Reporting Earnings and Financial Position 111
B. The Lo Company
Income Statement
Sales revenue $ 250,000
Cost of goods sold (180,000)
Gross profit $ 70,000
P4-6 A. Disney’s balance sheet is both classified and comparative. Classified
means that the assets and liabilities are subdivided by category. As-
B. Current Assets ÷ Total Assets 0.17 0.17
The percentage did not change.
C. Current Assets − Current Liabilities −1,690 −355
112 Chapter 4
E. The portion of Television costs shown under current assets is ex-
F. 2004 2003
Total Assets $53,902 $49,988
Company must have reported profitable operations in 2004.
P4-7 A. 1. Company is not identified (no company name in title).
B. Ceramics, Inc.
Balance Sheet
As of December 31, 2007
Assets:
Cash $2,000
Accounts receivable 3,000
Reporting Earnings and Financial Position 113
P4-8 A. Cost of goods sold is $7,638, $7,762, and $7,105 for years 2004, 2003,
B. Gross profit is the difference between the cost of producing prod-
ucts and the revenue generated from selling products. The gross
C. Operating income results when the expenses of selling and adminis-
trative activities are subtracted from gross profit.
D. Coca-Cola earned more net income each year between 2002 and
P4-9 A. Coca-Cola is larger as evidenced by the increase in total assets. The
B. The total amount of long-term debt for 2004 is $1,490 + $1,157 =
C. Working capital is the difference in current assets and current liabili-
D. 2004 2003
114 Chapter 4
Coca-Cola’s current assets exceed its current liabilities in both 2004
and 2003. More than one-half of the company’s current assets are in
B. 2004 $60,592 ÷ $92,389 = 66%
C. Microsoft has little invested in property, plant, and equipment. The
company is a producer of software. Thus, human capital is more im-
D. 2003 2004
Current assets $58,973 $70,566
Reporting Earnings and Financial Position 115
P4–11 A. Argyle Company
Income Statement
For the Year Ended December 31, 2007
Sales revenues $130,000
Cost of goods sold 62,500
Gross profit $ 67,500
Operating expenses:
B. Argyle Company
Balance Sheet
December 31, 2007
Assets
Current assets:
Cash $ 4,650
116 Chapter 4
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 18,250
Wages payable 3,450
P4–12 A. Rustic Company
Income Statement
For the Year Ended December 31, 2007
Sales revenues $110,000
Service revenues 12,000
Reporting Earnings and Financial Position 117
B. Rustic Company
Balance Sheet
December 31, 2007
Assets Liabilities and Stockholders’ Equity
Current assets: Liabilities:
Cash $ 6,000 Current liabilities:
P4–13 A. Total contributed capital January 31, 2001, is $2,107 million ($447
million common stock + $1,660 million capital in excess of par value).
B. The contributed capital increased from January 31, 2001, to January
31, 2004 by $459 million.
118 Chapter 4
E. 2002 2003 2004
Dividends $1,249 $1,328 $1,569
F. 2002 2003 2004
Net income $6,592 $7,955 $9,054
G. 2002 2003 2004
P4–14 A. 2002 $41,845
2004 $56,396
B. Microsoft began paying dividends on Common Stock in 2003. Previ-
ously, the company had reinvested its profits.
Reporting Earnings and Financial Position 119
Corporations also may repurchase shares to prevent outside parties
P4–15
Amount Rationale
a. $2,000 The 4-year policy was ¼ consumed by December 31, 2006. If
there were three years left and the balance was $3,000, the
amount used per year must be $1,000. At December 31, 2007,
g. $16,340 Must solve (h) before (g). Once (h) is known, (g) can be deter-
mined.
h. $35,545 Must match the total asset balance at December 31, 2007.
i. $27,995 This amount must match (d). Or, once (f) is known, total liabili-
ties and equity can be summed.
Can also be determined directly once (j) is known.
o. $960 This is 8% interest on the $12,000 note outstanding during the
entire year.
p. $6,000 The monthly rent is $500. This means the annual rent must be
$6,000.
120 Chapter 4
P4–16 A. ABC, Inc.
Income Statement
For the Year Ended December 31, 2007
Sales revenue $ 26,000
B. ABC, Inc.
Statement of Stockholders’ Equity
For the Year Ended December 31, 2007
Contributed Retained
Capital Earnings Total
Balance at December 31, 2006 $25,000* $17,000 $42,000
C. ABC, Inc.
Balance Sheet
December 31, 2007
Assets
Current assets:
Cash $ 20,880
Reporting Earnings and Financial Position 121
Liabilities and Equity
Current liabilities:
Accounts payable $ 17,080
Wages payable 23,900
D. Net Income of $3,900 (from the income statement) is added to re-
tained earnings (in the statement of stockholders’ equity). The end-
P4–17 A. 1. Like most assets and liabilities, land is reported on the balance
and paid.
3. Sales revenue, as reported on the income statement, is not intend-
ed to reveal how much cash was collected from customers. In-
4. Depreciation expense is not determined by the change in value of
5. It is true that a highly skilled workforce can be an important asset
to a company. But this is true only in a general sense, not in the
6. When taking a careful look, we see that the financial information,
which was just received, is already three months old. One of the