Chapter 02 – Investing and Financing Decisions and the Balance Sheet
2-21
E2–14.
Zeber Company
Balance Sheet
At December 31, 2012
Assets
Liabilities
Current Assets
Current Liabilities
Cash
$ 8,950
Short-term notes payable
$ 2,000
Total Stockholders’ Equity
5,700
Total Assets
$11,200
Total Liabilities &
Stockholders’ Equity
$11,200
E2–15.
Req. 1
Cash
Short-Term
Notes Receivable
Land
Beg.
0
Beg.
0
Beg.
0
(a)
40,000
(c)
(e)
(b)
16,000
(e)
(d)
35,000
Beg.
0
0
Beg.
0
Beg.
(c)
20,000
16,000
(b)
16,000
(c)
(d)
21,000
16,000
16,000
Short-Term
Long-Term
Contributed Capital
Beg.
(a)
Short-term investments
1,000
Total Current Assets
9,950
Long-term notes payable
Stockholders’ Equity
Contributed capital
4,000
Property and equipment
Retained earnings
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
E2–15. (continued)
Req. 2
Strauderman Delivery Company, Inc.
Balance Sheet
At December 31, 2011
Assets
Liabilities
Current Assets
Current Liabilities
Cash
$35,000
Short-term notes payable
$16,000
Short-term note receivable
16,000
Total Current Assets
39,000
Long-term notes payable
16,000
Land
Equipment
21,000
Contributed capital
40,000
Total Stockholders’ Equity
40,000
Total Assets
$72,000
Total Liabilities &
Stockholders’ Equity
$72,000
Req. 3
2011:
Current
=
Current Assets
=
$39,000
=
2.44
Ratio
$16,000
Current
=
Current Assets
=
$52,000
=
2.26
Ratio
$23,000
Current
=
Current Assets
=
=
Ratio
indicative of more efficient use of resources or it may suggest the company is having
cash flow problems.
Req. 4
The management of Strauderman Delivery Company has already been financing the
company’s development through additional short-term debt, from $16,000 in 2011 to
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
2-23
E2–16.
Transaction
Brief Explanation
(a)
Issued capital stock to shareholders in exchange for $16,000 cash and
$4,000 tools and equipment.
E2–17.
Req. 1
Increases with…
Decreases with…
Equipment
Purchases of equipment
Sales of equipment
Notes receivable
Additional loans to others
Collection of loans
Notes payable
Additional borrowings
Payments of debt
Req. 2
Equipment
Notes Receivable
Notes Payable
1/1
500
1/1
150
100
1/1
12/31
100
12/31
170
12/31
Loaned $1,500 cash; borrower signed a note receivable for this amount.
(c)
Purchased a building for $50,000; paid $10,000 cash and gave a
$40,000 note payable for the balance.
Sold $800 of tools and equipment for their original cost.
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
2-24
E2–18.
Activity
Type of
Activity
Effect on
Cash
(a) Reduction of long-term debt
F
−
E2–19.
Starwood Hotels & Resorts Worldwide, Inc.
Partial Statement of Cash Flows
For the Year Ended December 31, 2012
(in millions)
Investing Activities
Purchase of investments
$ (37)
Sale of assets and investments
359
Purchase and renovation of properties
Receipt of payment from note receivable
Financing Activities
Additional borrowing from banks
986
Issuance of stock
120
Payment of debt
E2–20.
1. Current assets
In the asset section of a classified balance sheet.
2. Debt principal repaid
In the financing activities section of the statement of
3. Significant accounting policies
Usually the first note after the financial statements.
5. Dividends paid
In the financing activities section of the statement of
cash flows.
6. Short-term obligations
In the current liabilities section of a classified
7. Date of the statement of
financial position.
In the heading of the balance sheet.
(e) Dividends paid on common stock.
F
−
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
PROBLEMS
P2–1.
