Friday, June 3, 2016

Chapter -1 Financial accounting An introduction to concepts, methods and uses - Solutions for text book questions with case studies and answers to problems.

Chapter -1 continued

1.18         (Colgate Palmolive Company; understanding the balance sheet.)

a.    Property, plant and equipment, net = $3,015.2 million.

b.    Noncurrent assets = $6,493.5 (= $3,015.2 + $2,272.0 + $844.8 + $361.5).

c.     Long-term debt = $3,221.9 million.

d.    Current assets – Current liabilities = $3,618.5 – $3,162.7 = $455.8 million.

e.     Yes, Colgate has been profitable since its inception.  We know this because its Retained Earnings, of $10,627.5 million, is positive.  Colgate may have had a loss in one or more prior years; cumulatively, it has had positive income.

f.     Total Liabilities/Total Assets = $7,825.8/$10,112.0 = 77.4%.

g.    Total Assets   = Total Liabilities + Shareholders’ Equity
                       
          $10,112.0      =        $7,825.8       +           $2,286.2
1.19         (Mayr Melnhof Karton; understanding the income statement.)

a.    Cost of Goods Sold =  1,331,292.1 thousand.

b.    Selling and distribution expenses =  172,033.4 thousand.

c.     Gross margin percentage = 23.4% (=  405,667.1/ 1,736,959.2).

d.    Operating profit =  169,418.2 thousand.
       
        Profit before tax =  170,863.9 thousand.

        Difference equals  1,445.7 thousand (=  169,418.2 –  170,863.9).  The items comprising this difference are sources of income (expense) of a nonoperating nature for Mayr Melnhof.

e.     Effective tax rate =  54,289.9/ 170,863.9 = 31.8%.

f.     Profit =  116,574.0 thousand.
1.20         (Bed, Bath and Beyond, Inc.; understanding the statement of cash flows.)

a.    Cash inflow from operating activities = $614,536 thousand.

b.    Cash inflow from investing activities = $101,698 thousand


1.20 continued.

c.     Cash inflow used in financing activities = $705,531 thousand.

d.    Net cash flow equals $10,703 thousand (= $614,536 + $101,698 – $705,531).

e.     Change in cash balance equals $10,703 thousand (= $224,084 $213,381).  The increase was attributable to the net cash inflow during the year of the same amount, $10,703 thousand.
1.21         (Alcatel-Lucent; balance sheet relations.)  (Amounts in Millions)

                                                                                                                    Share-
Current        Noncurrent         Current         Noncurrent         holders’
  Assets     +        Assets       =    Liabilities +    Liabilities   +     Equity

 20,000     +       29,402      =      15,849      +             ?              +      17,154

Noncurrent liabilities total  16,399 million.
1.22         (Gold Fields Limited; balance sheet relations.)  (Amount in Millions of Rand)

                                                                                                                    Share-
Current        Noncurrent         Current         Noncurrent         holders’
  Assets    +         Assets       =    Liabilities +    Liabilities   +     Equity

R6,085.1  +      R49,329.8    =     R4,360.1     +     R13,948.4     +           ?

Shareholders’ Equity totals R37,106.4 million.
1.23         (Rolls Royce Group Plc.; income statement relations.)

Sales.........................................................................................................       £    7,435
Less Cost of Sales..................................................................................            (6,003)
Gross Margin..........................................................................................       £    1,432
Less Other Operating Expenses........................................................                (918)
Loss on Sale of Business......................................................................                    (2)
Net Financing Income.........................................................................                 221
Profit before Taxes................................................................................       £        733
Less Tax Expense.................................................................................                (133)
Net Income.............................................................................................       £        600
1.24         (General Motors Corporation; income statement relations.)

Sales.......................................................................................................      $   207,349
Cost of Sales..........................................................................................         (164,682)
Other Operating Expenses................................................................            (50,335)
Net Financing Income........................................................................                5,690
Net Loss.................................................................................................      $      (1,978)


1.25         (Gold Fields; retained earnings relations)  (Amounts in Millions of Rand)

Retained                                                                            Retained
Earnings                                                     Net        Dividends          Earnings
at End of                    Income                   Declared             =      at End of
      2006         +          for 2007         –      for 2007                      2007

   R4,640.9       +            R2,362.5           –              ?                     =        R5,872.4

Dividends declared during 2007 totaled R1,131.0 million.
1.26         (Sterlite Industries; retained earnings relations.)  (Amounts in Millions of Rupees)

Retained                                                                             Retained
Earnings                        Net                       Dividends                     Earnings
March 31,                     Income                   Declared             =      March 31,
     2006          +          for 2006         –      for 2006                      2007

Rs26,575         +                    ?                  –       Rs3,544                =      Rs70,463

Net income for the year ended March 31, 2007 (fiscal 2006) was Rs47,432 million.
1.27         (Target Corporation; cash flow relations.)  (Amounts in Millions)

Cash at        Cash Flow       Cash Flow       Cash Flow           Cash at
  Feb. 3,               from                   from                   from                   Feb. 2,
      2007   +   Operations  +    Investing   +    Financing   =         2008

      $813   +        $4,125         +     $(6,195)      +        $3,707        =            ?

