MIM_ Financial Accounting Precourse

Professor: Ana Hernandez-Ros Otamendi

Problem 1
The assets and liabilities of Kellogg Services, Inc., as of December 31 20X7 and
revenues and expenses for the year ended on that date are listed here:
Equipment

$31,000

Land

$8,000

Interest expense

$4,000

Note payable

$31,000

Interest payable

$1,000

Property tax expense

$2,000

Accounts payable

$12,000

Rent expense

$14,000

Accounts receivable

$10,000

Salary expense

$34,000

Building

$26,000

Service revenue

$115,000

Cash

$4,000

Supplies

$2,000

Common stock

$10,000

Utilities expense

$3,000

Beginning retained earnings was $11,000, and dividends totalled $42,000 for the year
Required:
1. Prepare the income statement of Kellogg Services, Inc. for the year ended
December 31, 20X7.
2. Prepare the companys statement of retained earnings for the year.
3. Prepare the companys balance sheet at December 31, 20X7.
4. Analyse Kellogg Services by answering these questions:
a. Was Kellogg profitable during 20X7? By how much?
b. Did retained earnings increase or decrease? By how much?
c. Which is greater: total liabilities or total equity? Who owns more of
Kelloggs assets, creditors or the Kellogg stockholders?

Problem 2
Greg Ogden, the manager of Shipp Belting, Inc., which manufactures conveyor belts,
prepared the companys balance sheet while the accountant was ill. The balance sheet
contains some errors. In particular, Ogden knew that the balance sheet should balance,
so he plugged in the stockholders equity amount needed to achieve this balance. The
stockholders equity amount is not correct. All other amounts are accurate.

Shipp Belting, Inc.

Balance sheet
Month ended October 31, 20X4
Assets

Liabilities

Cash

$15,400

Notes receivable

$14,000

Equipment

$36,700

Interest expense

$2,000

Accounts payable

$3,000

Office supplies

$800

Utilities expense

$2,100

Accounts receivable

$2,600

Advertising expense

$300

Note payable

50,000

Land

$80,500

Salary expense

$3,300

Stockholders equity

$71,900

Total assets

$141,300

Total liabilities

$141,3000

Stockholders Equity

Required:
1. Prepare the correct balance sheet and date it properly. Compute total assets,
total liabilities and stockholders equity.
2. Is Shipp Belting actually in better (or worse) financial position than the
erroneous balance sheet reports? Give the reason for your answer.
3. Identify the accounts listed on the incorrect balance sheet that are not reported
on the balance sheet. State why you excluded them from the correct balance
sheet you prepared for Req.1. On which financial statement should these
accounts appear?

Problem 3
Mike Cassell is a realtor. He buys and sells properties on his own, and he also earns
commission as an agent for buyers and sellers. He organized his business as a
corporation on March 10, 2008. The business received $ 75.000 cash from Casell and
issued common stock. Consider the following facts as of march 31, 2008:

Cassell has $ 9.000 in his personal bank account and $ 16.000 in the business
bank account.
Office supplies on hand at the real state office total $ 1.000
Cassells business spent 35.000$ for a Century 21 franchise, which entitles him
to represent himself as an agent. Century 21 is a national affiliation of
independent real estate agents. This franchise is a business asset.
Cassells business owes $ 33.000 on a note payable for some underdeveloped
land acquired for a total price of $ 100.000
Cassell owes $ 65.000 on a personal mortgage on his personal residence,
which he acquired in 2002 for a total price of $ 190.000
Cassell owes $300 on a personal charge account with Sears
Cassell acquired business furniture for $ 12.000 on March 26. Of this amount,
Cassells business owes $ 6.000 on open account at March 31.

Required:
1. Prepare the balance sheet of the real estate business of Mike Cassell Realtor
Inc. at March 31, 2008.
2. Does it appear that Cassells realty business can pay its debts? How can you
tell?
3. Identify the personal items given in the preceding facts that would not be
reported on the balance sheet of the business.

