CON2–1. (continued)
Req. 4
Penny’s Pool Service & Supply, Inc.
Balance Sheet
March 31
Assets
Current Assets:
Cash
Short-term investments
Total current assets
11,500
Equipment
42,500
Land
18,000
Buildings
72,000
Total assets
$144,000
Liabilities and Stockholder’s Equity
Current Liabilities:
Notes payable
$4,000
Total current liabilities
Notes payable
79,000
Total liabilities
83,000
Common stock ($0.05 par value)
Additional paid-in capital
60,800
61,000
$144,000
Req. 5
Type of Activity
(I, F, or NE)
Effect on Cash Flows
(+ or – and amount)
(a)
F
+ 25,000
(d)
(e)
F
(f)
(g)
Financial Accounting, 10/e 2-53
CON2–1. (continued)
Req. 6
With a current ratio of 2.875, PPSS has liquidity with sufficient current assets to settle
CASES AND PROJECTS
ANNUAL REPORT CASES
CP2–1. (dollars in thousands)
1. The company is a corporation since it maintains common stock and contributed
2. The amount listed on the balance sheet for inventories does not represent the
3. The company’s current obligations include: Accounts payable, Accrued
4.
Current
=
Current Assets
=
$968,530
=
2.00
Ratio
Current Liabilities
$485,221
5. The company spent $169,469 to purchase property and equipment in the fiscal year
ended 2/3/2018; $161,494 in the fiscal year ended 1/28/2017; and $153,256 in the
Financial Accounting, 10/e 2-55
CP2–2. (in thousands)
2. No – shareholders’ equity is a residual balance, which means the shareholders will
receive what remains in cash and assets after the creditors have been satisfied. It is
3. The company’s noncurrent liabilities are Deferred lease credits of $137,618 and
Other long-term liabilities of $105,125.
CP2–3. (dollars in thousands)
1.
Industry
Average
American Eagle
Outfitters
Express,
Inc.
Current Ratio =
2.43
2.00
1.94
Both the American Eagle Outfitters’ and Express, Inc.’s current ratios are lower than
the industry average of 2.43. However, because both have a current ratio near or at
2.00, both companies are able to satisfy their current obligations with current
assets.
Many retailers, such as American Eagle Outfitters, choose to rent space rather than
2. As indicated in the financing activities section of each company’s statement of cash
flows, during the most recent year, American Eagle Outfitters spent $87,682
3. As indicated in the statement of cash flows in the financing activities section,
4. On the balance sheet:
American Eagle reports → Property and equipment, at cost, net of accumulated
depreciation (all on one line).
FINANCIAL REPORTING AND ANALYSIS CASES
CP2–4.
Dollars are in thousands:
1. (a) Chipotle’s total assets for the quarter ended September 30, 2017 are $2,064,377
in thousands of dollars.
current liabilities increased by about $1 million.
2. (a) For the nine months ended September 30, 2017, Chipotle spent $165,506 on the
purchase of leasehold improvements, property, and equipment.
CP2–5.
The major deficiency in this balance sheet is the inclusion of the owner’s personal
residence as a business asset. Under the separate entity assumption, each business
must be accounted for as an individual organization, separate and apart from its
CP2–6.
Dollars are in thousands:
1. The company is a corporation because its owners are referred to as “stockholders.”
3.
Current Assets
÷
Current Liabilities
=
Current Ratio
2017
$5,321,884
$583,278
9.124
2016
4,652,196
584,021
7.966
4.
Accounts payable (−L) …………………………..
170,969
Cash (−A) ……………………………………………………….
170,969
5. Over its years in business, it appears that Twitter has been unprofitable, based on a
negative amount in Accumulated Deficit of $2,703,308. The Accumulated Deficit
account represents the cumulative losses of the firm since the business began,
assuming no dividends were declared (unlikely given its deficit position).
Thus, net loss for the most recent year was $(83,705).
Financial Accounting, 10/e 2-59
CP2–7.
Req. 1
LettuceDoThis.Com, Inc.
Balance Sheet
December 31
Assets
Current Assets:
Cash
$ 1,000
Accounts receivable
Inventory
Total current assets
17,000
Furniture and fixtures
52,000
Delivery truck (net)
12,000
Buildings (net)
60,000
Total assets
$141,000
Liabilities
Current Liabilities:
Accounts payable
$ 16,000
Payroll taxes payable
13,000
Total current liabilities
29,000
Notes payable (due in three years)
15,000
Mortgage payable
50,000
Total liabilities
Stockholders’ Equity
Common stock
Additional paid-in capital
Accumulated deficit
(33,000)
Total stockholders’ equity
Total liabilities and stockholders’ equity
$141,000
CP2–7. (continued)
Req. 2
Dear ___________,
I corrected the balance sheet for LettuceDoThis.Com, Inc. Primarily, I reduced
the amount reported for buildings to $60,000, which is the historical cost less any
depreciation. Estimated market value is not a generally accepted accounting principle
for recording property, plant, and equipment. The $38,000 difference ($98,000 –
CP2–8.
1. The most obvious parties harmed by the fraud at Biovail Corporation were the
stockholders and creditors. Stockholders were purchasing shares of stock that were
inflated due to the fraud. Creditors were lending funds to the company based on
2. Biovail set certain financial goals and tied the former executives’ bonuses to meeting
the goals. Adopting targets is a good tool for monitoring progress toward goals and
FINANCIAL REPORTING AND ANALYSIS TEAM PROJECT
CP2–9.