(10-15 min.) E 1-29A
TO: Owner of Carson Coffee Roasters Corp.
FROM: Student Name
SUBJECT: Opinion of net income, dividends, financial position,
and cash flows
Your first month of operations was successful. Revenues totaled
$279,600 and net income was $193,900. These operating results look
very strong.
The company was able to pay a $2,300 dividend, and this should
make you happy with so quick a return on your investment. Your
financial position looks secure, with assets of $213,800 and liabilities
business.
Student responses may vary.
(20-25 min.) E 1-30A
Req. 1
McFall Company
Income Statement
For the Year Ended December 31, 2016
Revenue:
(millions)
Revenues ……………………………………………….
$140
Expenses:
Salary expense ……………………………………….
$31
Rent expense …………………………………………
Utilities expense …………………………………….
Total expenses ……………………………………….
Net income …………………………..…………………….
Req. 2
McFall Company
Statement of Retained Earnings
Year Ended December 31, 2016
Retained earnings, December 31, 2015 ……..
Add: Net income ($140 − $69) ………………….
Less: Dividends declared …………………………
(continued) E 1-30A
Req. 3
McFall Company
Balance Sheet
December 31, 2016
ASSETS
(in millions)
Current assets:
Cash …………………………………………………………………
$150
Accounts receivable …………………………………………..
55
Total current assets …………………………………………..
205
Property and equipment ………………………………………….
32
Other long-term assets ……………………………………………
17
Total assets ……………………………………………………………
$254
LIABILITIES
Current liabilities:
Accounts payable ………………………………………………
$ 60
Total current liabilities ……………………………………….
60
Long-term liabilities:
Long-term notes payable ……………………………………
27
Total liabilities ………………………………………………………..
87
STOCKHOLDERS’ EQUITY
Common stock ……………………………………………………….
40*
Retained earnings …………………………………………………..
127
Total stockholders’ equity ……………………………………….
167
Total liabilities and stockholders’ equity ………………….
(10-15 min.) E 1-31B
Amounts in billions; (computed amounts in boxes)
Stockholders’
Assets
=
+
Equity
Corner Grocery
$88
$37
Sixth Street Bank
21
20
29
Sixth Street Bank appears to have the strongest financial position
because its liabilities make up the smallest percentage of company
(10-15 min.) E 1-32B
Req. 1
(Amounts in millions)
Assets
=
Liabilities
+
Stockholders’
Equity
$240
$150
350
360
Total
$760
=
$510
+
(10-20 min.) E 1-33B
Situation
1
2
3
Millions
Total stockholders’ equity,
January 31, 2016 ($51 − $12) ……………….
$39
$39
$39
Add: Issuances of stock ……………………………..
13
-0-
66
Net income ………………………………………..
6*
39*
-0-
Less: Dividends declared …………………………...
-0-
(20)
(20)
Net loss …………………………………………….
January 31, 2017 ($77 − $19) ……………….
(10-15 min.) E 1-34B
a. Income statement, Statement of retained earnings, Statement of
cash flows
b. Balance sheet
c. Statement of cash flows
d. Statement of cash flows
e. Income statement
f. Balance sheet, Statement of cash flows
(10-20 min.) E 1-35B
Robinson Products
Balance Sheet
December 31, 2016
ASSETS
Current assets:
Cash ………………………………………………………………………
$ 18,000
Receivables ……………………………………………………………
20,000
Inventory ……………………………………………………………….
82,000
Total current assets ……………………………………………….
Equipment ……………………………………………………….………….
183,000
Total assets ………………………………………………………………..
LIABILITIES
Current liabilities:
Accounts payable ………………………………………………….
$ 29,000
Total current liabilities ……………………………………………
29,000
Long-term liabilities:
171,000
Total liabilities …………………………………………………………….
200,000
STOCKHOLDERS’ EQUITY
Common stock ……………………………………………………………
29,500
Retained earnings …………………………..…………………………..
73,500*
Total stockholders’ equity …………………………………………..
103,000
Total liabilities and stockholders’ equity ……………………..
