P2.22.
(continued)
d.
Stacy-Ann Kelly’s stockholder’s equity increased by $34,000 as a result of the sale on
August 14th ($100,000 revenue – $66,000 cost of goods sold). Her stockholder’s equity
decreased by $14,000 for the operating expenses recorded on August 10th, by $400 for
the interest expense recorded on August 24th, and by $10,000 for the cash dividend
P2.23.
a.
Amounts shown in the balance sheet below reflect the following use of the data given:
An asset should have a “probable future economic benefit”; therefore the accounts
receivable are stated at the amount expected to be collected from customers.
P2.23.
(continued)
Assets: Liabilities and Stockholders’ Equity:
Cash …… …………… …………… ………….. $ 3,500 Note payable ………………. …………… $ 12,000
P2.24.
EPSICO, INC.
Balance Sheets
December 31, 2016 and 2015
1. Retained earnings, 12/31/15 ……… ……….. ……….. ……….. ……….. ……….. $1,140
2. Cash at 12/31/16 is $48 more than at 12/31/15.
4. Land balance at 12/31/16 is the same as at 12/31/15. Fair market value is
irrelevant.
6. Total assets can then be used for total liabilities and stockholders’ equity.
7. Total stockholders’ equity is calculated and added to total current liabilities. This
P2.25.
2014 2013
For the years ended November 30 and 24, respectively:
Net revenues………………………….………..…………….. $4,753,992 $4,681,691
Cost of goods sold…………………………………………… 2,405,552 2,331,219
Gross profit…………………………………………………… 2,348,440 2,350,472
* Includes $128,425 of net restructuring charges, so 2014 selling, general and
administrative expenses exclusive of these charges = $1,906,164 ($2,034,589 –
As at November 30 and 24, respectively:
Total assets………………………………..……………………..….. $2,924,073 $3,127,418
P2.26.
2014 2013
Net sales …….. ……….. ……….. ……….. ……….. ……….. $182,795 $170,910
Cost of sales .. ……….. ……….. ……….. …………….. (112,258) (106,606)
Gross profit … ……….. ……….. ……….. ……….. ……….. $ 70,537 $ 64,304
for these data:
2014 2013 2012 2011 2010
Net sales …….. ……….. $182,795 $170,910 $156,508 $108,249 $65,225
Cost of sales .. ……….. (112,258) (106,606) (87,846) (64,431) (39,541)
2014 2013
Gross profit (from part a above) ……. ……….. ……….. $70,537 $64,304
Research and development expenses ……….. ……….. 6,041 4,475
2014 2013
Operating income (from part b above) ……… ……….. $70,537 $64,304
Other income, net ….. ……….. ……….. ……….. ……….. 980 1,156
Income before taxes .. ……….. ……….. ……….. ……….. $53,483 $50,155
a.
b.
c.
C2.27.
In parts a, b and d, if students are willing to share the different kinds of assets,
liabilities, revenues, expenses, and cash flows they have identified, this case can be
used to review the basic characteristics of the balance sheet, income statement, and
statement of cash flows.
In part c, the point is that projected income activity for the current period has a
direct impact on the projected balance sheet.
In part e, the point is that income and cash flow are two different things entirely.
Possible explanations might include:
Receipt of student loan proceeds (or scholarships, grants) towards the end
of the semester.
Chapter 2 Financial Statements and Accounting Concepts/Principles
TAKE-HOME QUIZ —CHAPTER 2 NAME______________________
Presented below is the Statement of Cash Flows for Marstore, Inc., for the year ended
December 31, 2016. Also shown is a partially completed comparative balance sheet as of
December 31, 2016 and 2015.
MARSTORE, INC.
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash flows from operating activities:
Net Income …………………………………………………………………………………. $ 23,000
Add (deduct) items not affecting cash:
Depreciation expense ………………………………………………………………… 6,000
Cash flows from investing activities:
Purchase of store fixtures ………………………………………………………………. $(4,000)
Cash flows from financing activities:
Repayment of long-term debt ………………………………………………………… $ (2,000)
MARSTORE, INC.
Balance Sheets
December 31, 2016 and 2015
2016 2015 2016 2015
Current assets:
Cash…………………….. $ 37,000 $______ Accounts payable……. $ ______ $18,000
Accounts receivable…….. ______ 39,000 Long-term debt………. 18,000 ______
Total current assets….. $ $ Total liabilities…….. $ ______ $______
Instructor’s Manual / Solutions Manual
TAKE-HOME QUIZ —CHAPTER 2 (continued)
2. Does the amount shown on the balance sheet for Net Store Fixtures represent the current fair
market value of the store fixtures? Explain your answer.
3. Prepare a Statement of Changes in Retained Earnings for the year ended December 31, 2016.
Chapter 2 Financial Statements and Accounting Concepts/Principles
TAKE-HOME QUIZ KEY—CHAPTER 2
1. • Use information in the statement of cash flows to determine either the beginning or ending
amounts for assets and liabilities. For example, accounts receivable decreased $8,000, so at
the end of 2016 the balance was $31,000.
• Based on total assets and total liabilities at the beginning and end of the year, determine
total stockholders’ equity at each date.
• Using total stockholders’ equity at the end of 2015, solve for retained earnings at that date.
Net store fixtures……… $15,000 $17,000 Total liabilities and
Total assets……………. $83,000 $73,000 s’holders’ equity…… $83,000 $73,000
MARSTORE, INC.
Balance Sheets
December 31, 2016 and 2015
2016 2015 2016 2015
Current assets:
Cash…………………… $37,000 $17,000 Accounts payable…….. $12,000 $18,000
Accounts receivable…… 31,000 39,000 Long-term debt………. 18,000 20,000
Total current assets…. $68,000 $56,000 Total liabilities……….. $30,000 $38,000
2. No. The balance sheet shows the original cost of assets, less accumulated depreciation, which
for accounting purposes is that portion of the cost of the asset that has been “used up.”
Retained earnings, 12/31/16……………………………………………………………………… $33,000
3. Retained earnings, 12/31/15……………………………………………………………………… $15,000