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									                                                                                                                        Exercises: Set B            1
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Exercises: Set B




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E1-1B   This information relates to Connor Co. for the year 2010.                                                     Prepare income statement
                                                                                                                      and retained earnings
                 Retained earnings, January 1, 2010         $64,000                                                   statement.
                 Advertising expense                          1,800                                                   (SO 4)
                 Dividends paid during 2010                   6,000
                 Rent expense                                10,400
                 Service revenue                             58,000
                 Utilities expense                            2,400
                 Salaries expense                            30,000

Instructions
After analyzing the data, prepare an income statement and a retained earnings statement
for the year ending December 31, 2010.

E1-2B The following information was taken from the 2007 financial statements of phar-                                 Prepare income statement
maceutical giant Merck and Co. All dollar amounts are in millions.                                                    and retained earnings
                                                                                                                      statement.
                 Retained earnings, January 1, 2007          $39,095.1                                                (SO 4)
                 Materials and production expense              6,140.7
                 Marketing and administrative expense          7,556.7
                 Dividends                                     3,310.7
                 Sales revenue                                24,197.7
                 Research and development expense              4,882.8
                 Tax expense                                      95.3
                 Other revenue                                    46.2

Instructions
(a) After analyzing the data, prepare an income statement and a retained earnings state-
    ment for the year ending December 31, 2007.
(b) Suppose that Merck decided to reduce its research and development expense by 50%.
    What would be the short-term implications? What would be the long-term implica-
    tions? How do you think the stock market would react?

E1-3B   Presented here is information for Anne Charlotte Inc. for 2010.                                               Prepare a retained earnings
                                                                                                                      statement.
                      Retained earnings, January 1      $130,000                                                      (SO 4)
                      Revenue from legal services        410,000
                      Total expenses                     170,000
                      Dividends                           82,000

Instructions
Prepare the 2010 retained earnings statement for Anne Charlotte Inc.

E1-4B The following items and amounts were taken from Marley Inc.’s 2010 income                                       Prepare an income statement.
statement and balance sheet.                                                                                          (SO 4)

Cash and short-term                              Inventories                         $ 64,618
investments                       $ 84,700       Receivables                           88,419
Retained earnings                  123,192       Sales revenue                        599,951
Cost of goods sold                 438,458       Income taxes payable                   6,499
Selling, general, and                            Accounts payable                      49,384
  administrative expenses         120,131        Franchising revenues                   4,786
Prepaid expenses                    7,818        Interest expense                       1,994


Instructions
Prepare an income statement for Marley Inc. for the year ended December 31, 2010.
2     chapter 1 Introduction to Financial Statements


Calculate missing amounts.     E1-5B   Here are incomplete financial statements for Brandon, Inc.
(SO 4, 5)
                                                                   BRANDON, INC.
                                                                    Balance Sheet

                                                 Assets                       Liabilities and Stockholders’ Equity
                                 Cash                           $ 5,000       Liabilities
                                 Inventory                       10,000         Accounts payable              $ 5,000
                                 Building                        45,000       Stockholders’ equity
                                 Total assets                   $60,000         Common stock                    (a)
                                                                                Retained earnings               (b)
                                                                              Total liabilities and
                                                                                stockholders’ equity          $60,000

                                                                 Income Statement
                                                      Revenues                          $80,000
                                                      Cost of goods sold                  (c)
                                                      Administrative expenses            10,000
                                                      Net income                        $ (d)


                                                           Retained Earnings Statement
                                                      Beginning retained earnings   $10,000
                                                      Net income                      (e)
                                                      Dividends                       5,000
                                                      Ending retained earnings          $29,000

                               Instructions
                               Calculate the missing amounts.
Compute net income and         E1-6B Sleep Cheap is a private camping ground near the Lathom Peak Recreation Area.
prepare a balance sheet.       It has compiled the following financial information as of December 31, 2010.
(SO 4, 5)
                               Revenues during 2010: camping fees $137,000 Dividends                    $ 9,000
                               Revenues during 2010: general store  25,000 Notes payable                  50,000
                               Accounts payable                     11,000 Expenses during 2010          129,000
                               Cash                                  8,500 Supplies                        2,500
                               Equipment                           119,000 Common stock                   40,000
                                                                           Retained earnings (1/1/2010)    5,000
                               Instructions
                               (a) Determine net income from Sleep Cheap for 2010.
                               (b) Prepare a retained earnings statement and a balance sheet for Sleep Cheap as of De-
                                   cember 31, 2010.
                               (c) Upon seeing this income statement, Terry Stevens, the campground manager
                                   immediately concluded, “The general store is more trouble than it is worth—let’s
                                   get rid of it.” The marketing director isn’t so sure this is a good idea. What do you
                                   think?
Prepare an income statement.   E1-7B Kellogg Company is the world’s leading producer of ready-to-eat cereal and a
(SO 4, 5)                      leading producer of grain-based convenience foods such as frozen waffles and cereal bars.
                               The following items were taken from its 2007 income statement and balance sheet. All
                               dollars are in millions.
                                   Retained earnings                $4,217       Long-term debt             $ 3,270
                                   Cost of goods sold                6,597       Inventories                    924
                                   Selling and                                   Net sales                   11,776
                                     administrative expenses          3,311      Accounts payable             1,081
                                   Cash                                 524      Common stock                   105
                                   Notes payable                      1,489      Income tax expense             444
                                   Interest expense                     319      Other expense                    2
                               Instructions
                               Prepare an income statement for Kellogg Company for the year ended December 31, 2007.
                                                                                                   Exercises: Set B               3