Cash balance at February 3, 2008 = $2,450 million.
1.28         (Edeneor S.A.; cash flow relations.)  (Amounts in Millions)

Cash at        Cash Flow       Cash Flow       Cash Flow           Cash at
  End of               from                   from                   from                   End of
      2006   +   Operations  +    Investing   +    Financing   =         2007

Ps32,673  +     Ps427,182     +             ?            +    Ps(21,806)     =   Ps101,198

The net cash outflow for investing for 2007 = Ps(336,851) million.


1.29         (Kenton Limited; preparation of simple balance sheet; current and noncurrent classifications.)

                                                                                                                       January 31,
                                                                                                                              2008
Assets
Cash.........................................................................................................       £    2,000
Inventory................................................................................................           12,000
Prepaid Rent..........................................................................................           24,000
     Total Current Assets........................................................................       £  38,000
Prepaid Rent..........................................................................................       £  24,000
     Total Noncurrent Assets.................................................................       £  24,000
     Total Assets........................................................................................       £  62,000
Liabilities and Shareholders’ Equity
Accounts Payable..................................................................................       £  12,000
     Total Current Liabilities.................................................................       £  12,000
     Total Noncurrent Liabilities..........................................................                     --
     Total Liabilities.................................................................................       £  12,000
Common Stock.......................................................................................       £  50,000
     Total Shareholders’ Equity............................................................       £  50,000
     Total Liabilities and Shareholders’ Equity.................................       £  62,000
1.30         (Heckle Group; preparation of simple balance sheet; current and noncurrent classifications.)
                                                                                                                         June 30,
                                                                                                                             2008
Assets
Cash......................................................................................................           720,000
     Total Current Assets.....................................................................           720,000
Property, Plant and Equipment.....................................................           600,000
Patent...................................................................................................            120,000
     Total Noncurrent Assets..............................................................           720,000
     Total Assets.....................................................................................       1,440,000
Liabilities and Shareholders’ Equity
Accounts Payable...............................................................................           120,000
     Total Current Liabilities..............................................................           120,000
Note Payable.......................................................................................           400,000
     Total Noncurrent Liabilities.......................................................           400,000
     Total Liabilities..............................................................................           520,000
Common Stock....................................................................................           920,000
     Total Shareholders’ Equity.........................................................           920,000
     Total Liabilities and Shareholders’ Equity..............................       1,440,000


1.31         Boeing Company; accrual versus cash basis of accounting.)

a.    Net Income = Sales Revenue   – Expenses
                                       
                              = $66,387 million – $62,313 million = $4,074 million.
       
        Net Cash Flow = Cash Inflows       – Cash Outflows
                                   
                                    = $65,995 million   – $56,411 million = $9,584 million.

b.    Cash collections may exceed revenues for at least two reasons.  First, Boeing may have collected in 2007 on customer credit sales made in 2006.  Second, Boeing may have collected cash from customers in advance of providing them with goods and services.

c.     Cash payments may be less than expenses for at least two reasons.  First, Boeing may have received goods and services from suppliers, but not yet paid for those items (i.e., the amounts are to be paid in the next year).  Second, Boeing may have accrued expenses in 2007 that will be paid in cash in future periods; an example would be the accrual of interest expense on a bond that will be paid the next year.
1.32         (Fonterra Cooperative Group Limited; accrual versus cash basis of accounting.)

Calculation of net income for the year ended May 31, 2007:

                                                                                                                           May 31,
                                                                                                     2007
Revenue.................................................................................................      $     13,882
Cost of Goods Sold................................................................................            (11,671)
Interest and Other Expenses............................................................              (2,113)
Income before Taxes...........................................................................      $             98
Tax Expense.........................................................................................      $            (67)
Net Income............................................................................................      $             31

Calculation of net cash flow for the year ended May 31, 2007:

                                                                                                                          May 31,
                                                                                                    2007
Cash Receipts from Customers.........................................................      $     13,882
Miscellaneous Cash Receipts............................................................                   102
        Total Cash Receipts.....................................................................      $     13,996
Cash Payments to Employees and Creditors................................      $      (5,947)
Cash Payments to Milk Suppliers...................................................              (6,261)
Cash Payments for Interest Costs...................................................                 (402)
Cash Payments for Taxes..................................................................                    (64)
        Total Cash Payments..................................................................      $    (12,674)
Net Cash Flow......................................................................................      $       1,322


1.33         (Dragon Group International Limited; balance sheet relations.)  (Amounts in Millions)

The missing items appear in boldface type below.

