Juli Elliott

Acct-301

Homework Assignment Week 1

E1-3

The Mill Run Golf & Country Club detail the following accounts in its financial statements

(a)
Accounts payable and accrued liabilities Accounts receivable Property, plant, and equipment Food and beverage operations revenue Golf course operations revenue Inventory Long-term debt Office and general expense Professional fees expense Wages and benefits expense L A A A A A L E E E

(b)
O O I O O O I O O O

Instruction: (a) Classify each of the above accounts as an asset (A), liability (L), stockholders equity (SE), revenue (R) or expense (E) item. (b) Classify each of the above accounts as a financing activity (F), investing activity (I), or operating activity (O). If you believe a particular account doesnt fit in any of these activities, explain why.

E1-13 John Paul is the bookkeeper for Gabelli Company. John has been trying to get the balance sheet of Gabelli Company to balance. It finally balanced, but now hes not sure it is correct. Instruction: prepare a correct balance sheet. Answers: Johns balance sheet did not balance. Theres information like Net Income missing. So retained earnings was not calculated correctly
GABELLI COMPANY Balace Sheet December 31, 2007

Assets

Cash Accounts receivable Supplies Equipment Total Assets

$18,500 ($12,000) $9,500 $40,000 $56,000

Liabilities and Stockholders' Equity

Liabilities Accounts payable Total liabilities $16,000 $16,000

Stockholder's equity Common stock Retained earnings Total stockholders' equity Total liabilities and stokholders' equity $40,000 $34,000 $74,000 $90,000

P1-3A On June 1 Fix-It-Up Service Co. was started with an initial investment in the company of $26,200 ash. Here are the assets and liabilities of the company at June 30, and the revenues and expenses for the month of June, its first month of operations:
Cash Accounts receivable Revenue Supplies Advertising expense Equipment $4,600 4,000 8,000 2,400 400 32,000 Notes payable Accounts payable Supplies expense Gas and oil expense Utilities expense Wage expense $14,000 500 1,000 600 300 1,400

In June, the company issued no additional stock, but paid dividends of $2,000 Instructions: (a) Prepare an income statement and a retained earnings statement for the month of June and a balance sheet at June 30, 2007. (b) Briefly discuss whether the companys first month of operations was a success (c) Discuss the companys decision to distribute a dividend. Answer: Fix-It-Up Service Co. Income Statement For the Month Ending June 30, 2007 Revenues Revenues Expenses Wage expense Supplies expense Gas and oil expense Utilities expense Advertising expense Total Expenses Net Income

$8,000 $1,400 $1,000 $600 $300 $400 $3,700 $4,300

Fix-It-Up Service Co.

Retained Earnings Statement For the Month Ending June 30, 2007

Retained earnings, June 1 Add: Net Income

$0 $4,300 $4,300 $2,000 $2,300

Less: Dividends Retained earnings, June 30

Fix-It-Up Service Co.

Balance Sheet For the Month Ending June 30, 2007 Assets Cash Accounts receivable Supplies Equipment Total Assets Liabilities and Stockholders' Equity Liabilities Note payable Accounts payable Total liabilities Stockholder's equity Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $4,600 $4,000 $2,400 $32,000 $43,000

$14,000 $500 $14,500 $26,200 $2,300 $28,500 $43,000

b. According to the companys Income Statement, it shows a Net Income. Their Revenue exceeds Expenses, so the company was a success in its first month of operation. c. The company decided to pay dividends by looking at its debt/equity ratios, which is total liability divided by total stockholders equity. $14,500/$28,500 = .5. This means that for every $1 spent in debt, the company gains $2 in equity.

E2-5 The following items were taken from the 2004 financial statements of Texas Instruments, inc. (All dollars are in millions). Long term debt Common stock Prepaid expenses Property, plant, and equipment Other current assets Other current liabilities Long-term investments Short-term investments Loans payable in 2005 $ 386 2,488 326 9,573 554 470 264 3,690 11 Cash Accumulated depreciation Accounts payable Other noncurrent assets Other noncurrent liabilities Retained earnings Accounts receivable Inventories $ 2,668 5,655 1,444 1,927 943 10,575 1,696 1,256

Instructions: Prepare a classified balance sheet in good form as of December 31, 2004

Answer:

I cant find where Im $182 off

Texas Instruments, Inc.