NOTE: Only solve what requested, dont prepare the journal/ledger. There
could be intermediate transactions not included in the data.

Problem 4
The owners of Mach-1, Inc., a credit-counselling service, are selling the business. They
offer the following trial balance to prospective buyers:
Mach-1, Inc..
Trial Balance
December 31, 20X6
Cash ........................................................................
Accounts receivable.................................................
Prepaid expenses ....................................................
Equipment............................
Building...............................................
Accounts payable.....................
Note payable.................
Common stock ........................................................
Retained earnings ...................................................
Dividends .................................................................
Service revenue .......................................................
Rent expense ..........................................................
Advertising expense ................................................
Wage expense .........................................................
Supplies expense ....................................................

$16,000
11,000
4,000
171,000
100,000
$ 31,000
120,000
103,000
40,000
21,000
86,000
14,000
3,000
33,000
7,000
$ 380,000

$ 380,000

Clay Cornelius, your best friend, is considering buying Mach-1, Inc. He seeks your
advice in interpreting this information. Specifically, he asks whether this trial balance is
the same as a balance sheet and an income statement. He also wonders whether
Mach-1, Inc. is a sound company. After all, the accounts are in balance.
Required :
Write a short note to answer Cornelius questions. To aid this decision, state how he
can use the information on the trial balance to compute the Mach-1 net income or net
loss for the current period. State the amount of net income or net loss in your note.

Problem 5
Dudley Haas operates and is the major stockholder of an interior design studio called Haas interiors, Inc. The following amounts summarize the
financial position of the business on August 31, 20X8:
=

ASSETS

Bal.

Cash
+
1,250

Accounts
Receivable + Supplies +
1,500

Land =
12,000

LIABILITIES
Accounts
Payable +
8,000

STOCKHOLDERS EQUITY
Common
Stock +
4,000

Retained
Earnings
2,750

During September 20X8, the business completed these transactions:

a. Haas inherited $9,000 and deposited the cash in the business bank account. The business issued common stock to Hass.
b. Performed services for a client and received cash of $ 6,700.
c. Paid $ 5,000 on accounts payable.
d. Purchased supplies on account, $1,000.
e. Collected cash from a customer on account, $ 500.
f. Received cash on $1,000 and issued common stock to Hass.
g. Consulted on the interior design of a major office building and billed the client for services rendered, $ 2,400.
h. Recorded the following business expenses for the month: (1) paid office rent: $ 900; (2) paid advertising: $ 300.
i. Declared and paid a cash dividend of $1,800.
Required :
1. Analyse the effects of the preceding transactions on the accounting equation of Hass Interiors, Inc.
2. Prepare the income statement of Hass Interiors, Inc., for the month ended September 30, 20X8. List expenses in decreasing order by
amount.
3. Prepare the entitys statement of retained earnings for the month ended September 30, 20X8
4. Prepare the balance sheet of Hass Interiors, Inc. at September 30, 20X8

Problem 6
Betty Doss obtained a corporate charter from the state of Michigan and started
CableVision, Inc. During the first month of operations (January 20X7), the business
completed the following selected transactions:
a. Doss began the business with an investment of $ 10,000 cash and a building
valued at $50,000. The corporation issued common stock to Doss.
b. Borrowed $ 20,000 from the bank; signed a note payable.
c. Paid $ 22,000 for transmitting equipment.
d. Purchased office supplies on account, $ 400.
e. Paid employees salaries, $ 1,300.
f. Received $ 500 for cable TV service performed for customers.
g. Sold cable service to customers on account, $ 1,800.
h. Paid $ 100 of the account payable created in Transaction d.
i. Received a $ 600 bill for utility expense that will be paid in the near future.
j. Received cash on account, $ 1,100.
k. Paid the following cash expenses: (1) rent on land, $1,000; (2) advertising,
$800.
l. Declared and paid dividends of $ 2,600.
Required:
1. Set up the following T-accounts: Cash, Accounts Receivable, Office Supplies,
Transmitting Equipment, Building, Accounts Payable, Note Payable, Common
Stock, Dividends, Service Revenue, Salary Expense, Rent Expense, Advertising
Expense and Utilities Expense.
2. Record each transaction in the journal, using the account titles given. Key each
transaction by date. Explanations are not required.
3. Post the transactions to the T-accounts, using transaction dates as posting
references.
4. Prepare the trial balance of CableVision, Inc., at January 31, 20X7.
5. Doss is afraid total liabilities of the business exceed total assets. She also fears that
the business suffered a net loss during January. Compute the amounts needed to
answer her questions.