(10-20 min.) E 1-36B
Req. 1
David Austin Realty Company
Balance Sheet
January 31, 2016
(Amounts in millions)
ASSETS
LIABILITIES
Cash
$ 1.3
Current liabilities
$ 2.1
Receivables
Long-term liabilities
equipment, net
1.8
Investment assets
Other assets
135.6
9.9
STOCKHOLDERS’
EQUITY
Common stock
25.1
Retained earnings
20.0*
Total stockholders’ equity
45.1
______
Total liabilities and
Total assets
$149.3
(15-25 min.) E 1-37B
Req. 1
David Austin Realty Company
Income Statement
Year Ended January 31, 2016
(Amounts in millions)
Total revenue ………………………………………………………
$37.2
Expenses:
Salary and other employee expenses ………………
$ 13.5
Other expenses ………………………………………………
5.6
Interest expense …………………………………………….
Total expenses ……………………………………………….
Net income………………………………………………………….
Req. 2
The statement of retained earnings helps to compute dividends, as
follows:
David Austin Realty Company
Statement of Retained Earnings
Year Ended January 31, 2016
(Amounts in millions)
Retained earnings, beginning of year ……………………………….
$16.9
Add: Net income for the year (Req. 1) ……………………………….
17.6
Subtotal
34.5
Less: Dividends declared …………………………………………………
14.5
Retained earnings, end of year (from Exercise 1-36B) ……….
$20.0
(15-20 min.) E 1-38B
Req. 1
Earl Coffee Roasters Corporation
Income Statement
For the Month Ended August 31, 2016
Revenue:
Service revenue …………………………
$270,800
Expenses:
Salary expense ………………………….
$78,700
Utilities expense ………………………..
5,900
Rent expense ……………………………
Total expenses ………………………….
Net income ………………………………………
$184,300
Retained earnings, August 1, 2016 ………………………
Add: Net income ………………………………………………..
Subtotal
Less: Dividends declared ……………………………………
Retained earnings, August 31, 2016 …………………….
(15-20 min.) E 1-39B
Req. 1
Earl Coffee Roasters Corporation
Balance Sheet
August 31, 2016
Assets
Liabilities
Cash …………………..
$ 5,300
Accounts payable………………
$ 8,800
Office supplies ……
7,300
Stockholders’ Equity
Equipment ………….
202,100
Common stock ………………….
24,600
Retained earnings ……………..
181,300
(15-20 min.) E 1-40B
Req. 1
Earl Coffee Roasters Corporation
Statement of Cash Flows
For the Month Ended August 31, 2016
Cash flows from operating activities:
Net income …………………………………………………….
$184,300
Adjustments to reconcile net income to net
cash provided by operations ………………………
1,500
Net cash provided by operating activities
185,800
Cash flows from investing activities:
Acquisition of equipment …………………………...
$(202,100)
Net cash used for investing activities ……..
(202,100)
Cash flows from financing activities:
Issuance (sale) of stock to owners ………………
$ 24,600
Payment of dividends …………………………………
Net cash provided by financing activities..
Net increase in cash ……………………………………….
Cash balance, August 1, 2016 …………………………
Cash balance, August 31, 2016 ……………………….
(10-20 min.) E 1-41B
TO: Owner of Earl Coffee Roasters Corporation
FROM: Student Name
SUBJECT: Opinion of net income, dividends, financial position, and
cash flows
Your first month of operations was successful. Revenues totaled
$270,800 and net income was $184,300. These operating results look
very strong.
The company was able to pay a $3,000 dividend, and this should
make you happy with so quick a return on your investment. Your
financial position looks secure, with assets of $214,700 and liabilities
Student responses may vary.
(20-25 min.) E 1-42B
Req. 1
Young Company
Income Statement
For the Year Ended December 31, 2016
Revenue:
(millions)
Revenues ……………………………………………….
$150
Expenses:
Salary expense ……………………………………….
$30
Rent expense …………………………………………
Utilities expense …………………………………….
