Part I: Identify which of the four financial statements will report the following: 1. Dividends declared by the board of directors _______________________ 2. The amount of cash received from customers during the current accounting period ________________ 3. Whether the company was profitable or not _____________________ 4. Whether the company?s assets were financed primarily with debt or equity _______________ 5. The revenues of the company ______________________ 6. The liabilities of the company ______________________ 7. The balance of the company?s retained earnings at the beginning of the accounting period ________________ 8. Information as of a specific point in time 9. Information over a period of time. Part II: 1. Identify whether the following items are classified as revenues (R), expense (E), gain(G), loss (L), or not reported on the income statement (N) a. Service revenue __________ b. Cost of goods sold ___________ c. Salary expense ____________ d. Sales ____________ e. Gain on the sale of equipment ___________ f. Prepaid insurance ___________ g. Salaries payable ___________ h. Income tax expense __________ i. Loss on the sale of common stock _________ 2. Describe the nature of depreciation expense Part III: 1. Assets can be financed with either __________ or _____________ 2. Identify the accounting equation for the Home Depot for year ending February 3, 2013: Assets $________________ = Liabilities $________________ + Equity $_____________ 3. Identify whether the following items (accounts) are an asset (A), a liability(L), or a part of stockholder?s equity(E): a. Cash ________ b. Accounts receivable ________ c. Notes Payable _____________ d. Retained earnings ____________ e. Equipment _____________ f. Prepaid Insurance ______________ g. Payroll taxes payable ___________________ h. Inventory _____________________ i. Building ________________ 4. How much money is owed to Home Depot by its customers on February 3, 2013? $____________ 5. How much did Home Depot receive from its Shareholders when it originally sold its stock? $_________ 6. How many shares of stock has Home Depot sold (par value is an arbitrary value assigned to each share of stock)? $__________________ 7. Since they incorporated, how many dollars has the Home Depot earned in profits that have not been paid to their shareholders as dividends? $_______________________ 8. Describe the nature of treasury stock. 9. Why would Home Depot have a year-end other than a calendar year end (December 31 year-end)? Part IV: Questions for Part IV: 1. Earnings is another word for ______________________ 2. Do the earnings of a corporation belong to the owners of the company or to the managers of the company? ______________ 3. Identify whether the following accounts are assets, liability, equity, revenues or expenses and whether they appear on the income statement, the balance sheet, or the statement of retained earnings ==== See Attached Document Part V: 1. Give an example of how cash flow from investing activities could be a negative number. 2. Give an example of how cash flow from financing activities could be a negative number.

BFIN 322 Project 1 Review of Financial Accounting Part I: Identify the Four Financial Statements 1. The Income Statement (Profit and Loss, P&L) reports the results of the company's operations. It reports revenues (amounts received from customers), expenses (costs incurred in generating revenues, gains and losses. The Income Statement reflects and entire accounting period which is generally a year but could also be quarterly, monthly, weekly, etc. Company Income Statement For the year end 12/31/2012 Revenues (Less Expenses) Plus Gains (Less Losses) = Net Income 2. The Statement of Retained Earnings reports whether the earnings of a company (earnings = net income) are paid out to the owners (shareholders) as dividends or reinvested (retained) into the business. Earnings that are retained (not paid out as dividends) will increase the resources (assets) of a company. Company Statement of Retained Earnings For the year end 12/31/2012 Beginning Retained Earnings (last period's ending Retained Earnings 12/31/2011) Plus Net Income (as calculated above) (Less Dividends Paid to Owners (shareholders) = Ending Retained Earnings 12/31/2012 3. The Balance Sheet shows the financial position at a specific point in time. The financial position shows the resources of a company (its assets) and how those resources were financed (how they came to the company). The resources are financed either by debt (liabilities) or through stockholder's equity. Stockholder's equity has two basic components: the amount invested by the shareholders into the business (Common Stock) and the amount of earnings retained by the