(continued) Amazon.com, Inc.
Req. 3 (amounts in millions)
Journal
DATE
ACCOUNT TITLES
DEBIT
CREDIT
a.
Accrued Expenses and Other …………………..
3,751
Cash …………………………………………………..
3,751
b.
Operating Expenses……………………………
14,446
Cash …………………………………………………..
8,762
Accrued Expenses and Other ………………
5,684
The balance of Accrued Expenses and Other agrees with the financial
statements at December 31, 2012.
(continued) Amazon.com, Inc.
Req. 5
Working Capital:
2012
2011
Current assets
– Current
liabilities
=
$21,296 −
$19,002
=
$2,294
$17,490 −
$14,896
=
$2,594
Current ratio:
2012
2011
(Dollar amounts in millions)
Total current assets
=
$21,296
=
1.12
$17,490
=
1.17
Total current liabilities
$19,002
$14,896
Debt ratio:
2012
2011
Total liabilities
=
$24,363*
=
0.75
$17,521**
=
0.69
Total assets
$32,555
$25,278
*$19,002 + $3,084 + $2,277
**$14,896 + $255 + $2,370
The current ratio and working capital decreased, and the debt ratio
slightly worsened during 2012. This reveals less liquidity and higher
debt. Also, the size of the firm overall has increased (indicated by total
assets), but its working capital has decreased, surprisingly as it should
increase to support Amazon.com now that it is a larger firm.
Focus on Analysis: Yum! Brands, Inc.
(15-20 min.)
Req. 1
Revenues are recognized at the time of the sale in each company-owned
restaurant. Additionally, Yum! Brands recognizes revenue from
franchisees and licensees in the form of initial fees, continuing fees,
Req. 2
Yum! Brands’ receivables are primarily from its franchisees and
licensees. The royalties from the franchisees and licensees are generally
due within 30 days of the sale. Thus, the receivables are included in
(continued) Yum! Brands, Inc.
Req. 3
Income Tax Receivable is similar to a prepaid asset, meaning taxes have
been paid but will be expensed sometime in the future. At that time,
Income Tax Receivable will decrease as in the following entry:
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Income Tax Expense ………………………………
95
Income Tax Receivable ………………………
95
Assets Held for Sale are most likely an account for assets that are very
close to a sale. When the company actively begins the selling process
for an asset, it records the following:
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Assets Held for Sale ……………………………….
32
Equipment …………………………………………
32
Since Other Prepaid Expenses decreased from $164 (mil) to $161 (mil),
the journal entry to record this was:
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Operating Expenses ……………………………….
3
Other Prepaid Expenses …………………….
3
Req. 4
(continued) Yum! Brands, Inc.
Req. 5
Accrued Compensation and Benefits represents an accrued liability
account. When the company incurs compensation and benefits
expense, this current liability account is credited. When the company
pays the compensation and benefits, these amounts are debited to
Accrued Compensation and Benefits.
The expense relating to this accrued compensation and benefits was
recorded in the year the expense was incurred—when the employees
Accrued Compensation and Benefits (Payable)
Beg. Bal. 440
Compensation and
Benefits Paid 2,573
Payroll and Employee
Benefits Expense 2,620
End. Bal. 487
Group Project
(45 min.)
Req. 1 (after Req. 6)
Req. 2
Abel Electronics, Inc.
Income Statement
Three Months Ended December 31, 2014
Service revenue ($33,000 + $3,000)
$36,000
Expenses:
Payroll tax expense
$ 575
Rent expense ($3,000 × 1/2)
1,500
Utilities expense
825
Supplies expense
8,500
Salary expense($3,500 + $5,000 + $500)
9,000
Fuel and maintenance expense
1,200
Insurance expense
700
Advertising expense
700
Depreciation expense—truck
($6,000/5× 3/12)
300
Depreciation expense—tools
($1,200/3 x 3/12)
Income tax expense
100
1,680
Total expenses
25,080
Net income
$10,920
(continued) Group Project
Req. 3
Abel Electronics, Inc.
