50
P2–2, Concluded
4. RESTART TECHNOLOGY SERVICES
Statement of Cash Flows
For the Month Ended August 31, 20Y4
Cash flows from (used for) operating activities:
Cash received from operating activities ……………… $54,000
Cash paid for operating activities …………………….... (18,000)
Net cash flows from operating activities …………….. $ 36,000
Cash flows from (used for) investing activities:
Cash paid for land ……………………………………………… (80,000)
51
P2–3
1. DUST, SWEEP, REPEAT SERVICES, INC.
Income Statement
For the Year Ended December 31, 20Y7
Revenues:
Fees earned ………………………………………….…………… $124,000
Expenses:
Salaries expense ……………………………………..………… $54,400
Utilities expense …………………………………….………….. 17,000
2. DUST, SWEEP, REPEAT SERVICES, INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 20Y7
Common Stock Retained Earnings Total
Balances, Jan. 1, 20Y7 ………….. $ 0 $ 0 $ 0
Issued common stock …………… 15,000 15,000
52
P2–3, Concluded
3. DUST, SWEEP, REPEAT SERVICES, INC.
Balance Sheet
December 31, 20Y7
Assets
Cash ……………………………………………………………………… $12,000
Land ………………………………………………………………………. 43,000
Total assets …………………………………………………………… $55,000
Liabilities
Notes payable ………………………………………………………… $16,000
Stockholders’ Equity
4. DUST, SWEEP, REPEAT SERVICES, INC.
Statement of Cash Flows
For the Year Ended December 31, 20Y7
Cash flows from (used for) operating activities:
Cash received from operating activities ……………… $124,000
Cash paid for operating activities …………………….... (97,000)
Net cash flows from operating activities …………….. $ 27,000
Cash flows from (used for) investing activities:
Cash paid for land ……………………………………………… (43,000)
53
P2–4
1. DUST, SWEEP, REPEAT SERVICES, INC.
Income Statement
For the Year Ended December 31, 20Y8
Revenues:
Fees earned ………………………………………….…………… $ 443,000
Expenses:
Salaries expense ……………………………………..………… $190,000
Utilities expense …………………………………….………….. 60,000
2. DUST, SWEEP, REPEAT SERVICES, INC.
Statement of Stockholders’ Equity
For the Year Ended December 31, 20Y8
Common Stock Retained Earnings Total
Balances, Jan. 1, 20Y8 ………….. $15,000 $ 24,000 $ 39,000
Issued common stock …………… 40,000* 40,000
54
P2–4, Concluded
3. DUST, SWEEP, REPEAT SERVICES, INC.
Balance Sheet
December 31, 20Y8
Assets
Cash ……………………………………………………………………… $ 44,000*
Land ………………………………………………………………………. 170,000
Total assets ………………………………………….……………….. $214,000
Liabilities
Notes payable ………………………………………………………… $ 60,000
4. DUST, SWEEP, REPEAT SERVICES, INC.
Statement of Cash Flows
For the Year Ended December 31, 20Y8
Cash flows from (used for) operating activities:
Cash received from operating activities ……………… $ 443,000
Cash paid for operating activities …………………….... (343,000)
Net cash flows from operating activities …………….. $ 100,000
55
P2–5
a. $125,000 (Net income for December of $57,500 plus total operating expenses of
$67,500; also, the amount of cash received from customers on the statement
of cash flows.)
b. $10,620 ($67,500 – $33,120 – $18,000 – $1,800 – $3,960)
g. $120,500 ($75,000 + $45,500) or ($0 + $75,000 + $57,500 – $12,000)
h. $50,500 ($225,500 – $175,000)
i. $75,000 (See the cash received from common stock on the statement of cash
flows.)
j. $45,500 (the same as f)
k. $120,500 ($75,000 + $45,500) or (i + j) or the same as g
l. $225,500 ($105,000 + $120,500); also the same as total assets.
56
P2–6
1. a. All financial statements should contain the name of the business in their
heading. The statement of stockholders’ equity is incorrectly headed as
“Angela Griffin” rather than Alpine Realty, Inc. The heading of the balance
sheet needs the name of the business.
d. The balance sheet should be labeled as of “July 31, 20Y8,” rather than “For
the Month Ended July 31, 20Y7.”
e. On the income statement, the dividends should not be listed as an operat-
ing expense but should be included in the statement of stockholders’ equity.
h. Notes payable should be listed as a liability on the balance sheet.
i. Land should be listed as an asset on the balance sheet.
j. The balance sheet assets should equal the sum of the liabilities and stock-
holders’ equity.
57
P2–6, Continued
m. Since this is Alpine Realty’s first month of operations, the net increase in
cash for July on the statement of cash flows should equal $32,000, the cash
balance as of July 31, 20Y8.
2. Corrected financial statements appear as follows:
ALPINE REALTY, INC.
Income Statement
For the Month Ended July 31, 20Y8
Sales commissions ……………………………………..…………. $60,000
Operating expenses:
Office salaries expense ……………………………….…….. $20,000
ALPINE REALTY, INC.
Statement of Stockholders’ Equity
For the Month Ended July 31, 20Y8
Common Stock Retained Earnings Total
Balances, July 1, 20Y8 ………….. $ 0 $ 0 $ 0
Issued common stock …………… 15,000 15,000
58
P2–6, Concluded
ALPINE REALTY, INC.
Balance Sheet
July 31, 20Y8
Assets
Cash ……………………………………………………………………… $ 32,000
Land ………………………………………………………………………. 30,000
Total assets ………………………………………….……………….. $ 62,000
Liabilities
Notes payable ………………………………………………………… $ 20,000
ALPINE REALTY, INC.
