Problem 1-2: Users of Accounting Information and Their Needs "Havre Company would like to buy a building and equipment to produce a new product line. Information about Havre is more useful to some people involved in the project than to others. Complete the following chart by identifying the information listed with the user’s need to know the information. Identify the information as one of the following: a. Need to know, b. Helpful to know, or c. Not necessary to know " 1. Amount of current debt, repayment schedule, and interest rate 2. Fair market value of the building 3. Condition of the roof and heating and cooling, electrical, and plumbing systems 4. Total cost of the building, improvements, and equipment to set up production 5. Expected sales from the new product, variable production costs, and related selling costs Users of Information Management Stockholders Banker 1. T T T 2. T T T 3. T T T 4. T T T 5. T T T Problem 1-5: Income Statement, Statement of Retained Earnings, and Balance Sheet General Instructions 1. The following worksheet may be used to complete the exercise/problem. You may need to refer to your textbook for additional information. 2. The blue cells are for data entry. Enter text in the T cells, figures in the F cells, calculations in C cells P1-5 The following list, in alphabetical order, shows the various items that regularly appear on the financial statements of Maple Park Theatres Corp. The amounts shown for balance sheet items are balances as of September 30, 2012 (with the exception of retained earnings, which is the balance on September 1, 2012); and the amounts shown for income statement items are balances for the month ended September 30, 2012. Accounts payable $17,600 Accounts receivable 6,410 Advertising expense 14,500 Buildings 60,000 Capital stock 50,000 Cash 15,230 Concessions revenue 60,300 Cost of concessions sold 23,450 Dividends paid during the month 8,400 Furniture and fixtures 34,000 Land 26,000 Notes payable 20,000 Projection equipment 25,000 Rent expense—movies 50,600 Retained earnings 73,780 Salaries and wages expense 46,490 Ticket sales 95,100 Water, gas, and electricity 6,700 Required 1. Prepare an income statement for the month ended September 30, 2012. MAPLE PARK THEATRES CORP. INCOME STATEMENT FOR THE MONTH ENDED SEPTEMBER 30, 2012 Revenues: T F T F Total revenues C Expenses: T F T F T F T F T F Total expenses C Net income C 2. Prepare a statement of retained earnings for the month ended September 30, 2012. MAPLE PARK THEATRES CORP. STATEMENT OF RETAINED EARNINGS FOR THE MONTH ENDED SEPTEMBER 30, 2012 Beginning balance, September 1, 2012 F T F T F Ending balance, September 30, 2012 C 3. Prepare a balance sheet at September 30, 2012 Note: Classify Assets and Liabilities in the order of Liquidity MAPLE PARK THEATRES CORP. BALANCE SHEET SEPTEMBER 30, 2012 Assets T F T F T F T F T F T F Total assets C Liabilities and Stockholders' Equity T F T F T F T F Total liabilities and stockholders' equity C 4. You have $1,000 to invest. On the basis of the statements you prepared, would you use it to buy stock in Maple Park? Explain. What other information would you want before making a final decision? T Problem 2-4: Financial Statement Ratios The following items, in alphabetical order, are available from the records of Walker Corporation as of December 31, 2012 and 2011: 12/31/12 12/31/11 Accounts payable 8400 5200 Accounts receivable 27830 35770 Cash 20200 19450 Cleaning supplies 450 700 Interest payable 0 1200 Inventory 24600 26200 Marketable securities 6250 5020 Note payable, due in six months 0 12000 Prepaid rent 3600 4800 Taxes payable 1450 1230 Wages payable 1200 1600 1. Calculate the following as of December 31, 2012 and 2011: a. Working capital b. Current ratio 2. On the basis of your answers to (1), comment on the company’s relative liquidity at the beginning and end of the year. Explain the change in the company’s liquidity from the beginning to the end of 2012. 1a. STEP 1: Current Assets FY2012 FY2011 T F F T F F T F F T F F T F F T F F TOTAL C C Current Liabilities FY2012 FY2011 T F F T F F T F F T F F T F F TOTAL C C STEP 2: Working Capital C C 1b. Current Ratio C C 2. T Problem 2-7: Multiple-Step Income Statements and Profit Margin Refer to the list of income statement items in Problem 2-6 (provided below). Assume that Shaw Corporation classifies all operating expenses into two categories: (1) selling and (2) general and administrative. Advertising expense 1500 Commissions expense 2415 Cost of goods sold 29200 Depreciation expense-office building 2900 Income tax expense 1540 Insurance expense-salesperson’s auto 2250 Interest Expense 1400 Interest revenue 1340 Rent revenue 6700 Salaries and wages expense-office 12560 Sales revenue 48300 Supplies expense-office 890 1. Prepare a multiple-step income statement for the year ended December 31, 2012. 2. What advantages do you see in this form for the income statement? 3. Compute Shaw’s profit margin. 4. Comment on Shaw’s profitability. What other factors need to be taken into account to assess Shaw’s profitability ? 1. Multiple-step income statement SHAW CORPORATION INCOME STATEMENT FOR THE MONTH ENDED DECEMBER 31, 2012 Sales F Cost of goods sold F Gross profit C Operating expenses: Selling expenses: Advertising F Commissions F Insurance—salesperson’s auto F Total selling expenses C General and administrative expenses: Depreciation—office building F Salaries and wages—office F Supplies—office F Total general and administrative expenses C Total operating expenses C Loss from operations C Other revenues and expenses: Interest expense F Interest revenue F Rent revenue F Excess of other revenues over other expenses C Income before taxes C Income tax expense F Net income C 2. Advantages: T 3. Profit Margin Formula Calculation T C 4. Profitability Comments: T