                                                                                2007            2006
Assets
Current Assets...............................................................   $    170,879   $    170,234
Noncurrent Assets........................................................            28,945            17,368
     Total Assets................................................................   $    199,824   $    187,602
Liabilities and Shareholders' Equity
Current Liabilities........................................................   $    139,941   $    126,853
Noncurrent Liabilities.................................................              7,010              7,028
     Total Liabilities.........................................................   $    146,951   $    133,881
Shareholders' Equity....................................................   $      52,873   $       53,721
     Total Liabilities and Shareholders' Equity.........   $    199,824   $    187,602
1.34         (Lenovo Group, Inc.; balance sheet relations.)

The missing items appear in boldface type below.

                                                                               2008             2007
Assets
Current Assets............................................................. $   4,705,366   $   3,062,449
Noncurrent Assets.....................................................        2,494,481        2,388,389
     Total Assets.............................................................   $   7,199,847   $   5,450,838
Liabilities and Shareholders' Equity
Current Liabilities.....................................................   $   4,488,461   $   3,527,504
Noncurrent Liabilities..............................................        1,098,123           789,058
     Total Liabilities......................................................   $   5,586,584   $   4,316,562
Shareholders' Equity.................................................   $   1,613,263   $   1,134,276
     Total Liabilities and Shareholders' Equity......   $   7,199,847   $   5,450,838
1.35         (Colgate Palmolive Company; income statement relations.)

The missing items appear in boldface type below.

                                                                                   2007           2006           2005
Sales......................................................................    $  13,790   $  12,238   $  11,397
Cost of Goods Sold...............................................         (6,042)       (5,536)       (5,192)
Selling and Administrative Expenses............         (4,973)       (4,355)       (3,921)
Other (Income) Expense....................................             (121)          (186)             (69)
Interest Expense, Net........................................             (157)          (159)          (136)
Income Tax Expense..........................................             (759         (648)          (728)
Net Income...........................................................    $    1,738   $    1,354   $   1,351


1.36         (Polo Ralph Lauren; income statement relations.)  (Amounts in Millions)

The missing items appear in boldface type below.

                                                                          2007              2006               2005
Net Revenues.............................................    $   4,295.4    $   3,746.3      $   3,305.4
Cost of Goods Sold......................................        (1,959.2)       (1,723.9)        (1,620.9)
Selling and Administrative Expenses...        (1,663.4)       (1,476.9)        (1,377.6)
Operating Income......................................    $      672.8    $      545.5      $      306.9
Other Income (Expense)...........................             (34.0)            (43.8)                (2.7)
Interest Income (Expense), Net..............                 4.5                 1.2                 (6.4)
Income Tax Expense.................................           (242.4)          (194.9)            (107.4)
Net Income..................................................    $      400.9    $      308.0      $     190.4
1.37         (Ericsson; statement of cash flows relations.)

                                                             ERICSSON
                                     Statement of Cash Flows
                                   (Amounts in SEK Millions)

                                                       2007            2006           2005
Operations:
     Revenues, Net of Expenses..........   SEK  19,210   SEK  18,489   SEK  16,669
Cash Flow from Operations.............   SEK  19,210   SEK  18,489   SEK  16,669
Investing:
     Acquisition of Property and
         Equipment..................................   SEK   (4,319)  SEK   (3,827)  SEK   (3,365)
     Acquisition of Businesses.............            (26,292)           (18,078)             (1,210)
     Sale Property and Equipment....                  152                   185                   362
     Sale of Short-Term Invest-
         ments...........................................               3,499                6,180                6,375
     Other Investing Activities...........                  (573                663              (1,131)
Cash Flow from Investing................   SEK (27,533SEK (14,877SEK    1,031
Financing:
     Proceeds from Borrowings...........   SEK  15,587   SEK    1,290   SEK       657
     Repayment of Borrowings...........              (1,291)             (9,510)             (2,784)
     Sale of Common Stock..................                     94                   124                   174
     Dividends Paid...............................              (8,132)             (7,343)             (4,133)
     Other Financing Activities..........                   406                     58                  (288)
Cash Flow from Financing...............   SEK    6,664   SEK (15,381SEK   (6,374)
Change in Cash..................................   SEK   (1,659)  SEK (11,769)  SEK  11,326
Cash, Beginning of Year...................             29,969             41,738             30,412
Cash, End of Year..............................   SEK  28,310   SEK  29,969   SEK  41,738


1.38         (Jackson Corporation; statement of cash flows relations.)