Problem 7
Pat ODell opened a law office on January 2 of the current year. During the first month
of operations, the business completed the following transactions:
Jan

2 ODell deposited $33,000 cash in the business bank account Pat

ODell, Attorney, Professional Corporation (P.C.). The corporation
issued common stock to ODell.
3 Purchased supplies, $500, and furniture, $2,600, on account.
4 Performed legal service for a client and received cash, $1,500.
7 Paid cash to acquire land for an office site, $22,000.
11 Defended a client in court and billed the client $800.
16 Paid the furniture purchased January 3 on account.
17 Paid the telephone bill, $110.
18 Received partial payment from the client on account, $400.
22 Paid the water and electricity bills, $130.
29 Received $1,800 cash for helping a client sell real estate.
31 Paid the secretary s salary, $1,300.
31 Declared and paid dividends of $2,200.

Required:

Set up the following T-accounts: Cash, Accounts Receivable, Supplies, Furniture, Land,
Accounts Payable, Common Stock, Dividends, Service Revenue, Salary Expense, and
Utilities Expense.
1. Record each transaction in the journal, using the account titles given. Key each
transaction by date. Explanations are not required.
2. Post the transactions to the T-accounts, using transaction dates as posting
references.
3. Prepare the trial balance of Pat ODell, Attorney, P.C., at January 31 of the
current year.
4. Prepare the income statement of Pat ODell, Attorney, P.C., for the month ended
January 31 of the current year. List expenses in decreasing order by amount.
5. Prepare the balance sheet of Pat ODell, Attorney, P.C., at January 31 of the
current year.
6. ODell asks you how much in total resources the business has to work with,
how much it owes, and whether January was profitable (and by how much).

Problem 8
Lisa Lane operates and is the major stockholder of an interior design studio called Lane Designers, Inc. The following amounts summarize the
financial position of the business on April 30, 20X5:
= LIABILITIES + STOCKHOLDERS EQUITY
ASSETS
Accounts
Accounts
Common
Retained
Cash
+
Receivable + Supplies +
Land =
Payable +
Stock +
Earnings
Bal.
1,720
2,240
24,100
5,400
10,000
12,660
During May 20X5, the business completed these transactions:
a. Lane received $42,000 as a gift and deposited the cash in the business bank account. The business issued common stock to Lane.
b. Paid $1,400 on accounts payable.
c. Performed services for a client and received cash of $4,100.
d. Collected cash from a customer on account, $750.
e. Purchased supplies on account, $720.
f. Consulted on the interior design of a major office building and billed the client for services rendered, $5,000.
g. Received cash of $1,700 and issued common stock to Lane
h. Recorded the following expenses for the month: (1) paid office rent : $1,200; (2) paid advertising: $660.
i. Declared and paid a cash dividend of $2,400.
Required :
1. Analyse the effects of the preceding transactions on the accounting equation of Lane Designers, Inc.
2. Prepare the income statement of Lane Designers, Inc., for the month ended May 31, 20X5. List expenses in decreasing order by
amount.
3. Prepare the statement of retained earnings of Lane Designers, Inc., for the month ended May 31, 20X5.

4. Prepare the balance sheet of Lane Designers, Inc. at May 31, 20X5.

Problem 9
Tomas Lopez opened a law office on September 3 of the current year. During the first
month of operations, the business completed the following transactions:
Sept.

