Problem Set A 105 EXERCISE 2.17 Assessing Financial Results What are the two largest assets and liabilities included in the company’s balance sheet at the end of the year? ‘MeKesson Corporation's annual report for the year ended March 31, 2009, includes income ‘statements for three years: ending on March 31, 2007, 2008, and 2009, Net income for these three ‘years is as follows (alin millions): $913 (2007), $990 (2008), and $823 (2008). Further analysis ‘of the same income statements reveals that revenues were the following amounts for these same ‘years (all in millions): $92,977 (2007), $101,703 (2008), and $106,632 (2008). State each year’s ret income as a percentage of revenues and comment briefly on the trend you sce over the thrce- year period, (04 PROBLEM 2.1A Preparing and Evaluating a Balance Sheat Problem Set A moonnect) Listed below in random order are the items to be included in the balance sheet of Smokey Moun: tain Lodge at December 31, 2011 Equipment ...........2.-. $99,200 Bulaings....... $450,000 Land 425,000 Capital Stock 135,000 ‘Accounts Payable. 54800 Cash 31,400 ‘Accounts Receivable 10,600 Fumishings 58,700 Salaries Payable 33.500 Snowmobiles 15,400 Interest Payabio 12,000 Notes Payable 620,000 Retained Earnings 2 Instructions a. Prepare a balance sheet at December 31, 2011. Include a proper heading and organize your balance sheet similar to Exhibit 2-9. (After “Buildings.” you may list the remaining assets in any order.) You will need to compute the amount to be shown for Retained Earnings. 'b. Assume that no payment is due on the notes payable until 2013. Does this balance sheet Indicate that the company is ina strong financial postion as of December 31, 2011? Explain briefly ‘The following six transactions of Ajax Moving Company, a corporation, are summarized in equa- tion form, with each of the six transactions identified by a letter. For each of the transactions (a) through (0) write a separate statement explaining the nature of the transaction. For example, the explanation of transaction (a) could be as follows: Purchased equipment for cash ata cost of $3,200. Owners’ Assets = Liabilities + Equity ‘Accounts ‘Accounts: Cash + Receivable + Land + Building + Equipment = Payable + Capital Stock Balances $26,000 ‘$93,000 $46,000 $110,000 ‘$96,000 $42,000 $214,000 @) 3,200, Balances: $93,000 $45,000 $110,000 $33,200 $42,000 214,000 ©) 900 Balances $98,100 $48,000 $170,000 $39,200 {$42,000 $214,000 © “$10,000 Balances $38,100 $48,000 $110,000 $852,000 $214,000 @ =14,500 Balances $38,100 $48,000 $110,000 $52,700 $37,500 $214,000 ©) 115,000 Balances, $98,100 $45,000 $110,000 $52,700 897,500 $229,000 0 7,500, "7.500, Balances $20,700 $38,100 $45,000 $110,000 $360,200 $45,000 $229,00070 (Chapter 2 Basic Financial Statements 03 PROBLEMIZIGA — Goldstar Communications was organized on December 1 ofthe current year and had the following (REGOPSIAGUESIEREE account balances at December 31, listed in tabular form: (of Transactions Owners’ Assets Liabilities + Equity Office Notes Accounts Cash + Land + Building + Equipment = Payable + Payable + Capital Stock Balances $97,000 $95,000 ‘$125,000 $51,250 ‘$80,000 $28,280 $200,000 Early in January, the following transactions were carried out by Goldstar Communications: 1. Sold capital stock to owners for $35,000. 2. Purchased land and a small office building for a total price of $90,000, of which $35,000 was the value of the land and $55,000 was the value of the building. Paid $22,500 in cash and signed a note payable for the remaining $67,500. 3. Bought several computer systems on credit for $9,500 (30-day open account). 4. Obtained a Ioan from Capital Bank in the amount of $20,000. Signed a note payable. ‘5. Paid the $28,250 account payable due as of December 31. Instructions a. List the December 31 balances of assets, liabilities, and owners’ equity in tabular form as shown, 1b. Record the effects of each ofthe five transactions in the format illustrated in Exhibit 2-11, ‘Show the totals for all columns after each transaction. ‘The items making up the balance sheet of Rankin Truck Rental at December 31 are listed below in (03 PROBLEM 2.40 (APUAIERRate PFOBIGR) ‘ebular form similar to te illustration ofthe accounting equation in Exhibit 2-11 on Recording tne owners’ Asset Liabilities + Equity ‘Accounts Office Notes Accounts Cash + Receivable + Trucks + Equipment = Payable + Payable + Capital Stock Balances $9,500 $18,900 $68,000 $3,800 {$20,000 ‘$10,200 $65,000 During a short period after December 31, Rankin Truck Rental had the following transactions: 1. Bought office equipment at a cost of $2,700. Paid cash. 2. Collected $4,000 of accounts receivable. 3. Paid $3,200 of accounts payable. 4. Borrowed $10,000 from a bank. Signed a note payable for that amount. 'S. Purchased two trucks for $30,500. Paid $15,000 cash and signed a note payable for the balance. {6 Sold additional stock to investors for $75,000. Instructions a. List the December 31 balances of assets, liabilities, and owners’ equity in tabular form as shown above, b. Record the effects of each of the six transactions in the preceding tabular arrangement, Show the totals forall columns aftr each transaction.74 (Chapter 2 Basic Financial Statements In discussion with Pippin and by inspection ofthe accounting records, you discover the follow- ing facts: 1. ‘The amount of cash, $5,150, includes $3,400 in the company's bank acount, $540 on hand in the company’s safe, and $1,210 in Pippin’s personal savings account. 