Financial Accounting, 9/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
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, 9/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 was,
$66,000 – 11,000 = $55,000.
(b) –0– +56,000 Cash borrowed is not income.
(g)
Based only
on the above:
Income (loss) $ 100
Cash inflow
(outflow) $ 50,700
P1–4.
Req. 1
The personal residences of the organizers are not resources of the business entity.
Therefore, they should be excluded.
Req. 3
The list of company resources (i.e., assets) suggests the following areas of concern:
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 cash currently is available.
(5) Unpaid taxes and accounts payable to suppliers–it is not clear when these
payments of $8,000 and $10,000, respectively, are due (cash needed to pay
them is a problem).
Financial Accounting, 9/e 1-21
P1–4. (continued)
Req. 4
The amount of stockholders’ equity (i.e., assets minus liabilities) for Northwest
Company, assuming the amounts provided by the owners are acceptable, would be:
1-22 Solutions Manual
ALTERNATE PROBLEMS
AP1–1.
Req. 1
INFLUENCE CORPORATION
Income Statement
For the Year Ended December 31, Current Year
Req. 2
INFLUENCE CORPORATION
Statement of Stockholders’ Equity
For the Year Ended December 31, Current Year
Req. 3
INFLUENCE CORPORATION
Balance Sheet
At December 31, Current Year
Assets
Cash (given) $13,150
Receivables from customers (given) 10,900
Inventory of merchandise (given) 27,000
Equipment (given) 66,000
AP1–2.
Financial Accounting, 9/e 1-23
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
and amount such as Cash, $XX), and each liability (such as Income taxes
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, 9/e 1-25
CONTINUING PROBLEM
CON1–1.
Req. 1
Penny’s Pool Service & Supply.
Income Statement
For the Year Ended December 31, Current Year
Revenues
Sales revenue $ 60,000
Req. 2
Penny’s Pool Service & Supply.
Statement of Stockholders’ Equity
For the Year Ended December 31, Current Year
Common
Retained
CON1–1. (continued)
Req. 3
Penny’s Pool Service & Supply
Balance Sheet
At December 31, Current Year
Assets:
Cash
$ 2,900
Accounts receivable
2,300
Inventories
4,600
28,000
Total assets
$ 37,800
Liabilities and Stockholders’ Equity:
Liabilities
Accounts payable
$3,500
Notes payable to banks
5,000
Total liabilities
8,500
Stockholders’ equity
Common Stock
Retained earnings
9,300
Total stockholders’ equity
29,300
Total liabilities and stockholders’ equity
$ 37,800
Financial Accounting, 9/e 1-27
CASES AND PROJECTS
CP1–1.
1. It sells its own brand of high quality, on-trend clothing, accessories, and personal
care products targeting 15 to 25 year-old customers.
2. The company’s most recent fiscal year ended on January 31, 2015.
5. Its total assets increased from $1,694,164,000 to $1,696,908,000. The instructor
should note that the reported numbers are in thousands.
6. As of January 31, 2015, the company had $278,972,000 in inventory.
CP1–2.
1. Net income was $232,428 thousand or $232,428,000 for the year ended January 31,
2015. This is disclosed on the income statement. The instructor should note that
the reported numbers are in thousands. Some students will erroneously report
2. Net sales were $3,323,077,000. This is also disclosed on the income statement.
3. Inventory is $358,237,000. This is disclosed on the balance sheet.
CP1–3.
1. American Eagle Outfitters had total assets of $1,696,908,000 at the end of the most
2. Urban Outfitters had net sales of $3,323,077,000 in the most recent year, while
American Eagle Outfitters had less net sales in the amount of $3,282,867,000.
Again, Urban Outfitters is the larger of the two companies in terms of net sales.
3. In the most recent year, Urban Outfitters had a decrease in total assets of
($1,888,741,000-$2,221,214,000)/( $2,221,214,000) = -15.0%, while American
Eagle Outfitters had very small growth in total assets of ($1,696,908,000 –
$1,694,164,000)/($1,694,164,000) = 0.2%.
Financial Accounting, 9/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.
(2) Income statement should show revenues and expenses separately.
CP1–4. (continued)
Req. 2–Financial Statements:
PERFORMANCE CORPORATION
Income Statement
For the Year Ended December 31, 2015
Revenues:
Sales $180,000
Services 52,000
Total revenues $232,000
PERFORMANCE CORPORATION
Balance Sheet
At December 31, 2015
Assets
Cash $ 32,000
Liabilities
Accounts payable (to suppliers) $17,750
Note payable (to bank) 25,000
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–
conformance with GAAP, completeness and absence of bias.
CP1–6.
The textbook does not explicitly cover the elements of independence. The case is
designed to permit the students to develop their own values. We have found that it is
useful to emphasize the difference between independence in fact and in appearance
during these discussions.
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
statements that covered a period of time where she was responsible for the
accounting operations of the company. This is a problem both in appearance and
in fact.
FINANCIAL REPORTING AND ANALYSIS PROJECTS
CP1–7.
The solutions to this case will depend on the company and/or accounting period
selected for analysis.