E1-8B    This information is for Campo Corporation for the year ended December 31, 2010.         Prepare a statement
                                                                                                 of cash flows.
                        Cash   received from lenders          $20,000                            (SO 5)
                        Cash   received from customers         65,000
                        Cash   paid for new equipment          35,000
                        Cash   dividends paid                   6,000
                        Cash   paid to suppliers               18,000
                        Cash   balance 1/1/10                  12,000
Instructions
(a) Prepare the 2010 statement of cash flows for Campo Corporation.
(b) Suppose you are one of Campo’s creditors. Referring to the statement of cash flows,
    evaluate Campo’s ability to repay its creditors.
E1-9B The following data are derived from the 2007 financial statements of Southwest
                                                                                                 Prepare a statement
Airlines. All dollars are in millions. Southwest has a December 31 year-end.
                                                                                                 of cash flows.
            Cash   balance, January 1, 2007                         $1,390                       (SO 5)
            Cash   paid for repayment of debt                          122
            Cash   received from issuance of common stock              139
            Cash   received from issuance of long-term debt            500
            Cash   received from customers                           9,823
            Cash   paid for property and equipment                   1,331
            Cash   paid for dividends                                   14
            Cash   paid for repurchase of common stock               1,001
            Cash   paid for goods and services                       6,699
Instructions
(a) After analyzing the data, prepare a statement of cash flows for Southwest Airlines
    for the year ended December 31, 2007.
(b) Discuss whether the company’s cash from operations was sufficient to finance its in-
    vesting activities. If it was not, how did the company finance its investing activities?
E1-10B John Paul is the bookkeeper for Gabelli Company. John has been trying to get              Correct an incorrectly
the balance sheet of Gabelli Company to balance. It finally balanced, but now he’s not           prepared balance sheet.
sure it is correct.                                                                              (SO 5)

                                   GABELLI COMPANY
                                      Balance Sheet
                                    December 31, 2010

                    Assets                        Liabilities and Stockholders’ Equity
  Cash                             $18,500        Accounts payable                $16,000
  Supplies                           9,500        Accounts receivable             (12,000)
  Equipment                         40,000        Common stock                     40,000
  Dividends                         10,000        Retained earnings                34,000
  Total assets                     $78,000        Total liabilities and
                                                    stockholders’ equity          $78,000


Instructions
Prepare a correct balance sheet.
E1-11B The following items were taken from the balance sheet of Nike, Inc.                       Classify items as assets,
 1. Cash                 $1,625.6    7. Inventories                        $2,453.9              liabilities, and stockholders’
 2. Accounts receivable   3,035.4    8. Income taxes payable                  214.3              equity and prepare
 3. Common stock          2,825.0    9. Property, plant, and equipment      1,874.8              accounting equation.
 4. Notes payable           220.1   10. Retained earnings                   5,207.9              (SO 5)
 5. Other assets          3,605.1   11. Accounts payable                    1,205.9
 6. Other liabilities     2,921.6
Instructions
Perform each of the following.
(a) Classify each of these items as an asset, liability, or stockholders’ equity. (All dollars
    are in millions.)
4    chapter 1 Introduction to Financial Statements


                             (b) Determine Nike’s accounting equation by calculating the value of total assets, total
                                 liabilities, and total stockholders’ equity.
                             (c) To what extent does Nike rely on debt versus equity financing?
Use financial statement      E1-12B The summaries of data from the balance sheet, income statement, and retained
relationships to determine   earnings statement for two corporations, Bates Corporation and Wilson Enterprises, are
missing amounts.             presented below for 2010.
(SO 5)
                                                                  Bates Corporation          Wilson Enterprises
                             Beginning of year
                               Total assets                            $110,000                    $130,000
                               Total liabilities                         80,000                       (d)
                               Total stockholders’ equity                 (a)                        90,000
                             End of year
                               Total assets                               (b)                       180,000
                               Total liabilities                        120,000                      55,000
                               Total stockholders’ equity                50,000                       (e)
                             Changes during year in retained
                                 earnings
                               Dividends                                  (c)                          5,000
                               Total revenues                           215,000                       (f )
                               Total expenses                           165,000                      80,000
                             Instructions
                             Determine the missing amounts. Assume all changes in stockholders’ equity are due to
                             changes in retained earnings.

								
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