2. One of the notes receivable in the amount of $S00 is an IOU that Pippin received in a poker game several years ago. The JOU is signed by “B.K.," whom Pippin met atthe game but has not heard from since. 3. Office furniture includes $2,900 for a Persian rug for the office purchased on November 20. ‘The total cost ofthe rug was $9,400. The business paid $2,900 in cash and issued a note pay- able to Zoltan Carpet forthe balance due ($6,500). As no payment on the note is due until ‘anuary, this debt isnot included in the liabilities above. 4, Also included in the amount for office furniture is a computer that cost $2,525 but is not on hhand because Pippin donated itt a local charity 'S. The “Other Assets” of $22,400 represent the total amount of income taxes Pippin has paid the federal government over a period of years. Pippin believes the income tax law to be uncon~ stitutional, ands friend who attends law school has promised to help Pippin recover the taxes paid as soon ashe passes the bar exam. 6. The asset “Land” was acquired at a cost of $39,000 but was increased to a valuation of $870,000 when one of Pippin’s friends offered to pay that much for it if Pippin would move the building off the lo 7. The accounts payable include business debts of $32,700 and the $3,105 balance owed on Pippin’s personel MasterCard. Instructions ‘a. Prepare a corrected balance sheet at November 30, 2011 For each of the seven numbered items above, use a separate numbered paragraph to explain ‘whether the treatment followed by Pippin is in accordance with generally accepted accounting, principles. C (04 PROBLEM 2.18 Preparing and Evaluating a Balance Sheet ia. connect Problem Set B Listed below in random order are the items to be included in the balance sheet of Deep River Lodge at December 31, 2011: Equipment. ....... $ 9,000 Buildings .. $430,000 Land 140,000 Capital Stock. 2 ‘Accounts Payable 27,400 Cash 9,100 ‘Accounts Receivable = 3800 -Fumishings . 22,600 Salaries Payable 1,200 Notes Payable 217,000 Interest Payabie Retained Earnings 202,400 Instructions ‘a. Prepare a balance shect at December 31, 2011, Include a proper heading and organize your balance sheet similar to the illustrations shown in Chapter 2. (After “Buildings.” you may list the remaining assets in any order.) You will need to compute the amount to be shown for Capital Stock. 1b. Assume that no payment is due on the notes payable until 2013. Does this balance sheet indicate that the company is ina strong financial postion as of December 31, 2011? Explain betty ‘Six transactions of Brigal Company, a corporation, are summarized below in equation form, with ‘each ofthe six transactions identified by a letter. For each of the transactions (a) through (0) write a ‘separate statement explaining the nature ofthe transaction. For example, the explanation of trans- action (a) could be as follows: Purchased furniture for cash ata cost of $800,Problem Set 8 ‘owners’ Assets = Liabilities + Equity ‘Accounts ‘Accounts: + Receivable + Land + Bullding + Furniture = Payable + Capital Stock Balances: '$80,000 $40,000 $90,000 $10,000 $80,000 ‘$149,000 (@) 800 Balances $390,000 $40,000 $80,000 510,800 580,000 149,000 ) =500 Balances: $29,500 $40,000 $90,000 $10,800 $330,000 '5149,000 © 5,000 2,000 Balances $329,500 $40,000 $90,000 515,800 $532,000 '5149,000 @ 2,000 Balances $23,500 $40,000 $90,000 515,800 $330,000 ‘5149.00 ‘e) “+ 10,000 Balances 323500 $40,000 $80,000 515,800 330,000 '5159,000 o “3,000 3,000 Balances, $23,500 $40,000 $90,000 $18,800 $333,000 '5159,000 (08 PROBLEM 2.38 ‘Delta Corporation was organized on December I of the current year and had the following account [REcOrSISGIAREIEHEEE balances at December 31, listed in tabular form: ‘of Transactions: Owners! Assets = Liabilities + Equity Office Notes ‘Accounts Cash + Land + Building + Equipment = Payable + Payable + Capital Stock Balances $12,000 $60,000 $66,000, $47,300 $42,000 ‘$7,300 '$150,000 Barly in January the following transactions were carried out by Delta Corporation: 1, Sold capital stock to owners for $40,000. 2. Purchased land and a small office building for a total price of $80,000, of which $30,000 was the value of the land and $50,000 was the value of the building. Paid $10,000 in eash and signed a note payable for the remaining $70,000. ‘3. Bought several computer systems on credit for $8,000 (30-day open account), 4, Oblained a loan from 2nd Bank in the amount of §12,000. Signed a note payable. ‘5. Paid the $4,000 account payable due as of December 31 Instructions ‘a. List the December 31 balances of assets, liabilities, and owners’ equity in tabular form as shown above, 1B. Record the effects of each of the five transactions inthe format illustrated in Chapter 2 of the text, Show the totals for all olumas after each transaction. 03 (PROBUEMIZME © The items making up the balance sheet of Smith Trucking at December 31 at iste below in tabu ‘nateal rtm lar form similar to the illustration ofthe accounting equation in Chapter 2 of the text. owners! Assets = Liabilities + Equity ‘Accounts: Office Notes ‘Accounts Cash + Receivable + Trucks + Equipment = Payable + Payable + Capital Stock Balances $4,700 8,300 $72,000 33,000 $10,000 ‘$8,000 $70,000