Financial Accounting Case 1: The Accounting Process and Creating Financial Statements

Refer to Ciscos income statements (p. 6) and balance sheets (p. 7). Create a t-account for each balance sheet and income statement account, as well as t-accounts for Dividends Declared and Income Summary. You should have 8 asset accounts, 1 contra-asset account, 8 liability accounts, 2 SE accounts, 7 revenue/expense accounts, 1 contra-SE account, and Income Summary. For each balance sheet t-account, enter the beginning balance for fiscal 2009.

Hint: You should prepare two t-accounts related to Property and equipment, net: one labeled Property and Equipment and one labeled Accumulated Depreciation. Ciscos footnotes disclose that the beginning balance in Accumulated Depreciation for fiscal 2009 (i.e., the ending balance from 2008) is $7,551.

Record journal entries for each of the following transactions that occurred during fiscal 2009 (all amounts are in millions). Do not create any new accounts; use the account titles from your existing t-accounts. After preparing the journal entries, post them to the t-accounts.

1) New sales of $29,920 were made on account. The company also completed the earnings process for $6,197 of sales on prepaid contracts that had been previously recorded as current deferred revenues. The cost of all of the merchandise sold for the period was $13,023.

2) Property and equipment was acquired for $506 cash.

3) The company issued $527 in new common stock and took out new long-term debt in the amount of $4,000.

4) The company earned and received interest income of $499 during the year.

5) The company collected cash of $30,564 from its customers for sales initially recorded as accounts receivable.

6) Inventory costing $12,862 was purchased on account during the year.

7) Customers signed contracts and prepaid for $6,438 in sales to be completed within one year from the end of Fiscal 2009 and $292 in sales to be completed more than one year from the end of Fiscal 2009.

8) The company declared and paid cash dividends totaling $2,386. 9) Cash of $13,056 was used to pay suppliers for goods previously purchased on account.

The following journal entry was made to record all remaining transactions during the year. Post this journal entry to the appropriate t-accounts.

Dr. Investments, net 8,239 Dr. Prepaid expenses 3,250 Dr. Other current assets 245 Dr. Other long-term assets 1,024 Dr. Accrued salaries, benefits, and other 2,428 Dr. Other current liabilities 544 Dr. Research and development expense 5,208 Dr. Selling, general, and administrative expenses 4,437 Dr. Income tax expense 1,559 Dr. Long-term debt 98 Cr. Cash and cash equivalents 25,845 Cr. Income taxes payable 59 Cr. Other long-term liabilities 1,128

Record adjusting journal entries for the following items and then post these journal entries to your t-accounts. 1) Employees were last paid on July 25, 2009 for wages earned through July 21, 2009. At the end of fiscal 2009, there were 4 days of wages plus several year-end bonuses that had not been recorded. This amounted to $2,535 including all related payroll taxes. Salary-related expenses are included as part of Selling, general, and administrative expenses.

2) The company recorded $614 in depreciation expense (included as part of Selling, general, and administrative expenses) on its property and equipment.

3) Assume that all of the activity in the Prepaid expenses account relates to the companys insurance policies. The unadjusted amount in Prepaid expenses represents the beginning balance for prepaid insurance premiums plus all cash payments for insurance during the year. At July 25, 2009, the amount of prepaid insurance that had not expired was $2,605. Insurance expense is included as part of Selling, general, and administrative expenses.

4) The company had incurred, but not yet paid, $128 in interest on its long-term obligations as of the end of the year. The company records interest payable as part of Other current liabilities.

Prepare the fiscal year 2009 income statement (i.e., fill in the blanks below). Note that you do not need to compute earnings per share.

Cisco Systems, Inc. Consolidated Statements of Earnings (in millions, except per share amounts)

Net sales Cost of goods sold Gross profit Operating Expenses: Research and development expense Selling, general, and administrative expenses Operating income Other revenues and expenses: Interest income Interest expense Earnings before income taxes Income tax expense Net earnings

Basic earnings per share Fiscal 2009 (52 weeks)

$1.05 Fiscal 2008 (52 weeks) $39,540 14,194 25,346

5,325 10,579 9,442

824 11 10,255 2,203

$8,052

$1.35 Fiscal 2007 (52 weeks) $34,922 12,663 22,259 4,598 9,040 8,621 840 0 9,461 2,128 $7,333 $1.21

Prepare the balance sheet as of the end of fiscal 2009 (i.e., fill in the blanks below).

Cisco Systems, Inc. Consolidated Balance Sheets (in millions)

ASSETS July 25, 2009 (End of fiscal 2009) July 26, 2008 (End of fiscal 2008) Current Assets: Cash and equivalents $5,191 Investments, net Accounts receivable, net 21,044 3,821 Inventories 1,235 Prepaid expenses 2,333 Other current assets 2,075 Total current assets 35,699 Property & equipment, net 4,151 Other long-term assets 18,884 Total assets

LIABILITIES & STOCKHOLDERS EQUITY $58,734 Current Liabilities: Accounts payable $869 Accrued salaries, benefits and other 2,428 Deferred revenue, current 6,197 Income taxes payable 107 Other current liabilities 4,257 Total current liabilities 13,858 Deferred revenue, long-term 2,663 Long-term debt 6,393 Other long-term liabilities 1,418 Total liabilities 24,332 Stockholders equity: Contributed capital 34,282 Retained earnings 120 Total stockholders equity 34,402 Total liabilities & stockholders equity $58,734