E1-15 Classify items as assets, liabilities, and stockholders’ equity, and prepare accounting equation
Suppose the following items were taken from the balance sheet of Nike, Inc. (All items are in millions.)
1. Cash $2,291.1 7. Inventory $2,357.0
2. Accounts receivable 2,883.9 8. Income taxes payable 86.3
3. Common stock 2,874.2 9. Equipment 1,957.7
4. Notes payable 342.9 10. Retained earnings 5,818.9
5. Buildings 3,759.9 11. Accounts payable 2,815.8
6. Mortgage payable 1,311.5
Instructions
(a) Classify each of these items as an asset, liability, or stockholders’ equity and determine the total
dollar amount for each classification.
(b) Determine Nike’s accounting equation by calculating the value of total assets, total liabilities, and
total stockholders’ equity.
(c ) To what extent does Nike rely on debt versus equity financing?
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a) Assets (in millions)
Cash Value
Accounts receivable Value
Inventory Value
Equipment Value
Buildings Value
Total Assets ?
Liabilities
Notes payable Value
Accounts payable Value
Mortgage payable Value
Income taxes payable Value
Total liabilities ?
Stockholders’ equity
Common stock Value
Retained earnings Value
Total stockholders’ equity ?
(b) Assets =
Liabilities
+ Stockholders’ Equity
Value Value Value
(c) Total liabilities Value
Total assets Value
Assets financed by debt ?
Total equity Value
Total assets Value
Assets financed by equity ?
After you have completed E1-15, consider the additional question.
1. Assume that building increased to $4,600 and common stock increased to $3,714.3
What impact do these changes have to the percentage of assets financed by debt
and equity?
E1-15 Solution
(a) Assets (in millions)
Cash $2,291.1
Accounts receivable 2,883.9
Inventory 2,357.0
Equipment 1,957.7
(b) Assets = Liabilities + Stockholders’ Equity
(c ) Total liabilities $4,556.5
Total assets $13,249.6
P1-3A Prepare an income statement, retained earnings statement and balance sheet; discuss results
On June 1, 2017, Elite Service Co. was started with an initial investment in the company of $22,100 cash.
Here are the assets, liabilities, and common stock of the company at June 30, 2017, and the revenues and
expenses for the month of June, its first month of operations:
Cash $4,600 Notes payable
$12,000
Accounts receivable 4,000 Accounts payable 500
Service revenue 7,500 Supplies expense 1,000
Supplies 2,400 Maintenance and repairs expense 600
Advertising expense 400 Utilities expense 300
Equipment 26,000 Salaries and wages expense 1,400
Common Stock 22,100
In June, the company issued no additional stock but paid dividends of $1,400.
Instructions
(a) Prepare an income statement and retained earnings statement for the month of June and a balance sheet
at June 30, 2017.
(b) Briefly discuss whether the company’s first month of operations was a success.
(c ) Discuss the company‘s decision to distribute a dividend.
NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a “?” .
(a)
Revenues
Service revenue Value
Expenses
Salaries and wages expense Value
Supplies expense Value
Maintenance and repairs expense Value
Advertising expense Value
Utilities expense Value
Total expenses ?
Net income ?
Retained earnings, June 1 Value
Add: Net income Value
?
Less: Dividends Value
Retained earnings, June 30 ?
Cash Value
Accounts receivable Value
ELITE SERVICE CO.
Balance Sheet
June 30, 2017
Assets
For the Month Ended June 30, 2017
ELITE SERVICE CO.
Income Statement
For the Month Ended June 30, 2017
ELITE SERVICE CO.
Retained Earnings Statement
Supplies Value
Equipment Value
Total assets ?
Liabilities
Notes payable Value
Accounts payable Value
Total liabilities ?
Stockholders’ equity
Common stock Value
Retained earnings Value Value
Total liabilities and stockholders’ equity ?
After you have completed P1-3A consider the following additional question.
1. Assume that service revenue and salaries and wages changed to $9,000 and $1,800 respectively.
The additional revenue earned were all on account. Revise the financial statements to reflect these changes.
Liabilities and Stockholders’ Equity
P1-3A Solution
(a)
Revenues
Service revenue $7,500
Expenses
Salaries and wages expense $1,400
Supplies expense 1,000
Retained earnings, June 1 $0
Add: Net income 3,800
Cash $4,600
Accounts receivable 4,000
Liabilities
Notes payable $12,000
ELITE SERVICE CO.
Balance Sheet
June 30, 2017
Assets
Liabilities and Stockholders’ Equity
For the Month Ended June 30, 2017
ELITE SERVICE CO.
Income Statement
For the Month Ended June 30, 2017
ELITE SERVICE CO.
Retained Earnings Statement
(b) Elite had a very successful first month, earning $3,800 or 51% of service
(c ) Distributing a dividend after only one month of operations is probably unusual.
P1-3A Solution to additional question
1. Assume that service revenue and salaries and wages changed to $9,000 and $1,800 respectively.
The additional revenue earned were all on account. Revise the financial statements to reflect these changes.
Revenues
Service revenue $9,000
Expenses
Salaries and wages expense $1,800
Supplies expense 1,000
Retained earnings, June 1 $0
Add: Net income 4,900
Assets
Cash $4,600
Accounts receivable 5,100
Liabilities and Stockholders’ Equity
Liabilities
Notes payable $12,000
Accounts payable 500
For the Month Ended June 30, 2017
ELITE SERVICE CO.
Balance Sheet
June 30, 2017
ELITE SERVICE CO.
Income Statement
For the Month Ended June 30, 2017
ELITE SERVICE CO.
Retained Earnings Statement