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1-115
PROBLEM 1-32B b. (cont.)
Marco’s Consulting
Income Statement
For the Period Ended December 31, 2017
Service Revenue
$130,000
Expenses
(75,000)
Net Income
$55,000
Marco’s Consulting
Statement of Changes in Stockholders’ Equity
For the Period Ended December 31, 2017
Beginning Common Stock
$50,000
Plus: Common Stock Issued
20,000
Ending Common Stock
$ 70,000
Beginning Retained Earnings
$40,000
Plus: Net Income
55,000
Less: Dividends
(15,000)
Ending Retained Earnings
80,000
Total Stockholders’ Equity
$150,000
1-116
PROBLEM 1-32B b. (cont.)
Marco’s Consulting
Balance Sheet
As of December 31, 2017
Assets
Cash
$115,000
Land
40,000
Total Assets
$155,000
Liabilities
Notes Payable
$ 5,000
Stockholders’ Equity
Common Stock
$70,000
Retained Earnings
80,000
Total Stockholders’ Equity
150,000
Total Liabilities and Stockholders’ Equity
$155,000
1-117
PROBLEM 1-32B b. (cont.)
Marco’s Consulting
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows From Operating Activities:
Cash Receipts from Customers
$130,000
Cash Payments for Expenses
(75,000)
Net Cash Flow from Operating Activities
$55,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Cash Receipts from Stock Issue
$20,000
Cash Payment on Debt
(10,000)
Cash Payment for Dividends
(15,000)
Net Cash Flow from Financing Activities
(5,000)
Net Increase in Cash
50,000
Plus: Beginning Cash Balance
65,000
Ending Cash Balance
$115,000
c. Retained earnings does not contain cash.
d. Assets increased from $105,000 at December 31, 2016 to $155,000 at
1-118
PROBLEM 1-32B (cont.)
The 2016 ending balance in Retained Earnings becomes next year’s
1-119
PROBLEM 1-33B
Not required:
Pearson Enterprises
Accounting Equation
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
=
Liabilities
+
Common
Stock
+
Retained
Earnings
Beg. Balances
75,000
15,000
25,000
35,000
Earned Revenue
46,000
46,000
Paid Expenses
(26,000)
(26,000)
Paid Dividends
(5,000)
(5,000)
Issued Stock
15,000
15,000
Paid Liability
(10,000)
(10,000)
95,000
=
5,000
+
40,000
+
50,000
a.
Pearson Enterprises
Income Statement
For the Period Ended December 31, 2016
Revenue
$46,000
Expenses
(26,000)
Net Income
$20,000
1-120
PROBLEM 1-33B a. (cont.)
Pearson Enterprises
Statement of Changes in Stockholders’ Equity
For the Period Ended December 31, 2016
Beginning Common Stock
$25,000
Plus: Common Stock Issued
15,000
Ending Common Stock
$40,000
Beginning Retained Earnings
35,000
Plus: Net Income
20,000
Less: Dividends
(5,000)
Ending Retained Earnings
50,000
Total Stockholders’ Equity
$90,000
Pearson Enterprises
Balance Sheet
As of December 31, 2016
Assets
Cash
$95,000
Total Assets
$95,000
Liabilities
$ 5,000
Stockholders’ Equity
Common Stock
$40,000
Retained Earnings
50,000
Total Stockholders’ Equity
90,000
Total Liabilities and Stockholders’ Equity
$95,000
1-121
PROBLEM 1-33B a. (cont.)
Pearson Enterprises
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows From Operating Activities:
Cash Receipts from Customers
$46,000
Cash Payments for Expenses
(26,000)
Net Cash Flow from Operating Activities
$20,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities:
Cash Receipts from Stock Issue
15,000
Cash Payments to Creditors
(10,000)
Cash Dividend to Stockholders
(5,000)
Net Cash Flow from Financing Activities
-0-
Net Increase in Cash
20,000
Plus: Beginning Cash Balance
75,000
Ending Cash Balance
$95,000
b. Percentage of assets provided by:
Creditors $ 5,000 ÷ $95,000 = 5.26%
c. The balance in the temporary accounts, revenue, expenses and
dividends will be zero on January 1, 2017, because they were closed
to Retained Earnings at December 31, 2016.
1-122
PROBLEM 1-34B
a.
Daley Company
Horizontal Statements Model for 2016
Balance Sheet
Income Statement
Statement of
Assets
=
Liab.
+
Stockholders’ Equity
Revenue
−
Expense
=
Net Inc.
Cash Flows
Event
No.
Cash
+
Land
=
Notes
Payable
+
Common
Stock
+
Retained
Earnings
1
52,000
NA
NA
52,000
NA
NA
NA
NA
52,000 FA
2
20,000
NA
20,000
NA
NA
NA
NA
NA
20,000 FA
3
42,000
NA
NA
NA
42,000
42,000
NA
42,000
42,000 OA
4
(23,000)
NA
NA
NA
(23,000)
NA
23,000
(23,000)
(23,000) OA
5
(6,000)
NA
NA
NA
(6,000)
NA
NA
NA
(6,000) FA
6
10,000
NA
NA
10,000
NA
NA
NA
NA
10,000 FA
7
(10,000)
NA
(10,000)
NA
NA
NA
NA
NA
(10,000) FA
8
(45,000)
45,000
NA
NA
NA
NA
NA
NA
(45,000) IA
9
NA
NA
NA
NA
NA
NA
NA
NA
NA
Total
40,000
+
45,000
=
10,000
+
62,000
+
13,000
42,000
−
23,000
=
19,000
40,000 NC
b. Total Assets = $40,000 + $45,000 = $85,000
c.
