Solutions 1-18
Selling and Administrative Expenses ………….. (4,973) (4,355) (3,921)
1-19 Solutions
1.36 (Polo Ralph Lauren; income statement relations.) (Amounts in Millions)
The missing items appear in boldface type below.
2007 2006 2005
1.37 (Ericsson; statement of cash flows relations.)
ERICSSON
Statement of Cash Flows
(Amounts in SEK Millions)
2007 2006 2005
Operations:
Revenues, Net of Expenses …….. SEK 19,210 SEK 18,489 SEK 16,669
Cash Flow from Operations …………. SEK 19,210 SEK 18,489 SEK 16,669
Investing:
Acquisition of Property and
Solutions 1-20
1-21 Solutions
1.38 (Jackson Corporation; statement of cash flows relations.)
JACKSON CORPORATION
Statement of Cash Flows
(Amounts in Millions)
2008 2007 2006
Proceeds of Long-Term Borrow-
ing ……………………………………… $ 836 $ 5,096 $ 3,190
Issue of Common Stock ……………. 67 37 3
1.39 (JetAway Airlines; preparing a balance sheet and an income statement.)
a. JETAWAY AIRLINES
Balance Sheet
(Amounts in Thousands)
Sept. 30, Sept. 30,
2008 2007
Assets
Solutions 1-22
Other Current Assets …………………………….. 56,810 73,586
1-23 Solutions
1.39 a. continued.
Liabilities and Shareholders’ Equity
Accounts Payable …………………………..…….. $ 157,415 $ 156,755
Current Maturities of Long-Term Debt………. 11,996 7,873
b. JETAWAY AIRLINES
Income Statement
(Amounts in Thousands)
For the Year Ended: Sept. 30,
2008
Sales ……………………………………………………………………… $ 4,735,587
1.40 (Block’s Tax and Bookkeeping Services; cash versus accrual basis
accounting.)
a. Income for July, 2008:
Solutions 1-24
(1) Cash Basis Accounting
Sales Revenues ……………………………………………………… $ 13,000
1-25 Solutions
1.40 a. continued.
(2) Accrual Basis Accounting
Sales Revenues ……………………………………………………… $ 44,000
Rent (Office) …………………………………………………………… (2,000)
b. Cash on Hand:
Beginning Balance, July 1 …………………………………………… $ 0
The ending balance in cash contains the effects of both operating
1.41 (Stationery Plus; cash basis versus accrual basis accounting.)
a. Income for November, 2008:
(1) Cash Basis Accounting
Sales …………………………………………………………………….. $ 23,000
Solutions 1-26
Cost of Merchandise ……………………………………………….. (20,000)
1-27 Solutions
1.41 a. continued.
(2) Accrual Basis Accounting
Sales …………………………………………………………………….. $ 56,000
b. Income for December, 2008:
(1) Cash Basis Accounting
Sales Made in November, Collected in December ……….. $ 33,000
(2) Accrual Basis Accounting
Sales …………………………………………………………………….. $ 62,000
Cost of Merchandise ……………………………………………….. (33,600)
1.42 (ABC Company; relation between net income and cash flows.)
a.
Solutions 1-28
Cash
Balance at
Beginning
of Month
+
Cash
Receipts
from
Customers
–=
Cash
Disbursements
for Production
Costs
Cash
Balance
at End of
the MonthMonth
January $ 875 $ 1,000 $ 750 $ 1,125
1-29 Solutions
1.42 continued.
b. The cash flow problem arises because of a lag between cash
expenditures incurred in producing goods and cash collections from
customers once the firm sells those goods. For example, cash
c. The income statement and statement of cash flows provide information
about the profitability and liquidity, respectively, of a firm during a period.
d. Strategies for dealing with the cash flow problem center around (a)
reducing the lag between cash outflows to produce widgets and cash
Solutions 1-30
1-31 Solutions
1.42 d. continued.
(1) Delay paying its suppliers (increases accounts payable) or borrow from
(2) Substitute more efficient manufacturing equipment for work now
done by employees.
(3) Increase selling prices.
1.43 (Balance sheet and income statement relations.)
a. Bushels of wheat are the most convenient in this case with the given
Solutions 1-32
1.43 continued.
b. IVAN AND IGOR
Comparative Balance Sheets
(Amounts in Bushels of Wheat)
IVAN IGOR
Beginning End of Beginning End of
Assets
of Period Period of Period Period
Wheat …………………… 20 223 10 105
Accounts Payable ….. — 3 — —
Questions will likely arise as to the accounting entity. One view is that
there are two accounting entities (Ivan and Igor) to whom the Red
Bearded Baron has entrusted assets and required a periodic reporting on
1-33 Solutions
1.43 continued.
c. IVAN AND IGOR
Comparative Income Statement
(Amounts in Bushels of Wheat)
IVAN IGOR
Revenues ……………………………………………………. 243 138
Expenses:
Seed ………………………………………………………. 20 10
d. (Amounts in Bushels of Wheat) IVAN IGOR
Owner’s Equity, Beginning of Period …………………… 162 101
e. We cannot simply compare the amounts of net income for Ivan and Igor
because the Red Bearded Baron entrusted them with different amounts
Solutions 1-34