisions and the Accounting System
CP2–8.
1. The most obvious parties harmed by the fraud at Ahold’s U.S. Foodservice, Inc.,
were the stockholders and creditors. Stockholders were purchasing shares of stock
that were inflated due to the fraud. Creditors were lending funds to the company
2. U.S. Foodservice set certain financial goals and tied the former executives’ bonuses
to meeting the goals. Adopting targets is a good tool for monitoring progress toward
3. In many cases of fraudulent activity, auditors are named in lawsuits along with the
company. If the auditors are found to be negligent in performing their audit, then
they are liable. However, in many frauds, the management at multiple levels of the
CP2–9.
The solution to this team project will depend on the companies and/or accounting
period selected for analysis.
2-50 Solutions Manual
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CC2–1.
Req. 1
Debit
Credit
a.
Cash (+A) ………………………………………………….
25,000
Equipment (+A) ………………………………………….
36,000
Common stock (+SE)…………………….
200
Additional paid-in capital (+SE)…………
60,800
b.
Land (+A)…………………………………………
18,000
Building (+A)……………………………………..
72,000
Cash (−A)………………………………….
10,000
Mortgage notes payable (+L)……………
80,000
c.
Equipment (+A)………………………………….
6,500
Cash (−A)…………………………………
2,500
Short-term notes payable (+L)………….
4,000
d.
No transaction
e.
Mortgage notes payable (−L)…………………..
1,000
Cash (−A)…………………………………
1,000
f.
Short-term investments (+A)……………………
5,000
Cash (−A)………………………………….
5,000
g.
No transaction
Chapter 02 – Investing and Financing Decisions and the Accounting System
CC2–1. (continued)
Req. 2
Cash
Short-term Investments
Equipment
Beg.
0
Beg.
0
Beg.
0
(a)
25,000
10,000
(b)
(f)
5,000
(a)
36,000
2,500
(c)
5,000
(c)
6,500
1,000
(e)
42,500
5,000
(f)
6,500
Land
Buildings
Beg.
0
Beg.
0
(b)
18,000
(b)
72,000
18,000
72,000
0
Beg.
0
Beg.
4,000
(c)
(e)
1,000
80,000
(b)
4,000
79,000
0
Beg.
0
Beg.
(a)
60,800
(a)
60,800
Chapter 02 – Investing and Financing Decisions and the Accounting System
CC2–1. (continued)
Req. 4
Penny’s Pool Service and Supply, Inc.
Balance Sheet
On March 31, 2013
Assets
Current Assets:
Cash
$ 6,500
Short-term investments
5,000
Total current assets
11,500
Equipment
42,500
Land
18,000
Buildings
72,000
Total assets
$144,000
Liabilities and Stockholder’s Equity
Current Liabilities:
Short-term notes payable
$4,000
Total current liabilities
4,000
Mortgage notes payable
79,000
Total liabilities
83,000
Stockholder’s Equity:
Common stock ($0.05 par value)
200
Additional paid-in capital
60,800
Total stockholder’s equity
61,000
Total liabilities and stockholder’s equity
$144,000
Req. 5
Type of Activity
(I, F, or NE)
Effect on Cash Flows
(+ or – and amount)
(a)
F
+ 25,000
(b)
I
– 10,000
(c)
I
– 2,500
(d)
NE
NE
(e)
F
– 1,000
(f)
I
– 5,000
(g)
NE
NE