3-52 Financial Accounting, 5e
Additional Perspective 10-1 (in General Ledger, continued)
November 5, 2022
Debit
Credit
Cash (100,000 x $12)
1,000,000
Common Stock (100,000 x $1)
100,000
Additional Paid-in Capital (difference)
900,000
(Issue common stock above par)
November 16, 2022
Treasury Stock (10,000 shares x $15)
150,000
Cash
150,000
(Purchase treasury stock)
November 16, 2022
Cash (4,000 shares x $16)
64,000
Treasury Stock (4,000 shares x $15)
60,000
(Resell treasury stock above cost)
December 1, 2022
Dividends
11,400
Dividends Payable
11,400
(Declare cash dividends)
December 20, 2022
Dividends Payable
11,400
Cash
11,400
(Pay cash dividends)
December 30, 2022
Building
800,000
Cash
800,000
Additional Perspective 10-1 (in General Ledger, continued)
Great Adventures, Inc.
Income Statement
For the period ended December 31, 2022
Service revenue
$ 44,500
Sales revenue
Sales Discounts
Cost of goods sold
Gross profit
$125,650
Depreciation Expense
17,250
Insurance Expense
5,700
Rent Expense
2,400
Salaries Expense
24,000
Supplies Expense
Bad Debt Expense
Repairs and Maintenance Expense
Loss
Total operating expenses
Operating income (loss)
57,000
Interest revenue
120
Interest expense
(6,785)
Income before income taxes
50,335
Income tax expense
3-54 Financial Accounting, 5e
Additional Perspective 10-1 (in General Ledger, continued)
Great Adventures, Inc.
Balance Sheet
December 31, 2022
Assets
Liabilities
Current assets:
Current liabilities:
Cash
$180,568
Accounts payable
$ 20,800
Accounts receivable
50,000
Deferred Revenue
5,000
Allow for Uncoll Accts
Warranty Liability
4,000
Inventory
7,000
Contingent Liability
Prepaid Insurance
Income tax payable
Total current assets
Interest payable
Notes Payable (current)
Total liabilities
Long-term assets:
Land
500,000
Stockholders’ Equity
Buildings
800,000
Common stock
120,000
Equipment
62,000
Additional Paid-in Capital
904,000
Accumulated depreciation
Retained earnings
Treasury Stock
Total assets
Additional Perspective 10-1 (in General Ledger, concluded)
Dec. 31, 2022
Debit
Credit
Service Revenue
44,500
Sales Revenue
Interest Revenue
(Close revenue accounts)
Dec. 31, 2022
Retained Earnings
128,435
Cost of Goods Sold
38,500
Depreciation Expense
17,250
Insurance Expense
Rent Expense
Salaries Expense
24,000
Supplies Expense
Bad Debt Expense
Repairs and Maintenance Expense
Warranty Expense
Loss
12,000
Interest Expense
(Close expense accounts)
Dec. 31, 2022
Retained Earnings
11,400
Dividends
11,400
(Close dividends account)
3-56 Financial Accounting, 5e
Financial Analysis: American Eagle
AP10-2
Requirement 1
$0.01 par value per share. The par value per share is listed in the stockholders’
equity section of the balance sheet.
Requirement 2
249,566 shares (in thousands). The number of shares issued is listed in the
Requirement 3
Yes, 72,250 shares (in thousands). The number of shares of treasury stock (in
thousands) is listed in the stockholders’ equity section of the balance sheet.
Requirement 4
$90,858 ($ in thousands). The cash dividends paid is listed in the retained earnings
Financial Analysis: Buckle
AP10-3
Requirement 1
$0.01 par value per share. The par value per share is listed in the stockholders’
Requirement 2
48,816,170 shares. The number of shares issued is listed in the stockholders’ equity
section of the balance sheet.
Requirement 3
Requirement 4
$133,874 ($ in thousands). The cash dividends paid is listed in the retained
3-58 Financial Accounting, 5e
Comparative Analysis: American Eagle vs. Buckle
AP10-4
($ in thousands)
Requirement 1
Net
Income
÷
Average Stockholders’
Equity
=
Return
on
Equity
American Eagle
Buckle
÷
=
Requirement 2
Dividends Per Share
÷
Stock
Price
=
Dividend
Yield
American Eagle
$90,858 / 177,316
÷
$17.56
=
3.0%
Buckle
÷
=
Requirement 3
Stock
Price
÷
Earnings
Per Share*
=
Price-Earnings
Ratio
American Eagle
$17.56
÷
$1.15
=
15.27
Buckle
$19.60
÷
$1.86
=
10.54
Ethics
AP10-5
1. Yes.
2. As an increase to additional paid-in capital.
3. Yes.
By misclassifying the gain on the sale of treasury stock as part of pretax income,
4. No.
Even though Brooke feels it was her decision to buy the stock at $42 and sell at $50,
this belief does not justify falsely reporting the transaction. Brooke could have used
3-60 Financial Accounting, 5e
Internet Research
AP10-6
This case provides an opportunity for students to learn more about Form 10-K,
Written Communication
AP10-7
Requirement 1
Liabilities are the creditors’ claims to resources. Stockholders’ equity are the owners’
claim to resources.
Requirement 2
The balance sheet has always distinguished between liabilities and stockholders’
Requirement 3
Arguments in support of eliminating the distinction relate to the difficulty, in certain
cases, in distinguishing between liabilities and stockholders’ equity. For instance,
Requirement 4
Earnings Management
AP10-8
Requirement 1
Net Income
÷
Shares outstanding
=
Earnings
Per Share
Before Purchase
$878,000
÷
950,000
=
$0.92
Net Income
÷
=
Before Purchase
$878,000
÷
=
20.8%
Requirement 2
Net Income
÷
Shares outstanding
=
Earnings
Per Share
After Purchase
$878,000
÷
(950,000 + 850,000) / 2
=
$0.98
Net Income
÷
=
After Purchase
$878,000
÷
=
Requirement 3
Yes.
The purchase of stock near year-end improves earnings per share by reducing the