Financial Accounting, 10/e 1-17
P1–2.
Req. 1
JAMES COOK LAWN SERVICE
Income Statement
For the Three Months Ended August 31
Revenues from Services
Lawn service–cash $15,000
–credit 700
Total revenues $15,700
Expenses
Gas, oil, and lubrication ($1,050+$180) 1,230
Req. 2
Because the above report reflects only revenues, expenses, and net income, it is
reasonable to suppose that James would need the following:
(1) A balance sheet–that is, a statement that reports for the business, at the end of
Financial Accounting, 10/e 1-19
P1–3.
Req. 1 Req. 2–Explanation
Transaction Income Cash
(a) +$66,000 +$55,000 All services performed increase income;
cash received during the period:
$66,000 – $11,000 = $55,000.
(b) –0– +56,000 Cash borrowed is not income.
(g)
Based only
on the above:
Income (loss) $ 100
P1–4.
Req. 1
The personal residences of the organizers are not resources of the business entity.
Therefore, they should be excluded.
Req. 2
What do the amounts for service trucks and service equipment represent? It is not
Company resources:
(1) Cash, inventories, and bills due from customers (i.e., accounts receivable)–these
items tend to fluctuate; they may be significantly more or less at date of the loan
and during the term of the loan.
Company obligations:
(4) Unpaid wages of $19,000, which are now due, pose a serious problem because
only $12,000 of cash is currently available.
(5) Unpaid taxes and accounts payable to suppliers–it is not clear when these
In general, the bank should request more details about the specific resources and
debts. The personal residences are not a part of the resources of the business entity.
P1–4. (continued)
Req. 4
The amount of stockholders’ equity (i.e., assets minus liabilities) for Northwest
ALTERNATE PROBLEMS
AP1–1.
Req. 1
INFLUENCE CORPORATION
Income Statement
For the Year Ended December 31, Current Year
Total sales revenue (given) $100,000
Req. 2
INFLUENCE CORPORATION
Statement of Stockholders’ Equity
For the Year Ended December 31, Current Year
Common Stock Retained Earnings
Balance, January 1, Current year $ 0 $ 0
Req. 3
INFLUENCE CORPORATION
Balance Sheet
At December 31, Current Year
Assets
Cash (given) $13,150
Receivables from customers (given) 10,900
Financial Accounting, 10/e 1-23
AP1–2.
Req. 1
LIST ELECTRIC REPAIR COMPANY, INC.
Income Statement
For the Three Months Ended December 31
Revenues from Services
Electric repair services–cash $32,000
–credit 3,500
Total revenues $35,500
Expenses
Electrician’s assistant (wages) 7,500
Req. 2
Because the above report reflects only revenues, expenses, and net income, it is
reasonable to suppose that Sam would have need for the following:
(1) A statement that reports for the business, on December 31, each asset (name
AP1–3.
Req. 1 Req. 2–Explanation
Transaction Income Cash
(a) +$85,000 +$70,000 All services performed increase income;
cash received during the period was:
$85,000 – $15,000 = $70,000.
(b) –0– +25,000 Cash borrowed is not income.
expended was: $31,000 – $15,500 = $15,500.
(g)
Based only
on the above:
Income (loss) $15,000
Financial Accounting, 10/e 1-25
CONTINUING PROBLEM
CON1–1.
Req. 1
Penny’s Pool Service & Supply, Inc.
Income Statement
For the Year Ended December 31, Current Year
Revenues
Sales revenue $ 60,000
Expenses
Req. 2
Penny’s Pool Service & Supply, Inc.
Statement of Stockholders’ Equity
For the Year Ended December 31, Current Year
Common
Stock
Retained
Earnings
Balance January 1, Current Year
$ 0
$ 0
Balance December 31, Current Year
$ 20,000
$ 9,300
CON1–1. (continued)
Req. 3
Penny’s Pool Service & Supply, Inc.
Balance Sheet
At December 31, Current Year
Assets:
Cash
Accounts receivable
Inventories
Total assets
Liabilities and Stockholders’ Equity:
Liabilities
Accounts payable
Note payable to bank
Total liabilities
Stockholders’ equity
Common stock (1,000 shares)
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
Financial Accounting, 10/e 1-27
CASES AND PROJECTS
CP1–1.
(dollars in thousands)
1. The company states, in its Form 10-K under Item 1 Business, that it offers “a broad
assortment of high-quality, on-trend apparel and accessories for men and women
2. The company’s most recent fiscal year ended on February 3, 2018.
3. a. Balance Sheets–2 years
4. Yes, it is audited by independent CPAs (Ernst & Young LLP), as indicated by the
6. As of February 3, 2018, the company had $398,213 in inventory.
CP1–2.
(dollars in thousands)
1. Net income was $19,366 for the year ended February 3, 2018. This is disclosed on
the income statement. The instructor should note that the reported numbers are in
3. Inventory is $266,271. This is disclosed on the balance sheet.
4. Cash and cash equivalents increased by $28,849 during the year. This amount can
CP1–3.
(dollars in thousands)
1. American Eagle Outfitters had total assets of $1,816,313 at the end of the most
recent year, whereas Express, Inc., had total assets of $1,187,607. [The instructor
2. American Eagle Outfitters had total net revenue (net sales) of $3,795,549 in the
3. In the most recent year, American Eagle Outfitters had a small growth in total assets
of 1.89% [($1,816,313 – $1,782,660)/$1,782,660]. Express, Inc., had an insignificant
increase in total assets of 0.20% [($1,187,607 – $1,185,189)/$1,185,189].
Financial Accounting, 10/e 1-29
FINANCIAL REPORTING AND ANALYSIS CASES
CP1–4.
Req. 1–Deficiencies:
(1) Heading: titles of the reports are missing and dates are not in proper form.
(3) Income from sales of merchandise should be “Sales revenue” or “Merchandies
sales revenue.”
(4) Balance sheet should separately report assets, liabilities, and stockholders’
CP1–4. (continued)
Req. 2–Financial Statements:
PERFORMANCE CORPORATION
Income Statement
For the Year Ended December 31, 2018
Revenues:
Sales $180,000
PERFORMANCE CORPORATION
Balance Sheet
At December 31, 2018
Assets
Cash $ 32,000
Accounts receivable (from customers) 13,000
Liabilities
Accounts payable (to suppliers) $17,750
Stockholders’ equity
Common stock, 6,500 shares $65,000
Financial Accounting, 10/e 1-31
CRITICAL THINKING CASES
CP1–5.
Req. 1 You should forcefully assert the need for an independent audit of the financial
statements each year because this is the best way to assure credibility–
Req. 2 You should strongly recommend the selection of an independent CPA in public
practice because the financial statements should be audited by a competent and
CP1–6.
The textbook does not explicitly cover the elements of independence. The case is
1. Most students feel that there is no problem with independence if the stock held is
immaterial in amount. When asked about a possible headline that might read
2. This is an example of an indirect holding of stock. A materiality threshold is
3. The AICPA Code of Professional Conduct applies only to audit professionals who
4. Clearly there is an ethics violation in this case because she would audit
5. The Code indicates that a mortgage loan made to the partner in charge would be
an ethics violation unless all of the following four conditions were met: (1) that the
loan was made under normal lending procedures, terms, and requirements, (2) it
the profession to reconsider the issue of loans to auditors.
FINANCIAL REPORTING AND ANALYSIS PROJECTS
CP1–7.