Solution Manual Financial Accounting 13th Edition by Thomas Tietz – Updated 2024
Complete Solution Manual With Answers
Sample Chapter Is Below
Chapter 1
The Financial Statements
Ethics Check
(5-10 min.) EC 1-1
a. Objectivity and independence
b. Due care
c. Integrity
d. Integrity
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-1Short Exercises
(10 min.) S 1-1
a. Corporation, limited partners of a Limited-liability partnership (LLP)
and Limited-liability company (LLC). If any of these businesses fails
and cannot pay its liabilities, creditors cannot force the owners to
pay the business’s debts from the owners’ personal assets.
Creditors can go after the general partner of a limited liability
partnership.
b. Proprietorship. There is a single owner of the business, so the
owner is answerable to no other owner.
c. Partnership. If the partnership fails and cannot pay its liabilities,
creditors can force the partners to pay the business’s debts from
their personal assets. A partnership affords more protection for
creditors than a proprietorship because there are two or more
owners to share this liability.
(5 min.) S 1-2
1. The entity assumption applies.
2. Application of the entity assumption will separate Osmond’s
personal assets from the assets of Simple Treats, Inc. This will help
Osmond, investors, and lenders know how much assets, liabilities
and equity the business has, and this knowledge will help all parties
evaluate the business realistically.
1-2 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(5-10 min.) S 1-3
a. Stable-monetary-unit assumption
b. Historical cost principle; $300 is the accounting value of the
laptop
c. Historical cost principle; the sale price is the amount actually
received from the sale
d. Entity assumption
(10 min.) S 1-4
Computed amounts in boxes
Total Assets = Total Liabilities + Stockholders’ Equity
$660,000 a. = $300,000 + $360,000
b. 85,000 = 50,000 + c. 350,000 = 35,000
75,000 + 275,000
(5 min.) S 1-5
1. Liabilities = Assets − Owners’ Equity
2. Owners’ Equity = Assets − Liabilities
This way of determining the amount of owners’ equity applies to any
company or your household.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-3(5-10 min.) S 1-6
a. Land A g. Retained earnings S
b. Accrued expenses payable L h. Prepaid expenses A
c. Supplies A i. Accounts payable L
d. Equipment A j. Accounts receivable A
e. Notes payable L k. Merchandise inventory A
f. Long-term debt L l. Common stock S
(5-10 min.) S 1-7
1. Assets are the economic resources of a business that are expected
to produce a benefit in the future.
Owners’ (stockholders’) equity represents the insider claims of a
business, the owners’ interest in its assets.
Assets and owners’ equity differ in that assets are resources and
owners’ equity is a claim to assets.
Assets must be at least as large as owners’ equity, so equity can be
smaller than assets.
2. Both liabilities and owners’ (stockholders’) equity are claims to
assets.
Liabilities are the outsider claims to the assets of a business; they
are obligations to pay creditors.
Owners’ equity represents the insider claims to the assets of the
business; they are the owners’ interest in its assets.
1-4 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(5 min.) S 1-8
1. Revenues and expenses 2. Net income (or net loss)
(10 min.) S 1-9
a. Salary expense I
b. Dividends R, C
c. Accounts payable B
d. Net income I, R, C
e. Common stock B
f. Inventory B
g. Interest revenue I
h. Cash B, C
i. Retained earnings R, B
j. Long-term debt B
k. Increase or decrease in cash C
l. Net cash provided by operating activities C
m. Sales revenue I
n. Net cash used for financing activities C
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-5(15-20 min.) S 1-10
a. Paying large dividends will cause retained earnings to be low.
b. Heavy investing activity and paying off debts can result in a cash
shortage even if net income has been high.
c. The single best source of cash for a business is operating activities.
This source of cash is best because it results from the core operations
of the business. Operating activities should be the main source of cash
for a business.
d. Borrowing, issuing stock, and selling land, buildings, and equipment
can bring in cash even when the company has experienced losses.
Reducing accounts receivable and inventory can also increase cash
flow.
(5 min.) S 1-11
a. I f. I
b. B g. R
c. C h. C
d. R i. B
e. B
1-6 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(5 min.) S 1-12
MacKensie Services, Inc.
Income Statement
Year Ended December 31, 2021
(millions)
Revenues ……………………………………………….. $394
Expenses ……………………………………………….. 171
Net income …………………………………………….. $223
(5 min.) S 1-13
Journey Corporation
Statement of Retained Earnings
Year Ended December 31, 2021
(millions)
$270
80
Retained earnings, December 31, 2020 …….. Add: Net income ($460 − $380) ……………….. Less: Dividends declared ……………………….. (64)
Retained earnings, December 31, 2021 …….. $286
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-7(10-15 min.) S 1-14
Jackson Corporation
Balance Sheet
December 31, 2021
(in millions)
ASSETS
Current assets:
Cash …………………………………………………………………. $ 52
Accounts receivable ………………………………………….. 23
Total current assets …………………………………………… 75
Long-term assets ……………………………………………………. 45
Total assets ……………………………………………………………. $120
LIABILITIES
Current liabilities:
Accounts payable ……………………………………………… $ 21
Total current liabilities ……………………………………….. 21
Long-term liabilities:
Long-term notes payable ……………………………………. 31
Total liabilities ……………………………………………………….. 52
STOCKHOLDERS’ EQUITY
Common stock ………………………………………………………. 28
Retained earnings ………………………………………………….. 40
Total stockholders’ equity ………………………………………. 68
Total liabilities and stockholders’ equity ………………….. $120
1-8 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(10-15 min.) S 1-15
Sullivan Corporation
Balance Sheet
September 30, 2021
ASSETS (in millions)
Current assets:
Cash …………………………………………………………………. $ 78
Accounts receivable ………………………………………….. 27
Total current assets …………………………………………… 105
Property and equipment …………………………………………. 27
Other long-term assets …………………………………………… 21
Total assets ……………………………………………………………. $153
LIABILITIES
Current liabilities:
Accounts payable ……………………………………………… $ 34
Total current liabilities ……………………………………….. 34
Long-term liabilities:
Long-term notes payable ……………………………………. 17
Total liabilities ……………………………………………………….. 51
STOCKHOLDERS’ EQUITY
Common stock ………………………………………………………. 31
Retained earnings ………………………………………………….. 71*
Total stockholders’ equity ………………………………………. 102
Total liabilities and stockholders’ equity ………………….. $153
_____
*Computation of retained earnings: Total assets ($153) − total liabilities
($51) − common stock ($31) = $71
Or, total stockholders’ equity ($102) – common stock ($31) = $71
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-9(10-15 min.) S 1-16
Python Legal Services, Inc.
Statement of Cash Flows
Year Ended December 31, 2021
Cash flows from operating activities:
Net income ………………………………………………………. $115,000
Adjustments to reconcile net income to net cash
provided by operating activities …………………… Net cash provided by operating
activities
(9,000)
106,000
Cash flows from investing activities:
Purchases of
equipment ………………………
Net cash used for investing
activities
$(20,000)
(20,000)
Cash flows from financing activities:
Payment of
dividends
$(15,000)
Net cash used for financing activities ……….. Net increase in cash …………………………………………….. Cash balance, December 31, 2020 …………………………. Cash balance, December 31, 2021 …………………………. $ 87,000
(15,000)
71,000
16,000
1-10 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(10-15 min.) S 1-17
Solve in this order:
a. $82
b. $82
c. $149
f. $149
g. $182
h. $230
e. $230
d. $112
(5 min.) S 1-18
Ethics is a factor that should be included in every business and
accounting decision, beyond the potential economic and legal
consequences. Ideally, for each decision, honesty and truthfulness
should prevail, considering the rights of others. The decision
guidelines at the end of the chapter spell out the considerations we
should take when making decisions. Simply, we might ask ourselves
three questions: (1) Is the action legal? (2) Who will be affected by the
decision? (3) How will the decision make me feel afterward?
