(10-20 min.) E 1-30B
Diaz Design Company
Balance Sheet
July 31, 2014
(Amounts in millions)
ASSETS
LIABILITIES
Cash
$ 4.7
Current liabilities
$ 5.3
Receivables
1.6
Long-term liabilities
99.5
Investment assets
108.9
Total liabilities
104.8
Property and
equipment, net
57.6
STOCKHOLDERS’
EQUITY
Other assets
31.7
Common stock
21.5
Retained earnings
78.2*
Total stockholders’ equity
99.7
______
Total liabilities and
Total assets
$204.5
stockholders’ equity
$204.5
_____
*Computation of retained earnings:
Total assets ($204.5) − Total liabilities ($104.8) − Common stock
($21.5) = $78.2
(15-25 min.) E 1-31B
Req. 1
Diaz Design Company
Income Statement
Year Ended July 31, 2014
(Amounts in millions)
Total revenue ………………………………………………………
$41.4
Expenses:
Salary and other employee expenses ………………
$ 13.6
Other expenses ………………………………………………
2.9
Interest expense …………………………………………….
0.3
Total expenses ……………………………………………….
16.8
Net income………………………………………………………….
$24.6
Req. 2
The statement of retained earnings helps to compute dividends, as
follows:
Diaz Design Company
Statement of Retained Earnings
Year Ended July 31, 2014
(Amounts in millions)
Retained earnings, beginning of year ……………………………….
$55.1
Add: Net income for the year (Req. 1) ……………………………….
24.6
Subtotal
79.7
Less: Dividends declared …………………………………………………
1.5
Retained earnings, end of year (from Exercise 1-30B) ……….
$78.2
(15-20 min.) E 1-32B
Office Plus Copy Center, Inc.
Income Statement
For the Month Ended May 31, 2014
Revenue:
Service revenue …………………………
$450,300
Expenses:
Salary expense ………………………….
$230,000
Utilities expense ………………………..
10,500
Rent expense ……………………………
3,700
Total expenses ………………………….
244,200
Net income ………………………………………
$206,100
Office Plus Copy Center, Inc.
Statement of Retained Earnings
For the Month Ended May 31, 2014
Retained earnings, May 1, 2014 …………………………..
$ -0-
Add: Net income ………………………………………………..
206,100
Subtotal
206,100
Less: Dividends declared ……………………………………
(12,500)
Retained earnings, May 31, 2014 …………………………
$193,600
(15-20 min.) E 1-33B
Office Plus Copy Center, Inc.
Balance Sheet
May 31, 2014
Assets
Liabilities
Cash …………………..
$ 20,300
Accounts payable………………
$ 33,800
Office supplies ……
4,400
Stockholders’ Equity
Equipment ………….
402,700
Common stock ………………….
200,000
Retained earnings ……………..
193,600
Total stockholders’ equity ….
393,600
Total assets ………..
$427,400
Total liabilities and
stockholders’ equity ………
$427,400
(15-20 min.) E 1-34B
Office Plus Copy Center, Inc.
Statement of Cash Flows
For the Month Ended May 31, 2014
Cash flows from operating activities:
Net income …………………………………………………….
$206,100
Adjustments to reconcile net income to net
cash provided by operations ………………………
29,400
Net cash provided by operating activities
235,500
Cash flows from investing activities:
Acquisition of equipment …………………………...
$(402,700)
Net cash used for investing activities ……..
(402,700)
Cash flows from financing activities:
Issuance (sale) of stock to owners ………………
$ 200,000
Payment of dividends …………………………………
(12,500)
Net cash provided by financing activities..
187,500
Net increase in cash ……………………………………….
$ 20,300
Cash balance, May 1, 2014 ……………………………..
0
Cash balance, May 31, 2014 …………………………...
$ 20,300
(10-15 min.) E 1-35B
TO: Owner of Office Plus Copy Center, Inc.
FROM: Student Name
SUBJECT: Opinion of net income, dividends, financial position, and
cash flows
Your first month of operations was successful. Revenues totaled
$450,300 and net income was $206,100. These operating results look
very strong.
Quiz
Q1–36
a
Q1–37
b
Q1–38
a
Q1–39
d
Stockholders’
Assets = Liabilities + Equity
+ $84,000 = + $26,000 + + $58,000
Q1–40
c
Q1–41
c
Q1–42
b
Q1–43
d
Q1–44
b
Q1–45
c [$285,000 − $209,000 − $86,000 − $27,000 = $(37,000)]
Q1–46
a ($350,000 + $183,750 − $78,750 = $455,000)
Q1–47
d
Q1–48
c
Q1–49
a
Stockholders’
Assets
=
Liabilities
+
Equity
Beg.
$150,000
=
$24,000*
+
$126,000
Changes
+ 70,000
End.
$232,000*
=
$94,000*
+
$138,000
_____
*Must solve for these amounts.
Q1–50
b
Assets − Liabilities = Stockholders’ equity
Beg. bal.
$350,000 − $126,000 =
$224,000
+ Net income
+ X
− Dividends
− 56,000
End. bal.
