Chapter 1
Financial Statements and Business Decisions
ANSWERS TO MULTIPLE CHOICE
1. b) 2. d) 3. d) 4. c) 5. a)
6. d) 7. a) 8. a) 9. c) 10. b)
MINI-EXERCISES
M1–1.
Element Financial Statement
B (1) Expenses A. Balance sheet
D (2) Cash flow from investing activities B. Income statement
A (3) Assets C. Statement of stockholders’ equity
C* (4) Dividends D. Statement of cash flows
B (5) Revenues
D (6) Cash flow from operating activities
A (7) Liabilities
D (8) Cash flow from financing activities
*Dividends paid in cash are also subtracted in the Financing section of the Statement
of Cash Flows
M1–2.
SE (1) Retained earnings
A (2) Accounts receivable
R (3) Sales revenue
A (4) Property, plant, and equipment
E (5) Cost of goods sold expense
A (6) Inventories
E (7) Interest expense
L (8) Accounts payable
A (9) Land
M1–3.
Abbreviation Full Designation
(1) CPA Certified Public Accountant
(2) GAAP Generally Accepted Accounting Principles
(3) SEC Securities and Exchange Commission
(4) FASB Financial Accounting Standards Board
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EXERCISES
E1–4.
Honda Motor Corporation
Balance Sheet
As of March 31, Current Year
(in billions of Yen)
Assets
Cash and cash equivalents ¥ 2,106
Trade accounts, notes, and other receivables 3,085
Inventories 1,364
Investments 597
Net property, plant and equipment 3,200
Other assets 8,606
Total assets ¥18,958
Liabilities
Accounts payable and other current liabilities ¥ 5,429
Long-term debt 4,022
Other liabilities 1,938
Total liabilities 11,389
Stockholders’ Equity
Common stock 231
Retained earnings 7,338
Total stockholders’ equity 7,569
Total liabilities and stockholders’ equity ¥18,958
E1–7.
SYSCO CORP.
Income Statement
For the Year ended June 30, Current Year
(in millions)
Revenues:
Sales $55,371
Other revenues 16
Total revenues $55,387
Expenses:
Cost of sales 44,814
Selling, general and
administration expense 8,504
Interest expense 303
Total expenses 53,621
Earnings before income taxes 1,766
Income taxes 623
Net earnings $1,143
*Note that “Provision for income taxes” and “Income tax expense” are
common synonyms for “Income taxes.”
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E1–11.
PAINTER CORPORATION
Income Statement
For the Month of January, Current Year
Total revenues $305,000
Less: Total expenses (excluding income tax) 189,000
Pretax income 116,000
Less: Income tax expense 35,000
Net income $ 81,000
PAINTER CORPORATION
Balance Sheet
At January 31, Current Year
Assets
Cash $ 65,150
Receivables from customers 44,700
Merchandise inventory 94,500
Total assets $204,350
Liabilities
Payables to suppliers $25,950
Income taxes payable 35,000
Total liabilities 60,950
Stockholders' Equity
Common stock 62,400
Retained earnings (from income statement above) 81,000
Total stockholders’ equity 143,400
Total liabilities and stockholders' equity $204,350
E1–13.
PLUMMER STONEWORK CORPORATION
Statement of Stockholders’ Equity
For the Year Ended December 31, 2018
Common Stock Retained Earnings
Balance December 31, 2017* $100,000 $16,800
Net income 42,000
Dividends $100,000 (18,700)
Balance December 31, 2018 $100,000 $40,100
* Beginning retained earnings + Net income – Dividends = Ending retained earnings
For 2017: $0 + $31,000 – $14,200 = $16,800;
Ending retained earnings for 2017 becomes beginning retained earnings for 2018.
E1–14.
(I) (1) Purchases of property, plant, and equipment
O (2) Cash received from customers
(F) (3) Cash paid for dividends to stockholders
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(O) (4) Cash paid to suppliers
(O) (5) Income taxes paid
(O) (6) Cash paid to employees
I (7) Cash proceeds received from sale of investment in another company
(F) (8) Repayment of borrowings
