Module 2 | Introducing Financial Statements and Transaction Analysis

2-22

Exhibit 2.10

Articulation of Apple Financial Statements ($ millions)

statement of Cash Flows

For year Ended september 29, 2012

Balance sheet
september 24, 2011

Balance sheet
september 29, 2012

Operating cash flows . . .

Investing cash flows . . . .

$50,856
(48,227)

9,815

Financing cash flows . . .

(1,698)

Assets
Cash . . . . . . . . . . . . . . . .

$ 10,746

106,556

Net change in cash. . . . .

931

Noncash assets . . . . . . .

165,318

Total assets. . . . . . . . . . . . $116,371

Cash balance,
Sept. 24, 2011 . . . . . .

9,815

Total assets. . . . . . . . . . .

$176,064

Assets
Cash . . . . . . . . . . . . . . . . . $
Noncash assets . . . . . . . .

Liabilities and equity

Total liabilities . . . . . . . . . . $ 39,756

Liabilities and equity

Cash balance,
Sept. 29, 2012 . . . . . .

$10,746

Equity

Total liabilities . . . . . . . . .

$ 57,854

Equity

Contributed capital . . . .
Retained earnings. . . . .

13,331
62,841

Other stockholders
equity. . . . . . . . . . . . .

443

Liabilities and equity. . . . . $116,371

Income statement
For year Ended september 29, 2012

Contributed capital . . .
Retained earnings. . . .

Revenues . . . . . . . . . . . .
Expenses . . . . . . . . . . . .

$156,508
114,775

Other stockholders
equity. . . . . . . . . . . .

499

$ 41,733

Liabilities and equity. . . .

$176,064

Net earnings . . . . . . . . . .

16,422
101,289

statement of shareholders Equity

For year Ended september 29, 2012
Contributed capital,
Sept. 24, 2011 . . . . . .
Stock issuance
Sept. 29, 2012 . . . . . .

$ 13,331
3,091

Contributed capital,
Sept. 29, 2012 . . . . . .

$ 16,422

Retained earnings,
Sept. 24, 2011 . . . . . .
Net income . . . . . . . . . . .
Less: dividends . . . . . . .
Less: other
adjustments . . . . . . . .

$ 62,841
41,733
(2,523)
(762)

Retained earnings,
Sept. 29, 2012 . . . . . .

$101,289

Other stockholders equity,

Sept. 24, 2011 . . . . . . $
Other changes
in equity . . . . . . . . . . .
Other stockholders equity
Sept. 29, 2012 . . . . . . $

Beginning of year

443
56
499

During the year

End of year

Transaction Analysis and Accounting

This section introduces our financial statement effects template, which we use throughout the book to
reflect the effects of transactions on financial statements. A more detailed explanation is in Module 3,
but that module is not required to understand and apply the template.
Apple reports total assets of $176,064 million, total liabilities of $57,854 million, and equity of
$118,210 million. The accounting equation for Apple follows ($ million):
Assets

Liabilities

Equity

$176,064

$57,854

$118,210

We often draw on this relation to assess the effects of transactions and events, different accounting
methods, and choices that managers make in preparing financial statements. For example, we are interested in knowing the effects of an asset acquisition or sale on the balance sheet, income statement, and

LO3 Illustrate
use of the
financial statement
effects template
to summarize
accounting
transactions.

2-23 Module 2 | Introducing Financial Statements and Transaction Analysis

cash flow statement. Or, we might want to understand how the failure to recognize a liability would
understate liabilities and overstate profits and equity. To perform these sorts of analyses, we employ the
following financial statement effects template:
Balance Sheet
Transaction
Debit #
Credit