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-11(10-15 min.) S 1-19
Asset (m) Economic resources that are
expected to produce a benefit in the
future
Balance sheet (l) Also called the statement of financial
Position
Bookkeeping (k) Corporation (f) Mechanical part of accounting
Owned by stockholders whose
liability is limited to the amount they
have invested in the business
Equity (r) Ethical duties (d) Insider claims of a business
Responsibilities of the members of
society to each other
Expenses (h) Financial accounting (b) Costs of doing business
Provides information for decision
makers outside of the organization
Historical cost principle (j) States that assets should be
recorded at their actual cost on the
date of purchase
Income statement (o) Answers the question “How well did
the company perform during the
period?”
Investors and creditors (n) Entities that provide money to
finance a company’s operations
1-12 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.Liability (g) A debt payable to an outsider
(continued) S 1-19
Managerial accounting (c) Provides information for managers of
the organization
Net income (a) Partnership (q) Total revenues minus total expenses
A business organization form with
two or more owners who are each
Proprietorship (i) Revenues (e) personally liable for all of the
business’s debts
A business organization form with a
single owner who is personally liable
for all of the business’s debts
Inflows of resources resulting from
delivering goods or services to
customers
Statement of cash flows (p) Reports cash flows from operating,
investing, and financing activities
(5-10 min.) S 1-20
1. Insert Function dialog box 6. Artificial intelligence
2. Formula bar 7. Spreadsheet
3. Spreadsheet 8. Machine learning
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-134. Data analytics 5. Active cell 10. Ribbon
9. Robotic process automation
(5-10 min.) S 1-21
1. Active cell (J) 2. Insert Sheet icon (F) 3. Row header numbers (G) 4. Worksheet tabs (K) 5. Ribbon (I) 6. File name (B) 7. Column header letters (C)
8. Zoom slider (A)
9. Ribbon tabs (H)
10. Quick Access toolbar (E)
11. Insert Function dialog box (D)
12. Formula bar (L)
1-14 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.Exercises
(10-15 min.) E 1-22A
Amounts in billions; (computed amounts in boxes)
Assets = Liabilities + Equity
15
15
Stockholders’
Smythe Real Estate $73 $41 $32
Odessa Florals 26 11 Hometown Bank 29 14 Odessa Florals appears to have the strongest financial position
because its liabilities make up the smallest percentage of company
assets ($11/$26 = .42). Stated differently, Odessa Florals’ equity is the
highest percentage of company assets ($15/$26 = .58).
Liabilities as a percent of total assets:
Smythe Real Estate: $41/$73 = 0.56
Odessa Florals: $11/$26 = 0.42
Hometown Bank: $14/$29 = 0.48
(10-15 min.) E 1-23A
Req. 1
(Amounts in millions)
Assets = Liabilities +
$220 $160
320 380
130
Stockholders’
Equity
Total $670 = $540 + $130
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-15Req. 2 Resources
to work with
Req. 3 Amount
owed to
creditors
Req. 4 Actually
owned by company
stockholders
1-16 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(10-20 min.) E 1-24A
Situation
1 2 3
(Millions)
Total stockholders’ equity,
January 31, 2021 ($47 − $19) ……………….. $28 $28 $28
Add: Issuances of stock …………………………. 11 -0- 15
Net income ………………………………………… 13* 44* 84*
Less: Dividends declared ………………………..
Net loss ………………………………………………
-0- (20) (75)
-0- -0- -0-
Total stockholders’ equity,
January 31, 2022 ($77 − $25) ……………….. $52 $52 $52
_____
*Must solve for these amounts.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-17(10-15 min.) E 1-25A
a. Income statement
b. Balance sheet
c. Balance sheet
d. Balance sheet
e. Statement of retained earnings, Statement of cash flows
f. Balance sheet, Statement of cash flows
g. Statement of cash flows
h. Statement of cash flows
i. Income statement
j. Balance sheet, Statement of retained earnings
k. Income statement
l. Balance sheet
m. Income statement, Statement of retained earnings, Statement of
cash flows
n. Balance sheet
1-18 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(10-20 min.) E 1-26A
Landy Products
Balance Sheet
December 31, 2021
ASSETS
Current assets:
Cash ……………………………………………………………………… $ 24,000
Receivables …………………………………………………………… 18,000
Inventory ……………………………………………………………….. 80,000
Total current assets ……………………………………………….. 122,000
Equipment ………………………………………………………………….. 182,000
Total assets ………………………………………………………………… $304,000
LIABILITIES
Current liabilities:
Accounts payable ………………………………………………….. $ 22,000
Total current liabilities …………………………………………… 22,000
Long-term liabilities:
Long-term notes payable ……………………………………….. 172,000
Total liabilities …………………………………………………………….. 194,000
STOCKHOLDERS’ EQUITY
Common stock ……………………………………………………………. 34,500
Retained earnings ………………………………………………………. 75,500*
Total stockholders’ equity …………………………………………… 110,000
Total liabilities and stockholders’ equity ……………………… _____
*Computation of retained earnings:
Total assets ($304,000) − current liabilities ($22,000) − long-term notes
payable ($172,000) − common stock ($34,500) = $75,500
$304,000
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-19(10-20 min.) E 1-27A
Req. 1
Jill Carlson Realty Company
Balance Sheet
January 31, 2021
(Amounts in millions)
ASSETS LIABILITIES
Cash $ 57.2 Current liabilities $ 2.9
Receivables 0.5 Long-term liabilities 102.6
Investment assets (long-
term) 79.4 Total liabilities 105.5
Property and equipment, net 1.6 STOCKHOLDERS’
Other assets (long-term) 9.3
EQUITY
Common stock 39.2
Retained earnings 3.3*
Total stockholders’ equity 42.5
Total liabilities and
stockholders’ equity $148.0
Total assets $148.0
_____
*Computation of retained earnings:
Total assets ($148.0) − Total liabilities ($105.5) − Common stock
($39.2) = $3.3
1-20 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(15-25 min.) E 1-28A
Req. 1
Jill Carlson Realty Company
Income Statement
Year Ended January 31, 2021
(Amounts in millions)
Total revenue ……………………………………………. $25.7
Expenses:
Salary and other employee expenses …….. $13.7
Other expenses ……………………………………. 7.6
Interest expense …………………………………… 1.5
Total expenses …………………………………….. 22.8
Net income ……………………………………………….. $2.9
Req. 2
The statement of retained earnings helps to compute dividends, as
follows:
Jill Carlson Realty Company
Statement of Retained Earnings
Year Ended January 31, 2021
(Amounts in millions)
Retained earnings, beginning of year ……………………………… $2.6
Add: Net income for the year (Req. 1) ……………………………… 2.9
Subtotal 5.5
Less: Dividends declared**
……………………………………………. 2.2
Retained earnings, end of year (from Exercise 1-27A) ……… **($5.5 – $3.3 = $2.2)
$3.3
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-21(15-20 min.) E 1-29A
Req. 1
Giada Coffee Roasters Corp.