Balance Sheet (in millions) For year ending December 31, 2004 Assets Current asset Cash Short-term investments Accounts receivable Inventories Other current assets Total current assets Long-term investments Long-term investments Property, plant, and equipment Property, plant and equipment Less: Accumulated depreciation Non Current Assets Other noncurrent assets Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Prepaid expenses Other current liabilities Total liabilities Long-term liabilities Long-term debts Loan payable in 2005 Other noncurrent liabilities Total long-term liabilities Stockholders' equity Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity

2,668 3,690 1,696 1,256 554 9,864 264

9,573 5,655

3,918

3,918 1,927

$15,973

1,444 326 470 1,770 368 11 943 1,322 2,488 10,575 13,063 16,155

E2-11 Presented below are the assumptions and principles discussed in this chapter. 1. Full disclosure principle 4. Time period assumptions 2. Going concern assumption 5. Cost principle, 3. Monetary unit assumption 6. Economic entity assumption.

Instructions: Identify by number the accounting assumption or principle that is described below: do not use the number more than once. (a) Is the rationale for why plant assets are not reported at liquidation value. (Note: Do not use the cot principle.) = 2 (b) Indicates that personal and business record-keeping should be separately maintained. = 6 (c) Assumes that the dollar is the measuring stick used to report on financial performance. = 3 (d) Separates financial information into time periods for reporting purpose. = 4 (e) Indicates that companies should not record in the accounts market value changes subsequent to purchase. = 5 (f) Dictates that companies should disclose all circumstances and events that make a difference to financial statement users. = 1

P2-4A Instructions (a) Comment on the relative profitability of the companies by computing the net income and earnings per share for each company for 2007. Net income = Revenue Expenses Answer: Authur Corporation Net income is 1,950,000 1,572,000 = 378,000 Earnings per share is Net income Preferred stock dividends / Average number of shares outstanding = 378,000/10,000 = $3.78 Lancelot Corporation Net income is 620,000 477,800 = 142,000 Earnings per share is Net income Preferred stock dividends / Average number of shares outstanding = 142,000/50,000 = $2.84

We can see that earnings per share in Authur Corporation is more than Lancelot Corporation. Therefore, Authur Corporation is more profitable.

(b) Comment on the relative liquidity of the companies by computing working capital and the current ratios for each company for 2007. Working Capital = Current assets Current liabilities Current ratio = Current assets / current liabilities Answer: Authur Corporation: Working capital is 427,000 66,325 = 360,875 Current ratios is 427,200 / 66,325 = 6.44:1 ** for every dollar of current liability, Authur Corporation has $6.44 of current assets. Lancelot Corporation working capital is 190,336 35,348 = 154,988 Working capital is 190,336 35,348 = 154,988 Current ratios is 190,336 / 35,348 = 5.38:1 ** for every dollar of current liability, Lancelot Corporation has $5.38 of current assets. Arthur Corporation is more liquid then Lancelot Corporation. The ability of Arthur Corporation to pay its obligations are better than Lancelot Corporation.

(c) Comment on the relative solvency of the companies by computing the debt to total assets ratio and the free cash flow for each company for 2007. Debt to total assets ratio = Total debt / Total assets Free Cash Flow = Cash provided by operations capital expenditures cash dividends Answer: Arthur Corporation: Debt to total assets ratio: 174,825 / 959,200 = 18.23% Free cash flow: 148,000 90,000 36,000 = 22,000 Lancelot Corporation: Debt to total assets ratio: 64,968 / 330,064 = 19.68% Free cash flow: 36,000 20,000 15,000 = 1,000 Solvency: Arthur Corporation is more solvent than Lancelot Corporation because its debt to total asset ratio is lower, having a lower debt to total ratio shows that the company has a higher ability to pay its debt when it becomes due. Free cash flow: Arthur Corporation has high free cash flow than Lancelot Corporation, therefore Arthur Corporation has a higher ability to finance any new investments or pay more dividends should they choose to.