$570,000 − $229,000 =
$341,000
$224,000 + X – $56,000 = $341,000; X = $173,000
Problems
(30 min.) P 1-51A
Req. 1
Computed amounts in boxes.
Diamond
Co.
Hagar Inc.
Lowell
Corp.
BALANCE SHEET
Millions
Beginning:
Assets ……………………………………..
$101
$54
$13
Liabilities ………………………………….
63
22
4
Common stock …………………………
6
5
3
Retained earnings …………………….
32
27
6
Ending:
Assets ……………………………………..
$108
$85
$16
Liabilities ………………………………….
65
32
3
Common stock …………………………
6
18
4
Retained earnings …………………….
37
35
9
INCOME STATEMENT
Revenues …………………………………
$340
$170
$21
Expenses …………………………………
331
156
18
Net income ……………………………….
$ 9
$ 14
$ 3
STATEMENT OF RETAINED EARNINGS
Beginning RE …………………………...
$32
$27
$ 6
+ Net income ……………………………….
9
14
3
− Dividends declared …………………..
(4)
(6)
0
= Ending RE ………………………………..
$37
$35
$ 9
(continued) P 1-51A
Req. 2
Diamond Co.
Hagar Inc.
Lowell Corp.
Millions
Net income ……………..
$9
$14
$3
Highest
% of net income
$9
= 2.6%
$14
= 8.2%
$3
= 14.3%
to revenues ……….
$340
$170
$21
Highest
(20-25 min.) P 1-52A
Req. 1
Philly Automotive, Inc.
Balance Sheet
June 30, 2014
ASSETS
LIABILITIES
Cash
$ 44,100
Accounts payable
$ 18,800
Accounts receivable
5,800
Note payable
122,400
Notes receivable
33,400
Total liabilities
141,200
Office supplies
1,700
STOCKHOLDERS’
Land
184,700
EQUITY
Equipment
78,300
Stockholders’ equity
206,800*
Total liabilities and
Total assets
$348,000
stockholders’ equity
$348,000
_____
*Total assets ($348,000) − Total liabilities ($141,200) = Stockholders’ equity
($206,800).
Req. 2
Philly Automotive, Inc. is in better (not worse) financial position than
the erroneous balance sheet reports. Although total assets ($348,000)
are $19,900 lower than originally reported ($367,900), liabilities are
substantially lower than originally reported, and stockholders’ equity
is $7,500 higher than reported originally.
Req. 3
Salary expense
Interest expense
(20-25 min.) P 1-53A
Req. 1
Jose Alvarado, Realtor, Inc.
Balance Sheet
April 30, 2015
ASSETS
LIABILITIES
Cash
$ 43,000
Accounts payable
$ 15,000
Office supplies
2,000
Note payable
128,000
Land
150,000
Total liabilities
143,000
Furniture
19,800
STOCKHOLDERS’
Franchise
16,000
EQUITY
Common stock
60,000
Retained earnings
27,800*
Total stockholders’ equity
87,800
Total liabilities and
Total assets
$230,800
stockholders’ equity
$230,800
_____
*Total assets ($230,800) − Total liabilities ($143,000) − Common stock
($60,000) = Retained earnings ($27,800).
Req. 2
It appears that the business can pay its debts. Total assets exceed
total liabilities.
Req. 3
Personal items not reported on the balance sheet of the business:
(30-45 min.) P 1-54A
Req. 1
Cameron Services Inc.
Income Statement
Year Ended December 31, 2014
Revenue
Service revenue …………………….
$457,600
Expenses
Salary expense ……………………..
$108,700
Rent expense ………………………..
Interest expense ……………………
Utilities expense ……………………
41,600
10,800
8,500
Property tax expense …………….
7,700
Total expenses………………………
177,300
Net income ……………………………………
$280,300
Req. 2
Cameron Services Inc.
Statement of Retained Earnings
Year Ended December 31, 2014
Retained earnings, December 31, 2013 ……………….
$ 364,800
Add: Net income …………………………..………………….
280,300
Subtotal
645,100
Less: Dividends declared…………………………………..
(105,000)
Retained earnings, December 31, 2014 ……………….
$ 540,100
(continued) P 1-54A
Req. 3
Cameron Services Inc.
Balance Sheet
December 31, 2014
ASSETS
LIABILITIES
Cash
$ 46,800
Accounts payable
$ 28,900
Accounts receivable
84,800
Note payable
99,300
Supplies
6,100
Interest payable
3,100
Land
26,200
Total liabilities
131,300
Building
401,000
STOCKHOLDERS’
Equipment
112,000
EQUITY
Common stock
5,500
Retained earnings
540,100
Total stockholders’ equity
545,600
Total liabilities and
Total assets
$676,900
stockholders’ equity
$676,900
Req. 4
company’s creditors.
(20 min.) P 1-55A
Req. 1
Mitchell Company
Statement of Cash Flows
Year Ended March 31, 2015
Millions
Cash flows from operating activities:
Net income ………………………………………………………..
$ 2,287
Adjustments to reconcile net income
to net cash provided by operating activities ……
1,778
Net cash provided by operating activities ……….