                                            JACKSON CORPORATION
                                     Statement of Cash Flows
                                       (Amounts in Millions)

                                                       2008             2007             2006
Operations:
     Revenues Increasing Cash...........      $    19,536        $    19,083        $    17,233
     Expenses Decreasing Cash...........           (16,394)           (18,541)           (18,344)
Cash Flow from Operations...............      $      3,142        $         542        $     (1,111)
Investing:
     Sale of Property, Plant and
         Equipment...................................      $         332        $         401        $         220
     Acquisition of Property, Plant
         and Equipment...........................            (3,678)             (3,640)             (1,881)
     Other Investing Transactions......                    71               (1,501)                 268
Cash Flow from Investing.................      $     (3,275)      $     (4,740)      $     (1,393)
Financing:
     Proceeds of Long-Term Borrow-
         ing..................................................      $         836        $      5,096        $      3,190
     Issue of Common Stock..................                   67                     37                       3
     Repayments of Long-Term Debt..                (766)                (922)                (687)
Cash Flow from Financing................      $         137        $      4,211        $      2,506
Change in Cash...................................      $              4        $           13        $              2
Cash, Beginning of Year....................                 117                   104                   102
Cash, End of Year................................      $         121        $         117        $         104
1.39         (JetAway Airlines; preparing a balance sheet and an income statement.)

a.                                            JETAWAY AIRLINES
Balance Sheet
(Amounts in Thousands)

                                                                                               Sept. 30,       Sept. 30,
                                                                              2008             2007
Assets
        Cash....................................................................    $      378,511     $      418,819
        Accounts Receivable.......................................              88,799               73,448
        Inventories........................................................              50,035               65,152
        Other Current Assets......................................              56,810               73,586
            Total Current Assets..................................    $      574,155     $      631,005
        Property, Plant and Equipment (Net).........         4,137,610         5,008,166
        Other Noncurrent Assets...............................                 4,231               12,942
            Total Assets..................................................    $   4,715,996     $   5,652,113


1.39 a. continued.

Liabilities and Shareholders' Equity
        Accounts Payable............................................    $      157,415     $      156,755
        Current Maturities of Long-Term Debt......              11,996                 7,873
        Other Current Liabilities...............................            681,242             795,838
            Total Current Liabilities...........................    $      850,653     $      960,466
        Long-Term Debt...............................................            623,309             871,717
        Other Noncurrent Liabilities........................            844,116             984,142
            Total Liabilities...........................................    $   2,318,078     $   2,816,325
        Common Stock.................................................    $      352,943     $      449,934
        Retained Earnings..........................................         2,044,975          2,385,854
            Total Shareholders' Equity.......................    $   2,397,918     $   2,835,788
            Total Liabilities and Shareholders'
                 Equity.......................................................    $   4,715,996     $   5,652,113

b.                                            JETAWAY AIRLINES
Income Statement
(Amounts in Thousands)

        For the Year Ended:                                                                      Sept. 30,
                                                                                                                             2008
        Sales...........................................................................................      $    4,735,587
        Salaries and Benefits Expense.............................................           (1,455,237)
        Fuel Expense............................................................................              (892,415)
        Maintenance Expense............................................................              (767,606)
        Other Operating Expenses....................................................           (1,938,753)
        Interest Expense......................................................................                (22,883)
        Interest Income........................................................................                  14,918
        Net Income................................................................................      $      (326,389)

c.     Retained Earnings, September 30, 2007............................       $   2,385,854
        Plus Net Loss for 2008............................................................              (326,389)
        Less Dividends Declared during 2008 (Plug)....................                (15,390)
        Retained Earnings, September 30, 2008............................       $   2,044,075
1.40         (Block’s Tax and Bookkeeping Services; cash versus accrual basis accounting.)

a.    Income for July, 2008:

        (1)   Cash Basis Accounting
       
               Sales Revenues.......................................................................    $     13,000
               Rent (Office).............................................................................            (6,000)
               Rent Equipment.....................................................................          (12,000)
               Office Supplies Expense........................................................                (370)

               Income (Loss)..........................................................................    $      (5,370)

1 comment:

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