Cash
Asset

Noncash
5
Assets

Liabilities

Income Statement
Contrib.
Earned
1
Capital
Capital

RevExpenNet
2
5
enues
ses
Income

The template captures the transaction and its financial statement effects on the four financial statements: balance sheet, income statement, statement of stockholders equity, and statement of cash flows.
For the balance sheet, we differentiate between cash and noncash assets so as to identify the cash effects of transactions. Likewise, equity is separated into the contributed and earned capital components.
Finally, income statement effects are separated into revenues, expenses, and net income (the updating
of retained earnings is denoted with an arrow line running from net income to earned capital). This
template provides a convenient means to represent relatively complex financial accounting transactions and events in a simple, concise manner for both analysis and interpretation.
In addition to using the template to show the dollar effects of a transaction on the four financial
statements, we also include each transactions journal entry and T-account representation in the margin. We explain journal entries and T-accounts in Module 3; these are part of the bookkeeping aspects
of accounting. The margin entries can be ignored without any loss of insight gained from the template.
(Journal entries and T-accounts use acronyms for account titles; a list of acronyms is in Appendix D
near the end of the book.)
The process leading up to preparing financial statements involves two steps: (1) recording transactions during the accounting period, and (2) adjusting accounting records to reflect events that have
occurred but are not yet evidenced by an external transaction. We provide a brief introduction to these
two steps, followed by a comprehensive example that includes preparation of financial statements (a
more detailed illustration of this process is in Module 3).

Analyzing and Recording Transactions

All transactions affecting a company are recorded in its accounting records. For example, assume that
a company paid $100 cash wages to employees. This is reflected in the following financial statement
effects template.
Balance Sheet
Transaction
WE
100

Cash

100

WE
100
Cash

Pay $100
cash for
wages

Cash
Asset
2100
Cash

Noncash
5
Assets

Liabilities

Income Statement
Contrib.
Earned
1
Capital
Capital
2100
Retained
Earnings

RevExpenNet
2
5
enues
ses
Income

1100
Wages
Expense

2100

100

Cash assets are reduced by $100, and wages expense of $100 is reflected in the income statement,
which reduces income and retained earnings by that amount. All transactions incurred by the company
during the accounting period are recorded similarly. We show several further examples in our comprehensive illustration later in this section.

Adjusting Accounts
We must understand accounting adjustments (commonly called accruals) to fully analyze and interpret
financial statements. In the transaction above, we record wages expense that has been earned by (and paid

 Module 2 | Introducing Financial Statements and Transaction Analysis 2-24

to) employees during the period. What if the employees were not paid for wages earned at period-end?
Should the expense still be recorded? The answer is yes. All expenses incurred to generate, directly or
indirectly, the revenues reported in the period must be recorded. This is the case even if those expenses are
still unpaid at period-end. Failure to recognize wages expense would overstate net income for the period
because wages have been earned and should be reported as expense in this period. Also, failure to record
those wages at period-end would understate liabilities. Thus, neither the income statement nor the balance
sheet would be accurate. Adjustments are, therefore, necessary to accurately portray financial condition
and performance of a company.
There are four types of adjustments, which are illustrated in the following graphic. The two adjustments on the left relate to the receipt or payment of cash before revenue or expense is recognized. The
two on the right relate to the receipt or payment of cash after revenue or expense is recognized.
Adjustments

Cash is paid or received

before expenses or
revenues are recognized
Prepaid
Expense

Cash is paid or received

after expenses or
revenues are recognized

Unearned
Revenues

Accrued
Expenses

Accrued
Revenue

One of two types of accounts arise when cash is received or paid before recognition of revenue or expense.
Prepaid expenses Prepaid expenses reflect advance cash payments that will ultimately become
expenses; an example is the payment of radio advertising that will not be aired until
sometime in the future.
Unearned revenues Unearned revenues reflect cash received from customers before any services
or goods are provided; an example is cash received from patrons for tickets to an upcoming
concert.
To illustrate the adjustment required with prepaid expenses, assume that Apple pays $3,000 cash at the beginning of this year to rent office space, and that this allows Apple to use the space for the current year and
two additional years. When paid, the prepaid rent is an asset for Apple (it now controls the space, which
is expected to provide future benefits for its business). At the end of the first year, one-third of the Prepaid
Rent asset is used up. Apple, therefore, removes that portion from its balance sheet and recognizes it as
an expense in the income statement. The beginning-year payment and year-end expensing of the rental
asset are recorded as follows:
Balance Sheet
Transaction
a. Beginningyear $3,000
cash payment in
advance for
3-year rent
b. Recognition of 1-year
rent expense
of $1,000

