FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Net income
Highest
Bryant Corp.
$14
$18
$1
Pearl Co.
Loomis Co.
Chapter 1: The Financial Statements Page 56 of 70
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P 1-65 B
(20-25 min.)
Solution:
Req. 1
8,500$ 2,500$
3,800 54,500
13,000 57,000
Req. 2
Req. 3
Candace Design, Inc. is in a better financial position than the erroneous
The following accounts are not reported on the balance sheet because
they are expenses. Expenses are reported on the income statement.
Cash
Accounts payable
Accounts receivable
Note payable
Notes receivable
Total liabilities
1. Prepare the correct balance sheet and date it properly. Compute total assets,
total liabilities, and stockholders’ equity.
2. Is Candace Design, Inc. in better (or worse) financial position than the
erroneous balance sheet reports? Give the reason for your answer.
3. Identify the accounts that should not be reported on the balance sheet. State
why you excluded them from the correct balance sheet you prepared for
Requirement 1. On which financial statement should these accounts appear?
Candace Design, Inc.
Balance Sheet
June 30, 2016
Liabilities
Assets
Chapter 1: The Financial Statements Page 57 of 70
Stockholders’ equity*
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P 1-66 B
(20-25 min.)
Solution:
Req. 1
58,000$ Accounts payable 4,000$
4,000 Note payable 136,000
Land 157,000 Total liabilities 140,000
Req. 2
Req. 3
Personal items not reported on the balance sheet of the business:
a. Personal cash ($14,000)
Cash
Office supplies
1. Prepare the balance sheet of the real estate business of Billy Higgins Realtor,
Inc., at June 30, 2017.
2. Does it appear that the realty business can pay its debts? How can you tell?
3. Identify the personal items given in the preceding facts that should not be
reported on the balance sheet of the business.
Billy Higgins, Realtor, Inc.
Balance Sheet
June 30, 2017
Assets
Liabilities
Chapter 1: The Financial Statements Page 58 of 70
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P 1-67 B
(30-45 min.)
Solution:
Req. 1
Revenue
Service revenue 458,600$
Expenses:
Salary expense 108,300$
Req. 2
Retained earnings, December 31, 2015 364,500$
Add: Net income 283,300
Less: Dividends declared (108,000)
Retained earnings, December 31, 2016 539,800$
Year Ended December 31, 2016
Blue Moon Products, Inc.
Statement of Retained Earnings
Year Ended December 31, 2016
1. Prepare the income statement of Blue Moon Products, Inc., for the year ended
December 31, 2016.
2. Prepare the company’s statement of retained earnings for the year.
3. Prepare the company’s balance sheet at December 31, 2016.
4. Analyze Blue Moon Products, Inc., by answering these questions:
a. Was Blue Moon Products profitable during 2016? By how much?
b. Did retained earnings increase or decrease? By how much?
c. Which is greater, total liabilities or total stockholders’ equity? Who owns more of
Blue Moon Products’s assets, creditors of the company or Blue Moon Products’s
stockholders?
Blue Moon Products, Inc.
Income Statement
Chapter 1: The Financial Statements Page 59 of 70
Rent expense 40,200
Utilities expense 8,100
Interest expense 10,800
Net income 283,300$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 3
ASSETS LIABILITIES
Cash 41,000$ Accounts payable 27,000$
Accounts receivable 84,500 Note payable 2,300
Req. 4
c. Total equity ($543,600) exceeds total liabilities ($129,000).
December 31, 2016
a. Blue Moon Products was profitable; net income was $283,300.
Blue Moon Products, Inc.
Balance Sheet
Chapter 1: The Financial Statements Page 60 of 70
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P 1-68 B
(20 min.)
Solution:
Req. 1
Cash flows from operating activities:
Net income 3,060$
Adjustments to reconcile net income
to net cash provided by operating activities 2,350
Salem Water Company
Statement of Cash Flows
Year Ended March 31, 2017
Millions
1. Prepare a cash flow statement for the year ended March 31, 2017. Not all the items
given appear on the cash flow statement.
2. Which activities provided the largest source of cash? Is this a sign of financial
strength or weakness?
