M1-20. (10 minutes)
(€ millions)
Assets = Liabilities + Equity
€45,513 €30,698 €14,815
Unilever receives more of its financing from creditors (€30,698 million) than from
owners (€14,815 million). Its owner financing comprises 32.55% of its total financing
(€14,815 mil./ €45,513 mil.).
M1-24. (20 minutes)
a. BS d. BS g. SCF and SE
b. IS e. SCF h. SCF and SE
c. BS f. BS and SE i. IS, SE, and SCF
E1-28. (20 minutes)
a. Using the accounting equation:
(€ millions) Assets = Liabilities + Equity
Prada .......................... €3,888 €1,187
€2,701
b. Starting with the accounting equation at the beginning of the year:
($ millions) Assets = Liabilities + Equity
Rogers ..................... $15,850 $3,768
$19,618
Using the accounting equation at the end of the year:
($ millions) Assets = Liabilities + Equity
Rogers ..................... $19,618+$3,983 $15,850+$3,082 $4,669
Alternative approach to solving part (b):
Assets ($3,983) = Liabilities ($3,082) + Equity(?)
where “” refers to “change in.”
Thus: Ending Equity = $3,983- $3,082= $901 and
Ending equity = $3,768 + $901 = $4,669
,c. Starting with the accounting equation at the end of the year:
(thousands of €) Assets = Liabilities + Equity
Carrefour €43,564 €37,959- €8,597
€2,992
Using the accounting equation at the beginning of the year:
(thousands of €) Assets = Liabilities + Equity
Carrefour €43,564+€2,442 €37,959 €8,047
E1-29. (15 minutes)
External users and some questions they seek to answer with accounting information
from financial statements include:
1. Shareholders (investors), who seek answers to questions such as:
a. Are resources owned by a business adequate to carry out plans?
b. Are the debts owed excessive in amount?
c. What is the current level of income (and its components)?
2. Creditors, who seek answers for questions such as:
a. Does the business have the ability to repay its debts?
b. Can the business take on additional debt?
c. Are resources sufficient to cover current amounts owed?
3. Employees, who seek answers to questions such as:
a. Is the business financially stable?
b. Can the business afford to pay higher salaries?
c. What are growth prospects for the organisation?
E1-30. (10 minutes)
Computation of dividends
Retained earnings, 2012..................................................................... €4,454
+ Net income ......................................................................................... 790
– Cash dividends ...................................................................................
(?)
= Retained earnings, 2013..................................................................... €4,959
Thus, dividends were €285 million for 2013. This dividends amount comprises 36.07%
(€285/ €790) of its 2013 net income.
,E1-31. (20 minutes)
ADIDAS
Income Statement
For the year ended December 31, 2013
(€ millions)
Revenues €14,492
Cost of goods sold 7,352
Gross profit 7,140
Other expenses 6,350
Net income (or loss) €790
E1-33.A (20 minutes)
a. Financial information provides users with information that is useful in assessing the
financial performance of companies and, therefore, in setting securities prices. To
the extent that securities prices are accurate, the costs of the funds that companies
raise will accurately reflect their relative efficiency and risk of operations. Those
companies that can effectively utilize capital better will be able to obtain that capital
at a reasonable cost, and society’s financial resources will be effectively allocated.
b. First, the preparation of financial statements involves and understanding of
complex accounting rules and a significant amount of assumptions and estimation.
Second, IFRS allows for differing accounting treatments for the same transaction.
And third, auditors are at a relative information disadvantage vis-à-vis company
accountants. As the capital markets place increasing pressures on companies to
perform, accountants are often placed in a difficult ethical position to use the
flexibility given to them under IFRS in order to bias the financial results.
P1-35. (30 minutes)
a.
GENERAL, INC.
Income Statement
For Year Ended May 29, 2014
($ millions)
Sales ....................................................................... $14,880.2
Cost of goods sold .................................................. 8,926.7
Gross profit ............................................................. 5,953.5
Expenses ................................................................ 4,150.0
Net income .............................................................. $ 1,803.5
, GENERAL, INC.
Balance Sheet
May 29, 2014
($ millions)
Cash & Cash Eq. $ 619.6 Total liabilities $12,062.3
Noncash assets 18,054.9 Total equity 6,612.2
Total assets $18,674.5 Total liabilities and equity $18,674.5
GENERAL, INC.
Statement of Cash Flows
For Year Ended May 29, 2014
($ millions)
Net cash flows from operations ............................... $ 1,526.8
Net cash flows from investing ................................. (715.1)
Net cash flows from financing ................................. (865.3)
Net change in cash ................................................. (53.6)
Cash, beginning year .............................................. 673.2
Cash, ending year ................................................... $ 619.6
b. $6,612.2 /$18,674.5 = 35.4% contributed by owners
P1-38. (15 minutes)
CROCKER CORPORATION
Statement of Changes in Equity
For Year Ended December 31, 2013
Contributed Retained Total
Capital Earnings Equity
December 31, 2012 ............................ $ 70,000 $ 30,000 $100,000
Issuance of ordinary shares................ 30,000 30,000
Net income ......................................... 50,000 50,000
Cash dividends ................................... _______ (25,000) (25,000)
December 31, 2013 ............................ $100,000 $ 55,000 $155,000
(€ millions)
Assets = Liabilities + Equity
€45,513 €30,698 €14,815
Unilever receives more of its financing from creditors (€30,698 million) than from
owners (€14,815 million). Its owner financing comprises 32.55% of its total financing
(€14,815 mil./ €45,513 mil.).
M1-24. (20 minutes)
a. BS d. BS g. SCF and SE
b. IS e. SCF h. SCF and SE
c. BS f. BS and SE i. IS, SE, and SCF
E1-28. (20 minutes)
a. Using the accounting equation:
(€ millions) Assets = Liabilities + Equity
Prada .......................... €3,888 €1,187
€2,701
b. Starting with the accounting equation at the beginning of the year:
($ millions) Assets = Liabilities + Equity
Rogers ..................... $15,850 $3,768
$19,618
Using the accounting equation at the end of the year:
($ millions) Assets = Liabilities + Equity
Rogers ..................... $19,618+$3,983 $15,850+$3,082 $4,669
Alternative approach to solving part (b):
Assets ($3,983) = Liabilities ($3,082) + Equity(?)
where “” refers to “change in.”
Thus: Ending Equity = $3,983- $3,082= $901 and
Ending equity = $3,768 + $901 = $4,669
,c. Starting with the accounting equation at the end of the year:
(thousands of €) Assets = Liabilities + Equity
Carrefour €43,564 €37,959- €8,597
€2,992
Using the accounting equation at the beginning of the year:
(thousands of €) Assets = Liabilities + Equity
Carrefour €43,564+€2,442 €37,959 €8,047
E1-29. (15 minutes)
External users and some questions they seek to answer with accounting information
from financial statements include:
1. Shareholders (investors), who seek answers to questions such as:
a. Are resources owned by a business adequate to carry out plans?
b. Are the debts owed excessive in amount?
c. What is the current level of income (and its components)?
2. Creditors, who seek answers for questions such as:
a. Does the business have the ability to repay its debts?
b. Can the business take on additional debt?
c. Are resources sufficient to cover current amounts owed?
3. Employees, who seek answers to questions such as:
a. Is the business financially stable?
b. Can the business afford to pay higher salaries?
c. What are growth prospects for the organisation?
E1-30. (10 minutes)
Computation of dividends
Retained earnings, 2012..................................................................... €4,454
+ Net income ......................................................................................... 790
– Cash dividends ...................................................................................
(?)
= Retained earnings, 2013..................................................................... €4,959
Thus, dividends were €285 million for 2013. This dividends amount comprises 36.07%
(€285/ €790) of its 2013 net income.
,E1-31. (20 minutes)
ADIDAS
Income Statement
For the year ended December 31, 2013
(€ millions)
Revenues €14,492
Cost of goods sold 7,352
Gross profit 7,140
Other expenses 6,350
Net income (or loss) €790
E1-33.A (20 minutes)
a. Financial information provides users with information that is useful in assessing the
financial performance of companies and, therefore, in setting securities prices. To
the extent that securities prices are accurate, the costs of the funds that companies
raise will accurately reflect their relative efficiency and risk of operations. Those
companies that can effectively utilize capital better will be able to obtain that capital
at a reasonable cost, and society’s financial resources will be effectively allocated.
b. First, the preparation of financial statements involves and understanding of
complex accounting rules and a significant amount of assumptions and estimation.
Second, IFRS allows for differing accounting treatments for the same transaction.
And third, auditors are at a relative information disadvantage vis-à-vis company
accountants. As the capital markets place increasing pressures on companies to
perform, accountants are often placed in a difficult ethical position to use the
flexibility given to them under IFRS in order to bias the financial results.
P1-35. (30 minutes)
a.
GENERAL, INC.
Income Statement
For Year Ended May 29, 2014
($ millions)
Sales ....................................................................... $14,880.2
Cost of goods sold .................................................. 8,926.7
Gross profit ............................................................. 5,953.5
Expenses ................................................................ 4,150.0
Net income .............................................................. $ 1,803.5
, GENERAL, INC.
Balance Sheet
May 29, 2014
($ millions)
Cash & Cash Eq. $ 619.6 Total liabilities $12,062.3
Noncash assets 18,054.9 Total equity 6,612.2
Total assets $18,674.5 Total liabilities and equity $18,674.5
GENERAL, INC.
Statement of Cash Flows
For Year Ended May 29, 2014
($ millions)
Net cash flows from operations ............................... $ 1,526.8
Net cash flows from investing ................................. (715.1)
Net cash flows from financing ................................. (865.3)
Net change in cash ................................................. (53.6)
Cash, beginning year .............................................. 673.2
Cash, ending year ................................................... $ 619.6
b. $6,612.2 /$18,674.5 = 35.4% contributed by owners
P1-38. (15 minutes)
CROCKER CORPORATION
Statement of Changes in Equity
For Year Ended December 31, 2013
Contributed Retained Total
Capital Earnings Equity
December 31, 2012 ............................ $ 70,000 $ 30,000 $100,000
Issuance of ordinary shares................ 30,000 30,000
Net income ......................................... 50,000 50,000
Cash dividends ................................... _______ (25,000) (25,000)
December 31, 2013 ............................ $100,000 $ 55,000 $155,000
