MBA 6211-Financial Accounting Case 1: The Accounting Process and Creating Financial Statements Refer to Cisco's 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." Cisco's footnotes disclose that the beginning balance in Accumulated Depreciation for fiscal 2009 (i.e., the ending balance from 2008) is $7,551. 2 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 S29,920 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 eamed 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 S292 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. 8,239 3,250 245 1,024 Dr. Investments, net Dr. Prepaid expenses Dr. Other current assets Dr. Other long-term assets Dr. Accrued salaries, benefits, and other Dr. Other current liabilities Dr. Research and development expense Dr. Selling, general, and administrative expenses Dr. Income tax expense Dr. Long-term debt Cr. Cash and cash equivalents Cr. Income taxes payable Cr. Other long-term liabilities 2,428 544 5,208 4,437 1,559 98 25.845 59 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 S2,535 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 company's 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) Fiscal 2009 (52 weeks) Fiscal 2008 (52 weeks) $39,540 14,194 25,346 Fiscal 2007 (52 weeks) $34,922 12,663 22,259 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 Eamings before income taxes Income tax expense 5,325 10,579 9,442 4,598 9,040 8,621 824 11 10,255 2,203 840 0 9,461 2,128 Net earnings $8,052 $7,333 Basic earnings per share $1.05 $1.35 $1.21 6 Prepare the balance sheet as of the end of fiscal 2009 (i.c., fill in the blanks below). Cisco Systems, Inc. Consolidated Balance Sheets (in millions) July 25, 2009 (End of fiscal 2009) July 26, 2008 (End of fiscal 2008) ASSETS Current Assets Cash and equivalents Investments, net Accounts receivable, net Inventories Prepaid expenses Other current assets Total current assets Property & equipment, net Other long-term assets Total assets $5,191 21,044 3,821 1,235 2,333 2,075 35,699 4,151 18,884 $58,734 $869 2,428 6,197 107 LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable Accrued salaries, benefits and other Deferred revenue, current Income taxes payable Other current liabilities Total current liabilities Deferred revenue, long-term Long-term debt Other long-term liabilities Total liabilities 4,257 13,858 2,663 6,393 1,418 24,332 Stockholders' equity: Contributed capital Retained earnings Total stockholder's equity Total liabilitics & stockholder's equity 34,282 120 34,402 $58,734 7 MBA 6211-Financial Accounting Case 1: The Accounting Process and Creating Financial Statements Refer to Cisco's 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." Cisco's footnotes disclose that the beginning balance in Accumulated Depreciation for fiscal 2009 (i.e., the ending balance from 2008) is $7,551. 2 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 S29,920 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 eamed 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 S292 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. 8,239 3,250 245 1,024 Dr. Investments, net Dr. Prepaid expenses Dr. Other current assets Dr. Other long-term assets Dr. Accrued salaries, benefits, and other Dr. Other current liabilities Dr. Research and development expense Dr. Selling, general, and administrative expenses Dr. Income tax expense Dr. Long-term debt Cr. Cash and cash equivalents Cr. Income taxes payable Cr. Other long-term liabilities 2,428 544 5,208 4,437 1,559 98 25.845 59 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 S2,535 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 company's 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) Fiscal 2009 (52 weeks) Fiscal 2008 (52 weeks) $39,540 14,194 25,346 Fiscal 2007 (52 weeks) $34,922 12,663 22,259 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 Eamings before income taxes Income tax expense 5,325 10,579 9,442 4,598 9,040 8,621 824 11 10,255 2,203 840 0 9,461 2,128 Net earnings $8,052 $7,333 Basic earnings per share $1.05 $1.35 $1.21 6 Prepare the balance sheet as of the end of fiscal 2009 (i.c., fill in the blanks below). Cisco Systems, Inc. Consolidated Balance Sheets (in millions) July 25, 2009 (End of fiscal 2009) July 26, 2008 (End of fiscal 2008) ASSETS Current Assets Cash and equivalents Investments, net Accounts receivable, net Inventories Prepaid expenses Other current assets Total current assets Property & equipment, net Other long-term assets Total assets $5,191 21,044 3,821 1,235 2,333 2,075 35,699 4,151 18,884 $58,734 $869 2,428 6,197 107 LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable Accrued salaries, benefits and other Deferred revenue, current Income taxes payable Other current liabilities Total current liabilities Deferred revenue, long-term Long-term debt Other long-term liabilities Total liabilities 4,257 13,858 2,663 6,393 1,418 24,332 Stockholders' equity: Contributed capital Retained earnings Total stockholder's equity Total liabilitics & stockholder's equity 34,282 120 34,402 $58,734 7