Case Study 2-51
1. A transaction is an external event transferring something of value between
two or more entries. When you do a transaction you will give up or receive
value from the exchange.
2. Transactions with cash consequences you are giving customers a credit that
they will pay you in 30 days. Some customers might not pay you, so then
you have to write that customer off and lose money. Transactions involving
cash you receive your money up front; you won’t lose out.
3. Accrual is concerned future receipts and payments. Deferral is concerned
with past receipts and payments. Accrual is the accounting process that
looks at gains and loss on liabilities that are going to accrue. Deferral you
receive payments in advance, and recognize liability from current cash
receipts. Examples of Deferrals are prepaid and unearned accounts.
Examples of Accrual are purchases and sales of goods.
Case Study 7-71
1. Average receivables 2,840+2,575/2=2,708
Average receivable 2,708
Net Sales 344,992
Average daily sales 945
Average collection period 2.86 days
(average receivable/average daily sales)
2. Take Receivables/total assets gives you the percentage for receivables
3. Memberships and other income/Net sales equals revenue percentage
Case Study 9-97
1. Gasoline Sales $ 1,562.5 190.4
Cost of Goods Sold -1,372.1 1562.5 = 12%
Gross Profit $ 190.4
Merchandise Sales $ 1,710.3 517.7
Cost of Goods Sold 1,192.6 1,710.3 = 30%
Gross Profit $ 517.7
When you use your credit card to pay for gas they get charged a fee. This
takes away from the gross profit. They made more money when people
carried cash to pay for things because it helped keep the cost down.
2. Gasoline Cost of Goods Sold 1,372.1
End of Year Inventory 26.6 = 51.58 time’s inventory turnover
Merchandise Cost of Goods Sold 1,710.3
End of Year Inventory 93.9 = 18.21 time’s inventory turnover
3. Number of Days Sales in Inventory 365/inventory turnover
4. 1988. When you subtract Cost of Goods Sales from the total sales the 1988
sales are higher.
5. Take total sales x 30%. 3,272.8 x 30% = 981.84
Subtract 981.84 from 3,272.8 = 2,290.96
Subtract 2,290.96 from 2,554 = 263.04. Estimated gross profit
Case Study 3-60
1. Debt ratio (total liabilities/total assets)
Total Liabilities 26,299
Total Assets 26,299 = 1.00
Current ratio (current assets/current liabilities)
Current Assets 2,937
Current Liabilities 2,917 = 1.01
Long-term debt as a percentage of total capitalization
8,298/16,515 = 50%
Long-term debt as a percentage of net plant
8,298/18,445 = 45%
2. The most informative—I think the Long-term debt vs the net plant is. It
gives you an idea of how much your debt is compared to the assets you
have invested in your plant. If you have a percentage lower than 50%
the banks will probably give you a loan; whereas, if the percentage is
above 50% the bank will have to look everything over more closely.
The least informative—I think is the Debt ratio because everything is
balanced between assets and liabilities. We can’t see the difference
between the two of them. The bank can’t tell if you have more assets or
liabilities in the company. This is a harder way to look at for a loan.
Case Study 4-62
1. Comprehensive income is greater because you add translation
adjustments, gain of securities, and minimum pension liability, you
also subtract net loss on derivatives from the net income amount.
That’s why the comprehensive income is greater than the net
2. The foreign currencies got stronger then the U.S. dollar. The increase
was due to the ebb and the way the worldwide economy has flowed.
3. Coca-Cola’s available-for-sale securities portfolio had a $43 million
increase. This increase is not reported in the net income, but as part
of the comprehensive income. They are recorded as a “unrealized”
gain or loss also called paper gain or loss.
Case study 5-65
1. The cash balance for 2006 is 4,525.
The paid in capital from common stock balance for 2006 is 5,251.
The Retained Earnings balance for 2006 is 31,287.
The treasury stock balance for 2006 is 19,623.
2. The Coca-Cola Company is buying back stock that they put out in circulation
when they were having a rough time. Treasury Stock compared to
Issuances of stock has a ratio of 9 to 1. They want to keep their stock for a