Income Statement
For the Month Ended August 31, 2022
Revenue:
Service revenue ……………………………………. $278,700
Expenses:
Salary expense ……………………………………… $78,500
Utilities expense ……………………………………. 5,100
Rent expense ………………………………………… 1,800
Total expenses ……………………………………… 85,400
Net income ……………………………………………….. $193,300
Giada Coffee Roasters Corp.
Statement of Retained Earnings
For the Month Ended August 31, 2022
193,300
Retained earnings, August 1, 2022 …………………….. $ -0-
Add: Net income for the month …………………………. Subtotal 193,300
Less: Dividends declared………………………………….. (2,800)
Retained earnings, August 31, 2022 …………………… $190,500
1-22 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(15-20 min.) E 1-30A
Req. 1
Giada Coffee Roasters Corp.
Balance Sheet
August 31, 2022
Assets Liabilities
Cash ………………………… $ 5,300 Accounts payable ………………….. $ 8,800
Office supplies…………. 7,400
Equipment ……………….. 201,500 Stockholders’ Equity
Common stock………………………. 14,900
Retained earnings …………………. 190,500
Total stockholders’ equity 205,400
Total liabilities and
Total assets ……………… $214,200 stockholders’ equity …………… $214,200
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-23(15-20 min.) E 1-31A
Req. 1
Giada Coffee Roasters Corp.
Statement of Cash Flows
For the Month Ended August 31, 2022
1,400
194,700
Cash flows from operating activities:
Net income …………………………………………………….. $193,300
Adjustments to reconcile net income to net
cash provided by operating activities……………. Net cash provided by operating activities …… Cash flows from investing activities:
Acquisition of equipment ……………………………….. $(201,500)
Net cash used for investing activities…………. Cash flows from financing activities:
Issuance (sale) of stock to owners …………………. $ 14,900
Payment of dividends …………………………………….. (2,800)
Net cash provided by financing activities …… Net increase in cash …………………………………………… Cash balance, August 1, 2022 …………………………….. 0
Cash balance, August 31, 2022 …………………………… 12,100
$ 5,300
$ 5,300
(201,500)
1-24 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(10-15 min.) E 1-32A
TO: Owner of Giada Coffee Roasters Corp.
FROM: Student Name
SUBJECT: Opinion of net income, dividends, financial position,
and cash flows
Your first month of operations was successful. Revenues totaled
$278,700 and net income was $193,300. These operating results look
very strong.
The company was able to pay a $2,800 dividend, and this should
make you happy with so quick a return on your investment. Your
financial position looks secure, with assets of $214,200 and liabilities
of only $8,800. Your stockholders’ equity is $205,400.
Operating activities generated cash of $194,700, which is
outstanding. Operating activities are the main source of cash, which is
expected for a thriving company. You ended the month with cash of
$5,300. Based on the above facts, I believe you should stay in business.
Student responses may vary.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-25(20-25 min.) E 1-33A
Req. 1
Edwin Company
Income Statement
For the Year Ended December 31, 2021
(millions)
Revenue:
Revenues ……………………………………………… $150
Expenses:
Salary expense ……………………………………… $34
Rent expense ………………………………………… 23
Utilities expense ……………………………………. 16
Total expenses ……………………………………… 73
Net income ……………………………………………….. $ 77
Req. 2
Edwin Company
Statement of Retained Earnings
Year Ended December 31, 2021
Retained earnings, December 31, 2020 ……. Add: Net income ($150 − $73) …………………. (millions)
$ 73
77
Less: Dividends declared ……………………….. (16)
Retained earnings, December 31, 2021 ……. $134
1-26 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(continued) E 1-33A
Req. 3
Edwin Company
Balance Sheet
December 31, 2021
ASSETS (in millions)
Current assets:
Cash …………………………………………………………………. $185
Accounts receivable ………………………………………….. 70
Total current assets …………………………………………… 255
Property and equipment …………………………………………. 35
Other long-term assets …………………………………………… 22
Total assets ……………………………………………………………. $312
LIABILITIES
Current liabilities:
Accounts payable ……………………………………………… $ 56
Total current liabilities ……………………………………….. 56
Long-term liabilities:
Long-term notes payable ……………………………………. 26
Total liabilities ……………………………………………………….. 82
STOCKHOLDERS’ EQUITY
Common stock ………………………………………………………. 96*
Retained earnings ………………………………………………….. 134
Total stockholders’ equity ………………………………………. 230
Total liabilities and stockholders’ equity ………………….. *Common stock = Total stockholders’ equity ($230) – Retained earnings ($134) = $96
$312
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-27(10-15 min.) E 1-34B
Amounts in billions; (computed amounts in boxes)
Stockholders’
Assets = Liabilities + Equity
$78 $43 $35
7 23
27
Water Street Bank Pufferbelly Restaurant 30 Blake Gift Shop 34 7 Blake Gift Shop appears to have the strongest financial position
because its liabilities make up the smallest percentage of company
assets ($7/$34 = .21). Stated differently, Blake Gift Shop’s equity is the
highest percentage of company assets ($27/$34 = .79).
Liabilities as a percent of total assets:
Water Street Bank: $43/$78 = 0.55
Pufferbelly Restaurant: $7/$30 = 0.23
Blake Gift Shop: $7/$34 = 0.21
(10-15 min.) E 1-35B
Req. 1
(Amounts in millions)
Stockholders’
Assets = Liabilities +
Equity
$240 $100
390 360
130
Total $760 = $460 + $300
Req. 2 Resources
to work with
Req. 3 Amount
owed to
creditors
Req. 4 Actually
owned by company
stockholders
1-28 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(10-20 min.) E 1-36B
Situation
1 2 3
Millions
Total stockholders’ equity,
January 31, 2021 ($49 − $17) ……………… $32 $32 $32
Add: Issuances of stock ……………………………. 3 -0- 20
Net income ……………………………………….. 14* 21* 5*
Less: Dividends declared …………………………..
-0- (4) (8)
Net loss …………………………………………….