                                                                   
Problem 1-2:  Users of Accounting Information and Their Needs                            
                            
"Havre Company would like to buy a building and equipment to produce a new product line.  Information about Havre is more useful to some people involved in the project than to others.

Complete the following chart by identifying the information listed with the user’s need to know the information.  Identify the information as one of the following: a. Need to know, b. Helpful to know, or c. Not necessary to know
"                            
                            
                            
                            
                            
1.    Amount of current debt, repayment schedule, and interest rate                        
2.    Fair market value of the building                        
3.    Condition of the roof and heating and cooling, electrical, and plumbing systems                        
4.    Total cost of the building, improvements, and equipment to set up production                        
5.    Expected sales from the new product, variable production costs, and related selling costs                        
                            
        Users of Information                    
        Management        Stockholders        Banker    
    1.    T        T        T    
    2.    T        T        T    
    3.    T        T        T    
    4.    T        T        T    
    5.    T        T        T    
                            
                                
    Problem 1-5: Income Statement, Statement of Retained Earnings, and Balance Sheet                            
    General Instructions                            
    1. The following worksheet may be used to complete the exercise/problem.                            
        You may need to refer to your textbook for additional information.                            
    2. The blue cells are for data entry. Enter text in the T cells, figures in the F cells, calculations in C cells                            
                                
    P1-5                            
                                
    The following list, in alphabetical order, shows the various items that regularly appear on the financial                            
    statements of Maple Park Theatres Corp. The amounts shown for balance sheet items are balances                             
    as of September 30, 2012 (with the exception of retained earnings, which is the balance on                             
    September 1, 2012); and the amounts shown for income statement items are balances for the month                             
    ended September 30, 2012.                            
                                
    Accounts payable         $17,600                     
    Accounts receivable         6,410                     
    Advertising expense         14,500                     
    Buildings         60,000                     
    Capital stock         50,000                     
    Cash         15,230                     
    Concessions revenue         60,300                     
    Cost of concessions sold         23,450                     
    Dividends paid during the month         8,400                     
    Furniture and fixtures         34,000                     
    Land         26,000                     
    Notes payable         20,000                     
    Projection equipment         25,000                     
    Rent expense—movies         50,600                     
    Retained earnings         73,780                     
    Salaries and wages expense         46,490                     
    Ticket sales         95,100                     
    Water, gas, and electricity         6,700                     
                                
    Required                            
                                
    1. Prepare an income statement for the month ended September 30, 2012.                            
                                
    MAPLE PARK THEATRES CORP.                            
    INCOME STATEMENT                            
    FOR THE MONTH ENDED SEPTEMBER 30, 2012                            
                                
    Revenues:                            
    T         F                     
    T         F                     
    Total revenues             C                 
                                
    Expenses:                            
    T         F                     
    T         F                     
    T         F                     
    T         F                     
    T         F                     
    Total expenses             C                 
    Net income             C                 
                                
    2. Prepare a statement of retained earnings for the month ended September 30, 2012.                            
                                
    MAPLE PARK THEATRES CORP.                            
    STATEMENT OF RETAINED EARNINGS                            
    FOR THE MONTH ENDED SEPTEMBER 30, 2012                            
                                
    Beginning balance, September 1, 2012             F                 
    T             F                 
    T             F                 
    Ending balance, September 30, 2012             C                 
                                