Chapter 1: The Financial Statements Page 61 of 70
Cash flows from financing activities:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P 1-69 B
(40-50 min.)
Solution:
INCOME STATEMENT 2017 2016
Revenues 13,730 = $ k 16,175$
Cost of goods sold (11,020) a =(13,145)
Other expenses (1,200) (1,210)
Income before income taxes 1,510 1,820
BALANCE SHEET
Assets:
Cash 1,140 = $ q $ e =1,220
Property, plant and equipment 1,567 1,306
Other assets 11,520 = r 10,872
Current liabilities 4,865 = $ t 5,660
Long-term debt 4,300 3,370
Other liabilities 35 180
Total liabilities 9,200 f = 9,210
Stockholders’ Equity:
Common stock $225 225
Retained earnings 4,682 = u g = 3,783
Other stockholders’ equity 120 180
STATEMENT OF CASH FLOWS
Net cash provided by operating activities 720 = $ x $900
Net cash used for investing activities (210) (350)
Net cash used for financing activities (590) (550)
Increase (decrease) in cash (80) i = 0
Cash at beginning of year 1,220 = y 1,220
1. Complete Nettleton Corporation’s financial statements by determining the missing
amounts denoted by the letters.
Chapter 1: The Financial Statements Page 62 of 70
Income taxes (35% tax rate) 529 = l 637
Net income 981 = o c =1,183
Dividends declared (82) (140)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Decision Case 1
(30-40 min.)
Solution:
1. Using only these balance sheets, to which entity would you be more
comfortable lending money? Explain fully, citing specific items and amounts
from the respective balance sheets.
Based solely on these balance sheets, Insley Sales Co. appears to be the
better credit risk because:
Chapter 1: The Financial Statements Page 63 of 70
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Decision Case 2
(20-30 min.)
Solution:
Req. 1
140,000$
140,000
1. Prepare corrected financial statements.
2. Use your corrected statements to evaluate Flowers Unlimited’s
results of operations and financial position.
3. Will you invest in Flowers Unlimited? Give your reason.
Revenue…………
Flowers Unlimited, Inc.
Income Statement
Year Ended Dec. 31, 2016
Expenses………..
Chapter 1: The Financial Statements Page 64 of 70
Req. 2
Req. 3
Liabilities………
Cash……………
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Ethical Issues
Solution:
Req. 1
Req. 2
violates other students’ rights to fair and equal treatment. It violates the instructor’s
rights to run a course as a “fair game” for all participants. Because the students and
in this case as to whether taking the test actually violates the professor’s or the
university’s policies.
1. What is the ethical issue in this situation?
2. Who are the stakeholders? What are the possible consequences to each?
3. Analyze the alternatives from the following standpoints: (a) economic, (b) legal, and
(c) ethical.
4. What would you do? How would you justify your decision? How would your decision
make you feel afterward?
5 How is this similar to a business situation?
The fundamental ethical issue in this situation is whether you should accept a copy of
the old exam from your friend.
The stakeholders are:
a. You
b. Your friend
Chapter 1: The Financial Statements Page 65 of 70
Req. 3
c. The remainder of the students in the class
d. The professor
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 4
Req. 5
It would be helpful to find out what the professor’s policies are with respect to the use of
fraternity and sorority test files. The university might have a blanket policy on this.
(Some students might spend a little time researching this by reading the university’s
honor code on their web site; just reading the honor code will be an eye-opening
prohibit it is, at best, risky, and at worst, downright wrong. Cheating is similar to
stealing, since it is stealing the work of another without their permission. It is usually
accompanied by lying to cover it up, or at least, not revealing the truth. Cheating
violates other students’ rights to fair and equal treatment. It violates the instructor’s
Cheating is very closely related to stealing, which is a form of fraud. When
employees steal from their companies, they steal property that belongs to
Chapter 1: The Financial Statements Page 66 of 70
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Apple, Inc.
(20-30 min.)
Solution:
1.
1. Go on the Internet and do some research on Apple, Inc., and its industry. Use one
or more popular websites like http://finance.yahoo.com or
http://www.google.com/finance. Write a paragraph (about 100 words) that describes
the industry, some current developments, and a projection for future growth.