Cash
Asset

Noncash
5
Assets

Liabilities

Income Statement
Contrib.
Earned
1
Capital
Capital

RevExpenNet
2
5
enues
ses
Income
PPRNT 3,000

Cash
3,000

23,000

13,000

Cash

Prepaid
Rent

21,000
Prepaid
Rent

PPRNT

3,000
Cash
3,000

21,000
Retained
Earnings

11,000
Rent
Expense

21,000

RNTE 1,000
PPRNT 1,000
RNTE
1,000
PPRNT
1,000

To illustrate unearned revenues, assume that Apple receives $5,000 cash in advance of providing services to a client. That amount is initially recorded as a liability for services owed the client. Later, when

2-25 Module 2 | Introducing Financial Statements and Transaction Analysis

Apple provides the services, it can recognize that revenue since it is now earned. The receipt of cash
and subsequent recognition of revenue are recorded as follows:
Balance Sheet
Cash
Asset

Transaction
Cash 5,000
UR
5,000
Cash
5,000
UR
5,000
UR
5,000
REV
5,000
UR
5,000
REV
5,000

a. Receive
$5,000 cash
in advance
for future
services

15,000
Cash

b. Recognition of
$5,000 services revenue
earned

Noncash
5
Assets

Liabilities

Income Statement
Contrib.
Earned
1
Capital
Capital

RevExpenNet
2
5
enues
ses
Income

15,000

25,000

15,000

15,000

Unearned
Revenue

Retained
Earnings

Revenue

Unearned
Revenue

15,000

One of two types of accounts arise when cash is received or paid after recognition of revenue or
expense.
Accrued expenses Accrued expenses are expenses incurred and recognized on the income
statement, even though they are not yet paid in cash; an example is wages owed to
employees who performed work but who have not yet been paid.
Accrued revenues Accrued revenues are revenues earned and recognized on the income
statement, even though cash is not yet received; examples include accounts receivable and
revenue earned under a long-term contract.
To illustrate accrued expenses, assume that $100 of wages earned by Apple employees this period is
paid the following period. The period-end adjustment, and subsequent payment the following period,
are both reflected in the following template.
Balance Sheet
Transaction
WE
100
WP

100

WE
100
WP
100
WP
100

Cash

100

WP
100
Cash

Cash
Asset

Period 1:
Accrue $100
wages expense and
liability
Period 2: Pay
$100 cash
for wages

2100
Cash

Income Statement

Noncash
5
Assets

Liabilities

1100

2100

Wages
Payable

Retained
Earnings

2100
Wages
Payable

Contrib.
Earned
1
Capital
Capital

RevExpenNet
2
5
enues
ses
Income

1100
Wages
Expense

2100

100

Wages expense is recorded in period 1s income statement because it is incurred by the company and
earned by employees in that period. Also, a liability is recorded in period 1 reflecting the companys
obligation to make payment to employees. In period 2, the wages are paid, which means that both cash
and the liability are reduced.
To illustrate the accrual of revenues, assume that Apple is performing work under a long-term
contract that allows it to bill the customer periodically as work is performed. At the end of the current
period, it determines that it has earned $100,000 per contract. The accrual of this revenue and its subsequent collection are recorded as follows ($ 000s):

 Module 2 | Introducing Financial Statements and Transaction Analysis 2-26

Balance Sheet
Transaction

Cash
Asset

a. Accrual
of $100
of earned
revenue
b. Collection
of account
receivable

Noncash
5
Assets
1100
Accounts
Receivable

Liabilities

Income Statement
Contrib.
Earned
1
Capital
Capital

RevExpenNet
2
5
enues
ses
Income

1100

1100

Retained
Earnings

Revenue

AR
100
REV
AR

1100

100

100
REV
100

1100

2100

Cash

Accounts
Receivable

Cash 100
AR
Cash

100

100
AR
100

Companies make these sort of adjustments to more accurately and completely report their financial
performance and condition. Each of these adjustments is made by company managers and accountants
based on the review of financial statements and information suggesting that adjustments are necessary
to properly reflect financial condition and performance.