    3. Prepare a balance sheet at September 30, 2012                            
    Note: Classify Assets and Liabilities in the order of Liquidity                            
                                
    MAPLE PARK THEATRES CORP.                            
    BALANCE SHEET                            
    SEPTEMBER 30, 2012                            
                                
    Assets                            
    T             F                 
    T             F                 
    T             F                 
    T             F                 
    T             F                 
    T             F                 
    Total assets             C                 
                                
        Liabilities and Stockholders' Equity                            
    T             F                 
    T             F                 
    T             F                 
    T             F                 
    Total liabilities and stockholders' equity             C                 
                                
    4. You have $1,000 to invest. On the basis of the statements you prepared, would you use it to buy                             
    stock in Maple Park? Explain. What other information would you want before making a                             
    final decision?                            
                                
    T                            
                                
                                
                                
                                
                                
    Problem 2-4:  Financial Statement Ratios            
                
    The following items, in alphabetical order, are available from the records of Walker Corporation as of December 31, 2012 and 2011:            
                
        12/31/12    12/31/11    
    Accounts payable    8400     5200     
    Accounts receivable    27830     35770     
    Cash    20200     19450     
    Cleaning supplies    450     700     
    Interest payable    0     1200     
    Inventory    24600     26200     
    Marketable securities    6250     5020     
    Note payable, due in six months    0     12000     
    Prepaid rent    3600     4800     
    Taxes payable    1450     1230     
    Wages payable    1200     1600     
                
    1. Calculate the following as of December 31, 2012 and 2011:            
    a.     Working capital            
    b.     Current ratio            
                
    2. On the basis of your answers to (1), comment on the company’s relative liquidity at the beginning and end of the year.  Explain the change in the company’s liquidity from the beginning to the end of 2012.            
                
                
1a.    STEP 1:            
    Current Assets    FY2012    FY2011    
    T    F    F    
    T    F    F    
    T    F    F    
    T    F    F    
    T    F    F    
    T    F    F    
    TOTAL    C    C    
                
    Current Liabilities    FY2012    FY2011    
    T    F    F    
    T    F    F    
    T    F    F    
    T    F    F    
    T    F    F    
    TOTAL    C    C    
    STEP 2:            
    Working Capital     C    C    
                
1b.    Current Ratio    C    C    
                
                
2.    T            
                
    Problem 2-7: Multiple-Step Income Statements and Profit Margin                            
    Refer to the list of income statement items in Problem 2-6 (provided below).  Assume that Shaw Corporation classifies all operating expenses into two categories: (1) selling and (2) general and administrative.                            
                                
                                
                Advertising expense    1500             
                Commissions expense    2415             
                Cost of goods sold    29200             
                Depreciation expense-office building    2900             
                Income tax expense    1540             
                Insurance expense-salesperson’s auto    2250             
                Interest Expense    1400             
                Interest revenue    1340             
                Rent revenue    6700             
                Salaries and wages expense-office    12560             
                Sales revenue    48300             
                Supplies expense-office    890             
                                
        1.    Prepare a multiple-step income statement for the year ended December 31, 2012.                    
        2.    What advantages do you see in this form for the income statement?                    
        3.    Compute Shaw’s profit margin.                    
        4.    Comment on Shaw’s profitability.  What other factors need to be taken into account to assess Shaw’s profitability ?                    
                                
                                
    1. Multiple-step income statement                            
    SHAW CORPORATION                            
    INCOME STATEMENT                            
    FOR THE MONTH ENDED DECEMBER 31, 2012                            
    Sales                    F        
    Cost of goods sold                    F        
    Gross profit                        C    
    Operating expenses:                            
        Selling expenses:                        
            Advertising        F            
            Commissions        F            
            Insurance—salesperson’s auto        F            
        Total selling expenses                C        
        General and administrative expenses:                        
            Depreciation—office building        F            
            Salaries and wages—office        F            
            Supplies—office        F            
        Total general and administrative expenses                C        
    Total operating expenses                        C    
    Loss from operations                        C    
    Other revenues and expenses:                            
        Interest expense            F            
        Interest revenue            F            
        Rent revenue            F            
    Excess of other revenues over other expenses                        C    
    Income before taxes                        C    
    Income tax expense                        F    
    Net income                        C    
                                
                                
                                
    2. Advantages: T                            
                                
                                
    3. Profit Margin Formula                Calculation            
    T                C            
                                
    4. Profitability Comments: T                            
                                
                                
                                
                
                
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            



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