company (retained earnings). The total resources (assets) of the company must equal the financing of the resources (liabilities and stockholder's equity). Company Balance Sheet at 12/31/2012 Assets Liabilities Stockholder's Equity: Common Stock Retained Earnings 4. The Statement of Cash Flows is designed to show the users how cash is coming in and going out of the company. This statement is reported through three activities: Operating (generating revenues and expenses), Investing (acquiring or selling long term assets), and financing (issuing debt, selling stock, or paying dividends). Company Statement of Cash Flows For the year end 12/31/2012 Operating Activities +cash inflows -cash outflows Investing Activities +cash inflows -cash outflows Financing Activities +cash inflows -cash outflows = total change in cash Questions for Part I: Identify which of the four financial statements will report the following: 1. Dividends declared by the board of directors _______________________ 2. The amount of cash received from customers during the current accounting period ________________ 3. Whether the company was profitable or not _____________________ 4. Whether the company's assets were financed primarily with debt or equity _______________ 5. The revenues of the company ______________________ 6. The liabilities of the company ______________________ 7. The balance of the company's retained earnings at the beginning of the accounting period ________________ 8. Information as of a specific point in time 9. Information over a period of time. Part II: Understand the Purpose of the Balance Sheet Understand the information provided by the balance sheet. Be able to identify assets, liability, and owner's equity accounts. Understand the accounting equation. The balance sheet reports assets and the amount of assets financed with liabilities or stockholder's equity as of a certain date. All assets are either financed with liabilities or stockholder's equity hence the accounting equation: assets = liabilities + stockholder's equity. Assets: Assets represent the resources available for use by the corporation. These items have value and a future benefit to the corporation. Current assets will be used, or converted into cash, within one year. Non-current assets will be used by the corporation for a time greater than one year. Liabilities: Liabilities represent the obligations of the corporation. These are amounts owed that usually will be paid in cash but could be paid in future services. Liabilities are also referred to as debt. Current liabilities are obligations that will be paid within one year. Non-current liabilities are obligations due after one year. Stockholder's Equity: Stockholder's equity represents the portion of the corporation's assets that the owners (shareholders) own after liabilities. Stockholder's equity is the owner's interest in the business and consists of two parts. Contributed capital is the amount received by the corporation on the initial sale of its stock to the owners and retained earnings is the amount of net income not paid out as dividends (i.e. retained in the business) but reinvested back into the business. The Home Depot Inc Consolidated Balance Sheet as of (amounts in millions) 2/30/2013 1/29/2012 $2,494 $1,987 1,395 1245 10,710 10,325 773 963 Current Cash Accounts Receivable Inventory Other Total Current $ PP&E (Net) $ 14,520 24,069 $ 1,120 473 Other 24,448 1,170 Goodwill Total Assets 15,372 430 41,084 $ 40,518 Current Liabilities Accounts Payable Current portion of LT Debt Accrued Liabilities $5,376 $4,856 1,321 30 4,765 4,490 Total Current 11,462 9,376 Long Term Debt 11,845 13,244 Total Liabilities 23,307 22,620 Common Stock (par $.05) 88 87 Additional Paid in Capital 7,948 6,966 Retained Earnings 20,038 17,246 Accumulated OCI 397 293 (10,694) (6,694) 17,777 17,898 $41,084 $40,518 Equity Treasury Stock Total Stockholder's Equity Total Liabilities & Stockholder's Equity Questions for Part II: 1. Assets can be financed with either __________ or _____________ 2. Identify the accounting equation for the Home Depot for year ending February 3, 2013: Assets $________________ = Liabilities $________________ + Equity $_____________ 3. Identify whether the following items (accounts) are an asset (A), a liability(L), or a part of stockholder's equity(E): a. Cash ________ b. Accounts receivable ________ c. Notes Payable _____________ 4. 5. 6. 7. 8. 