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EXERCISE 1-10 (Continued)
OTAY LAKES PARK
Balance Sheet
December 31, 2017
Assets
Cash ..................................................................... $ 8,500
Supplies ............................................................... 5,500
(c) The income statement indicates that revenues from the general store
were only about 16% ($25,000 ÷ $157,000) of total revenue which tends
to support Walt’s opinion. In order to decide if the store is “more trouble
than it is worth,” I would need to know the amount of expenses attribut-
able to the general store. The income statement reports all expenses in
a single category rather than separating them into camping and general
EXERCISE 1-11
(a) SE Retained earnings
E Cost of goods sold
E Selling and administrative expenses
A Cash
(b) KELLOGG COMPANY
Income Statement
For the Year Ended December 31, 2017
(in millions)
Revenues
Sales revenue ............................................ $12,575
Expenses
Cost of goods sold .................................... $7,184
EXERCISE 1-12
(a) WILLIAMS CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flows from operating activities
Cash received from customers ....................... $ 50,000)
Cash paid to suppliers ..................................... (16,000)
Net cash provided by operating activities ..... $ 34,000)
Cash flows from investing activities
(b) As a creditor, I would feel reasonably confident that Williams has the
ability to repay its lenders. During 2017, Williams generated $34,000 of
EXERCISE 1-13
(a) SOUTHWEST AIRLINES
Statement of Cash Flows
For the Year Ended December 31, 2017
(in millions)
Cash flows from operating activities
Cash received from customers ......................... $9,823
Cash flows from financing activities
Cash received from issuance of
long-term debt ................................................. 500
Cash received from issuance of
common stock ................................................. 144
Cash paid for repurchase of common stock ..... (1,001)
(b) Southwest reported $2,845,000,000 cash from operating activities but
spent $1,529,000,000 to invest in new property and equipment. Its cash
from operating activities was sufficient to finance its investing activities.
Southwest supplemented the cash from operating activities by issuing
EXERCISE 1-14
BEESON COMPANY
Balance Sheet
December 31, 2017
Assets
Cash ................................................................................ $18,000
Accounts receivable ...................................................... 12,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable .................................................. $16,000
Stockholders’ equity
EXERCISE 1-15
All dollars are in millions.
(a) Assets
Cash ........................................................................................... $ 2,291.1
Accounts receivable ................................................................. 2,883.9
Liabilities
Notes payable ............................................................................ $ 342.9
Accounts payable ..................................................................... 2,815.8
Stockholders’ Equity
Common stock .......................................................................... $ 2,874.2
(c) Nike has relied more heavily on equity than debt to finance its assets.
EXERCISE 1-16
(a)
Assets
=
Liabilities
+
Stockholders’ Equity
(b)
Assets
=
Liabilities
+
Stockholders’ Equity
(c) Beginning + Revenues – Expenses – Dividends = Ending
Stockholders’ Stockholders’
Equity Equity
(d)
Assets
=
Liabilities
+
Stockholders’ Equity
(e)
Assets
=
Liabilities
+
Stockholders’ Equity
(f) Beginning + Revenues – Expenses – Dividends = Ending
Stockholders’ Stockholders’
Equity Equity
EXERCISE 1-17
(a) Financial statements
(b) Auditor’s opinion
SOLUTIONS TO PROBLEMS
PROBLEM 1-1A
(a) The concern over legal liability would make the corporate form a better
choice over a partnership. Also, the corporate form will allow the busi-
growing industry.
(b) Bob should run his business as a sole proprietor. He has no real need
to raise funds, and he doesn’t need the expertise provided by other
(c) The fact that the combined business expects that it will need to raise
(d) It is likely that this business would form as a partnership. Its needs for
additional funds would probably be minimal in the foreseeable future.
(e) One way to ensure control would be for Don to form a sole proprietor-
ship. However, in order for this business to thrive it will need a
substantial investment of funds early. This would suggest the corpo-
PROBLEM 1-2A
(a) In deciding whether to extend credit for 30 days, The North Face would
be most interested in the balance sheet because the balance sheet
(b) In purchasing an investment that will be held for an extended period,
the investor must try to predict the future performance of Amazon.com.
(c) In extending a loan for a relatively long period of time, the lender is most
interested in the probability that the company will generate sufficient
income to meet its interest payments and repay its principal. The lender
would therefore be interested in predicting future net income using the
(d) The president would probably be most interested in the statement of
cash flows since it shows how much cash the company generates and
PROBLEM 1-3A
(a) ELITE SERVICE CO.
Income Statement
For the Month Ended June 30, 2017
Revenues
Service revenue ................................................ $7,500
Expenses
Salaries and wages expense ........................... $1,400
Supplies expense ............................................. 1,000
ELITE SERVICE CO.
Retained Earnings Statement
For the Month Ended June 30, 2017
Retained earnings, June 1 ........................................................ $ 0
Add: Net income ...................................................................... 3,800
PROBLEM 1-3A (Continued)
ELITE SERVICE CO.
Balance Sheet
June 30, 2017
Assets
Cash ............................................................................ $ 4,600
Accounts receivable .................................................. 4,000
Liabilities and Stockholders’ Equity
Liabilities
Notes payable..................................................... $12,000
Accounts payable .............................................. 500
Total liabilities ............................................ $12,500
(b) Elite had a very successful first month, earning $3,800 or 51% of
(c) Distributing a dividend after only one month of operations is probably
unusual. Most new businesses choose to build up a cash balance to
PROBLEM 1-4A
(a) Rojo Corporation should include the following items in its statement of
cash flows:
Cash paid to suppliers
Cash dividends paid
ROJO CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flows from operating activities
Cash received from customers ........................ $132,000)
Cash paid to suppliers ...................................... (104,000)
Net cash provided by operating activities ....... $28,000)
Cash flows from investing activities
(Cash flows from operating, investing, and financing activities = Net change in cash)
(b) Rojo Corporation’s operating activities provided $28,000 cash which
PROBLEM 1-5A
(a) 1. Since the boat actually belongs to Miko Liu—not to Micado
2. The inventory should be reported at $25,000, the amount paid
3. The $10,000 receivable is not an asset of Micado Corporation—it is
(b) MICADO CORPORATION
Balance Sheet
December 31, 2017
Assets
Cash .......................................................................... $20,000*
Accounts receivable ................................................ 40,000*
Liabilities and Stockholders’ Equity
Liabilities
Notes payable ...................................................... $15,000 *
CT 1-1 FINANCIAL REPORTING PROBLEM
(a) Apple’s total assets at September 27, 2014 were $231,839,000 and at
(c) Apple had accounts payable totaling $30,196,000 on September 27, 2014
and $22,367,000 on September 28, 2013.