Balance
Sheet
Classification
Debit or
Credit
Balance
(1)
Notes and Loans Payable (short-term)
(2)
Materials and Supplies
CA
Debit
(3)
Contributed Capital
Credit
(4)
Patents (an intangible asset)
NCA
Debit
(5)
Income Taxes Payable
(6)
Long-Term Debt
NCL
Credit
(7)
Marketable Securities (short-term)
CA
Debit
(8)
Property, Plant, and Equipment
NCA
Debit
(9)
Retained Earnings
Credit
(10)
Notes and Accounts Receivable (short-term)
CA
Debit
(11)
Investments (long-term)
Debit
(12)
Cash and Cash Equivalents
CA
Debit
(13)
Accounts Payable
Credit
(14)
Crude Oil Products and Merchandise
CA
Debit
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
2-26
P2–2.
Req. 1
East Hill Home Healthcare Services was organized as a corporation. Only a
corporation issues shares of capital stock to its owners in exchange for their investment,
as in transaction (a).
Req. 2 (On next page)
Req. 4
(a) Total assets = $111,500 + $18,000 + $5,000 + $510,500 + $160,000 + $65,000
= $870,000
Req. 5
This suggests that for every $1 in current liabilities, East Hill maintains $1.35 in current
assets. The ratio suggests that East Hill is likely maintaining adequate liquidity and
using resources efficiently.
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
P2–2. (continued)
Req. 2
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Short-Term
Investments
Notes
Receivable
Land
Buildings
Equipment
ST Notes LT Notes
Payable Payable
Contributed
Capital
Retained
Earnings
Beg.
50,000
500,000
100,000
50,000
=
100,000 100,000
100,000
400,000
(a)
+90,000
=
+90,000
(c)
=
(e)
=
=
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
2-28
P2–3.
Req. 1 and 2
Cash
Investments (short-term)
Accounts Receivable
Beg.
19,000
Beg.
2,000
Beg.
3,000
Equipment
Factory Building
Intangibles
Beg.
48,000
Beg.
90,000
Beg.
3,000
(c)
18,000
1,000
(h)
25,000
(g)
3,000
End.
65,000
End.
End.
6,000
Accounts Payable
Accrued Liabilities Payable
Notes Payable (short-term)
15,000
Beg.
2,000
Beg.
7,000
Beg.
12,000
(c)
12,000
(f)
15,000
End.
2,000
End.
31,000
End.
Long-Term Notes Payable
Contributed Capital
Retained Earnings
46,000
Beg.
90,000
Beg.
30,000
Beg.
16,000
(h)
12,000
(e)
62,000
End.
End.
30,000
(e)
12,000
9,000
(a)
(a)
9,000
(f)
12,000
7,000
(b)
(i)
1,000
6,000
(c)
End.
End.
3,000
3,000
(g)
9,000
(h)
Notes Receivable (long-term)
Beg.
24,000
Beg.
1,000
(b)
7,000
End.
10,000
End.
24,000
End.
8,000
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
P2–3. (continued)
Req. 3
No effect was recorded for (d). The agreement in (d) involves no exchange or receipt of
cash, goods, or services and thus is not a transaction.
Req. 4
Cougar Plastics Company
Balance Sheet
At December 31, 2012
Assets
Liabilities
Current Assets
Current Liabilities
Cash
$ 10,000
Accounts payable
$ 15,000
Investments
11,000
Accrued liabilities payable
2,000
Accounts receivable
Notes payable
Inventory
24,000
48,000
Long-term notes payable
62,000
Notes receivable
Equipment
65,000
Factory building
Contributed capital
Intangibles
30,000
Total Stockholders’ Equity
132,000
Total Assets
$242,000
Total Liabilities &
Stockholders’ Equity
$242,000
Req. 5
Current
=
=
=
1.00
Ratio
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
P2–4.
Transaction
Type of Activity
Effect on Cash
(a)
I
–
(b)
I
–
(c)
I
–
(d)
NE
NE
(e)
F
+
(f)
F
+
(g)
I
–
(h)
I
–
(i)
I
+
P2–5.