9. d. Retained earnings ____________ e. Equipment _____________ f. Prepaid Insurance ______________ g. Payroll taxes payable ___________________ h. Inventory _____________________ i. Building ________________ How much money is owed to Home Depot by its customers on February 3, 2013? $____________ How much did Home Depot receive from its Shareholders when it originally sold its stock? $_________ How many shares of stock has Home Depot sold (par value is an arbitrary value assigned to each share of stock)? $__________________ Since they incorporated, how many dollars has the Home Depot earned in profits that have not been paid to their shareholders as dividends? $_______________________ Describe the nature of treasury stock. Why would Home Depot have a year-end other than a calendar year end (December 31 yearend)? Part III: Understand the Purpose of the Income Statement The Income Statement represents the results of a corporation's operations (the results of operations). It shows the profitability of the company. The income statement consists of a company's revenues, expenses, gains, and losses. Revenues Revenues are the gross amounts received from customers for products sold or services provided. Revenues are recurring activities as the result of ordinary business operations. Expenses Expenses are costs incurred in the production of revenues. Expenses must be recognized in the same period as the revenue they helped generate no matter when the amount was paid in cash. Gains Gains have the same effect on net income as revenues but gains are incidental to business operations. For example a bookstore generates revenues by selling books but could generate a gain if it sold an old unwanted display rack for an amount more than was originally paid. Losses Losses have the same effect on net income as expenses but gains are incidental to business operations. For example a bookstore generates expenses by incurring employee salaries but could generate a loss if it sold an investment in stock for an amount less than was originally paid. Net Income Net Income represents revenues less expenses plus gains less losses. Net Income (loss) is also referred to as profit (loss) or earnings. Net Sales Cost of Goods Sold (COGS) Gross Profit Selling General & Admin Depreciation & Amort The Home Depot Inc Consolidated Income Statement For Fiscal Year ended (amounts in millions) 1/29/2012 2/3/2013 74,754 70,395 48,912 46,133 25,842 16,508 1,568 24,262 16,028 1,573 Operating Income (EBIT) Interest Expense 7,766 545 6,661 593 Taxable income Income taxes 7,221 2,686 6,068 2,185 Net Income 4,535 3,883 Weighted Average Shares EPS $ 1,499 3.03 $ 1,562 2.49 Questions for Part III: 1. Identify whether the following items are classified as revenues (R), expense (E), gain(G), loss (L), or not reported on the income statement (N) a. Service revenue __________ b. Cost of goods sold ___________ c. Salary expense ____________ d. Sales ____________ e. Gain on the sale of equipment ___________ f. Prepaid insurance ___________ g. Salaries payable ___________ h. Income tax expense __________ i. Loss on the sale of common stock _________ 2. Describe the nature of depreciation expense Part IV: Understand the Purpose of the Statement of Retained Earnings The Statement of Retained Earnings is designed to show changes in the retained earnings of the corporation for the period. Retained earnings for the period is increased by net income (as calculated on the income statement) and decreased by dividends declared to be paid to shareholders. The Home Depot Inc Consolidated Statement of Retained Earnings For Fiscal Year ended (amounts in millions) 2/3/2013 1/29/2012 Beginning Retained Earnings $17,246 $14,995 Plus: Net Income 4,535 3,883 Less: Dividends (1,743) (1,632) Ending Retained Earnings $20,038 $17,246 Questions for Part IV: 1. Earnings is another word for ______________________ 2. Do the earnings of a corporation belong to the owners of the company or to the managers of the company? ______________ 3. Identify whether the following accounts are assets, liability, equity, revenues or expenses and whether they appear on the income statement, the balance sheet, or the statement of retained earnings Asset, Liability, Equity, Revenue, Expense Buildings Dividends Bonds Payable Wage expense Unearned service revenue Gain on the sale of equipment Sales Supplies Common Stock Taxes payable Tax expense Dividend payable Income Statement Balance Sheet Statement of Owner's Equity Part V: Understand the Purpose of the Statement of Cash Flows The Home Depot Inc Consolidated Statement of Cash Flows For Fiscal Year ended (amounts in millions) 2/03/2013 1/29/2011 Cash Flow from Operating Activities $6,975 $6,651 Cash Flow from investing Activities (1,432) (1,129) Cash Flow from financing Activities (5,034) (4,048) $509 $1,474 Net increase (decrease) in cash Questions for Part V: 1. Give an example of how cash flow from investing activities could be a negative number. 2. Give an example of how cash flow from financing activities could be a negative number