4,065
Cash flows from investing activities:
Purchases of property, plant, and equipment ………
$(2,640)
Sales of property, plant, and equipment ……………..
26
Other investing cash payments ………………………….
(120)
Net cash used for investing activities ……………..
(2,734)
Cash flows from financing activities:
Issuance of common stock ………………………………..
$ 154
Payment of dividends ………………………………………..
(199)
Net cash used for financing activities ……………..
(45)
Net increase in cash ………………………………………………
$ 1,286
Cash, beginning …………………………………………………….
203
Cash, ending …………………………..…………………………….
$ 1,489
Req. 2
Operating activities provided the largest amount of cash. This signals
financial strength because operations should be the main source of
cash.
(40-50 min.) P 1-56A
INCOME STATEMENT
2015
2014
Revenues …………………………..…………………………... .
23,880
=
$ k
$28,300
Cost of goods sold ……………………………………………
(18,090)
a
=
(19,950)
Other expenses …………………………………………………
(1,210)
(3,590)
Income before income taxes ………………………………
4,580
4,760
Income taxes (35% tax rate) ……………………………….
1,603
=
l
(1,666)
Net income ……………………………………………………….
2,977
=
$ m
$ b
=
3,094
STATEMENT OF RETAINED EARNINGS
Beginning balance …………………………………………….
9,861
=
$ n
$ 6,907
Net income ……………………………………………………….
2,977
=
o
c
=
3,094
Dividends declared ……………………………………………
(94)
(140)
Ending balance …………………………..…………………….
12,744
=
$ p
$ d
=
9,861
BALANCE SHEET
Assets:
Cash …………………………………………………………
4,490
=
$ q
$ e
=
4,505
Property, plant and equipment …………………..
14,870
13,760
Other assets ……………………………………………..
10,879
=
r
9,541
Total assets ………………………………………
30,239
=
$ s
$27,806
Liabilities:
Current liabilities ………………………………………
9,695
=
$ t
$10,590
Long-term debt …………………………………………
Other liabilities ………………………………………….
7,100
110
6,420
255
Total liabilities …………………………………..
16,905
f
=
17,265
Stockholders’ Equity:
Common stock ………………………………………….
$ 500
$ 500
Retained earnings ……………………………………..
12,744
=
u
g
=
9,861
Other stockholders’ equity …………………………
90
180
Total stockholders’ equity ………………….
13,334
=
v
10,541
Total liabilities and stockholders’
equity ………………………………………………. holders’ equity
30,239
=
$ w
$ h
=
27,806
STATEMENT OF CASH FLOWS ………………………….
Net cash provided by operating activities …..
745
=
$ x
$ 3,050
Net cash used for investing activities …………
(200)
(325)
Net cash used for financing activities …………
(560)
(500)
Increase (decrease) in cash………………..
( 15)
i
=
2,225
Cash at beginning of year ………………………….
4,505
=
y
2,280
Cash at end of year ……………………………………
4,490
=
$ z
$ j
=
4,505
(30 min.) P 1-57B
Req. 1
Computed amounts in boxes
Kenley
Corp.
Verde Co.
Thompson
Inc.
Millions
Balance sheets:
Beginning:
Assets …………………………….
$ 87
$ 52
$ 28
Liabilities ………………………..
59
24
2
Common stock ………………..
4
3
12
Retained earnings ……………
24
25
14
Ending:
Assets …………………………….
$ 90
$ 60
$ 44
Liabilities ………………………..
50
17
10
Common stock ………………..
4
3
12
Retained earnings ……………
36
40
22
Income statement:
Revenues ………………………..
$228
$174
$ 29
Expenses ………………………..
214
156
16
Net income ……………………..
$ 14
$ 18
$ 13
Statement of retained earnings:
Beginning RE ………………….
$ 24
$ 25
$ 14
+ Net income ……………………..
14
18
13
− Dividends declared ………….
(2)
(3)
(5)
= Ending RE ……………………….
$ 36
$ 40
$ 22
(continued) P 1-57B
Req. 2
Kenley Corp.
Verde Co.
Thompson Inc.
Millions
Net income ……………….
$14
$18
$13
Highest
% of net income
$14
= 6.1%
$18
= 10.3%
$13
= 44.8%
to revenues ……………
$228
$174
$29
Highest
(20-25 min.) P 1-58B
Req. 1
Fast Break Sports, Inc.
Balance Sheet
March 31, 2014
ASSETS
LIABILITIES
Cash
$ 20,500
Accounts payable
$ 14,500
Accounts receivable
2,700
Note payable
49,000
Notes receivable
16,000
Total liabilities
63,500
Office supplies
1,600
STOCKHOLDERS’
Land
83,000
EQUITY
Equipment
47,000
Stockholders’ equity
107,300*
Total liabilities and
Total assets
$170,800
stockholders’ equity
$170,800
_____
*Total assets ($170,800) − Total liabilities ($63,500) = Stockholders’
equity ($107,300).
Req. 2
Req. 3
The following accounts are not reported on the balance sheet
Interest expense