Constructing Financial Statements

We can prepare each of the four financial statements directly from our financial statement effects template. The balance sheet and income statement accounts, and their respective balances, can be read off
the bottom row that totals the transactions and adjustments recorded during the period. The statement
of cash flows and statement of stockholders equity are represented by the cash column and the contributed and earned capital columns, respectively.

Illustration: Recording Transactions, Adjusting Accounts,

and Preparing Statements
This section provides a comprehensive illustration that uses the financial statement effects template with
a number of transactions related to Apples 2012 financial statements shown earlier. These summary
transactions are described in the far left column of the following template. Each column is summed to
arrive at the balance sheet and income statement totals that tie to Apples statements. Detailed explanations for each transaction are provided after the template. Then, we use the information in the template
to construct Apples financial statements ($ in millions).
Balance Sheet
Transaction
Bal., Sept. 24,
2011

Cash
Noncash
1
5
Asset
Assets

Liabilities

39,756

9,815

106,556

1. Sell common stock for 1200

Cash
$200
2. Purchase
$8,295 of
28,295
Cash
PPE for cash

PPE, net

Contrib.
Earned
1
Capital
Capital
13,331
1200

=
18,295

Income Statement

Common
Stock

63,284

RevExpenNet
2
5
enues
ses
Income

2
2

Cash 200
CS

200

Cash

200
CS
200
PPE 10,952

Cash
10,952

PPE
8,295
Cash

3. Purchase
$87,861 of
inventory on
credit

187,861
Inventories

187,861
Accounts
Payable

8,295
INV
87,861
AP
87,861

INV
87,861
AP

continued

87,861

2-27 Module 2 | Introducing Financial Statements and Transaction Analysis

Balance Sheet
Transaction
AR
156,508
Sales 156,508
AR
156,508
Sales
156,508
COGS 87,846
INV
87,846
COGS

Cash
Noncash
1
5
Asset
Assets

4. Sell inventory costing

$87,846 for
$156,508 on
credit

1156,508
Accounts
Receivable

287,846
Inventory

Liabilities

Income Statement
Contrib.
Earned
1
Capital
Capital

1156,508

1156,508

Retained
Earnings

Sales

287,846

87,846
Cash 69,639
AP
81,318
AR 150,957
Cash
69,639
AP
81,318
AR
150,957
OE
15,443

