retained earnings that have occurred over a specific period of time. The balance sheet presents a listing of the assets, liabilities, and stockholders’ equity of a business as of a specific date. The statement of cash flows presents a summary of the cash receipts and cash payments of a business entity for a specific period of time. 12. Net income, $2,929 million ($69,865 million – $66,936 million) 13. Net income or net loss will appear on both the income statement and the retained earnings statement. TheRetained Earnings balance at the end of the period will appear on both the retained earnings statement and the balance sheet. Finally, the Cash balance at the end of the period will appear on both the balance sheet and the statement of cash flows. 14. No. The business entity concept limits the recording of economic data to transactions directly affecting the activities of the business. The payment of the interest of $5,000 is a personal transaction of Jessop and should not be recorded by Valley Delivery Service. 15. The land should be recorded at its cost of $110,000 to Wok Repair Service. This is consistent with the cost concept. 16. No. The of $975,000 and the increase in the assessed value should not be recognized in the accounting records. This is consistent with the cost concept. E1–1 1. service 2. merchandise 3. manufacturing 4. manufacturing 5. service 6. merchandise 7. manufacturing 8. manufacturing 9. service 10. manufacturing 11. manufacturing 12. service 13. service 14. manufacturing 15. merchandise E1–2 1. a—low-cost 2. a—low-cost 3. b—premium-price 4. a—low-cost 5. a—low-cost 6. b—premium-price 7. a—low-cost 8. b—premium-price 9. b—premium-price 10. a—low-cost 11. b—premium-price 12. E1–3 Best Buy stockholders’ equity: $16,005– $12,260 = $3,745 Gamestopstockholders’ equity: $4,847– $1,805 = $3,042 E1–4 Apple: $176,064– $57,854 = $118,210 Dell: $44,533– $35,616 = $8,917
E1–5 a. $160,000 ($70,000 + $90,000) b. $77,000 ($95,000 – $18,000) c. $448,000 ($675,000 – $227,000) E1–6 a. $12,361 ($27,140 – $14,779) b. $30,809 ($46,630 – $15,821) c. $193,406 ($117,645 + $75,761) E1–7 It would be incorrect to say that the business had incurred a net loss of $10,000. The excess of the dividends over the net income for the period is a decrease in the amount of retained earnings in the business. E1–8 Company Stockholders’ equity at end of year($900,000 – $300,000) $600,000 Stockholders’ equity at beginning of year($775,000 – $400,000) 375,000 Net income (increase in stockholders’ equity) $225,000 Company Henry Increase in stockholders’ equity (as determined for Chang) Add dividends 90,000 Net income $315,000 Company Nagel Increase in stockholders’ equity (as determined for Chang) Deduct additional issuance of capital stock 125,000 Net income Company Wilcox Increase in stockholders’ equity (as determined for Deduct additional issuance of capital stock 125,000
and thus generating profits. Both Sears and JCPenney are under considerable pressure from low-cost retailers such as Walmart. Situation 5: The statement of cash flows would be a primary focus to determine whether the annual cash flows from operating activities is sufficient to pay the interest on a continuing basis. Most large companies like Target will use credit lines to cover cash shortages throughout the year because of the seasonality of the retail industry. E1–22 1. BS 2. BS 3. BS 4. IS 5. IS 6. IS 7. BS 8. SCF 9. SCF 10. IS 11. IS 12. BS 13. IS 14. RE, BS E1–23 AMAZON.COM INC. Income Statement For the Year Ended December 31, 20Y1 (in Millions) Revenues: Net sales $48,077 Other income 125 Total revenue $48,202 Expenses: Cost of sales $37,288 Selling, general, and administrative expenses 9,927 Income tax expense 291 Interest expenses 65 Total expenses 47,571 Net income $ 631 E1–24 1. BS 2. BS 3. BS 4. BS, SCF 5. SCF 6. IS 7. IS 8. IS 9. BS 10. BS 11. IS, RE 12. SCF