Financial Accounting Tools for Business Decision Making 10th Edition By Paul D. Kimmel
Chapter One Challenge Exercise 1 LO: 3 The following items and amounts were taken from Lotte Inc.’s 2022 financial statements. Cash $ 84,700 Retained earnings (1/1/22) 123,192 Cost of goods sold 438,192 Salaries and wages expense 115,131 Prepaid insurance 7,818 Inventory 64,618
Accounts receivable Sales revenue Notes payable Accounts payable Service revenue Interest expense
$ 88,419 584,951 6,499 49,384 4,806 1,882
Instructions (a) Prepare a balance sheet as of December 31, 2022. (b) What percentage of assets were acquired by stockholders’ equity? Challenge Exercise 1 – Solution (a) LOTTE CORPORATION Balance Sheet December 31, 2022 Assets Cash Accounts receivable Inventory Prepaid insurance Total assets
$
84,700 88,419 64,618 7,818 $ 245,555
Liabilities and Stockholders’ Equity Liabilities Notes payable $ 6,499 Accounts payable 49,384 Total liabilities $ 55,883 Stockholders’ Equity Common stock 31,928*** Retained earnings 157,744* Total stockholders’ equity 189,672** Total liabilities and stockholders’ equity $ 245,555
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Kimmel, Financial Accounting, 10/e, Challenge Exercise Solutions
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Challenge Exercise 1 – Solution (Continued) * $123,192 + ($584,951 + $4,806 - $438,192 - $115,131 - $1,882) = $157,744 ** $245,555 - $55,883 = $189,672 *** $189,672 - $157,744 = $31,928 (b) $189,672 ÷ $245,555 = 77.2% Challenge Exercise 2 LO: 3 This information is for Kidmann Corporation for the year ended December 31, 2022. Cash collected from customers Cash received from issuing common stock Cash paid for new building Cash dividends paid Cash payments to suppliers Cash received from sale of equipment Cash paid for operating expenses Cash paid to retire debt Cash balance 1/1/22
$60,000 40,000 70,000 6,000 15,000 10,000 10,000 14,000 13,000
Instructions Prepare the 2022 statement of cash flows for Kidmann Corporation. Challenge Exercise 2 – Solution (a) KIDMANN CORPORATION Statement of Cash Flows For the Year Ended December 31, 2022 Cash flows from operating activities Cash collected from customers Cash paid to suppliers Cash paid for operating expenses Net cash provided by operating activities Cash flows from investing activities Cash paid for new building Cash received from sale of equipment Net cash used by investing activities Cash flows from financing activities Cash received from issuing common stock Cash paid to retire debt Cash dividends paid Net cash provided by financing activities Net decrease in cash Cash at beginning of period Cash at end of period
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$60,000 (15,000) (10,000) $35,000 (70,000) 10,000 (60,000) 40,000 (14,000) (6,000)
Kimmel, Financial Accounting, 10/e, Challenge Exercise Solutions
20,000 (5,000) 13,000 $ 8,000
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Chapter Two Challenge Exercise 1 LO: 1, 2 These items were taken from the financial statements of Bush Company at December 31, 2022: Buildings Accounts receivable Prepaid insurance Cash Equipment Land Insurance expense Depreciation expense Interest expense
$105,800 15,600 11,800 82,720 61,000 700 4,900
Common stock (20,000 shares) $60,000 Retained earnings (1/1/22) 40,000 3,200 Accumulated depreciation-buildings 45,800 Accounts payable 8,500 Notes payable 93,600 Accumulated depreciation-equipment 18,720 Interest payable 3,600 Service revenue 17,700 2,200
Instructions (a) Prepare a classified balance sheet. Assume that $16,300 of the note payable will be paid in 2022. (b) Compute the following: (1) working capital, (2) current ratio, (3) debt to assets ratio, and (4) earnings per share.
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Kimmel, Financial Accounting, 10/e, Challenge Exercise Solutions
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Challenge Exercise 1 – Solution (a) BUSH COMPANY Balance Sheet December 31, 2022 Assets Current assets Cash ..................................................... Accounts receivable ........................... Prepaid insurance ............................... Total current assets .................................... Property, plant, and equipment Land ...................................................... Buildings .............................................. Less: Accumulated depreciation— buildings ................................... Equipment ............................................ Less: Accumulated depreciation— equipment ................................ Total assets ..................................
$11,800 15,600 3,200 $ 30,600 61,000 $105,800 45,800 60,000 82,720 18,720 64,000
185,000 $215,600
Liabilities and Stockholders’ Equity Current liabilities Accounts payable ............................... Current maturity of note payable ........ Interest payable ................................... Total current liabilities ................ Long-term liabilities Note payable ($93,600 – $16,300) ....... Total liabilities .............................. Stockholders’ equity Common stock .................................... Retained earnings ($40,000 + $9,900*) ............................ Total stockholders’ equity .......... Total liabilities and stockholders’ equity ............................................
$ 8,500 16,300 3,600 $ 28,400 77,300 105,700 60,000 49,900 109,900 $215,600
* Net income = $17,700 - $700 - $4,900 - $2,200 = $9,900
(b) (1) Working capital: $30,600 - $28,400 = $2,200 (2) Current ratio: $30,600 ÷ $28,400 = 1.08 : 1 (3) Debt to assets ratio: $105,700 ÷ $215,600 = 49% (4) Earnings per share: $9,900 ÷ 20,000 shares = $0.495 per share
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Kimmel, Financial Accounting, 10/e, Challenge Exercise Solutions
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