Cash
15,443
OE
15,443
Cash
15,443

OE
2,167

ACC
2,167
OE
2,167
ACC

5. Collect
$150,957 of
receivables
169,639
and pay
Cash
$81,318 of
accounts
payable and
other liabilities

2150,957
Accounts
Receivable

6. Pay operating expenses

215,443
and taxes
Cash
(excluding depreciation) of
$15,443

2,824
UR

8. Increase
unearned
revenue

12,824
Cash

TE
6,564
DTL
6,564
TE
6,564
DTL
6,564
MS
43,336

Cash
43,336
MS
45,993
Cash
45,993
DE
3,277

PPE, net 3,277
DE
3,277
PPE, net
Cash 522
EI
Cash

215,443

9. Increase
other deferred
tax liabilities
of $6,564

Retained
Earnings

12,167

22,167

Accrued
Expenses

Retained
Earnings

12,824

2,824

187,846
Cost of
Goods Sold

115,443
Operating
Expenses

12,167
Operating
Expenses

16,564

26,564

Deferred
= Income
Tax

1156,508

287,846

215,443

22,167

Deferred
Revenue

Accounts
Payable

2,167
Cash 2,824
UR
2,824
Cash

281,318

7. Accrue
expenses of
$2,167

Retained
Earnings

87,846
INV

RevExpenNet
2
5
enues
ses
Income

16,564

Tax
2 Income
Expense =

Retained
Earnings

26,564

Liability

10. Purchase
245,993
marketable
Cash
securities and
other assets
for $45,993

145,993

11. Record
depreciation
of $3,277

Marketable
Securities
and other
assets

23,277

PPE, net

23,277

13,277

Retained
Earnings

2 Depreciation =

23,277

2522*

1522

Expense

3,277
522

522
EI
522
Noncash
asset 2,185

APIC
2,891
AOCI
706
Noncash asset
2,185
APIC
2,891
AOCI
706
RE
2,523

Cash
2,523
RE
2,523
Cash
2,523

12. Record
1522
net investCash
ment income
of $522
13. Record
miscellaneous
transactions
that affect
AOCI
14. Pay
dividends of
$2,523

12,185
Miscel.

22,523

165,318

176,064

2 Investment =

Retained
Earnings

12,891

2706

Miscel.

AOCI

Income

22,523

Cash

Bal., Sept. 29,

10,746
2012

1522

Retained
Earnings

57,854

16,422

176,064

* Apple reports investment income as an addback to other expenses.

101,788

156,508

114,775

41,733

 Module 2 | Introducing Financial Statements and Transaction Analysis 2-28

Transaction Explanation Apple begins fiscal year 2012 with $116,371 million in total assets, consisting of $9,815 million of cash and $106,556 million of noncash assets. It also reports $39,756 million of liabilities and $76,615 million of stockholders equity ($13,331 million of contributed capital
and $63,284 million of earned capital, which includes other equity for this exhibit). During the year,
fourteen summary transactions occur that are described below.
1. Owner Financing. Companies raise funds from two sources: investing from stockholders and
borrowing from creditors. Transaction 1 reflects issuance of common stock for $200 million
in connection with employee stock options and other incentive compensation plans. Cash is
increased by that amount, as is contributed capital. Stock issuance (as well as its repurchase and
any dividends paid to stockholders) does not impact income. Companies cannot record profit by
trading in their own stock.
2. Purchase PPE. Apple acquires $8,295 million of property, plant and equipment (PPE) for cash.
Noncash assets increase by the $8,295 million (PPE), and cash decreases by the same amount.
PPE is initially reported on the balance sheet at the cost Apple paid to acquire it. When plant
and equipment are used, a portion of the purchase cost is transferred from the balance sheet to
the income statement as an expense called depreciation. Accounting for depreciation of Apples
PPE is shown in Transaction 11. The purchase of PPE is not an expense. The expense arises as
the PPE assets are used.
3. Purchase inventories on credit. Companies commonly acquire inventories from suppliers on
credit (also called on account). The phrase on credit means that the purchase has not yet been
paid for. A purchaser is typically allowed 30 days or more during which to make payment. When
acquired in this manner, noncash assets (inventories) increase by the $87,861 million cost of the
acquired inventory, and a liability (accounts payable) increases to reflect the amount owed to the
supplier.2 Although inventories (iPods, iPhones, and iPads, for example) normally carry a retail
selling price that is higher than cost, this eventual profit is not recognized until inventories are sold.
4. Sell inventories on credit. Apple subsequently sells inventories that cost $87,846 million for
a retail selling price of $156,508 million on credit. The phrase on credit means that Apple has
not yet received cash for the selling price; cash receipt is expected in the future. (We assume all
sales are on credit for simplification; in reality, a portion of sales is for cash.) The sale of inventories is recorded in two parts: the revenue part and the expense part. First, the sale is recorded
by an increase in both revenues and noncash assets (accounts receivable). Revenues increase
net income which, in turn, increases earned capital (via retained earnings). Second, the cost of
inventories sold is removed from the balance sheet (Apple no longer owns those assets), and is
transferred to the income statement as an expense, called cost of goods sold, which decreases
both net income and earned capital by $87,846 (again, via retained earnings).
5. Collect receivables and settle payables. Apple receives $150,957 million cash from the collection of its accounts receivable, thus reducing noncash assets (accounts receivable) by that amount.
Apple uses these proceeds to pay off $81,318 of its liabilities accounts payable. Collecting accounts
receivable does not yield revenue; instead, revenue is recognized when earned (see Transaction 4).
Thus, recognizing revenue when earned does not necessarily yield immediate cash increase.
6. Pay cash for operating expenses, including taxes. Apple pays $15,443 million cash for operating
expenses, including taxes. This payment increases expenses, and reduces net income (and earned
capital). Expenses are recognized when incurred, regardless of when they are paid. Expenses are paid
in this transaction. Transaction 7 is a case where expenses are recognized before being paid.
7. Accrue expenses. Accrued expenses, also called accrued liabilities, relate to expenses that are
incurred but not yet paid. For example, employees often work near the end of a period but are
not paid until the next period. The company must record wages expense even though employees
have not yet been paid in cash. The rationale is that expenses must be recorded in the period in2