-0- -0- -0-
Total stockholders’ equity,
January 31, 2022 ($72 − $23) ……………… $49 $49 $49
_____
*Must solve for these amounts.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-29(10-15 min.) E 1-37B
a. Balance sheet, Statement of cash flows
b. Statement of cash flows
c. Balance sheet
d. Balance sheet
e. Income statement, Statement of retained earnings, Statement of
cash flows
f. Income statement
g. Balance sheet
h. Income statement
i. Balance sheet
j. Statement of cash flows
k. Income statement
l. Balance sheet
m. Statement of retained earnings, Statement of cash flows
n. Balance sheet, Statement of retained earnings
1-30 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(10-20 min.) E 1-38B
Patterson Products
Balance Sheet
December 31, 2021
ASSETS
Current assets:
Cash ……………………………………………………………………… $ 20,000
Receivables …………………………………………………………… 17,600
Inventory ……………………………………………………………….. 78,000
Total current assets ……………………………………………….. 115,600
Equipment ………………………………………………………………….. 186,000
Total assets ………………………………………………………………… $301,600
LIABILITIES
Current liabilities:
Accounts payable ………………………………………………….. $ 22,000
Total current liabilities …………………………………………… 22,000
Long-term liabilities:
Long-term notes payable ……………………………………….. 173,000
Total liabilities …………………………………………………………….. 195,000
STOCKHOLDERS’ EQUITY
Common stock ……………………………………………………………. 28,500
Retained earnings ………………………………………………………. 78,100*
Total stockholders’ equity …………………………………………… 106,600
Total liabilities and stockholders’ equity ……………………… _____
*Computation of retained earnings:
Total assets ($301,600) − current liabilities ($22,000) − long-term notes
payable ($173,000) − common stock ($28,500) = $78,100
$301,600
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-31(10-20 min.) E 1-39B
Req. 1
Mary Burke Realty Company
Balance Sheet
March 31, 2021
105.0
1.4
(Amounts in millions)
ASSETS LIABILITIES
Cash $ 1.6 Current liabilities $ 2.7
Receivables .1 Long-term liabilities 102.3
Investment assets
135.1
Total liabilities
Property and
equipment, net
STOCKHOLDERS’
Other assets 10.3 EQUITY
Common stock 27.9
Retained earnings 15.6*
Total stockholders’ equity 43.5
Total liabilities and
______
Total assets $148.5 stockholders’ equity $148.5
_____
*Computation of retained earnings:
Total assets ($148.5) − Total liabilities ($105.0) − Common stock
($27.9) = $15.6
1-32 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(15-25 min.) E 1-40B
Req. 1
Mary Burke Realty Company
Income Statement
Year Ended March 31, 2021
(Amounts in millions)
Total revenue …………………………………………………….. $40.4
Expenses:
Salary and other employee expenses ……………… $ 15.2
Other expenses …………………………………………….. 6.6
Interest expense ……………………………………………. 0.4
Total expenses ……………………………………………… 22.2
Net income ………………………………………………………… $18.2
Req. 2
The statement of retained earnings helps to compute dividends, as
follows:
Mary Burke Realty Company
Statement of Retained Earnings
Year Ended March 31, 2021
(Amounts in millions)
Retained earnings, beginning of year……………………….. $17.2
Add: Net income for the year (Req. 1)……………………….. 18.2
Subtotal 35.4
Less: Dividends declared**……………………………………. 19.8
Retained earnings, end of year (from Exercise 1-39B)…… $15.6
**($35.4 – $15.6 = $19.8)
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-33(15-20 min.) E 1-41B
Req. 1
Island Coffee Roasters Corporation
Income Statement
For the Month Ended August 31, 2022
Service revenue ………………………… $279,300
Revenue:
Expenses:
Salary expense …………………………. $78,100
Utilities expense ……………………….. 5,800
Rent expense …………………………… 1,800
Total expenses …………………………. 85,700
Net income ……………………………………… $193,600
Island Coffee Roasters Corporation
Statement of Retained Earnings
For the Month Ended August 31, 2022
Retained earnings, August 1, 2022 ……………………… $ -0-
Add: Net income………………………………………………… 193,600
Subtotal 193,600
Less: Dividends declared …………………………………… (2,700)
Retained earnings, August 31, 2022 ……………………. $190,900
1-34 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(15-20 min.) E 1-42B
Req. 1
Island Coffee Roasters Corporation
Balance Sheet
August 31, 2022
Total assets ………… $213,500
Assets Liabilities
Cash ………………….. $ 6,000 Accounts payable ……………… $ 8,900
Office supplies ……. 7,500 Stockholders’ Equity
Equipment ………….. 200,000 Common stock………………….. 13,700
Retained earnings …………….. 190,900
Total stockholders’ equity …. 204,600
Total liabilities and
stockholders’ equity ……… $213,500
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-35(15-20 min.) E 1-43B
Req. 1
Island Coffee Roasters Corporation
Statement of Cash Flows
For the Month Ended August 31, 2022
Cash flows from operating activities:
Net income …………………………………………………… $193,600
Adjustments to reconcile net income to net
cash provided by operations ……………………… Net cash provided by operating activities Cash flows from investing activities:
Acquisition of equipment ………………………….. $(200,000)
Net cash used for investing activities …….. Cash flows from financing activities:
Issuance (sale) of stock to owners …………….. $ 13,700
Payment of dividends ……………………………….. (2,700)
Net cash provided by financing activities.. Net increase in cash ……………………………………… Cash balance, August 1, 2022 ………………………… 0
Cash balance, August 31, 2022 ………………………. 11,000
$ 6,000
$ 6,000
1,400
195,000
(200,000)
1-36 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(10-20 min.) E 1-44B
TO: Owner of Island Coffee Roasters Corporation
FROM: Student Name
SUBJECT: Opinion of net income, dividends, financial position, and
cash flows
Your first month of operations was successful. Revenues totaled
$279,300 and net income was $193,600. These operating results look
very strong.
The company was able to pay a $2,700 dividend, and this should
make you happy with so quick a return on your investment. Your
financial position looks secure, with assets of $213,500 and liabilities
of only $8,900. Your stockholders’ equity is $204,600.
Operating activities generated cash of $195,000, which is
respectable. Operating activities are the main source of cash, which is
expected for a thriving company. You ended the month with cash of
$6,000. Based on the above facts, I believe you should stay in business.
Student responses may vary.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-37(20-25 min.) E 1-45B
Req. 1
Brewster Company
Income Statement
For the Year Ended December 31, 2021
(millions)
Revenue:
Revenues ……………………………………………… $146
Expenses:
Salary expense ……………………………………… $28
Rent expense ………………………………………… 23
Utilities expense ……………………………………. 19
Total expenses ……………………………………… 70
Net income ……………………………………………….. $76
Req. 2
Brewster Company
Statement of Retained Earnings
Year Ended December 31, 2021
Retained earnings, December 31, 2020 ……. Add: Net income ($146 − $70) …………………. (millions)
$ 76
76
Less: Dividends declared ……………………….. (15)
Retained earnings, December 31, 2021 ……. $137
1-38 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(continued) E 1-45B
Req. 3
Brewster Company
Balance Sheet
December 31, 2021
ASSETS (in millions)
Current assets:
Cash …………………………………………………………………. $175
Accounts receivable ………………………………………….. 85
Total current assets …………………………………………… 260
Property and equipment …………………………………………. 39
Other long-term assets …………………………………………… 25
Total assets ……………………………………………………………. $324
LIABILITIES
Current liabilities:
Accounts payable ……………………………………………… $ 56
Total current liabilities ……………………………………….. 56
Long-term liabilities:
Long-term notes payable ……………………………………. 33
Total liabilities ……………………………………………………….. 89
STOCKHOLDERS’ EQUITY
Common stock ………………………………………………………. 98*
Retained earnings ………………………………………………….. 137
Total stockholders’ equity ………………………………………. 235
Total liabilities and stockholders’ equity ………………….. *Common stock = Total stockholders’ equity ($235) – Retained earnings ($137) = $98
$324
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-39Quiz
Q1-46 A
Q1-47 A
Q1-48 B
Q1-49 B
Q1-50 b
Q1-51 a Stockholders’
Assets = Liabilities + Equity
+ $83,000 = + $23,000 + + $60,000
Q1-52 a
Q1-53 B
Q1-54 B
Q1-55 A
Q1-56 d
Q1-57 c [$260,000 − $185,000 − $81,000 − $28,000 = $(34,000)]
Q1-58 b ($300,000 + $200,000 − $55,000 = $445,000)
Q1-59 D
Q1-60 C
Q1-61 c Stockholders’
Assets = Liabilities + Equity
Beg. $149,000 = $27,000* + $122,000
Changes + 69,000
End. $236,000* = $96,000* + $140,000
_____
*Must solve for these amounts.
