Chapter 5 Accounting for Merchandise Operations 257FINANCIAL ANALYSIS AND REPORTING CASES
Case 5-1
Analysis of gross profit and
operating income
Guru Systems Inc.
Balance SheetsDecember 31, Changes
2007 2006 Increase (Decrease)
Assets
Current assets:
Cash $211,800 $166,000 $ 45,800
Accounts receivable 304,320 208,000 96,320
Merchandise inventory 248,600 238,800 9,800
Office supplies 1,920 2,400 (480)
Prepaid insurance 10,600 12,000 (1,400)
Total current assets $777,240 $627,200 $150,040
Property, plant, and equipment:
Land $ 80,000 $ 80,000 $ 0
Store equipment 108,400 80,000 28,400
Accumulated depreciation—store equipment (22,800) (10,400) (12,400)
Office equipment 62,280 40,000 22,280
Accumulated depreciation—office equipment (18,880) (8,920) (9,960)
Total property, plant, and equipment $209,000 $180,680 $ 28,320
Total assets $986,240 $807,880 $ $178,360
Liabilities
Current liabilities:
Accounts payable $ 89,680 $ 57,080 $ 32,600
Notes payable (current portion) 20,000 20,000 0
Salaries payable 4,560 6,000 (1,440)
Unearned rent 7,200 9,600 (2,400)
Total current liabilities $121,440 $ 92,680 $ 28,760
Long-term liabilities:
Notes payable (final payment due 2012) 80,000 100,000 (20,000)
Total liabilities $201,440 $192,680 $ 8,760
Stockholders’ Equity
Capital stock $100,000 $100,000 $ 0
Retained earnings 684,800 515,200 169,600
Total stockholders’ equity $784,800 $615,200 $169,600
Total liabilities and stockholders’ equity $986,240 $807,880 $178,360Federated Department Stores, Inc., is one of the leading operators of full-line department stores
in the United States, operating under the names Bloomingdale’s, The Bon Marche, Burdines,
Goldsmith’s, Lazarus, Macy’s, and Rich’s. The following operating data (in millions) for the past
three years are taken from Federated’s income statement:Instructions
- Prepare a statement of cash flows, using the indirect method.
- Under the indirect method, why is net income adjusted for changes in accruals and defer-
rals? Explain.