Sources of Assets
Event
1. Issue of stock
$ 52,000
2. Cash from loan
20,000
3. Cash from revenue
42,000
6. Issue of stock
10,000
1-123
Total Sources of Assets
$124,000
1-114
PROBLEM 1-34B (cont.)
d. Net income is $19,000 (see part a.) Dividends are not expenses so they
do not appear on the income statement.
e.
Operating Activities:
Cash from customers
$42,000
Cash paid for expenses
(23,000)
Net Cash Flow from Operating Activities
$19,000
Investing Activities:
Cash paid to purchase land
$(45,000)
Net Cash Flow from Investing Activities
$(45,000)
Financing Activities:
Cash from stock issues ($52,000 + $10,000)
$62,000
Cash from loan
20,000
Paid cash dividend
(6,000)
Cash paid on loan principal
(10,000)
Net Cash Flow from Financing Activities
$66,000
f. Percentage of assets provided by:
Creditors $10,000 ÷ $85,000 = 11.76%
Investors $62,000 ÷ $85,000 = 72.94%
Earnings $13,000 ÷ $85,000 = 15.29%
g. Zero. The revenue is recorded in a Revenue account not in the
Retained Earnings account. The balance in the Revenue account is
transferred to Retained Earnings at the end of the accounting period
through the closing process.
1-115
SOLUTIONS TO ANALYZE, THINK, COMMUNICATE – CHAPTER 1
ATC 1-1 (All dollar amounts are in millions.)
a. $ 1,971
b. Net income decreased by $1,028
STOCKHOLDERS’
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ATC 1-2
a.
Income Statements (amounts given are in millions)
2016
2017
2018
2019
Revenue
$ 860
$1,520
(a) $2,720
$1,200
Cost and Expenses
(a) (840)
(a) (1,070)
(2,400)
(860)
Income from Cont. Op.
(b) 20
450
320
(a) 340
Unusual Items
-0-
175
(b) (145)
(b) ( 40)
Net Income
$ 20
(b) $ 625
$ 175
$ 300
Balance Sheets
Cash and Marketable Sec.
$ 350
$1,720
(c) $ 750
$ 940
Other Assets
1,900
(c) 1,180
2,500
(c) 2,560
Total Assets
$2,250
$2,900
(d) $3,250
$3,500
Liabilities
(c) $ 730
(d) $1,555
$1,001
(d) $1,300
Stockholders’ Equity
Common Stock
$ 880
$ 720
(e) $1,449
$ 800
Retained Earnings
(d) 640
(e) 625
800
(e) 1,400
Total Stockholders’ Equity
1,520
1,345
(f) 2,249
2,200
Total Liab. and Stk. Equity
$2,250
(f) $2,900
$3,250
$3,500
1-117
ATC 1-3
1. Delta’s cash purchase of airplanes should be classified as a cash
outflow in the investing activities section of the statement of cash
flows.
2. Google’s cash purchase of Nest Labs should be classified as a cash
outflow in the investing activities section of the statement of cash
flows.
ATC 1-4
a. The percentage growth from 2016 to 2017 was 65% [($264,000 −
$160,000) $160,000]. However, this rate of growth will probably not
continue from 2017 to 2018 because 69% ($72,000 $104,000) of the
growth was from the lottery win. If the company continues to grow at
the current rate, shareholders should expect an increase in net income
1-119
ATC 1-4 d. (cont.)
Sierra Home Builders
Balance Sheet
As of December 31, 2018
Assets
$1,331,400
Liabilities
$ -0-
Stockholders’ Equity
Common Stock
$501,000
Retained Earnings ($660,000 + $170,400)
830,400
Total Stockholders’ Equity
1,331,400
Total Liabilities and Stockholders’ Equity
$1,331,400
1-120
ATC 1-5
This problem is designed to test written communication skills. The memo
should describe the balance sheet and the income statement. It should
1-121
ATC 1-6 a.
Financial Statements
Income Statement
Revenue
$57,000
Expense
(40,000)
Net Income
$17,000
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$20,000
Plus: Stock Issued
5,000
Ending Common Stock
25,000
Beginning Retained Earnings
50,000
Plus: Net Income
17,000
Less: Dividends
(2,000)
Ending Retained Earnings
65,000
Total Stockholders’ Equity
$90,000
Balance Sheet
Assets
Cash
$90,000
Total Assets
$90,000
Stockholders’ Equity
Common Stock
$25,000
Retained Earnings
65,000
Total Stockholders’ Equity
$90,000
Statement of Cash Flows
Net Cash Flow From Operating Activities:
Inflow from Customers
$57,000
Outflow for Expenses
(40,000)
Net Cash Flow from Operating Activities
17,000
Net Cash Flow From Investing Activities
-0-
Net Cash Flow From Financing Activities:
Inflow from Stock Issue
5,000
Outflow for Dividends
(2,000)
Net Cash Flow from Financing Activities
3,000
Net Change in Cash
$20,000
Plus: Beginning Cash Balance
70,000
1-122
Ending Cash Balance
$90,000
1-123
ATC 1-6 (cont.)
b. In the short-run replacing Kevin would save $5,000 in cash expenses.
Accordingly, net income, assets, stockholders’ equity, and cash flow
from operating activities would increase. These effects can be
1-124
ATC 1-7
This solution is based on Sonic Drive-In’s August 31, 2013 annual report.
Dollar amounts are in thousands.
a. Sonic’s net income for 2013, 2012, and 2011 were as follows:
