ACTG 500 Practice Problems 2 Transaction Analysis

ACTG 500 Practice Problems 2 Transaction Analysis - 1...

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Unformatted text preview: 1 University of Illinois at Chicago College of Business Administration ACTG 500: I NTRODUCTION TO F INANCIAL A CCOUNTING Fall 2009 Practice Problems 2: Transaction Analysis M1-22 In its September 2008 annual report, Starbucks reports the following figures (in $ millions): Assets = Liabilities + Equity $ 5,672.6 = $ 3,181.7 + $ 2,490.9 As shown, the accounting equation holds for Starbucks. Also, we can see that Starbucks nonowner financing is 56.1% ($3,181.7 / $5,672.6) of its total financing. E1-28 ($ millions) a. Using the accounting equation: Assets ($50,715) = Liabilities ($11,627) + Equity (?) Thus: $39,088 = Equity High tech companies must contend with a substantial amount of risk relating to changing technology. Future cash flows are, therefore, not as certain and cannot support high levels of debt. Thus, the company uses equity financing; 77.1% in the case of Intel. b. Using the accounting equation at the beginning of the year: Assets ($5,598) = Liabilities (?) + Equity ($1,036) Thus: Beginning Liabilities = $4,562 Using the accounting equation at the end of the year: Assets ($5,598 + $486) = Liabilities ($4,562 + $241) + Equity (?) Thus: Ending Equity = $1,281 2 Alternative approach to solving part (b): Assets($486) = Liabilities($241) + Equity(?) where refers to change in. Thus: Ending Equity = $486 - $241 = $245 and Ending equity = $1,036 + $245 = $1,281 c. Retained Earnings is the balance sheet account that provides the link between the balance sheet and the income statement. Each accounting period, Retained Earnings is updated by the net income (loss) reported for that period (and is reduced by any dividends that are paid to shareholders). The balance sheet and the income statement are, therefore, linked by this balance sheet account. E1-30 Computation of dividends Beginning retained earnings, 2007 ............................................................. $ 9,643.7 + Net income ................................................................................................. 1,737.4 Cash dividends ........................................................................................... (?) = Ending retained earnings, 2007 ................................................................. $10,627.5 Thus, dividends were $753.6 million for 2007. The company paid out dividends equal to 43.4% of 2007 net income ($753.6 / $1,737.4). P1-36 a. General Mills, Inc. Income Statement ($ millions) For Year Ended May 25, 2008 Revenue ...................................................................................... $13,652.1 Cost of goods sold ....................................................................... 8,778.3 Gross profit .................................................................................. 4,873.8 Total expenses ............................................................................ 3,579.1 Net income .................................................................................. $ 1,294.7 3...
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ACTG 500 Practice Problems 2 Transaction Analysis - 1...

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