COMPREHENSIVE PROBLEM SOLUTION (Continued)
(a) and (b) Optional T accounts
Cash
Bal. 30,500
481,500
93,600
2,500
230,000
2,500
12,000
24,000
91,000
2,500
47,000
Bal. 194,100
Inventory
Bal. 25,750
241,100
250,000
Bal. 16,850
Prepaid Insurance
Bal. 5,600
12,000
5,600
5,000
Bal. 7,000
Equipment
Bal. 43,000
Accumulated Depreciation –
Equipment
8,000
Accounts Payable
230,000
Bal. 13,750
241,100
Bal. 24,850
Interest Payable
2,500
Bal. 2,500
Bal. 0
Sales Taxes Payable
24,000
31,500
Bal. 7,500
Income Taxes Payable
26,520
Bonds Payable
50,000
Bal. 50,000
90,000
Premium on Bonds Payable
3,600
Common Stock
Bal. 20,000
Retained Earnings
Bal. 18,600
Sales Revenue
450,000
COMPREHENSIVE PROBLEM SOLUTION (Continued)
(a) and (b) (Continued)
Cost of Goods Sold
250,000
Depreciation Expense
8,000
Insurance Expense
5,600
5,000
Bal. 10,600
Other Operating Expenses
Interest Expense
2,500
2,500
Bal. 5,000
Gain on Bond Redemption
3,000
Income Tax Expense
26,520
(c) JAMES CORPORATION
Income Statement
For the Year Ending 12/31/15
Sales revenue ………………………………………
$450,000
Cost of goods sold ……………………………….
250,000
Gross profit …………………………………………
200,000
Operating expenses
Insurance expense ………………………..
$10,600
Depreciation expense ……………………
8,000
Other operating expenses ……………..
91,000
Total operating expenses ……………………..
109,600
Income from operations ……………………….
90,400
Other revenues and expenses
Interest expense …………………………...
5,000
Gain on bond redemption ………………
3,000
2,000
Income before taxes …………………………….
88,400
Income tax expense ………………………
26,520
Net income…………………………………………..
$ 61,880
COMPREHENSIVE PROBLEM SOLUTION (Continued)
JAMES CORPORATION
Retained Earnings Statement
For the Year Ending 12/31/15
Retained earnings, 1/1/15 ……………………………………
$18,600
Add: Net income ………………………………………………
61,880
80,480
Less: Dividends ………………………………………………..
–
Retained earnings, 12/31/15 ………………………………..
$80,480
JAMES CORPORATION
Balance Sheet
12/31/2015
Current Assets
Cash …………………………………………….
$194,100
Inventory ………………………………………
16,850
Prepaid insurance …………………………
7,000
Total current assets ………………….
$217,950
Property, Plant, and Equipment
Equipment …………………………………….
43,000
Less: Accumulated depreciation …….
8,000
35,000
Total assets
$252,950
Current Liabilities
Accounts payable ………………………….
$24,850
Income taxes payable ……………………
26,520
Sales taxes payable ……………………….
7,500
Total current liabilities ………………
$ 58,870
Long-term liabilities
Bonds payable …………………………..….
90,000
Add: Premium on bonds payable ……
3,600
Total long-term liabilities ………….
93,600
Total liabilities ………………………….
152,470
Stockholders’ Equity
Common stock ……………………………..
20,000
Retained earnings …………………………
80,480
Total stockholders’ equity …………
100,480
Total liabilities and stockholders’
equity ……………………………………………….
$252,950
COMPREHENSIVE PROBLEM SOLUTION 10–2
(a)
Eastland
Company
Westside
Company
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Inventory
Plant and Equipment
Accumulated Depreciation
Total Assets
Current Liabilities
Long-term Liabilities
Total Liabilities
Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
$ 63,300
304,700
(13,600)
513,000
255,300
( (188,375)
$934,325
$440,200
78,000
518,200
* 416,125*
$934,325
$ 48,400
302,500
( (18,000)
515,200
257,300
( (189,850)
$915,550
$447,500
66,000
513,500
402,050**
$915,550
In terms of short-term liquidity, Eastland Company is in a little stronger
financial position. Total current assets for Eastland Company are
BYP 10-1 FINANCIAL REPORTING PROBLEM
over the prior year.
(c) The components of current liabilities are:
(d) At September 24, 2011, Apple’s total long-term liabilities was
BYP 10-2 COMPARATIVE ANALYSIS PROBLEM
(a) PepsiCo’s largest current liability was “accounts payable and other current
(b)
(in millions)
PepsiCo
Coca-Cola
(1)
Working capital
$17,441 – $18,154 = ($713)
$25,497 – $24,283 = $1,214
(2)
Current ratio
$17,441
$18,154
= 0.96:1
$25,497
$24,283
= 1.05:1
moderately liquid.
(d)
PepsiCo
Coca-Cola
1.
Debt to assets
$51,983
$72,882
= 71.3%
*
$48,053
$79,974
= 60.1%
2.
Times interest
earned
$6,443+$2,372+$856
$856
= 11.3 times
$8,572+$2,805+$417
$417
= 28.3 times
*$24,283 + $13,656 + $5,420 + $4,694
(e) The higher the percentage of debt to assets, the greater the risk that a
company may be unable to meet its maturing obligations. PepsiCo’s
2011 debt to assets ratio was 19% more than Coca–Cola’s and it would
BYP 10-3 COMPARATIVE ANALYSIS PROBLEM
(a) Amazon’s largest current liability was “accounts payable” at $11,145
(b)
(in millions)
Amazon
Wal–Mart
(1)
Working capital
$17,490 – $14,896 = $2,594
$54,975 – $62,300 = ($7,325)
(2)
Current ratio
$17,490
$14,896
= 1.17:1
$54,975
$62,300
= 0.88:1
(c) Based on this information, it appears that both companies are not very
(d)
Amazon
Wal-Mart
1.
Debt to assets
$17,521*
$25,278
= 69.3%
$117,645**
$193,406
= 60.8%
2.
Times interest
earned
$631+$291+$65
$65
= 15.2 times
$15,699+$7,944+$2,322
$2,322***
= 11.2 times
*$14,896 + $2,625 ***$2,034 + $288
**$193,406 – $75,761
(e) The higher the percentage of debt to assets, the greater the risk that a
company may be unable to meet its maturing obligations. Amazon’s
2011 debt to assets ratio was 14% more than Wal–Mart’s and it would
BYP 10-4 REAL-WORLD FOCUS
(a) An ‘A’ rating means that the company has a strong capacity to meet
(b) Some factors that can change a company’s credit rating are new
(c) To determine whether an investment has merit really depends on
particular issues of importance to investors. In evaluating an
BYP 10-5 DECISION MAKING ACROSS THE ORGANIZATION
(a) Face value of bonds …………………………..……………………….. $2,400,000
Bond discount amortization per year:
Face value of bonds …………………………..…….. $2,400,000
(b) 1. Bonds Payable …………………………………… 2,400,000
bonds)
2. Cash …………………………………………………… 2,000,000
(c) Dear President Glover: