(20-25 min.) P 1-59B
Req. 1
Nancy Boyd, Realtor, Inc.
Balance Sheet
September 30, 2015
ASSETS
LIABILITIES
Cash
$ 56,000
Accounts payable
$ 41,000
Office supplies
3,000
Note payable
86,000
Land
117,000
Total liabilities
127,000
Furniture
50,000
STOCKHOLDERS’
Franchise
25,000
EQUITY
Common stock
80,000
Retained earnings
44,000*
Total stockholders’ equity
124,000
Total assets
$251,000
Total liabilities and
stockholders’ equity
$251,000
_____
*Total assets ($251,000) − Total liabilities ($127,000) − Common stock
($80,000) = Retained earnings ($44,000).
Req. 2
It appears that Nancy Boyd’s business can pay its debts. Total assets
far exceed total liabilities.
Req. 3
Personal items not reported on the balance sheet of the business:
(30-45 min.) P 1-60B
Req. 1
Revenue:
Service revenue ……………………
$161,000
Expenses:
Salary expense …………………….
$30,800
Rent expense ……………………….
17,000
Utilities expense …………………..
8,700
Interest expense …………………..
2,900
Property tax expense ……………
2,100
Total expenses ……………………..
61,500
Net income ……………………………………
$ 99,500
Req. 2
Retained earnings, December 31, 2013 ……………….
$109,600
Add: Net income ………………………………………………
99,500
Subtotal
209,100
Less: Dividends declared…………………………………..
(28,000)
Retained earnings, December 31, 2014 ……………….
$181,100
(continued) P 1-60B
Req. 3
Weston, Inc.
Balance Sheet
December 31, 2014
ASSETS
LIABILITIES
Cash
$ 17,000
Accounts payable
$ 9,000
Accounts receivable
25,000
Interest payable
1,200
Supplies
2,300
Note payable
54,000
Land
68,000
Total liabilities
64,200
Building
123,000
STOCKHOLDERS’
Equipment
37,100
EQUITY
Common stock
27,100
Retained earnings
181,100
Total stockholders’ equity
208,200
Total liabilities and
Total assets
$272,400
stockholders’ equity
$272,400
Req. 4
a. Weston was profitable; net income was $99,500.
(20 min.) P 1-61B
Req. 1
Fun Gun Sales Co.
Statement of Cash Flows
Year Ended May 31, 2015
Millions
Cash flows from operating activities:
Net income ………………………………………………………..
$ 4,050
Adjustments to reconcile net income
to net cash provided by operating activities ……
2,860
Net cash provided by operating activities ……….
6,910
Cash flows from investing activities:
Purchases of property, plant, and equipment ………
$(5,305)
Sales of property, plant, and equipment ……………..
165
Other investing cash payments ………………………….
(155)
Net cash used for investing activities ……………..
(5,295)
Cash flows from financing activities:
Issuance of common stock ………………………………..
$ 1,180
Payment of dividends …………………………..……………
(145)
Net cash provided by financing activities ………..
1,035
Net increase in cash ………………………………………………
$ 2,650
Cash, beginning …………………………………………………….
230
Cash, ending …………………………………………………………
$ 2,880
Req. 2
Operating activities provided the bulk of Fun Gun Sale’s cash. This is
a sign of strength because operations should be the main source of
cash.
(40-50 min.) P 1-62B
(Thousands)
INCOME STATEMENT
2015
2014
Revenues …………………………..………………………………
11,870
=
$ k
$14,600
Cost of goods sold……………………………………………..
(8,050)
a
=
(10,550)
Other expenses …………………………..……………………..
(1,230)
(1,180)
Income before income taxes ……………………………….
2,590
2,870
Income taxes (35% tax rate) ………………………………..
907
=
l
1,005
Net income …………………………………………………….
1,683
=
$ m
$ b
=
1,865
STATEMENT OF RETAINED EARNINGS
Beginning balance …………………………..…………………
4,485
=
$ n
$ 2,690
Net income ………………………………………………………..
1,683
=
o
c
=
1,865
Dividends declared …………………………………………….
(96)
(70)
Ending balance ………………………………………………….
6,072
=
$ p
$ d
=
4,485
BALANCE SHEET
Assets:
Cash ……………………………………………………………..
1,070
=
$ q
$ e
=
1,130
Property, plant and equipment ………………………..
10,500
9,750
Other assets ………………………………………………….
5,778
=
r
5,381
Total assets ……………………………………………….
17,348
=
$ s
$16,261
Liabilities:
Current liabilities ……………………………………………
5,271
=
$ t
$ 4,640
Long-term debt ………………………………………………
5,400
6,691
Other liabilities ………………………………………………
90
110
Total liabilities …………………………..……………….
10,761
f
=
11,441
Stockholders’ Equity:
Common stock ………………………………………………
$ 325
$ 225
Retained earnings ………………………………………….
6,072
=
u
g
=
4,485
Other stockholders’ equity ……………………………..
190
110
Total stockholders’ equity…………………………..
6,587
=
v
4,820
Total liabilities and stockholders’ equity ……..
17,348
=
$ w
$ h
=
16,261
STATEMENT OF CASH FLOWS
Net cash provided by operating activities ………..
740
=
$ x
$ 1,050
Net cash used for investing activities ………………
(230)
(350)
Net cash used for financing activities………………
(570)
(550)
Increase (decrease) in cash ………………………..
( 60)
i
=
150
Cash at beginning of year ……………………………….
