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
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
Retained earnings, January 1, 2007 $39,095.1 (SO 4)
Materials and production expense 6,140.7
Marketing and administrative expense 7,556.7
Sales revenue 24,197.7
Research and development expense 4,882.8
Tax expense 95.3
Other revenue 46.2
(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
Retained earnings, January 1 $130,000 (SO 4)
Revenue from legal services 410,000
Total expenses 170,000
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
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)
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
Cost of goods sold (c)
Administrative expenses 10,000
Net income $ (d)
Retained Earnings Statement
Beginning retained earnings $10,000
Net income (e)
Ending retained earnings $29,000
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
(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
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
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
(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
(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)
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
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
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.
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
Dividends (c) 5,000
Total revenues 215,000 (f )
Total expenses 165,000 80,000
Determine the missing amounts. Assume all changes in stockholders’ equity are due to
changes in retained earnings.