Chapter 1
Financial Statements and Business Decisions
E1–3.
L (1) Bank loans A (10) Machinery and equipment
E (2) Selling, marketing, and R (11) Net product sales
administrative expenses
L (3) Accounts payable A (12) Inventories
L (4) Dividends payable A (13) Trademarks
SE (5) Retained earnings A (14) Buildings
A (6) Cash and cash equivalents A (15) Land
A (7) Accounts receivable L (16) Income taxes payable
E (8) Provision for income taxes* E (17) Rental and royalty costs
E (9) Product cost of goods sold A (18) Investments (in other companies)
*Note that “Provision for income taxes”（所得税准备金） is a common synonym for “Income
tax expense.”
Financial Accounting, 12/e 1-1
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E1–9.
Inferring Values Using the Income Statement and Balance Sheet Equations
Review the chapter explanations of the income statement and the balance sheet
equations. Apply these equations in each independent case to compute the two missing
amounts for each case. Assume that it is the end of the first full year of operations for
the company. (Hint: Organize the listed items as they are presented in the balance
sheet and income statement equations and then compute the missing amounts.
Net Income (or Loss) = Revenues - Expenses
Assets = Liabilities + Stockholders’ Equity
A. Net Income = $93,500 - $75,940 = $17,560;
Stockholders’ Equity = $140,200 - $56,500 = $83,700.
B. Total Revenues = $75,834 + $14,740 = $90,574;
Total Liabilities = $107,880 - $77,500 = $30,380.
C. Net Loss = $68,120 - $76,430 = ($8,310);
Stockholders’ Equity = $98,200 - $69,850 = $28,350.
D. Total Expenses = $55,804 - $21,770 = $34,034;
Total Assets = $20,300 + $78,680 = $98,980.
E. Net Income = $84,840 - $75,320 = $9,520;
Total Assets = $25,520 + $80,000 = $105,520.
PROBLEMS
(Note to the instructor: Most students find the Problems in this chapter to be quite
challenging.)
P1–1. Preparing an Income Statement, Statement of Stockholders’ Equity, and
Balance Sheet
Financial Accounting, 12/e 1-2
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Assume that you are the president of Highlight Construction Company. At the end of the
first year of operations (December 31), the following financial data for the company are
available:
Cash $25,600
Receivables from customers (all considered collectible) 10,800
Inventory of merchandise (based on physical count and priced at cost) 81,000
Equipment owned, at cost less used portion 42,000
Accounts payable owed to suppliers 46,140
Salary payable (on December 31, this was owed to an employee who will be paid on
January 10) 2,520
Total sales revenue 128,400
Expenses, including the cost of the merchandise sold (excluding income taxes)
80,200
Income tax expense at 30% × Pretax income; all paid during the current year ?
Common stock (December 31) 87,000
Dividends declared and paid during the current year 10,000
(Note: The beginning balances in Common Stock and Retained Earnings are zero
because it is the first year of operations.)
Required:
Using the financial statement exhibits in the chapter as models and showing
computations:
Prepare a summarized income statement for the year.
Prepare a statement of stockholders’ equity for the year.
Prepare a balance sheet at December 31.
Financial Accounting, 12/e 1-3
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Req. 1
HIGHLIGHT CONSTRUCTION COMPANY
Income Statement
For the Year Ended December 31, Current Year
Total sales revenue (given) $128,400
Total expenses (given) 80,200
Pretax income 48,200
Income tax expense ($48,200 x 30%) 14,460
Net income $ 33,740
Req. 2
HIGHLIGHT CONSTRUCTION COMPANY
Statement of Stockholders’ Equity
For the Year Ended December 31, Current Year
Common Stock Retained Earnings
Balance January 1, Current year $ 0 $ 0
Stock issuance (given) 87,000
+Net income (from req. 1) 33,740
–Dividends (given) $ 87,000 (10,000)
Balance December 31, Current year $ 87,000 $ 23,740
Req. 3
HIGHLIGHT CONSTRUCTION COMPANY
Balance Sheet
At December 31, Current Year
Assets
Cash (given) $ 25,600
Receivables from customers (given) 10,800
Inventory of merchandise (given) 81,000
Equipment (given) 42,000
Total assets $159,400
Liabilities
Accounts payable (given) $46,140
Salary payable (given) 2,520
Total liabilities $ 48,660
Stockholders' Equity
Common stock (given) 87,000
Retained earnings (from req. 2) 23,740
Total stockholders' equity 110,740
Total liabilities and stockholders' equity $159,400
Financial Accounting, 12/e 1-4
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McGraw Hill LLC.