Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 1 The Role of Accounting in Business 33

The income statement of a corporation for the month of January indicates a net income of

$112,750. During the same period, $128,000 in cash dividends were paid.

Would it be correct to say that the business incurred a net loss of $15,250 during the month?

Discuss.

Four different proprietorships, M, N, O, and P, show the same balance sheet data at the begin-

ning and end of a year. These data, exclusive of the amount of owners’ equity, are summarized

as follows:

Total Total

Liabilities

Beginning of the year $ 750,000 $300,000

End of the year 1,200,000 650,000

On the basis of the above data and the following additional information for the year, de-

termine the net income (or loss) of each company for the year. (Hint:First determine the amount

of increase or decrease in stockholders’ equity during the year.)

Company M: No additional capital stock was issued, and no dividends were paid.

Company N: No additional capital stock was issued, but dividends of $60,000 were paid.

Company O: Capital stock of $150,000 was issued, but no dividends were paid.

Company P: Capital stock of $150,000 was issued, and dividends of $60,000 were paid.

Staples, Inc., is a leading office products distributor, with retail stores in the United States,

Canada, Asia, Europe, and South America. The following financial statement data were taken

from Staples’ financial statements as of January 29, 2005 and 2004:

2005 2004

(in thousands) (in thousands)

Total assets $ 7,071,448 $6,503,046

Total liabilities (1) 2,840,146

Total stockholders’ equity 4,115,196 (2)

Retained earnings 2,818,163 2,209,302

Sales $14,448,378

Cost of goods sold 10,343,643

Operating and other expenses 2,989,163

Income tax expense 407,184

a. Determine the missing data indicated for (1) and (2).

b. Using the income statement data for 2005, determine the amount of net income or loss.

c. Did Staples pay any dividends to stockholders during 2005? [Hint:Compare the change in

retained earnings to your answer for (b).]

From the following list of selected items taken from the records of Ishmael Appliance Service as

of a specific date, identify those that would appear on the balance sheet.

1. Supplies 6. Fees Earned


2. Wages Expense 7. Supplies Expense


3. Cash 8. Accounts Payable


4. Land 9. Capital Stock


5. Utilities Expense 10. Wages Payable

Exercise 1-7

Net income and dividends

Goal 4

Exercise 1-8

Net income and stockholders’
equity for four businesses

Goal 4

Company O: Net loss,
($50,000)

Exercise 1-9

Accounting equation and
income statement

Goal 4

1. $2,956,252

Exercise 1-10

Balance sheet items

Goal 4