Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 1 The Role of Accounting in Business 37

Based on the Starbucks Corporationfinancial statement data shown in Exercise 1-22, prepare a

retained earnings statement for the year ending October 3, 2004. The retained earnings as of

October 4, 2003, was $1,058,340, and Starbucks paid no dividends during the year.

Though the McDonald’smenu of hamburgers, cheeseburgers, the Big Mac®, Quarter Pounder®, the

Filet-O-Fish®, and Chicken McNuggets®is easily recognized, McDonald’s financial statements

may not be as familiar. The following items were adapted from a recent annual report of

McDonald’s Corporation:

1. Accounts payable 11. Net income


2. Accrued interest payable 12. Net increase in cash


3. Capital stock outstanding 13. Notes payable


4. Cash 14. Notes receivable


5. Cash provided by operations 15. Occupancy and rent expense


6. Food and packaging costs used in 16. Payroll expense
   operations 17. Prepaid expenses not yet used in


7. Income tax expense operations


8. Interest expense 18. Property and equipment


9. Inventories 19. Retained earnings


10. Long-term debt payable 20. Sales

Identify the financial statement on which each of the preceding items would appear. An item

may appear on more than one statement. Use the following notations:

IS Income statement

RE Retained earnings statement

BS Balance sheet

SCF Statement of cash flows

Americana Realty, organized October 1, 2007, is owned and operated by Marlene Laney. How

many errors can you find in the following financial statements for Americana Realty, prepared

after its first month of operations? Assume that the cash balance on October 31, 2007, is $11,650

and that cash flows from operating is reported correctly.

Exercise 1-24

Retained earnings statement

Goal 4

Exercise 1-25

Financial statement items

Goal 4

Exercise 1-26

Financial statements

Goal 4

Correct amount of total
assets is $48,750 Americana Realty

Income Statement

October 31, 2007

Sales commissions $77,100

Operating expenses:

Office salaries expense $43,150

Rent expense 7,800

Miscellaneous expense 550

Automobile expense 1,975

Total operating expenses 53,475

Net income $33,625