Q1. Make the following statements true by correcting the false information.
There may be more than one way to correct the false information.
a. The four financial statements include the ___________ statement, statement of ____________________________________________ sheet, and the statement of cash flows.
b. The _______________________ reports the assets of the business and how those assets are financed.
c. Assets are financed either by liabilities or __________________________.
d. ______________________________________ is an asset account, accounts ______________ is a liability account, and _______________________________ is a stockholders’ equity account.
e. Accounts __________________ are amounts to be paid later to suppliers by the corporation.
f. __________________________________ reports cash inflows and cash outflows.
g. ___________ is the amount earned engaging in the primary business activity.
h. Earnings is another term for ___________.
i. Net income distributed to shareholders is referred to as _______________________.
j. Dividends are ________ reported as an expense on the income statement.
Q2. Circle the income statement amounts and cross out amounts not reported on the income statement. Then compute net income.
Q3. Suppose that during the first year of business $100,000 of wage costs were incurred; $90,000 were paid in cash to employees; and the remaining wages will be paid to employees on January 3 of the coming year, the next payday. What account title and amount will be reported on the following year-end financial statements?
a. Income Statement account title: Wages (___________ / payable / paid) of ___________
b. Balance Sheet account title: Wages (expense / ___________ / paid) of ___________
c. Statement of Cash Flows account title: Wages (expense / payable / ___________) of ___________
Q4. Review the 2010 Financial Statements of the Coca-Cola Company on page 28 to answer the following questions:
a. Assets ___________ million = Liabilities ___________ million + SE ___________ million
Is the accounting equation in balance? (________ / No)
b. Net Income of ___________ million is reported on the Income Statement. It is also reported on the (_______________________________ / Balance Sheet / Statement of Cash Flows).
c. The ending balance of retained earnings on the Statement of Stockholders’ Equity is ___________ million. It is also reported on the (Income Statement / ___________ / Statement of Cash Flows).
d. Cash reported on the Balance Sheet is ___________ million. It is also reported on the (Income Statement / Statement of Stockholders’ Equity / ____________________).
e. Total Assets of ___________ million helped to generate Sales Revenue of ___________ million, which results in an Asset Turnover ratio of ___________.
f. Sales Revenue of ___________ million helped to generate Net Income of ___________ million, which results in a ROS ratio of ___________.
g. Total Assets of ___________ million helped to generate Net Income of ___________ million, which results in a ROA ratio of ___________.
h. The most comprehensive measure of profitability is (Asset Turnover / ROS / _________). For Coca-Cola, ROA of ________ = Asset Turnover of ___________ x ROS of ___________ indicating that a (low-cost / _______________) strategy is used.
Q5. Complete Coca-Cola’s trend indexes for Total expenses and Net income using the amounts listed below. Record the resulting trend index in the shaded area. Use 2007 as the base year.
From 2007 to 2010 sales revenue of Coca-Cola increased by _________ while expenses increased by ___________ resulting in an increase in net income of __________. Coca-Cola has (________ /not kept) spending under control, resulting in a (small / ______) increase in net income that is (___________ / less) than the increase in sales revenue over the same time period.
Q6. Complete Coca-Cola’s common-size statements for 12/31/2008, 12/31/2009, and 12/31/2010 using the amounts listed below. Record the resulting common-size percent in the shaded area provided.
On 12/31/2007, ___________ of assets were financed with liabilities and on 12/31/2010 assets were primarily financed with (___________ / stockholders’ equity), indicating that on 12/31/2010 this company is relying (___________ / less) on debt to finance assets.
In the common-size balance sheet, every amount is compared to or divided by ___________.
In the common-size income statement, every amount is compared to or divided by ___________.
Q7. To answer the following questions, use the chart below that presents financial information for PepsiCo, Coca-Cola, and ratio averages for the beverage industry.
a. (PEP / _________) has a stronger ROS, indicating it generates more (expense / profit) from each dollar of revenue.
b. (___________ / KO) reports the greatest volume of sales as indicated by the (ROS / ___________ / ROA) ratio.
c. The most comprehensive measure of profitability, the (ROS / Asset Turnover / ROA) ratio, indicates (PEP / ___________) is the more profitable company.
d. (PEP / KO / both / ___________) are at greater financial risk than average for the beverage industry, which is indicated by the (ROS / Asset Turnover / ROA / ___________) ratio.
Q8. Are Generally Accepted Accounting Principles (GAAP) necessary? (________ / No) Why or why not?