1-40 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.Quiz (continued)
Q1-62 b Assets − Liabilities = Stockholders’ equity
Beg. bal. $350,000 − $23,000 = $327,000
+ Net income + X
− Dividends − 75,000
End. bal. $530,000 − $36,000 = $494,000
$327,000 + X – $75,000 = $494,000; X = $242,000
Q1-63 d
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-41Problems
(30 min.) P 1-64A
Computed amounts in boxes.
Caring
Co.
Childress,
Inc.
18 Kennedy
Corp.
BALANCE SHEET (Millions)
Beginning:
Assets …………………………………….. $76 $30 $17
Liabilities ………………………………… 51 21 1
Common stock ………………………… 7 7 6
Retained earnings …………………… 2 10
Ending:
Assets …………………………………….. $86 Liabilities ………………………………… 53 32 0
Common stock ………………………… 7 Retained earnings …………………… 26 INCOME STATEMENT
Revenues ………………………………… $227 $165 Expenses ………………………………… 218 157 Net income ……………………………… $ 9 $ $48 $20
12 8
4 12
$22
18
8 $ 4
$18 $ 2 9 8 4
$ 10
(2)
STATEMENT OF RETAINED EARNINGS
Beginning RE ………………………….. + Net income ……………………………… − Dividends declared ………………….. (1) (6) = Ending RE ………………………………. $26 $ 4 $ 12
1-42 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(continued) P 1-64A
Kennedy Corp. Caring Co. Childress, Inc.
Millions
Net income ……………. $9 $8 $4
Highest
% of net income $9
= 4.0% $8
= 4.8% $4 = 18.2%
to revenues ……… $227 $165 $22
Highest
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-43(20-25 min.) P 1-65A
Req. 1
City News, Inc.
Balance Sheet
May 31, 2021
ASSETS LIABILITIES
Cash $ 10,000 Accounts payable $ 6,500
Accounts receivable 2,600 Note payable 50,000
Notes receivable 15,800 Total liabilities 56,500
Office supplies 700 STOCKHOLDERS’
Land 81,000 EQUITY
Equipment 35,600 Stockholders’ equity 89,200*
Total liabilities and
Total assets $145,700 stockholders’ equity $145,700
_____
($89,200).
*Total assets ($145,700) − Total liabilities ($56,500) = Stockholders’ equity
Req. 2
City News, Inc. is in better (not worse) financial position than the
erroneous balance sheet reports. Total assets ($145,700) are $7,800
higher than originally reported ($137,900), liabilities are $14,700 lower
than originally reported, and stockholders’ equity is $22,500 higher
than reported originally.
Req. 3
The following accounts are not reported on the balance sheet because
they are expenses. These accounts are reported on the income
statement.
Utilities expense
Advertising expense
Salary expense
Interest expense
1-44 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(20-25 min.) P 1-66A
Req. 1
Brandon Hilton Realtor, Inc.
Balance Sheet
June 30, 2022
ASSETS LIABILITIES
Cash $ 55,000 Accounts payable $ 16,000
Office supplies 8,000 Note payable 112,000
Land 165,000 Total liabilities 128,000
Furniture 30,000 STOCKHOLDERS’
Franchise 20,000 EQUITY
Common stock 65,000
Retained earnings 85,000*
Total stockholders’ equity 150,000
Total liabilities and
Total assets $278,000 stockholders’ equity $278,000
_____
*Total assets ($278,000) − Total liabilities ($128,000) − Common stock
($65,000) = Retained earnings ($85,000).
Req. 2
It appears that the business can pay its debts. Total assets exceed total
liabilities.
Req. 3
Personal items not reported on the balance sheet of the business:
a. Personal cash ($15,000)
b. Personal account payable ($3,400)
g. Personal residence ($334,000) and mortgage payable ($182,000)
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-45(30-45 min.) P 1-67A
Req. 1
Oak Hill Garden Supply, Inc.
Income Statement
Year Ended December 31, 2021
Service revenue …………………….. $452,600
Revenue
Expenses
Salary expense ……………………… $108,400
Rent expense …………………………
41,200
Interest expense …………………….
10,300
Utilities expense …………………….
8,800
Property tax expense …………….. 7,400
Total expenses ……………………… 176,100
Net income ……………………………………. $276,500
Req. 2
Oak Hill Garden Supply, Inc.
Statement of Retained Earnings
Year Ended December 31, 2021
Retained earnings, December 31, 2020 …………… $ 364,600
Add: Net income …………………………………………… 276,500
Subtotal 641,100
Less: Dividends declared ………………………………. (107,000)
Retained earnings, December 31, 2021 …………… $ 534,100
1-46 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(continued) P 1-67A
Req. 3
Oak Hill Garden Supply, Inc.
Balance Sheet
December 31, 2021
ASSETS LIABILITIES
Cash $ 44,000 Accounts payable $ 26,000
Accounts receivable 84,900 Interest payable 2,700
Supplies 6,300 Note payable 99,600
Land 25,000 Total liabilities 128,300
Building 406,000 STOCKHOLDERS’
Equipment 110,000 EQUITY
Common stock 13,800
Retained earnings 534,100
Total stockholders’ equity 547,900
Total liabilities and
Total assets $676,200 stockholders’ equity $676,200
Req. 4
a. Oak Hill Garden Supply was profitable; net income was $276,500.
b. Retained earnings increased by $169,500 — from $364,600 to
$534,100.
c. Stockholders’ equity ($547,900) exceeds liabilities ($128,300).
The stockholders have a greater claim against Oak Hill Garden
Supply’s assets than do the company’s creditors.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-47(20 min.) P 1-68A
Req. 1
Mitchell Company
Statement of Cash Flows
Year Ended March 31, 2022
Millions
Cash flows from operating activities:
Net income ……………………………………………………….. $ 3,020
Adjustments to reconcile net income to net cash
provided by operating activities ……………………… Net cash provided by operating activities ……….. 2,420
5,440
Cash flows from investing activities:
Purchases of property, plant, and equipment ……… Sales of property, plant, and equipment ……………… Other investing cash payments ………………………….. Net cash used for investing activities……………… $(2,640)
25
(195)
(2,810)
Cash flows from financing activities:
Issuance of common stock ………………………………… $ 190
Payment of dividends ………………………………………… (265)
Net cash used for financing activities …………….. (75)
Net increase in cash ………………………………………………. $ 2,555
Cash, beginning ……………………………………………………. 220
Cash, ending …………………………………………………………. $ 2,775
Req. 2
Operating activities provided the largest amount of cash. This signals
financial strength because operations should be the main source of
cash.