2. Read Part I, Item 1 (Business) of Apple, Inc.’s annual report. What do you learn
here and why is it important?
3. Name at least one of Apple, Inc.’s competitors. Why is this information important in
evaluating Apple, Inc.’s financial performance?
4. Suppose you own stock in Apple, Inc. If you could pick one item on the company’s
Consolidated Statements of Operations to increase year after year, what would it be?
Why is this item so important? Did this item increase or decrease during fiscal 2014?
Is this good news or bad news for the company?
5. What was Apple, Inc.’s largest expense in 2012 – 2014? In your own words, explain
the meaning of this item. Give specific examples of items that make up this expense.
The chapter gives another title for this expense. What is it?
6. Use the Consolidated Balance Sheets of Apple, Inc., in Appendix A to answer
these questions: At the end of fiscal 2014, how much in total resources did Apple,
Inc., have to work with? How much did the company owe? How much of its assets did
the company’s stockholders actually own? Use these amounts to write Apple, Inc.’s
accounting equation at September 27, 2014.
7. How much cash and cash equivalents did Apple, Inc., have at September 28,
2013? How much cash and cash equivalents did Apple have September 27, 2014?
Students can emphasize a variety of points regarding Apple Inc., and its industry.
For example, a discussion on the product innovation and competitive changes in
Chapter 1: The Financial Statements Page 67 of 70
2.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
3.
4.
5.
Samsung, Google, Sony, or HP are some of Apple Inc.’s competitors. It is
important to identify competitors because competitors tend to have similar
Net income, because it shows the overall result of all the revenues minus all the
expenses for a period. In effect, net income gives the results of operations in a
Apple Inc.’s largest expense is cost of sales. This is the cost of the products that
Chapter 1: The Financial Statements Page 68 of 70
7.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Under Armour, Inc.
(30 min.)
Solution:
1.
2.
1. Go on the Internet and do some research on Under Armour, Inc., and its industry.
Use one or more popular websites like http://finance.yahoo.com or
http://www.google.com/finance. Write a paragraph (about 100 words) that describes the
industry, some current developments, and a projection for where the industry is headed.
2. Read Note 1—(Description of Business) of Under Armour, Inc.’s annual report. What
do you learn here and why is it important?
3. Name two of Under Armour, Inc.’s competitors. Why is this information important in
evaluating Under Armour, Inc.’s financial performance?
4. Write Under Armour, Inc.’s accounting equation at December 31, 2014 (express all
items in millions and round to the nearest $1 million). Does Under Armour, Inc.’s
financial condition look strong or weak? How can you tell?
5. What was the result of Under Armour, Inc.’s operations during 2014? Identify both
the name and the dollar amount of the result of operations for 2014. Does an increase
(or decrease) signal good news or bad news for the company and its stockholders?
6. Examine retained earnings in the Consolidated Statements of Shareholders’ Equity.
What caused retained earnings to increase during 2014?
7. Which statement reports cash and cash equivalents as part of Under Armour, Inc.’s
financial position? Which statement tells why cash and cash equivalents increased (or
decreased) during the year? Which activities caused Under Armour, Inc.’s cash and
cash equivalents to change during 2014, and how much did each activity provide or
use?
Under Armour, Inc. is an athletic apparel company. Students can
emphasize a variety of points regarding Under Armour, Inc. and its
Note 1 states Under Armour is a developer, marketer and distributor of
Chapter 1: The Financial Statements Page 69 of 70
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
3.
4. Under Armour, Inc.’s accounting equation (in millions):
5.
6.
7.
Nike, Adidas, and Columbia Sportswear are some of Under Armour,
Inc.’s competitors. It is important to identify competitors because
The result of operations for 2014 was a net income of $208,042
thousand. This is good news for Under Armour, Inc. Revenue exceeded
The Consolidated Balance Sheets report cash and cash equivalents as
part of the company’s financial position. The Consolidated Statements of
According to Under Armour, Inc.’s Consolidated Statements of
Stockholders’ Equity, the cause of the company’s large increase in
Chapter 1: The Financial Statements Page 70 of 70