3 Transferred $25,000 cash from the Lopez personal bank account to a

business account titled Tomas Lopez, Attorney, Professional
Corporation (P.C.). The corporation issued common stock to Lopez.
4 Purchased supplies, $200, and furniture, $1,800, on account.
6 Performed legal services for a client and received cash, $1,000.
7 Paid cash to acquire land for an office site, $15,000.
10 Defended a client in court, billed the client, and received his promise to
pay the $600 within 1 week.
14 Paid for the furniture purchased September 4 on account.
16 Paid the telephone bill, $120.
17 Received partial payment from the client on account, $500.
24 Paid the water and electricity bills, $110.
28 Received $1,500 cash for helping a client sell real estate.
30 Paid the secretarys salary, $1,200.
30 Declared and paid dividends of $2,400.

Required:
Set up the following T-accounts: Cash, Accounts Receivable, Supplies, Furniture, Land,
Accounts Payable, Common Stock, Dividends, Service Revenue, Salary Expense, and
Utilities Expense.
1. Record each transaction in the journal, using the account titles given. Key each
transaction by date. Explanations are not required.
2. Post the transactions to the T-accounts, using transaction dates as posting
references.
3. Prepare the trial balance of Tomas Lopez, Attorney, P.C., at September 30 of
the current year.

4. Prepare the income statement of Tomas Lopez, Attorney, P.C., for the month
ended September 30 of the current year. List expenses in decreasing order by
amount.
5. Prepare the balance sheet of Tomas Lopez, Attorney, P.C., at September 30 of
the current year.
6. Lopez asks you how much in total resources the business has to work with,
how much it owes, and whether September was profitable (and by how much).

Problem 10
Britt Hendrix obtained a corporate charter from the state of Connecticut and started a
computer graphics firm. During the first month of operations (June 20X3), the business
completed the following selected transactions:
a. Began the business with an investment of $ 11,000 cash and a building valued
at $60,000. The corporation issued common stock to Hendrix.
b. Borrowed $ 90,000 from the bank; signed a note payable.
c. Purchased office supplies on account, $ 1,300.
d. Paid $ 88,000 for computer equipment.
e. Paid employees salaries totalling, $ 2,200.
f. Performed computer graphic service on account for a client, $2,100.
g. Paid $ 800 of the account payable created in Transaction c.
h. Received a $ 600 bill for advertising expense that will be paid in the near future.
i. Performed service for clients and received $1,100 in cash.
j. Received $1,200 cash on account.
k. Paid the following cash expenses: (1) rent on land, $700; (2) utilities, $400.
l. Declared and paid dividends of $ 500.
Required:
1. Set up the following T-accounts: Cash, Accounts Receivable, Office Supplies,
Computer Equipment, Building, Accounts Payable, Note Payable, Common Stock,
Dividends, Service Revenue, Salary Expense, Advertising Expense, Rent Expense
and Utilities Expense.
2. Record the foregoing transactions in the journal and the T-accounts. Use the letters
to identify the transactions.
3. Prepare the trial balance of Hendrix Computer Graphics Service, Inc., at June 30,
20X3.
4. Prepare the income statement of Hendrix Computer Graphics Service, Inc., for the
month ended June 30, 20X3.
5. Prepare the balance sheet of Hendrix Computer Graphics Service, Inc., at June 30,
20X3.
6. Hendrix is afraid total liabilities of the business exceed its total assets. He also fears
that the business suffered a net loss during June. Compute the amounts needed to
answer his questions.

Problem 11
McConnell Corporation manufactures recreational aircraft. Adapted versions of the
companys financial statements are given for two recent years.
20X5
20X4
(Thousands)
STATEMENT OF OPERATIONS
Revenues
$
k $15,487
Cost of goods sold
11,026
a
Other expenses
1,230
1,169
Earnings before income taxes
920
1,496
Income taxes (35% in 20X5)
l
100
Net earnings
$
m $
b
STATEMENT OF RETAINED EARNINGS
Beginning balance
Net earnings
Dividends
Ending balance
BALANCE SHEET
Assets:
Cash
Property, plant and equipment
Other assets
Total assets
Liabilities:
Current liabilities
Notes payable and long-term debt
Other liabilities
Total liabilities
Shareholders Equity:
Common stock
Retained earnings
Other shareholders equity
Total shareholders equity
Total liabilities and shareholders equity
STATEMENT OF CASH FLOWS
Net cash provided by operating activities
Net cash provided by investing activities
Net cash used for financing activities
Increase (decrease) in cash
Cash at beginning of year
Cash at end of year

$
$

n
o
(65)
p

$ 2,702
c
(55)
$
d

q
1,597
r
$
s

t
2,569
69
8,344

$ 5,403
3,138
72
f

117
u
179
v
w

$
$

e
1,750
10,190
$13,026

118
g
252
4,413
$
h

x $ 475
58
574
(709)
(1,045)
335
i
y
1,082
z
$
j

Required:
1. Determine the missing amounts denoted by the letters
2. Use McConnells financial statements to answer these questions about the
company. Explain each of your answers
a. Did operations improve or deteriorate during 20X5
b. What is the company doing with most of its income: retaining it for use in
the business or using it for dividends?
c. How much in total resources does the company have to work with as it
moves into the year 20X6?
d. At the end of 20X4, how much did the company owe outsiders? At the
end of 20X5, how much did the company owe? Is this trend good or bad
in comparison to the trend in assets?
e. What is the companys major source of cash? Is cash increasing or
decreasing? What is your opinion of the companys ability to generate
cash?

PROBLEM 12
The unadjusted trial balance of Colorado Valley Legal Associates at july 31, 20x2, and
the related month-end adjustment data are shown below.
Adjustment data:
a. Accrued legal service revenue at july 31, $ 400
b. Prepaid rent expired during the month. The unadjusted prepaid balance of $
3.600 relates to the period july through October
c. Supplies used during july, 600$
d. Depreciation on furniture for the month. The estimated useful life of the furniture
is 5 years.
e. Accrued salary expense at july 31 for Monday and Tuesday. The 5-day weekly
payroll of $ 1.750 will be paid on Friday, august 3.
Required:
a. Prepare the adjusted trial balance of Colorado at July 31, 200X2. Key each
adjusting entry by letter. The business is not subject to income tax.
b. Prepare the income statement, the statement of retained earnings, and the
classified balance sheet. Draw arrows linking the 3 financial statements.
Colorado Valley Legal Associates
Unadjusted Trial Balance
July 31, 20X2
TRIAL BALANCE
ACCOUNT TITLE
DEBIT
CREDIT
Cash
5,600
Accounts receivable
11,600
Prepaid rent
3,600
Supplies
800
Furniture
36,000
Accumulated depreciation
3,500
Accounts payable
10,450
Salary payable
Common stock
26,200
Retained earnings
13,650
Dividends
4,000
Legal service revenue
10,750
Salary expense
2,400
Rent expense
Utilities expense
550
Depreciation expense
Supplies expense
_____
_____
64,550
64,550

Problem 13
The accounts of Glenapp Castle Hotel Company, prior to the year-end adjustments,
follow below.
Adjusting data at the end of the year include:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Unearned service revenue that has been earned $ 1900

Accrued rent revenue, $ 1200
Accrued property tax expense, $ 900
Accrued service revenue, $ 1700
Supplies used in operations, $600
Accrued salary expense, $ 1400
Insurance expense, $ 1800 ( The payment was made in advance, is a deferral )
Depreciation expense-furniture, $ 800; building, $ 2100
Accrued interest expense, $ 500
Cash
Accounts receivable

