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Module 1: Framework for Analysis and Valuation
True/False
Topic: Users of Financial Statement Information

LO: 2
1. Shareholders demand financial information primarily to assess profitability and risk whereas bankers
demand information primarily to assess cash flows to repay loan interest and principal.
Answer: True
Rationale: While both shareholders and bankers are interested in all the information companies
provide, shareholders care about more about a company’s profitability and bankers care more about
solvency and creditworthiness.
Topic: Publicly Available Financial Reports

LO: 2
2. Publicly traded companies are required to provide quarterly financial reports directly to the public.
Answer: False
Rationale: Companies provide electronic versions of quarterly financial statements to the SEC, which
posts them to the Internet for the public to access them.

LO: 2
3. Publicly traded companies provide financial information primarily to satisfy the SEC and the tax
authorities (that is, the Internal Revenue Service).
Answer: False
Rationale: Demand for information extends to many users; the regulators such as the SEC and the IRS
are only one class of users.
Topic: SEC Filings

LO: 2
4. Publicly traded companies must provide to the Securities Exchange Commission annual audited
financial statements (10-K reports) and quarterly audited financial statements (10-Q reports).
Answer: False
Rationale: Quarterly reports do not need to be audited.
Topic: Balance Sheet

LO: 3
5. If a company reports retained earnings of $175.3 million on its balance sheet, it must also report $175.3
million in cash.
Answer: False
Rationale: The accounting equation requires total assets to equal total liabilities plus stockholders’
equity. That does not imply, however, that liability and equity accounts relate directly to specific assets.
© Cambridge Business Publishers, 2018

Test Bank, Module 1 1-2
LO: 3
6. A balance sheet shows a company’s position over a period of time, whereas an income statement,
statement of stockholders’ equity, and statement of cash flows show its position at a point in time.
Answer: False
Rationale: The statement is reversed: A balance sheet shows a company’s position at a point in time,
whereas an income statement, statement of equity, and statement of cash flows show its position over
a period of time.
Topic: Accounting Equation

LO: 3
7. Assets must always equal liabilities plus equity.
Answer: True
Rationale: The accounting equation is Assets = Liabilities + Equity. This relation must always hold.
Topic: Income Statement

LO: 3
8. The income statement reports net income which is defined as the company’s profit after all expenses
and dividends have been paid.
Answer: False
Rationale: The statement contains two errors. First, net income does not include any dividends during
the period; these are a distribution of profits and not part of its calculation. Second, the income
statement is prepared on an accrual basis and thus includes expenses incurred (as opposed to paid).
Topic: Statement of Cash Flows

LO: 3
9. A statement of cash flows reports on cash flows for operating, investing and financing activities at a
point in time.
Answer: False
Rationale: A statement of cash flows reports on cash flows for operating, investing, and financing
activities over a period of time.
Topic: Statement of Stockholders’ Equity

LO: 3
10. An increase in common stock would be reflected in the statement of stockholders’ equity.
Answer: True
Rationale: The statement of stockholders’ equity reports on changes in the accounts that make up
stockholders’ equity. This includes contributed capital, retained earnings, and other equity.

1-3 Financial Statement Analysis and Valuation, 5th Edition
Topic: Return on Assets
LO: 5
11. Return on Assets (ROA) measures the profit the company makes on each dollar of total assets it uses.
Answer: True
Rationale: Return on Assets is a profitability metric that measures how much profit the company made
for each dollar of assets the company holds on average during the year.