Statement of Retained Earnings
Three Months Ended December 31, 2014
Retained earnings, October 1, 2014 ……………….
$ 0
Add: Net income ………………………………………….
10,920
Retained earnings, December 31, 2014 ………….
$10,920
Req. 4
Abel Electronics, Inc.
Balance Sheet
December 31, 2014
ASSETS
LIABILITIES
Current:
Current:
Cash
$10,800
Salary payable
$ 500
Accounts receivable
Prepaid rent
3,000
1,500
Advertising payable
Income tax payable
100
1,680
Phone deposit
100
Total current liabilities 2,280
Supplies
1,000
Total current assets
16,400
STOCKHOLDERS’ EQUITY
Long-term:
Common stock
10,000
Tools
Less accum.
deprec.
$1,200
(100)
1,100
Retained earnings
10,920
Truck
$6,000
Less accum.
deprec.
(300)
5,700
Total stockholders’ equity
20,920
Total liabilities and
Total assets
$23,200
stockholders’ equity
$23,200
(continued) Group Project
Req. 5
Abel Electronics, Inc.
Statement of Cash Flows
Three Months Ended December 31, 2014
Cash flows from operating activities:
Collections from customers…………………
$ 33,000
Payments:
For suppliers* ……………………………………..
To employees………………………………………
$16,400
8,500
24,900
Net cash provided by operating activities
8,100
Cash flows from investing activities:
Purchase of truck ………………………………..
$(6,000)
Purchase of tools ………………………………..
Prepaid for phone ………………………………..
(1,200)
(100)
Net cash used for investing activities …………….
(7,300)
Cash flows from financing activities:
Issuance of common stock …………………..
10,000
Net cash provided by financing activities ……….
10,000
Net increase in cash …… ……………………………
$10,800
Cash balance, beginning … ………………………..
-0-
Cash balance, ending … ……………………………
$10,800
* Payments to suppliers include supplies($9,500), rent($3,000), fuel and
maintenance($1,200), insurance($700), utilities($825), advertising($600),
and payroll taxes($575).
(continued) Group Project
Req. 6
Current ratio $16,400/2,280 = 7.19
With a current ratio of 7.19, the company has a high amount of liquidity.
With a debt ratio of 0.098, the company has very low debt ratio. They can
easily take on more debt.
The current ratio and the debt ratio increase with the new loan. The
current ratio improves with the inflow of cash from the loan. The debt
Req. 1
ASSETS
LIABILITIES + STOCKHOLDERS’
EQUITY
Cash
Acct.
Rec.
Phone
Deposit
Supplies
Prepaid
Rent
Truck
Tools
Salary
Pay.
Advert.
Pay.
Income
Taxes
Pay.
Common
Stock
Retained
Earnings
Stockholders’
Equity Transaction
10,000
10,000
Issued stock
(6,000)
6,000
(1,200)
1,200
(3,000)
3,000
(100)
100
33,000
33,000
Service Rev.
3,000
3,000
Service Rev.
(5,000)
(5,000)
Salary Exp.
(3,500)
(3,500)
Salary Exp.
500
(500)
Salary Exp.
(575)
(575)
Payroll Tax Exp.
(9,500)
9,500
(8,500)
(8,500)
Supplies Exp.
(1,200)
(1,200)
Fuel & Maint. Exp.
(700)
(700)
Insurance Exp.
(825)
(825)
Utilities Exp.
(600)
100
(700)
Advert. Exp.
(1,500)
(1,500)
Rent Exp.
1,680
(1,680)
Income Tax Exp.
(300)
(300)
Depr. Exp.
(100)
(100)
Depr. Exp.
10,800
3,000
100
1,000
1,500
5,700
1,100
500
100
1,680
10,000
10,920
Totals