$ 4.200
$ 7.200

Rent receivable
Supplies

1.100

Note payable, long

term
Common stock

$ 6.000

Retained earnings

50.100

Dividends

16.200

10.000

Prepaid insurance

2.200

Service revenue

4.100

Furniture

15.700

Rent revenue

140.000

Accumulated
depreciation-furniture
Building

1.300

Salary expense

32.700

96.800

Accumulated
depreciation-Building
Land

14.900
51.200

Depreciation
expense-furniture
Depreciation
expense-building
Supplies expense

Accounts payable

6.100

Insurance expense

Salary payable

Interest expense

Interest payable

Advertising expense

Property tax payable

Property tax expense

Unearned service
revenue

5.300

Utilities expense

7.800

2.700

Richardson Mantooth, the principal stockholder, has received an offer to sell Glenapp
Castle. He needs to know the following information within one hour

Net income for the year covered by these data

Total assets
Total liabilities
Total stockholdersequity
Proof that total assets = total liabilities plus total stockholdersequity after all
items are updated

Required:
Without opening any accounts, making any journal entries or using a work sheet,
provide Mr.Mantooth with the requested information. The business is not subject to
income tax. Show all computations.

Problem 14
THE GYMNOPEDIC SATI COMPANY
The GS Company starts operations on the 1 st January 2008. The Company offers
organizing services on concerts and other musical activities.
The Company books in USA dollars. When no stated and a Treasury account is
needed, use cash. Company records inventories according to permanent system
method.
During 2008, the Company books the following operations
1. Company is created with a 500.000 $ share Capital, paid in cash by
shareholders.
2. Revenue from services offered to customers for 250.000 $, collected in cash.
3. Receives a loan from a Bank of 50.000 $
4. The salaries expense amounts 80.000 $. The Company pays the salaries to the
employees, except 10.000 $ that remain unpaid.
5. Pays interest expense of 13.000 $
6. Buys a computer at a price of 150.000 $ paid in cash
7. Revenues from sales to customers are worth 120.000 $ on account
8. Receives 25.000 $ from the previous sale on account.
9. Travel expenses from General Manager amount to 3.000 $ paid cash.
10. Buys a software program for 30.000 $, out of which 20.000 are paid cash and
10.000 through a loan.
Year end adjustment:
11. Before year end, the Company books the depreciation of fixed assets. Both
computer and software are depreciated on a linear basis in 3 years. Compute
the full year depreciation.
Prepare the journal, ledger, trial balance (adjusted and unadjusted) and year end
financial statements for this Company.

Due to the success of this company in 2008, the company continues operations
in 2009.
The operations for 2009 are:
12. Revenue from services offered to customers for 125.000 $, collected in cash.
13. Collects the accounts receivable pending from the previous year.
14. The salaries expense amounts 50.000 $. The Company pays the salaries in
cash to the employees.
15. The Company pays the Salaries payable from the previous year
16. Pays interest expense of 8.000 $
17. Buys a car at a price of 100.000 $ paid 50% in cash and remaining 50% with a
note payable.
18. Revenues from sales to customers for 20.000 $ on account
19. Payment of the rent of the office on July 1st, for a full year. 6.000 $.
20. Receives 5.000 $ from the previous sale on account.
21. The phone bill amounts to 1.000 $ paid cash.
22. The loan from point 10 is paid back.

Year end adjustment:

23. Books the year depreciation of fixed assets on a linear basis, computer and
software on a 3 years basis, car on 5 years basis .Compute the full year
depreciation.
24. The prepaid rent is adjusted for the 6 months of rent expense during the closing
year.

Close the books and prepare Financial Statements

ADDITIONAL PROBLEMS
Additional Problem 1
Presented here are a partially completed income statement, balance sheet and cash
flow statement for Lavalle Corp. for 2003.
Lavalle Corp
Income Statement
For the year ended December 31, 2003
Net sales
Cost of sales
Gross profit
Operating expenses
Operating income
Other revenue (expenses):
Interest revenue
Interest expense
Income before taxes
Income tax expense
Net income

2,000,000
3,000,000
900,000
10,000
(20,000)
340,000

Lavalle Corp.
Balance Sheet
December 31, 2003 and 2002
ASSETS
2003
Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses
Plant assets, net
Other long-term assets, net
Total assets

230,000
310,000
80,000
1,000,000
110,000

2002
120,000
300,000
50,000
900,000
80,000

LIABILITIES AND STOCKHOLDERS EQUITY

2003
Accounts and notes payable
Accrued expenses
Income taxes payable
Long-term liabilities
Contributed capital
Retained earnings
Total liabilities and stockholders equity

170,000
110,000
160,000
300,000

2002
250,000
60,000
120,000
400,000
500,000
200,000
$1,530,000

Lavalle Corp.
Statement of Cash Flows
For the year ended December 31, 2003
Cash Flows from Operating Activities:
Cash collected from customers
Cash paid to suppliers and employees
Cash paid for taxes
Net cash provided by operating activities
Cash Flow from Investing Activities
Cash paid to purchase plant assets
Cash paid to purchase other long-term assets
Net cash used for investing activities

$4,900,000
(300,000)
470,000
(150,000)
(190,000)

Cash Flow from Financing Activities

Cash received from issuance of stock
Cash paid for dividends
Cash paid as repayment of long-term debt
Net cash used for financing activities

250,000
(480,000)
(100,000)

Net change in cash

Cash and cash equivalents at January 1
Cash and cash equivalents at December 31

80,000

a. Complete Lavalles financial statements for 2003 filling in the blanks with the
appropriate amounts.
b. Briefly describe the purpose of each of Lavalles statements that you
completed.
c. Describe the relationship between the balance sheet and the income statement.
d. Describe the relationship between the balance sheet and the statement of cash
flows.
e. Compare and contrast the income statement and the statement of cash flows.
Describe their relationship to each other.

Additional Problem 2
Microsofts Balance Sheet
Microsofts balance sheets as of June 30, 2000 and June 30, 2001 are the following:
Microsoft Corporation
Balance Sheets
(In millions)
June 30
2000

2001

ASSETS
Current assets:
Cash and Short Term investments
Accounts receivable
Other
Total current assets

23.798 $
3.250
3.260
30.308 $

31.600
3.671
4.366
39.637

1.903
17.726
2.213

2.309
14.141
3.170

52.150 $

59.257

$
$

1.803 $
557
585
4.816
1.994
9.755 $
1.027 $

1.188
742
1.468
5.614
2.120
11.132
836

23.195 $

28.390

18.173
41.368 $

18.899
47.289

52.150 $

59.257

Property and equipment

Equity and other investments
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable
Accrued compensation
Income tax payable
Unearned revenue
Other
Total current liabilities
Deferred income taxes
Stockholders' equity:
Common stock and paid-in capital - shares authorised,
12,000; shares issued and outstanding, 5,283 and 5,383
Retained earnings, including other comprehensive income
of $1,527 and $587
Total Stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

Answer the following questions:

a. What is the largest asset on Microsofts balance sheet?
b. What is Microsofts largest asset from an economic point of view, if you were
asked to name the most important thing that will contribute to the future cash
inflows of Microsoft?
c. Are your answers to parts (a) and (b) the same? (They should not be!) Why do
they differ? (Here you should be thinking about the difference between
Microsofts economics and its accounting.)
d. What is the total amount of Microsofts long-term liabilities?
e. What is the largest liability shown on Microsofts balance sheet? What does it
represent?
f. The current ratio is equal to current assets divided by current liabilities.
Calculate Microsofts current ratio as of June 30, 2000, and June 30, 2001.

g. If you were a supplier to Microsoft and Bill Gates asked you to allow Microsoft
to purchase from you on credit, would you do it? Justify your answer in terms
of your calculation of the current ratio.
h. Suppose that you are thinking about bying Microsoft common stock. Would
Microsofts current ratio be a consideration in your decision? How about
Microsofts ability to earn profits by continuing to sell its software? Is Microsoft
ability to earn profits by continuing to sell its software reflected on its balance
sheets? If so, where is this ability shown?