Total expenses ……………………………………….
Net income …………………………..…………………….
Req. 2
Young Company
Statement of Retained Earnings
Year Ended December 31, 2016
Retained earnings, December 31, 2015 ……..
Add: Net income ($150 − $73) ………………….
Less: Dividends declared …………………………
(continued) E 1-42B
Req. 3
Young Company
Balance Sheet
December 31, 2016
ASSETS
(in millions)
Current assets:
Cash …………………………………………………………………
$160
Accounts receivable …………………………………………..
62
Total current assets …………………………………………..
222
Property and equipment ………………………………………….
34
Other long-term assets ……………………………………………
19
Total assets ……………………………………………………………
LIABILITIES
Current liabilities:
Accounts payable ………………………………………………
$ 63
Total current liabilities ……………………………………….
63
Long-term liabilities:
Long-term notes payable ……………………………………
25
Total liabilities ………………………………………………………..
88
STOCKHOLDERS’ EQUITY
Common stock ……………………………………………………….
45*
Retained earnings …………………………………………………..
142
Total stockholders’ equity ……………………………………….
187
Total liabilities and stockholders’ equity ………………….
Quiz
Q1–43
c
Q1–44
b
Q1–45
b
Q1–46
a
Stockholders’
Assets = Liabilities + Equity
+ $87,000 = + $31,000 + + $56,000
Q1–47
c
Q1–48
a
Q1–49
b
Q1–50
a
Q1–51
a
Q1–52
Q1–53
Q1–55
d
c
Beg.
Changes
End.
+ X
Problems
(30 min.) P 1-58A
Computed amounts in boxes.
Crystal
Co.
Lowell,
Inc.
Broom
Corp.
BALANCE SHEET
(Millions)
Beginning:
Assets ……………………………………..
$83
$43
$15
Liabilities ………………………………….
43
14
7
Common stock …………………………
6
3
7
Retained earnings …………………….
34
26
1
Ending:
Assets ……………………………………..
$61
Liabilities ………………………………….
26
Common stock …………………………
9
Retained earnings …………………….
INCOME STATEMENT
Revenues …………………………………
$228
$166
$22
Expenses …………………………………
222
156
20
Net income …………………………..…..
$ 6
$ 10
$ 2
STATEMENT OF RETAINED EARNINGS
Beginning RE …………………………...
10
2
(continued) P 1-58A
Crystal Co.
Lowell, Inc.
Broom Corp.
Millions
Net income ……………..
$6
$10
$2
Highest
to revenues ……….
(20-25 min.) P 1-59A
Req. 1
Salem News, Inc.
Balance Sheet
October 31, 2016
ASSETS
LIABILITIES
Cash
$ 10,500
Accounts payable
$ 5,000
Accounts receivable
2,800
Note payable
55,000
Notes receivable
15,500
Total liabilities
60,000
Office supplies
Land
Equipment
Total liabilities and
Total assets
$149,100
_____
*Total assets ($149,100) − Total liabilities ($60,000) = Stockholders’ equity
($89,100).
Req. 2
Salem News, Inc. is in better (not worse) financial position than the
erroneous balance sheet reports. Total assets ($149,100) are $10,100
higher than originally reported ($139,000), liabilities are $16,600 lower
than originally reported, and stockholders’ equity is $26,700 higher
than reported originally.
Req. 3
(20-25 min.) P 1-60A
Req. 1
Caden Healey Realtor, Inc.
Balance Sheet
December 31, 2017
ASSETS
LIABILITIES
Cash
$ 48,000
Accounts payable
$ 2,000
Office supplies
2,000
Note payable
132,000
Land
168,000
Total liabilities
134,000
Furniture
Franchise
Common stock
60,000
Retained earnings
Total liabilities and
Total assets
_____
*Total assets ($256,400) − Total liabilities ($134,000) − Common stock
($60,000) = Retained earnings ($62,400).
Req. 2
It appears that the business can pay its debts. Total assets exceed
total liabilities.
Req. 3
Personal items not reported on the balance sheet of the business: