2-46

(35-40 min.)

1.

See Exhibit 2-46 on the following page.

2.

DICHEV COMPANY
Balance Sheet
April 30, 20X2

Assets
Cash
$
Accounts receivable
Merchandise inventory
Prepaid rent
Equipment and fixtures

Total

57,000
47,000
43,000
4,000
35,000

$186,000

Liabilities and
Stockholders' Equity
Liabilities:
Note payable
$ 24,000
Accounts payable
5,000
Total liabilities
29,000
Stockholders' equity:
Paid-in capital
$150,000
Retained earnings
7,000
Total stk. equity
$157,000
Total
$186,000

EXHIBIT 246
1.

DICHEV COMPANY
Analysis of Transactions for April 20X2
(In Thousands of Dollars)

Description

Assets
=
Liabilities + Stockholders' Equity
Accounts
MerPreEquipNote Accounts PaidReceiv- chandise paid ment &
Pay
Payin
Retained
Cash + able + Inventory + Rent + Fixtures = able + able + Capital + Earnings

1.
2.

Incorporation
+150
Purchased
merchandise
45
3. Purchased
merchandise
4a. Sales
+25
b. Cost of inventory
sold
5. Collections
+18
6. Disbursements to
trade creditors
30
7. Purchased equipt.
12
8. Prepaid rent
6
9. Rent expense
9*
10. Wages, etc.
34
11. Depreciation
12. Rent expense
Balances,
April 30 20X2
+57

=
+45

+35

=
=
=

+65
37
18

+6

1
2
+43
186

* 10% x $90,000 = $9,000.

+35
+ 90 (sales revenue)
37 (cost of goods sold
expense)

+36

+47

+150

+4

+35

=
= +24
=
=
=
=
=

30

= +24

+5

9* (rent expense)
34 (wages expense)
1 (deprec. expense)
2 (rent expense)
+150
186

+7

2-46

(continued)
DICHEV COMPANY
Income Statement
For the Month Ended April 30, 20X2
Sales (revenue)
Deduct expenses:
Cost of goods sold
Wages, salaries and commissions
Rent ($2,000 + $9,000)
Depreciation
Total expenses
Net Income

3.

$90,000
$37,000
34,000
11,000
1,000
83,000
$ 7,000

Most businesses tend to have net losses during their infant

months, so Dichevs ability to show a net income for April is
impressive. Indeed, the rate of return on beginning investment
is $7,000 $150,000 = 4.67% per month, or 56% per year.
Dichev also has high stockholders equity compared to its
liabilities, quite high cash balance, and flexibility because most
assets are either in cash or will be turned into cash relatively
quickly. Many other points can be raised, including the
problem of maintaining an "optimum" cash balance so that
creditors can be paid neither too quickly nor too slowly.

2-54 (15-25 min.)

Entity

Assets
=
Cash
Receivables* Trucks

Liab. + SE
Payables*

1. Fidelity
Walker

120,000 + 120,000
+120,000

=
=

+120,000

2. Fidelity
Walker

+ 10,000
10,000

10,000

=
=

10,000

3. Time
Paperman

+ 90
90

+ 90

4. Postal Serv. (millions) 10

GSA (millions)
+ 10
5. US Treas.
Lockheed

+100,000
100,000

6. Safeway
Simon

+ 11
11

7. Sears
Debreu

+100
100

8. American Express +1,000

Sharpe
1,000
9. Bank
Kennedy
10. United
Peecher

=
=
+10
10

+ 90

=
=
+100,000

+100,000

=
=

+11

+ 11

=
=

100

=
=

100

=
=

+1,000

+600
600
+600***

=
=

+600

+400
400

=
=

+400

+1,000**

+400

2-54 (continued)
*

We are using catch-all titles called "Receivables" and "Payables" here.

Obviously, each entity might use highly specific descriptions of the type
of receivable or payables. For example, Safeway's use of "cash deposits"
implies amounts payable. Similarly, United's collection of cash for tickets in

advance and Time's collection of a subscription collected in advance are

basically payables that must be extinguished either by cash refunds or by
supplying the flight services and magazines.
** Sharpe may prefer to show the travelers checks as a separate asset. Many
people would think of travelers checks as cash or a "cash equivalent."
*** Kennedy (and nearly everyone) would ordinarily label a cash deposit in a bank
as Cash or Cash in Bank. Strictly speaking, Cash in Bank is really a form of
receivable from a bank; however, it is almost never labeled as such.

4-53 (30-50 min.)

The company's actual financial statements are condensed here.
Students may use other acceptable formats.
1.

THE HOME DEPOT, INCORPORATED

Statement of Income and Retained Earnings
For the Year Ending February 2, 2003
(In Millions)
Sales
Cost of merchandise sold
Gross margin
Selling, general, and administrative expenses
Operating income
Interest expense
Other income
Income before income taxes
Provision for income taxes
Net income

$58,247
40,139
18,108
12,278
5,830
(37)
79
5,872
2,208
3,664

Retained earnings, beginning of year

Cash dividends
Retained earnings, end of year

12,799
(492)
$15,971

4-53 (continued)
2.

THE HOME DEPOT, INCORPORATED

Balance Sheet
February 2, 2003
(In Millions)
Assets
Current assets:
Cash
Short- term investments
Receivables
Merchandise inventories
Other current assets
Property and equipment, net
Other noncurrent assets
Total Assets

$2,188
65
1,072
8,338
254

$11,917
17,168
926
$30,011

Liabilities and Stockholders' Equity

Liabilities:
Current liabilities:
Accounts payable
Accrued salaries
Deferred revenue
Income taxes payable
Other current liabilities
Noncurrent liabilities:
Long-term debt
Other noncurrent liabilities
Stockholders' equity:
Paid-in capital
Retained earnings
Total liabilities and stockholders' equity

$ 4,560
809
998
227
1,441

$ 8,035

$ 1,321
853

2,174

$ 3,831
15,971

19,802
$30,011

4-53 (continued)
3.

$3,664 $18,942 = 19.3%

3.

$3,664 $28,203 = 13.0%

5.

(a) $18,108 $58,247 = 31.1%

(b) $ 3,664 $58,247 = 6.3%

4-54 (20 min.)

1.

THE PROCTER & GAMBLE COMPANY

Income Statement (Multiple-Step Format)
For the Year Ended June 30, 2003
(In Millions)
Net sales
Cost of goods sold
Gross margin
Other operating expenses:
Selling, administrative, and general expenses
Operating income
Interest expense
Other nonoperating income, net
Income before income taxes
Income taxes
Net income

$43,377
22,141
21,236
13,383
7,853
561
(238)
7,530
2,344
$ 5,186

4-54 (continued)
2.

THE PROCTER & GAMBLE COMPANY

Income Statement (Single-Step Format)
For the Year Ended June 30, 2003
(In Millions)
Net sales
Expenses:
Cost of goods sold
Selling, administrative, and general expenses
Interest expenses
Other non-operating income, net
Income taxes
Total expenses
Net income

$43,377
22,141
13,383
561
(238)
2,344
38,191
$ 5,186

Most users believe the multiple-step format is more informative.

It provides several subtotals that can be easily analyzed. For
example, items such as gross margin and income before income
taxes (or pretax income) can be compared from year to year for
Procter & Gamble, and they can be compared to the same
subtotals for similar companies.

4-54 (continued)
THE PROCTER & GAMBLE COMPANY
Balance Sheet
June 30, 2003 (In Millions)
ASSETS
Current assets:
Cash and cash equivalents
Investment securities
Receivables
Inventories
Prepaid expenses
Deferred income taxes
Total current assets
Property, plant, and equipment:
At cost
Accumulated dep., property, plant, & equip.
Trademarks, and other intangibles, net
Goodwill
Other noncurrent assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt due within one year
Accounts payable
Accrued and other liabilities
Taxes payable
Total current liabilities
Long-term debt
Deferred income tax
Other noncurrent liabilities
Total liabilities
Stockholders' equity:
Preferred stock
Common stock, $1 par value
Additional paid-in capital
Accumulated other comprehensive income
Reserve for ESOP debt retirement
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
*11,980 + 5,186 3,474 = 13,692

$ 5,912
300
3,038
3,640
1,487
843
15,220
$23,542
10,438

13,104
2,375
11,132
1,875
$43,706

$ 2,172
2,795
5,512
1,879
12,358
11,475
1,396
2,291
27,520
$ 1,580
1,297
2,931
(2,006)
(1,308)
13,692*
16,186
$43,706