Companies do not report the purchase cost of inventories. We infer the purchases from balance sheet and income statement
information using the following formula: Beginning inventory (prior year ending balance sheet amount) 1 Purchases 2 Ending
inventory (from the current balance sheet) 5 Cost of goods sold (from the income statement). Using the amounts from Exhibits
2.2 and 2.5, we solve for Purchases (in $ millions): $776 1 Purchases 2 $791 5 $87,846, yielding Purchases of $87,861. We
discuss this formula and other matters relating to inventories in Module 6.

2-29 Module 2 | Introducing Financial Statements and Transaction Analysis

curred to report the correct income for the period. In this transaction, Apple accrues $2,167 million of expenses, which reduces net income (and earned capital). Apple simultaneously records
a $2,167million increase in liabilities for its obligation to make future payment. This transaction
is an accounting adjustment, or accrual.
8. Increase in unearned revenue. Revenues are recognized when they are earned, regardless of
when cash is received. Apple sometimes receives cash in advance of delivering the product or
performing the service. In this example, Apple has received $2,824 million of cash and has not
yet provided the product or service. We, therefore, record the increase in cash and also record an
increase in a liability called unearned (or deferred) revenue, which represents Apples obligation
to deliver the product or service. When the product or service is ultimately delivered, Apple will
reduce the liability and recognize an increase in revenue and income.
9. Increase in deferred tax liabilities. Apple accrues another expense in this example. Similar
to Transaction 7, Apple calculates that it will incur a future tax liability in the amount of $6,564
million. It increases liabilities by that amount and recognizes a corresponding expense (tax expense in this case), thus reducing net income by that amount.
10. Purchase noncash assets. Apple uses $45,993 million of its excess cash to purchase marketable securities and other assets as an investment. Thus, noncash assets increase. This is a common use of excess cash, especially for high-tech companies that desire added liquidity to take
advantage of opportunities in a rapidly changing industry.
11. Record depreciation. Transaction 11 is another accounting adjustment. In this case, Apple
recognizes that a portion of its plant and equipment is used up while generating revenues.
Thus, it records a portion of the PPE cost as an expense during the period. In this case, $3,277
million of PPE cost is removed from the balance sheet and transferred to the income statement
as depreciation expense. Net income (and earned capital) are reduced by $3,277 million.
12. Record investment income. Apple recognizes $522 of investment income in Transaction 12.
Profit increases by this same amount, resulting in an increase in retained earnings.
13. Accumulated Other Comprehensive Income (AOCI). Transaction 13 is a miscellaneous adjustment to noncash assets and an earned capital account called accumulated other comprehensive income (AOCI), which is distinct from retained earnings. We discuss this account in
Module 9.
14. Record payment of dividends. Apple declared and paid $2,523 million of dividends during the
year. This is recognized as a decrease in cash and a decrease in retained earnings. The payment
of dividends is not an expense, but rather a distribution of assets to stockholders. It is recognized
as a direct reduction of retained earnings and is not reflected in Apples income statement.
We can use the column totals from the financial statement effects template to prepare Apples financial
statements (in condensed form). We derive Apples 2012 balance sheet and income statement from the
template as follows ($ millions).
Apple Inc.
Condensed Balance Sheet
September 29, 2012

