Critical Thinking
Tying It All Together Case 4-1
Before you begin this assignment, review the Tying It All Together feature in the chapter. It will also be
helpful if you review Hyatt Hotels Corporation’s 2015 annual report
( https://www.sec.gov/Archives/edgar/data/1468174/000146817416000152/h10-k123115.htm ).
Hyatt Hotels Corporation is headquartered in Chicago and is a leading global hospitality company.
The company develops, owns, and operates hotels, resorts, and vacation ownership properties in 52
different countries. For the year ended December 31, 2015, Hyatt Hotels reported the following select
account information (in millions):
Revenue $ 4,328
Selling, general, and administrative expense 4,005
Other Expenses 61
Interest Expense 68
Income Tax Expense 70
Dividends 0
Retained Earnings, December 31, 2014 2,165
Requirements
1. Journalize Hyatt Hotels Corporation’s closing entries at December 31, 2015.
2. Determine Hyatt Hotels Corporation’s ending Retained Earnings balance at December 31, 2015.
3. Review the Hyatt Hotels Corporation’s balance sheet included in the 2015 annual report and find ending
Retained Earnings, December 31, 2015. Does your ending Retained Earnings calculated in Requirement 2
match?
SOLUTION
Requirement 1
Requirement 2
Ethical Issue 4-1
Grant Film Productions wishes to expand and has borrowed $100,000. As a condition for making this
loan, the bank requires that the business maintain a current ratio of at least 1.50.
Business has been good but not great. Expansion costs have brought the current ratio down to 1.40 on
December 15. Rita Grant, owner of the business, is considering what might happen if she reports a
current ratio of 1.40 to the bank. One course of action for Grant is to record in December $10,000 of
revenue that the business will earn in January of next year. The contract for this job has been signed.
Requirements
1. Journalize the revenue transaction, and indicate how recording this revenue in December would
affect the current ratio.
2. Discuss whether it is ethical to record the revenue transaction in December. Identify the accounting
principle relevant to this situation, and give the reasons underlying your conclusion.
SOLUTION
Requirement 1
Financial Statement Case 4-1
This case, based on the balance sheet of Target Corporation, will familiarize you with some of the
assets and liabilities of that company. Visit http://www.pearsonhighered.com/Horngren to view a link
to Target Corporation’s Fiscal 2015 Annual Report. Use the Target Corporation balance sheet to answer
the following questions.
Requirements
1. Which balance sheet format does Target use?
2. Name the company’s largest current asset and largest current liability at January 30, 2016.
3. Compute Target’s current ratios at January 30, 2016, and January 31, 2015. Did the current ratio
improve, worsen, or hold steady?
4. Under what category does Target report furniture, fixtures, and equipment?
5. What was the cost of the company’s property, plant, and equipment at January 30, 2016? What was
the amount of accumulated depreciation? What was the book value of the property, plant, and
equipment?
SOLUTION
Team Project 4-1
Kathy Wintz formed a lawn service business as a summer job. To start the corporation on May 1, 2018,
she deposited $1,000 in a new bank account in the name of the business. The $1,000 consisted of a $600
loan from Bank One to her company, Wintz Lawn Service, and $400 of her own money. The company
issued $400 of common stock to Wintz. Wintz rented lawn equipment, purchased supplies, and hired
other students to mow and trim customers’ lawns.
At the end of each month, Wintz mailed bills to the customers. On August 31, she was ready to dissolve
the corporation and return to college. Because she was so busy, she kept few records other than the
checkbook and a list of receivables from customers.
At August 31, the business’s checkbook shows a balance of $2,000, and customers still owe $750.
During the summer, the business collected $5,500 from customers. The business checkbook lists
payments for supplies totaling $400, and it still has gasoline, weed trimmer cord, and other supplies that
cost a total of $50. The business paid employees $1,800 and still owes them $300 for the final week of
the summer.
Wintz rented some equipment from Ludwig’s Machine Shop. On May 1, the business signed a
six-month rental agreement on mowers and paid $600 for the full rental period in advance. Ludwig’s
will refund the unused portion of the prepayment if the equipment is returned in good shape. In order to
get the refund, Wintz has kept the mowers in excellent condition. In fact, the business had to pay $300 to
repair a mower.
To transport employees and equipment to jobs, Wintz used a trailer that the business bought for $300.
The business estimates that the summer’s work used up one-third of the trailer’s service potential. The
business checkbook lists a payment of $500 for cash dividends paid during the summer. The business
paid the loan back during August. (For simplicity, ignore any interest expense associated with the loan.)
Requirements
1. As a team, prepare the income statement and the statement of retained earnings of Wintz Lawn
Service for the four months May 1 through August 31, 2018.
2. Prepare the classified balance sheet (report form) of Wintz Lawn Service at August 31, 2018.
3. Was Wintz’s summer work successful? Give your team’s reason for your answer.
SOLUTION
Requirement 1
Team Project 4-1, cont.
Requirement 2
