MGT 

200A 001 FQ 2020 – Week 1 Assignment

M1-24
Identifying Financial Statement Line Items and Accounts
Several line items and account titles are listed below. For each, indicate in which of the following
financial statement(s) you would likely find the item or account: income statement (IS), balance It sheet
(BS), statement of stockholders' equity (SE), or statement of cash flows (SCF).
a. Cash asset – We can find the cash assets in balance sheets and cash flow statement. The cash assets
obtained over a period of time in cash flow statement is summed with before year assets to get cash assets
in the balance sheet.
d. Contributed capital – Contributed capital can be found in stockholders equity. Contributed capital
represents the net amount received from issuing stock to shareholders (owners).
g. Cash inflow for stock issued – Cash inflow for the stock issued will be in Contributed capital in
stockholders equity statement. It will not be mentioned in cash flow statement.
b. Expenses – Expenses are in income statement. It is used to calculate the net income.
e. Cash outflow for land – If a firm is buying land, it is an investment. So, the cash flow will be recorded
in investing cash flow in cash flow statement. And the land will be categorized as noncash asset.
f. Retained earnings – Retained earnings will mentioned in stock holders equity. Retained earnings (also
called earned capital) represents the income the company has earned since its inception, minus the
dividends it has paid out to shareholders.
h. Cash outflow for dividends – The cash the firm spent on dividend is found in retained earnings in
stockholders equity.
c. Non-cash assets – Non-cash assets will be mentioned in balance sheet. It can be a manufacturing plant ,
IP etc. Balance sheet tells the non-cash assets at a point in time. Both non-cash and cash assets gives the
total assets of the firm.
i. Net income – Net income is found in Stockholders equity and Income statement. In income statement
the net income is calculate from subtracting the revenues and expense. In stockholders equity, the net
income is used to calculate the change in balances in stockholders value over a period.
E1-27
Applying the Accounting Equation and Assessing Financing Contributions Determine the missing amount
from each of the separate situations (a), (b), and (c) below. Which of these companies is more owner-
financed? Which of these companies is more creditor-financed? ($ millions)

Assets = Liabilities + Equity

($ millions) Assets liabilities Equity
(a)Motorola Solutions, Inc. 8208 6466 1742
(b)The Kraft Heinz Company 119992 53958 66034
(c)Merck & Co., Inc. 87872 53303 34569

P1-37
Formulating Financial Statements from Raw Data Following is selected financial information from
General Mills, Inc., for its fiscal year ended May 27, 2018 ($ millions):

Amount ($ Millions)
Cash and cash equivalents 399
Net cash from operations 2841
Sales 15740.4
Stockholders' equity 6492.4
Cost of goods sold 10312.9
Net cash from financing 5445.5
Total liabilities 24131.6
Other expenses, including income taxes 3264.5
Noncash assets 30225
Net cash from investing (8685.4)
Net income 2163.0
Effect of exchange rate changes on cash 31.8
Cash , beginning year 766.1

a. Prepare an income statement, balance sheet, and statement of cash flows for General Mills, Inc.

Balance sheet ($ millions) Total Assets = Cash assets + Non-cash

Cash and cash equivalents 399
Assets.
Noncash assets 30225
Total Assets 30624
Total Liabilities 24131.6
Stockholders' equity 6492.4
Income statement ($ millions)
Gross Profit = Sales – Cost of the goods
Sales 15740.4
Cost of goods sold 10312.9 sold.
Gross Profit 5427.5 Net Income = Gross profit – taxes and
Taxes and other expenses 3264.5
other expenses.
Net income
Cash (loss) ($ millions)
flow Statement 2163.0
Net cash from operations 2841
Net cash from investing (8685.4)
(Decrease) Net increase in cash = Net cash from
b. What portion of theoperations
financing is+ contributed by investing+ net
net cash from
Net cash from financing 5445.5
owners?
Effect of exchange rate 31.8 cash from financing + effect of exchange
changes on cash Total liabilities = $ 24131.6
rate million
Net Increase in cash (367.1)
(Decrease) Stockholders' equity=Cash$6492.4 million
and cash equivalent, end of the year
Cash , beginning year 766.1 = Net income in cash + cash, Beginning
Total Liabilities
Cash and cash equivalents, 399 Debt to Equity ratio =year = 3.71
end of the year Stockholder equity
A higher debt to equity ratio indicates that more
creditor financing (bank loans) is used than investor financing (stockholders). Debt to equity ratio of 3.71
means that 21 % of the financing is done by stockholders.
P1-44
Presenting an Income Statement and Computing Key Ratios Best Buy Co., Inc., reported the following
amounts in its February 3, 2018, and January 28, 2017, financial statements.

($ millions) 2018 2017

Sales Revenue 42151 39403
Cost of sales 32275 29963
Net income 1000 1228
Total Assets 13049 13856
Stockholders’ equity 3612 4709

a. Prepare an income statement for Best Buy for the year ended February 3, 2018, using the format
illustrated in Exhibit 1.8.

Income statement ($ millions) Gross Profit = Sales – Cost of the goods

Sales Revenue 42151 sold.
Cost of goods sold 32275
Gross Profit 9876 Net Income = Gross profit – taxes and
Taxes and other expenses 8876 other expenses.
Net income (loss) 1000
b. Calculate Best Buy's return on equity for the
year ended February 3, 2018.
Net income = $1000 million
Average stockholder equity = $4160.5 million
Net income
Return on equity = = 0.24
Average Stockholder equity
Return on equity tells the how efficiently the firm is utilizing its resources. Comparing with industry peers
can give a better analysis of Best Buy Co., Inc.
c. Compute Best Buy's debt-to-equity ratio as of February 3, 2018.
Total liabilities = total assets – total stockholders’ equity = 13049 – 3612 = $ 9437 million
Total Liabilities
Debt to equity ratio = = 9437/3612 = 2.61
Stockholder equity
A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor
financing (stockholders). So, the investment is risky.