Req. 1
a.
Cash (+A) ………………………………………………………………….
30
Long-term liabilities (+L) ………………………………………….
30
b.
Receivables and other assets (+A) ………………………………..
250
Cash (−A) ……………………………………………………………..
250
c.
Long-term investments (+A) …………………………………………
Short-term investments (+A) ………………………………………..
d.
Property, plant, and equipment (+A) ………………………………
Cash (−A) ……………………………………………………………..
875
Long-term liabilities (+L) ………………………………………….
e.
Cash (+A) ………………………………………………………………….
200
Contributed capital (+SE) ………………………………………..
Cash (+A) ………………………………………………………………….
g.
2-31
P2–5. (continued)
Req. 2
Cash
Short-Term
Investments
Receivables and
Other Assets
Beg.
8,352
Beg.
740
Beg.
6,443
(a)
30
250
(b)
(c)
10,400
10,000
(f)
(b)
250
(e)
200
13,000
(c)
1,140
6,693
(f)
10,000
875
(d)
52
(g)
Beg.
867
Beg.
3,749
4,405
867
3,749
Beg.
Beg.
454
Beg.
3,618
(d)
2,285
(c)
2,600
3,054
3,618
Accounts
Payable
Other Short-term
Obligations
Long-Term Liabilities
8,309
Beg.
6,550
Beg.
7,370
Beg.
30
(a)
1,410
(d)
8,309
6,550
8,810
Equity Items
11,189
Beg.
27,904
20,986
Beg.
200
(e)
(g)
52
11,389
27,904
20,934
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
P2–5. (continued)
Req. 3
Dell, Inc.
Balance Sheet
At January 29, 2010
(in millions)
ASSETS
Current Assets
Cash
$ 4,405
Short-term investments
1,140
Receivables and other assets
6,693
Inventories
Other current assets
3,749
16,854
Noncurrent Assets
Property, plant and equipment
4,562
Long-term investments
3,054
Other noncurrent assets
3,618
Total assets
$28,088
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable
$ 8,309
Other short-term obligations
6,550
14,859
Contributed capital
Retained earnings
Req. 4
Current
=
Current Assets
=
$16,854
=
1.13
Ratio
Current Liabilities
$14,859
For every $1 of short-term liabilities, Dell has $1.13 of current assets. This low current
ratio suggests that Dell is using its resources efficiently and has sufficient liquidity.
2-33
P2–6.
Dell, Inc.
Partial Statement of Cash Flows
For the Year Ended January 29, 2010
(in millions of dollars)
INVESTING ACTIVITIES
Purchase of property, plant, and equipment
$ (875)
Purchase of investments
Loan of funds to affiliates
Sale of investments
Cash flow used in investing activities
(4,125)
FINANCING ACTIVITIES
Borrowings
Issuance of stock
Payment of dividends
(52)
Cash flow provided by financing activities
178
Net change in cash
(3,947)
Beginning balance of cash
8,352
Cash balance on January 29, 2010
$ 4,405
Chapter 02 – Investing and Financing Decisions and the Balance Sheet
ALTERNATE PROBLEMS
AP2–1.
Balance
Sheet
Classification
Debit or
Credit
Balance
(1)
Prepaid Expenses
CA
Debit
(2)
Inventories
CA
Debit
(3)
Accounts Receivable
CA
Debit
(4)
Long-Tterm Debt
NCL
Credit
(5)
Cash and Cash Equivalents
CA
Debit
(6)
Goodwill (an intangible asset)
(7)
Accounts Payable
CL
Credit
(8)
Income Taxes Payable
CL
Credit
(9)
Property, Plant, and Equipment
NCA
Debit
(10)
Retained Earnings
Credit
(11)
Contributed Capital
Credit
(12)
Short-Tterm Borrowings
CL
Credit
(13)
Accrued Liabilities