SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 2-1

CL
CA
PPE
PPE
CA
IA

Accounts payable
Accounts receivable
Accumulated depreciation
Buildings
Cash
Goodwill

CL
LTI
PPE
CA
IA
CA

Income taxes payable

Investment in long-term bonds
Land
Inventory
Patent
Supplies

BRIEF EXERCISE 2-2

GEORGES COMPANY
Partial Balance Sheet
Current assets
Cash .........................................................................................
Short-term investments ..........................................................
Accounts receivable ...............................................................
Supplies ...................................................................................
Prepaid insurance ...................................................................
Total current assets .........................................................
BRIEF EXERCISE 2-3
Net income-Preferred stock dividends
Average common shares outstanding
$220 million $0
=
= $.66 per share
333 million shares

Earnings per share =

BRIEF EXERCISE 2-4

ICS
DRE
IRE
DRE

Issued new shares of common stock

Paid a cash dividend
Reported net income of $75,000
Reported net loss of $20,000

$10,400
8,200
14,000
3,800
2,600
$39,000

BRIEF EXERCISE 2-5

Working capital = Current assets Current liabilities
Current assets
Current liabilities
Working capital

($102,500,000
201,200,000
($ 98,700,000)

Current ratio:
$102,500,000
Current assets
=
Current liabilities $201,200,000

= .51:1
BRIEF EXERCISE 2-6
Current ratio

$262,787
= 0.89:1
$293,625

(b)

Debt to total assets

$376,002
= 85.5%
$439,832

(c)

Free cash flow

$62,300 $24,787 $12,000 = $25,513

(a)

BRIEF EXERCISE 2-7

(a) True.
(b) False.
BRIEF EXERCISE 2-8
(a)
(b)
(c)
(d)
(e)
(f)
(g)

Predictive value.
Confirmatory value.
Complete.
Free from error.
Comparability.
Verifiability.
Timeliness.

BRIEF EXERCISE 2-9

(a) Relevant.
(b) Faithful representation.
(c) Consistency.
BRIEF EXERCISE 2-10
(a)
(b)
(c)
(d)

1.
2.
3.
4.

Predictive value.
Neutral.
Verifiable.
Timely.

SOLUTIONS TO EXERCISES

EXERCISE 2-1
CL
CA
PPE
PPE
CA
CL
IA
CL

Accounts payable
Accounts receivable
Accumulated depreciationequipment
Buildings
Cash
Interest payable
Goodwill
Income taxes payable

CA
LTI
PPE
LTL
CA
PPE
CA

Inventory
Investments
Land
Mortgage payable
Supplies
Equipment
Prepaid rent

EXERCISE 2-2
CA
PPE
IA
CL

Prepaid advertising
Equipment
Trademarks
Salaries and wages payable

IA
LTL
SE
PPE

Patents
Bonds payable
Common stock
Accumulated

CL
SE
CA
LTI

Income taxes payable

Retained earnings
Accounts receivable
Land held for future use

depreciationequipment
CL Unearned sales revenue
CA Inventory

EXERCISE 2-3
THE BOEING COMPANY
Partial Balance Sheet
December 31, 2009
(in millions)
Assets
Current assets
Cash and cash equivalents .................................
Short-term investments .......................................
Accounts receivable ............................................
Notes receivabledue before
December 31, 2010 ...........................................
Inventories ............................................................
Other current assets ............................................
Total current assets ......................................
Notes receivabledue after December 31, 2010 .......
Property, plant, and equipment ..................................
Less: Accumulated depreciation ...............................
Intangible assets and other assets .............................
Total assets ..................................................................

$ 9,215
2,008
5,785
368
16,933
966
$35,275
5,466
21,579
12,795

8,784
12,528
$62,053

EXERCISE 2-8
(a)

WHITNALL CORPORATION
Income Statement
For the Year Ended July 31, 2012
Revenues
Service revenue ............................................
Rent revenue .................................................
Total revenues .......................................
Expenses
Salaries and wages expense........................
Supplies expense .........................................
Depreciation expense ...................................
Total expenses ......................................
Net loss .................................................................

$66,100
8,500
$74,600
57,500
15,600
4,000
77,100
$ (2,500)

WHITNALL CORPORATION
Retained Earnings Statement
For the Year Ended July 31, 2012
Retained earnings, August 1, 2011 .....................
Less: Net loss .....................................................
Dividends ..................................................
Retained earnings, July 31, 2012 ........................
(b)

$34,000
$2,500
4,000

6,500
$27,500

WHITNALL CORPORATION
Balance Sheet
July 31, 2012
Assets
Current assets
Cash...............................................................
Accounts receivable .....................................
Total current assets ..............................
Property, plant, and equipment
Equipment .....................................................
Less: Accumulated depreciation
equipment ......................................
Total assets ...........................................

(b)

$29,200
9,780
$38,980)
18,500
6,000

12,500)
$51,480)

WHITNALL CORPORATION
Balance Sheet (Continued)
July 31, 2012
Liabilities and Stockholders Equity
Current liabilities
Accounts payable ............................................
Salaries and wages payable ............................
Total current liabilities .................................
Long-term liabilities
Notes payable ...................................................
Total liabilities ..............................................
Stockholders equity
Common stock .................................................
Retained earnings ............................................
Total stockholders equity ...........................
Total liabilities and stockholders
equity..........................................................

$ 4,100
2,080
$ 6,180
1,800
7,980
16,000
27,500
43,500
$51,480

$38,980
= 6.3 :1
$6,180
$7,980
Debt to total assets ratio =
= 15.5%
$51,480
EXERCISE 2-9

(c) Current ratio =

(a)
Working capital
Current ratio

Beginning of Year

End of Year

$3,361 $1,635 = $1,726

$3,217 $1,601 = $1,616

$3,361
= 2.06:1
$1,635

$3,217
= 2.01:1
$1,601

(b) Nordstroms liquidity decreased slightly during the year. Its current ratio
decreased from 2.06:1 to 2.01:1. Also, Nordstroms working capital decreased
by $110 million.
(c) Nordstroms current ratio at both the beginning and the end of the
recent year exceeds Best Buys current ratio for 2009 (and 2008).
Nordstroms end-of-year current ratio (2.01) exceeds Best Buys 2009
current ratio (0.97). Nordstrom would be considered much more liquid than
Best Buy for the recent year.