1-48 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(40-50 min.) P 1-69A
INCOME STATEMENT 2022 2021
Revenues ……………………………………………………….. 13,920 = $ k $14,750
Cost of goods sold …………………………………………… (11,100) A = (11,680)
Other expenses ……………………………………………….. (1,300) (1,200)
Income before income taxes …………………………….. 1,520 1,870
Income taxes (35% tax rate) ……………………………… 532 = l (655)
Net income ……………………………………………………… 988 = $ m $ b = 1,215
STATEMENT OF RETAINED EARNINGS
Beginning balance …………………………………………… 3,825 = $ n $ 2,680
Net income ……………………………………………………… 988 = o C = 1,215
Dividends declared ………………………………………….. (92) (70)
Ending balance ……………………………………………….. 4,721 = $ p $ d = 3,825
BALANCE SHEET
Assets:
Cash ……………………………………………………….. 1,020 = $ q $ e = 1,180
Property, plant and equipment …………………. 1,547 1,316
Other assets ……………………………………………. 11,959 = r 11,104
Total assets …………………………………….. 14,526 = $ s $13,600
Liabilities:
Current liabilities……………………………………… 4,815 = $ t $ 5,660
Long-term debt ………………………………………..
4,350
Other liabilities …………………………………………
35
Total liabilities …………………………………. 9,200 F = 9,210
Stockholders’ Equity:
Common stock ………………………………………… $ 425 $ 425
Retained earnings ……………………………………. 4,721 = u G = 3,825
Other stockholders’ equity ……………………….. 180 140
Total stockholders’ equity ………………… 5,326 = v 4,390
Total liabilities and stockholders’
equity ……………………………………………… 14,526 = $ w $ h = 13,600
STATEMENT OF CASH FLOWS …………………………
Net cash provided by operating activities ….. 630 = $ x $ 875
Net cash used for investing activities ……….. (270) (425)
Net cash used for financing activities ……….. (520) (520)
Increase (decrease) in cash ………………. (160) I = (70)
Cash at beginning of year ………………………… 1,180 = y 1,250
Cash at end of year ………………………………….. 1,020 = $ z $ j = 1,180
3,370
180
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-49(30 min.) P 1-70B
Computed amounts in boxes
Babble
Co.
Floralties,
Inc.
Drake
Co.
Millions
Balance Sheet
Beginning:
Assets ……………………………. $ 79 $ 35 $ 13
Liabilities ……………………….. 51 15 5
Common stock ……………….. 1 5 2
Retained earnings …………… 15 6
27 88 Ending:
Assets ……………………………. $ Liabilities ……………………….. 52 Common stock ……………….. 1 Retained earnings …………… 35 $ 53 $ 15
27 4
12 5
14 6
INCOME STATEMENT
Revenues ……………………….. $227 Expenses ……………………….. 218 Net income ……………………… $ $163 $ 27
153 23
9 $ 10 $ 4
STMT. OF RETAINED EARNINGS
Beginning RE ………………….. $ 27 $ 15 $ 6
+ Net income ……………………… 9 10 4
− Dividends declared …………. (1) (11) (4)
= Ending RE ………………………. $ 35 $ 14 $ 6
1-50 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(continued) P 1-70B
Babble Co. Floralties, Inc. Drake Co.
Millions
Net income ……………….. $9 $10 $4
Highest
% of net income $9 = 4.0% $10
= 6.1% $4 = 14.8%
to revenues …………… $227 $163 $27
Highest
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-51(20-25 min.) P 1-71B
Req. 1
Parker Design, Inc.
Balance Sheet
March 31, 2021
ASSETS LIABILITIES
Cash $ 8,000 Accounts payable $ 3,500
Accounts receivable 3,900 Note payable 53,000
Notes receivable 13,000 Total liabilities 56,500
Office supplies 1,400 STOCKHOLDERS’
Land 86,000 EQUITY
Equipment 39,000 Stockholders’ equity 94,800*
Total liabilities and
Total assets $151,300 stockholders’ equity $151,300
_____
*Total assets ($151,300) − Total liabilities ($56,500) = Stockholders’
equity ($94,800).
Req. 2
Parker Design, Inc. is in a better financial position than the erroneous
balance sheet reports. Assets are $9,800 greater and liabilities are
$16,300 less than originally reported, and equity is $26,100 greater than
reported originally.
Req. 3
The following accounts are not reported on the balance sheet because
they are expenses. Expenses are reported on the income statement.
Utilities expense
Advertising expense
Salary expense
Interest expense
1-52 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(20-25 min.) P 1-72B
Req. 1
Hudson Alvarez Realtor, Inc.
Balance Sheet
June 30, 2022
ASSETS LIABILITIES
Cash $ 44,000 Accounts payable $ 9,000
Office supplies 4,000 Note payable 102,000
Land 162,000 Total liabilities 111,000
Furniture 17,600 STOCKHOLDERS’
Franchise 16,000 EQUITY
Common stock 75,000
Retained earnings 57,600*
Total stockholders’ equity 132,600
Total assets $243,600 Total liabilities and
stockholders’ equity $243,600
_____
*Total assets ($243,600) − Total liabilities ($111,000) − Common stock
($75,000) = Retained earnings ($57,600).
Req. 2
It appears that Hudson Alvarez’s business can pay its debts. Total
assets far exceed total liabilities.
Req. 3
Personal items not reported on the balance sheet of the business:
a. Personal cash ($17,000)
b. Personal account payable ($6,500)
g. Personal residence ($419,000) and personal mortgage ($179,000)
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-53(30-45 min.) P 1-73B
Req. 1
Full Moon Products, Inc.
Income Statement
Year Ended December 31, 2021
Service revenue …………………… $451,600
Revenue:
Expenses:
Salary expense ……………………. $108,900
Rent expense ………………………. 41,000
Interest expense ………………….. 10,000
Utilities expense ………………….. 8,100
Property tax expense …………… 7,300
Total expenses ……………………. 175,300
Net income …………………………………… $276,300
Req. 2
Retained earnings, December 31, 2020 ……………… $364,800
Add: Net income ……………………………………………… 276,300
Subtotal 641,100
Less: Dividends declared …………………………………. (108,000)
Retained earnings, December 31, 2021 ……………… Full Moon Products, Inc.
Statement of Retained Earnings
Year Ended December 31, 2021
$533,100
1-54 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(continued) P 1-73B
Req. 3
Full Moon Products, Inc.
Balance Sheet
December 31, 2021
ASSETS LIABILITIES
Cash $ 46,000 Accounts payable $ 25,000
Accounts receivable 85,000 Interest payable 2,800
Supplies 6,200 Note payable 99,200
Land 29,000 Total liabilities 127,000
Building 405,000 STOCKHOLDERS’
Equipment 115,000 EQUITY
Common stock 26,100
Retained earnings 533,100
Total stockholders’ equity 559,200
Total liabilities and
Total assets $686,200 stockholders’ equity $686,200
Req. 4
a. Full Moon Products was profitable; net income was $276,300.
b. Retained earnings increased by $168,300 — from $364,800 to
$533,100.
c. Total equity ($559,200) exceeds total liabilities ($127,000).