Apple Inc.
Condensed Income Statement
For Year Ended September 29, 2012

Cash asset . . . . . . . . . . . . . . . . $ 10,746

Noncash
assets . . . . . . . . . . . . 165,318

Revenues . . . . . . . . . . . . . . . . . $156,508
Expenses . . . . . . . . . . . . . . . . .
114,775

Total assets . . . . . . . . . . . . . . . $176,064

Liabilities . . . . . . . . . . . . . . . . . $ 57,854
Contributed capital . . . . . . . . . 16,422
Earned
capital . . . . . . . . . . . . . 101,788

Net income . . . . . . . . . . . . . . . $ 41,733

Total liabilities and equity . . . . $176,064

We can summarize Apples cash transactions from the cash column of the template. The cash column of
the financial effects template reveals that cash increases by $931 million during the year from $9,815
million to $10,746 million; see the following statement. Items that contribute to this net increase are
identified by the cash entries in that column (the subtotals for operating, investing, and financing sec-

 Module 2 | Introducing Financial Statements and Transaction Analysis 2-30

tions are slightly different from actual results because of simplifying assumptions we make for our
transactions example).
Apple Inc.
Statement of Cash Flows ($ millions)
For Year Ended September 29, 2012
Operating cash flows (1 $69,639 2 $15,443 1 $2,824 1 $522) . . . . . . . .
Investing cash flows (2 $10,952 2 $43,336) . . . . . . . . . . . . . . . . . . . . . . .
Financing cash flows (1 $200 2 $2,523) . . . . . . . . . . . . . . . . . . . . . . . . . .

$57,542
(54,288)
(2,323)

Net change in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash balance, Sept. 24, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

931
9,815

Cash balance, Sept. 29, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$10,746

Apples statement of stockholders equity summarizes the transactions relating to its equity accounts.
This statement follows and is organized into its contributed capital and earned capital categories of
equity.
Apple Inc.
Condensed Statement of Stockholders Equity
For Year Ended September 29, 2012

Contributed
Earned
($ millions)
Capital
Capital

Total

Balance, September 24, 2011 . . . . . . . . . . . . $13,331

$63,284
$76,615
Stock issuance (repurchase) . . . . . . . . . . . . . . 200
200
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . 41,733 41,733
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,523) (2,523)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,891
(706)
2,185



Balance, September 29, 2012 . . . . . . . . . . . . $16,422

$101,788

$118,210

Apples financial statements are abbreviated versions of those reproduced earlier in the module. We describe the preparation of financial statements and other accounting details at greater length in Module 3.
Business Insight

Controlling vs Noncontrolling Interest

Financial statements are prepared on a consolidated basis. To consolidate a balance sheet, a company includes all assets and liabilities of subsidiaries under its control. When a company controls
a subsidiary, it directs all of the subsidiarys operations. However, control does not imply 100%
ownership; control can occur when a company owns the majority of a subsidiarys voting stock. For
example, Disney does not own 100% of the voting stock of Euro Disney, a separate legal entity.
It does, however, have voting control of Euro Disney, and so, Disney is said to have a controlling
interest. The ownership interest of the other stockholders of Euro Disney is titled noncontrolling
interest. To better understand, assume Disney constructs a new attraction at Euro Disney. Disney
does not construct only the portion of the attraction that it controls. Instead, it constructs the entire
attraction. Consolidated financial statements reflect this notion of control. Disneys balance sheet
includes 100% of Euro Disneys assets and liabilities. Yet, because it owns only a controlling percentage in Euro Disney, Disney reports the interests of the noncontrolling stockholders as Noncontrolling interest in the equity section of its balance sheet. The same logic applies to the income
statement; that is, 100% of Euro Disneys revenues and expenses are included in the income
statement, and then the noncontrolling interest in net income is separated from the net income of
the entire company. That is why we see net income apportioned at the bottom of the income statement into that attributable to the parent company (Disney) stockholders and that attributable to the
noncontrolling stockholders of the subsidiary companies.