Statement of Cash Flows
For the Month Ended July 31, 20Y8
Cash flows from (used for) operating activities:
Cash received from sales commissions ……………… $ 60,000
Cash paid for operating expenses ……………………… (31,000)
Net cash flows from operating activities …………….. $ 29,000
Cash flows from (used for) investing activities:
Cash paid for land …………………………………………….. (30,000)
59
METRIC-BASED ANALYSIS
MBA 2–1
Transaction Metric Effects
Liquidit
y
Profitabilit
y
Transaction Cash Net Income
–
Cash Basis
a. Issued stock $ 30,000 No Effect
—
b. Issued note pa
y
. 50,000 No Effect
—
c. Earned fees 15,000 Increase $15,000
d. Paid rent expense
(
2,500
)
Decrease
(
2,500
)
(
(
f
(
)
(
)
g
(
)
(
)
(
—
(
)
MBA 2–2
Transaction Metric Effects
Liquidit
y
Profitabilit
y
Transaction Cash Net Income
–
Cash Basis
a. Issued stock $50,000 No Effect —
b. Earned fees 54,000 Increase $54,000
c. Paid rent expense
(
5,000
)
Decrease
(
5,000
)
y
(
f
(
)
(
)
g
(
)
(
)
(
)
60
MBA 2–3
1.
Increase
Year 1 Year 2 (Decrease)
Revenue …………………………………………….. 100.0% 100.0% n/a
Operating expenses:
Fuel ………………………………………………. (12.9)% (13.9)% 1.0%
Aircraft related ………………………………. (24.8) (25.7) 0.9
2. Delta’s operating income as a percent of revenue decreased 2.7% from 17.5%
in Year 1 to 14.8% in Year 2. Fuel expenses increased 1.0% from 12.9% in Year 1
to 13.9% in Year 2. Aircraft related expenses such as landing fees, mainte–
61
MBA 2–4
1.
Increase
Year 1 Year 2 (Decrease)
Revenue ……………………………………………. 100.0% 100.0% n/a
Operating expenses:
Fuel ……………………………………………… (17.9)% (18.6)% 0.7%
Aircraft related ……………………………… (18.1) (17.5) (0.6)
2. Southwest’s operating income decreased 1.8% as a percent of revenue from
18.4% in Year 1 to 16.6% in Year 2. The decrease was caused primarily by an
increase of 1.3% in selling and general expenses and an increase in fuel ex-
MBA 2–5
Southwest’s operating income as a percent of revenue decreased by 1.8% com-
pared to Delta’s decrease of 2.7%. The difference in operating results does not
appear to be attributable to one item in particular. Southwest’s increase in selling
62
MBA 2–6
1.
Increase
Year 1 Year 2 (Decrease)
Sales ……………………………………………….... 100.0% 100.0% n/a
Cost of goods sold …………………………….. (63.5) (61.1) (2.4)%
2. Kellogg’s operating income as a percent of sales increased by 4.4% from
10.7% to 15.1%. This increase was caused by the decrease in cost of goods
MBA 2–7
1.
Increase
Year 1 Year 2 (Decrease)
Sales ……………………………………………….... 100.0% 100.0% n/a
Cost of goods sold …………………………….. (64.4) (65.5) 1.1%
2. General Mills’ operating income as a percent of sales decreased by 0.7% from
17.7% to 17.0%. This decrease was caused by the increase in cost of goods
63
MBA 2–8
In Year 1, Kellogg’s operating income as a percent of sales was 10.7% compared
to General Mills’ 17.7%. In Year 2, Kellogg’s operating income as a percentage of
64
1.
Increase
Year 1 Year 2 (Decrease)
Current assets:
Cash ………………………………………………..…… 6.4% 5.4% (1.0)%
Marketable securities ……………………………. 14.5 14.4 (0.1)
Accounts receivable ……………………………… 4.9 4.8 (0.1)
Inventory ……………………………………………… 0.6 1.3 0.7
Other ……………………………………………….…… 6.8 8.4 1.7
Total current assets ……………………………… 33.2% 34.3% 1.1%
Long-term assets:
Total assets ………………………………………….…… 100.0% 100.0%
Current liabilities:
Accounts payable and similar liabilities …. 11.6% 13.1% 1.5%
Current portion of long-term debt ………….. 1.1 1.7 0.6
Other ……………………………………………….…… 11.9 12.1 0.2
Total current liabilities ………………………….. 24.6% 26.9% 2.3%
Long-term liabilities …………………………………... 35.6 37.4 1.8
Total liabilities ………………………………………. 60.2% 64.3% 4.1%
2. Apple’s current assets as a percent of total assets increased slightly by 1.1%
from 33.2% to 34.3% with other current assets increasing the most by 1.7%.
At the same time, long-term assets declined by 1.1%. Apple’s total liabilities
65
CASES
Case 2–1
1. From our discussions in Chapter 1, the two possible business emphases that
could be used are low-cost emphasis and premium-price emphasis.
2. Real-world examples of each emphasis are as follows:
Case 2–2
Dr. Turner’s comment is not correct. The difference in the cash balance of
$55,000 ($100,000 – $45,000) represents the net result of operating, investing, and
financing cash activities. To determine the profit, the effects of Dr. Turner’s in-
66
Case 2–3
Year 1 Year 2 Year 3
Net cash flows from operating activities negative positive positive
Net cash flows from investing activities negative negative negative
Case 2–4
Note to Instructors: Answers will vary based upon the date students do their
research. The objective of this case is to familiarize students with financial re-
1. $178.97 (See opening page for AAPL)
2. $142.00 to $182.13 (See opening page for AAPL)
3. $233.47 (See Statistics)
7. $2.92 (See Statistics)
8. Strong Buy = 11
Buy = 21
Hold = 6
Sell = 0
Strong Sell = 0
Average broker recommendation is 2.2 (See Analysis)