Therefore, the stockholders have a greater claim against the
company’s assets than do the creditors.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-55(20 min.) P 1-74B
Req. 1
Tidal Wave Company
Statement of Cash Flows
Year Ended March 31, 2022
Millions
Cash flows from operating activities:
Net income ……………………………………………………….. $ 3,050
Adjustments to reconcile net income to net cash
provided by operating activities ……………………… Net cash provided by operating activities ……….. 2,380
5,430
Cash flows from investing activities:
Purchases of property, plant, and equipment ……… Sales of property, plant, and equipment ……………… Other investing cash payments ………………………….. Net cash used for investing activities……………… $(3,500)
60
(200)
(3,640)
Cash flows from financing activities:
Issuance of common stock ………………………………… $ 200
Payment of dividends ………………………………………… (360)
Net cash used for financing activities …………….. (160)
$1,630
Net increase in cash ………………………………………………. Cash, beginning ……………………………………………………. 270
Cash, ending …………………………………………………………. $ 1,900
Req. 2
Operating activities provided the bulk of Tidal Wave Company’s cash.
This is a sign of strength because operations should be the main
source of cash.
1-56 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(40-50 min.) P 1-75B
(Thousands)
INCOME STATEMENT 2022 2021
Revenues ………………………………………………………….. 13,800 = $ k $16,175
Cost of goods sold …………………………………………….. (11,020) a = (13,115)
Other expenses …………………………………………………. (1,250) (1,220)
Income before income taxes ………………………………. 1,530 1,840
Income taxes (35% tax rate) ……………………………….. 536 = l 644
Net income ……………………………………………………. 994 = $ m $ b = 1,196
STATEMENT OF RETAINED EARNINGS
Beginning balance …………………………………………….. 3,726 = $ n $ 2,670
Net income………………………………………………………… 994 = o c = 1,196
Dividends declared ……………………………………………. (98) (140)
Ending balance …………………………………………………. 4,622 = $ p $ d = 3,726
BALANCE SHEET
Assets:
Cash …………………………………………………………….. 980 = $ q $ e = 1,090
Property, plant and equipment ……………………….. 1,487 1,316
Other assets ………………………………………………….. 12,205 = r 12,060
Total assets ………………………………………………. 14,672 = $ s $14,466
Liabilities:
Current liabilities …………………………………………… 3,955 = $ t $ 5,610
Long-term debt ……………………………………………… 4,450 3,360
Other liabilities ……………………………………………… 995 1,140
Total liabilities …………………………………………… 9,400 f = 10,110
Stockholders’ Equity:
Common stock ……………………………………………… $ 450 $ 450
Retained earnings …………………………………………. 4,622 = u g = 3,726
Other stockholders’ equity …………………………….. 200 180
Total stockholders’ equity ………………………….. 5,272 = v 4,356
Total liabilities and stockholders’ equity …….. 14,672 = $ w $ h = 14,466
STATEMENT OF CASH FLOWS
Net cash provided by operating activities ……….. 700 = $ x $ 875
Net cash used for investing activities ……………… (300) (575)
Net cash used for financing activities ……………… (510) (500)
Increase (decrease) in cash ……………………….. ( 110) i = (200)
Cash at beginning of year ………………………………. 1,090 = y 1,290
Cash at end of year ……………………………………….. 980 = $ z $ j = 1,090
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-57Serial Case
(15-20 min) C1-76
1. The Cheesecake Factory is organized as a corporation, per the
name of the business (“Incorporated”).
2. Net income flows from the Income Statement to the Statement of
Retained Earnings.
3. Ending retained earnings flows from the Statement of Retained
Earnings to the Balance Sheet
4. Ending cash and cash equivalents flows from the Statement of
Cash Flows to the Balance Sheet
5. The Cheesecake Factory earned net income of $127,293 (in
thousands) in fiscal 2019. This income was earned from January
1, 2019 to December 31, 2019.
6. The Cheesecake Factory’s accounting equation (in thousands):
Assets = Liabilities + Shareholders’ Equity
$2,840,593 = $2,268,851* + $571,742
7. Cheesecake Factory had $2,840,593 (Total Assets) to work with
and owes $2,268,851* (Total Liabilities) to creditors. (Numbers in
thousands)
*($614,587 + $1,654,264 = $2,268,851)
1-58 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.Decision Cases
(30-40 min.) C1-77
Req. 1
Based solely on these balance sheets, Insley Sales Co. appears to be
the better credit risk because:
1. Queens Service has more assets ($150,000) than Insley Sales
($65,000), but Queens Service owes much more in liabilities
($130,000 versus $15,000 for Insley Sales). Insley Sales’
stockholders’ equity is far greater than that of Queens Service
($50,000 compared to $20,000). Insley Sales is not heavily in debt,
but Queens Service is.
2. You would be better off granting the loan to Insley Sales. You should
consider what will happen if the borrower cannot pay you back as
planned. Queens Service has far more liabilities to pay, and it may
be hard for Queens Service to come up with the money to pay you.
On the other hand, Insley Sales has little debt to pay to others before
paying you.
Student responses may vary.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-59(20-30 min.) C1-78
Req. 1
Flowers Unlimited, Inc. Flowers Unlimited, Inc.
Income Statement Balance Sheet
Year Ended Dec. 31, 2021 Dec. 31, 2021
Revenue………… $140,0001 Cash…………… $ 6,000 Liabilities……… $70,0004
Expenses……….. 140,0002 Other assets…. 90,0003 S/H Equity…….. 26,0005
Total liabilities
Net income……… $ -0- Total assets…… $96,000 and S/H equity $96,000
_____
1$100,000 + $40,000 = $140,000
2$80,000 + $50,000 + $10,000 = $140,000
3$100,000 − $50,000 + $40,000 = $90,000
4$60,000 + $10,000 = $70,000
5$96,000 − $70,000 = $26,000
Req. 2
The company’s financial position is much weaker than originally
reported. Assets and stockholders’ equity are lower and liabilities are
higher. Results of operations are worse than reported. The company
did not earn any profit.
Req. 3
Based on the actual figures, I would not invest in Flowers Unlimited for
reasons given in Req. 2.
1-60 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.Ethical Issue
(40-50 min) C1-79
Note to instructor: student responses will vary on this problem. Keep
the discussion pointed toward use of the multiple-criteria model for
making good ethical decisions, pointing out elements of students’
reasoning that may be faulty or incomplete. It might be useful to have
a debate or role play, assigning students to different sides of the issue
(for or against accepting a copy of the exam).
Req. 1
The fundamental ethical issue in this situation is whether you should
accept a copy of the old exam from your friend.
Req. 2
The stakeholders are:
a. You
b. Your friend
c. The remainder of the students in the class
d. The professor
e. The University
f. Your family
(This may not be a complete list; you may think of more.)
Consequences are discussed in requirement 3.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-61(continued) C1-79
Req. 3
Analysis of the problem:
Economic perspective: If use of the old exam turns out to help you (it
may not) you might improve your grade and allow you to retain your
scholarship. This might help you and your family financially. If you use
the exam to your unfair advantage, and you are reported, you and
possibly your friend might receive grades of F in the class although
you might otherwise have passed. This could cause adverse economic
consequences to you, your friend and your families.
Legal perspective: Although it may not violate local or federal law,
giving or accepting copies of old exams may violate the university’s
honor code, which serves the same purpose as a legal code in this
case. If you use the old exam and it turns out that you violated the
University’s honor code, both you and your friend could be in trouble.