1,130
=
y
980
Cash at end of year ………………………………………..
1,070
=
$ z
$ j
=
1,130
Decision Cases
(30-40 min.) Decision Case 1
Based solely on these balance sheets, April Sales Co. appears to be
the better credit risk because:
1. Brown Bag has more assets ($150,000) than April Sales ($65,000),
but Brown Bag owes much more in liabilities ($130,000 versus
2. You would be better off granting the loan to April Sales. You should
(20-30 min.) Decision Case 2
Req. 1
Hunters Unlimited, Inc.
Hunters Unlimited, Inc.
Income Statement
Balance Sheet
Year Ended Dec. 31, 2014
Dec. 31, 2014
Revenue…………
$140,0001
Cash……………
$ 6,000
Liabilities………
$70,0004
Expenses………..
140,0002
Other assets….
90,0003
S/H Equity……..
26,0005
Total liabilities
Net income………
$ -0-
Total assets……
$96,000
and S/H equity
$96,000
_____
1$100,000 + $40,000 = $140,000
Req. 2
Req. 3
Ethical Issue
Note to instructor: student responses will vary on this problem.
Keep the discussion pointed toward use of the multiple-criteria model
Req. 1
Req. 2
The stakeholders are:
a. You
b. Your friend
Consequences are discussed in requirement 3.
(continued) Ethical Issue
Req. 3
Analysis of the problem:
Economic perspective: If use of the old exam turns out to help you (it
may not) you might improve your grade and allow you to retain your
scholarship. This might help you and your family financially. If you
use the exam to your unfair advantage, and you are reported, you and
(continued) Ethical Issue
accompanied by lying to cover it up, or at least, not revealing the
truth. Cheating violates other students’ rights to fair and equal
treatment. It violates the instructor’s rights to run a course as a “fair
working through the problem with their son or daughter, and perhaps
the social stigma that comes from adverse publicity.
These are just some of the arguments against cheating. Of course,
there is a question in this case as to whether taking the test actually
violates the professor’s or the university’s policies.
Req. 4
It would be helpful to find out what the professor’s policies are with
(continued) Ethical Issue
grade and solve the whole problem!
Req. 5
Cheating is very closely related to stealing, which is a form of fraud.
When employees steal from their companies, they steal property that
Focus on Financials: Amazon.com, Inc.
(20-30 min.)
1. Students can emphasize a variety of points regarding Amazon.com,
Inc., and its industry. For example, a discussion on the growth and
2. Some important information in this portion of the financials is the
description of their competitors (physical-world retailers, other e–
3. EBay and Overstock.com are competitors of Amazon.com, Inc.,
because all three derive their revenue online from a variety of
1-50 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
(continued) Amazon.com, Inc.
During fiscal 2012, a net loss of $39 million is reported. The
company had reported net income of $631 million in fiscal 2011.
This is bad news because the company’s reported a net loss from
operations in fiscal 2012.
5. Amazon.com’s largest expense is cost of sales. This is Amazon’s
6.
Total resources (total assets) at the end of
2012 …………………………………………………………………
$32,555 million
Amount owed (total liabilities) at the end of
the year ($19,002 + $3,084 + $2,277) …………………..
$24,363 million
Portion of the company’s assets owned by
the company’s stockholders (this is
shareholders’ equity) ………………………………………..
$8,192 million
Amazon.com, Inc.’s accounting equation (in millions):
Assets
=
Liabilities
+
Stockholders’ equity
$32,555
=
$24,363
+
$8,192
7. At the beginning of 2012, Amazon.com, Inc., had $5,269 million of
cash and cash equivalents. At the end of the year, Amazon.com,
Inc. had $8,084 million of cash and cash equivalents.
Focus on Analysis: Yum! Brands, Inc.
(30 min.)
1. Yum! Brands, Inc. is a quick service restaurant company. Students
can emphasize a variety of points regarding Yum! Brands, Inc. and
2. Note 1 describes Yum! Brands’ business and how Yum! Brands
delivers its products to its customers. Yum! Brands sells its
products through six operating segments worldwide. These
3. McDonald’s and Chick-fil-A are two competitors of Yum! Brands,
(continued) Yum! Brands, Inc.
dynamics to one another, meaning that their financial statements
can be compared to and benchmarked against each other.
Student answers will vary.
4.
(Amounts in millions)
Assets
=
Liabilities
+
Shareholders’ equity
$9,011
=
$6,699
+
$59 + $2,253
Yum! Brands, Inc. appears to be in relatively strong financial
condition. Total assets are about 135% of the amount of total
liabilities. This suggests that the company will have no difficulty
paying its debts and will have money to expand.
5. The result of operations for 2012 was a net income of $1,597
million. This is good news for Yum! Brands. Revenue exceeded
6. In Yum! Brands, Inc.’s Consolidated Balance Sheets, Retained
Earnings increased $234 million from $2,052 million as of the
Copyright © 2015 Pearson Education Inc. Chapter 1 The Financial Statements 1-53
(continued) Yum! Brands, Inc.
net income, but decreased $569 million due to dividends and $794
million due to repurchase of common stock.
7. The Consolidated Balance Sheets report cash and cash
equivalents as part of the company’s financial position. The
Consolidated Statements of Cash Flows tell why cash and cash
equivalents increased or decreased. Cash and cash equivalents
1-54 Financial Accounting 10/e Solutions Manual Copyright © 2015 Pearson Education Inc.
Group Projects
Student responses will vary.