Your family and your friend’s family could also be impacted by any
adverse consequences to you or her. Academic institutions establish
policies against academic dishonesty because cheating hurts
everyone—the student who commits the act, the other students in the
class whose rights to fair treatment are violated by cheating, and the
professor who must endure hours of investigating, reporting, and
perhaps testifying.
Ethical perspective: Receiving questionable help from others in the
face of policies that prohibit it is, at best, risky, and at worst, downright
wrong. Cheating is similar to stealing, since it is stealing
1-62 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(continued) C1-79
the work of another without their permission. It is usually accompanied
by lying to cover it up, or at least, not revealing the truth. Cheating
violates other students’ rights to fair and equal treatment. It violates
the instructor’s rights to run a course as a “fair game” for all
participants. Because the students and faculty are hurt by cheating,
the university is hurt too. If cheating goes unpunished, grades are
inflated, ultimately damaging the academic reputation of the institution
and eroding the value of its degrees. Parents of students who are
caught cheating have to endure the agony of working through the
problem with their son or daughter, and perhaps the social stigma that
comes from adverse publicity.
These are just some of the arguments against cheating. Of course,
there is a question in this case as to whether taking the test actually
violates the professor’s or the university’s policies.
Req. 4
It would be helpful to find out what the professor’s policies are with
respect to the use of fraternity and sorority test files. The university
might have a blanket policy on this. (Some students might spend a
little time researching this by reading the university’s honor code on
their web site; just reading the honor code will be an eye-opening
experience for most students). Advise your students to research the
use of fraternity and sorority test files on the university web site, or to
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-63(continued) C1-79
discuss the issue with the head of the department or the chair of the
university honor council.
Unfortunately, in this case, there is not much time. Researching the
issue in the university’s honor code takes valuable time away from
studying for the exam, which, if you do, could help you raise your grade
and solve the whole problem!
Probably the best solution to this problem is “when in doubt, don’t.”
You may not do well on the test, but at least you won’t have to live with
the terrible consequences of being accused as a cheater. It should
make you feel better in the long run that, although you may not make
the highest grades in the class, at least you are not a cheater.
Req. 5
Cheating is very closely related to stealing, which is a form of fraud.
When employees steal from their companies, they steal property that
belongs to others. There are economic, legal, and ethical
consequences to the company, the employee and their families, and
customers (who ultimately have to pay for fraud through higher prices).
We will study fraud in depth in Chapter 4.
1-64 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.Focus on Financials: Apple Inc.
(20-30 min.) C1-80
1. Students can emphasize a variety of points regarding Apple Inc., and
its industry. For example, a discussion on the product innovation
and competitive changes in technology would be appropriate.
Additionally, discussing recent news articles related to Apple or its
competitors would also be appropriate. Student answers will vary.
2. Some important information in this portion of the financials is the
description of their distribution channels (third-party resellers),
competitors (product innovation, market opportunities, etc.), and
supply chain (shortages, component availability, outsourcing, etc).
Additionally, the seasonality of Apple’s business is important to
note given that it has higher sales in its first quarter relative to the
last three. Lastly, it may come as a surprise that Apple employs
approximately 137,000 full-time employees. (Student answers will
vary.)
3. Samsung, Google, Sony, or HP are some of Apple Inc.’s competitors.
It is important to identify competitors because competitors tend to
have similar business dynamics to one another, meaning that their
financial statements can be compared to and benchmarked against
each other. Student answers will vary.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-65(continued) C1-80
4. Net income, because it shows the overall result of all the revenues
minus all the expenses for a period. In effect, net income gives the
results of operations in a single figure and shows whether the
company has been profitable. Apple’s net income after taxes
decreased from $59.5 billion in 2018 to $55.3 billion in 2019, which is
unfavorable.
5. Apple Inc.’s largest expense is cost of sales. The company has cost
of sales for products and cost of sales for services. The former is
the cost of the products that the company sells, such as iPhones,
iPads, Apple TVs, software, and Mac desktops. The cost of sales for
services pertains to the cost of services that Apple provides such as
iCloud, Siri, and Maps. Another title of this account is cost of goods
sold. In this chapter, The Walt Disney Company called this account
cost of products and cost of services.
6. Total resources (total assets) at September 28, 2019.….$338,516
million
Amount owed (total liabilities) at September 28, 2019….$248,028
million
Portion of the company’s assets owned by the stockholders
(stockholders’ equity) at September 28, 2019…………….$90,488
million
Apple Inc.’s accounting equation (in millions):
Assets = Liabilities + Stockholders’ Equity
$338,516 = $248,028 + $90,488
1-66 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(continued) C1-80
7. At September 29, 2018, Apple Inc. had $25,913 million of cash and
cash equivalents. At September 28, 2019, Apple Inc. had $48,844
million of cash and cash equivalents.
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-67Focus on Analysis: Under Armour, Inc.
(30 min.) C1-81
1. Under Armour, Inc. is an athletic apparel company. Students can
emphasize a variety of points regarding Under Armour, Inc. and its
industry. For example, a discussion on the brand, new product
development, etc. would be appropriate. Additionally, discussing
recent news articles related to Under Armour or its competitors
would also be appropriate. (Student answers will vary.)
2. Note 1 states Under Armour is a developer, marketer and distributor
of branded performance apparel, footwear, and accessories. These
products are sold worldwide and worn by athletes of all levels and
consumers with active lifestyles.
3. Nike, Adidas, and Columbia Sportswear are some of Under Armour,
Inc.’s competitors. It is important to identify competitors because
competitors tend to have similar business dynamics to one another,
meaning that their financial statements can be compared to and
benchmarked against each other. (Student answers will vary.)
1-68 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.(continued) C1-81
4. Under Armour, Inc.’s Accounting Equation (in thousands):
Assets = Liabilities + Shareholders’ Equity
$4,843,531 = $2,693,444 + $2,150,087
If we express the numbers in millions:
Assets = Liabilities + Shareholders’ Equity
$4,843 = $2,693 + $2,150
Under Armour, Inc. appears to be in strong financial condition. Total
assets are significantly higher than the amount of total liabilities.
This suggests that the company will have no difficulty paying its
debts and will have money to expand.
5. The result of operations for 2019 was a net income of $92,139
thousand, following two years of net losses. This is good news for
Under Armour, Inc. Revenue exceeded expenses for fiscal 2019, and
there appears to be a reversal of the company’s fortunes from
previous years. It is too early to tell, however, whether profitability
is a trend.
6. According to Under Armour, Inc.’s Consolidated Statements of
Stockholders’ Equity, the cause of the company’s increase in
retained earnings during 2019 was comprehensive income of
$92,139 thousand. (Comprehensive income is closely related to net
income.)
7. The Consolidated Balance Sheets report cash and cash equivalents
as part of the company’s financial position. The Consolidated
Copyright © 2022 Pearson Education Inc. Chapter 1 The Financial Statements 1-69(continued) C1-81
Statements of Cash Flows tell why cash and cash equivalents
increased or decreased. Operating activities provided $509,031
thousand, investing activities used $147,113 thousand, and
financing activities used $137,070 thousand.
1-70 Financial Accounting 13/e Solutions Manual Copyright © 2022 Pearson Education Inc.Group Projects
Student responses will vary.
There are no reviews yet.