LO: 5
12. Return on Assets (ROA) = (Net Income / Sales) × Asset Turnover
Answer: True
Rationale: Return on Assets = Net Income / Average Assets. This is the disaggregation of the ROA into
its components
Topic: Asset Turnover

LO: 5
13. Consider two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover
of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its’ higher asset
turnover, is less profitable because it requires more revenue to turn its assets over.
Answer: False
Rationale: Asset turnover is an efficiency metric. The higher the turnover, the more efficient the
company is with its assets and thus, the more profitable. Algebraically, ROA = PM × AT. Company A
above is less profitable: 18% × 1.2 = 21.6% whereas Company B’s ROA is 18% × 1.5 = 27.0%.
Topic: Financial Accounting and Business Analysis

LO: 4
14. Financial statements are influenced by five important forces that determine a company’s competitive
intensity: (A) industry competition, (B) buyer power, (C) supplier power, (D) product substitutes, and
(E) threat of entry.
Answer: True
Rationale: By systematically considering these five business forces, we can gain better insights from
financial statements.

Multiple Choice

LO: 2
1. Which of the following groups would likely not be interested in the financial statements of a large public
company such as Procter & Gamble?
A) Shareholders
B) Employees
C) Competitors
D) Taxing agencies
E) None of the above
Answer: E
Rationale: All of these parties would use the financial statements, albeit in different ways and for
different purposes.

LO: 2
2. The SEC adopted Regulation FD, to curb public companies’ practice of:
A) Routinely filing extensions for annual reports (Form 10-K)
B) Selectively disclosing information
C) Reporting pro forma (non-GAAP) numbers
D) Hiring auditors for non-audit services such as consulting engagements
Answer: B
Rationale: Reg FD reads as follows: “Whenever an issuer discloses any material nonpublic information
regarding that issuer, the issuer shall make public disclosure of that information . . . simultaneously, in
the case of an intentional disclosure; and . . . promptly, in the case of a non-intentional disclosure.”
Topic: Components of the Balance Sheet

LO: 3
3. A list of assets, liabilities and equity can be found on which of the following?
A) Balance Sheet
B) Income Statement
C) Statement of Assets and Liabilities
D) Statement of Cash Flows
E) Statement of Stockholders’ Equity
Answer: A
Rationale: A balance sheet lists amounts for assets, liabilities and equity at a point in time.

LO: 3
4. Which of the following items would not be found on a balance sheet? (Select all that apply)
A) Stockholders’ Equity
B) Property, plant and equipment
C) Nonowner financing
D) Cash
E) Dividends
Answer: E
Rationale: The balance sheet reports assets (including cash and property, plant and equipment),
liabilities (including nonowner financing) and equity. Dividends are reported on statement of
stockholders’ equity.
Topic: Profit and Cash Flow

LO: 3
5. A company’s net cash flow will equal its net income …
A) Almost always
B) Rarely
C) Occasionally
D) Only when the company has no investing cash flow for the period
E) Only when the company has no investing or financing cash flow for the period
Answer: B
Rationale: Net income reflects the company’s revenue minus expenses for the given period. Net cash
flow represents the amount of money received (spent) on operating, investing and financing activities
for the given period. These values are rarely the same.
Topic: Financial Statement Information

LO: 3
6. Which of the following statements are correct (select all that apply)?
A) A balance sheet reports on investing and financing activities.
B) An income statement reports on financing activities.
C) The statement of equity reports on changes in the accounts that make up equity.
D) The statement of cash flows reports on cash flows from operating, investing, and financing activities
over a period of time.
E) A balance sheet reports on a company’s assets and liabilities over a period of time.
Answer: A, C, and D
Rationale: Statement (B) is incorrect—the statement of cash flows reports on financing activities that
are reflected on the balance sheet. Statement (E) is incorrect—the balance sheet reports on a
company’s assets and liabilities at a point in time.

Topic: Balance Sheet—Numerical calculations required
LO: 3
7. The Goodyear Tire & Rubber Company’s December 31, 2016 financial statements reported the
following (in millions):
Total assets $16,511

Total liabilities 11,786
Total shareholders’ equity 4,725
Dividends 82
Net income (loss) 1,264
Retained earnings, December 31, 2015 4,570
What did Goodyear report for retained earnings at December 31, 2016?
A) $5,907 million
B) $5,752 million
C) $5,916 million
D) $5,834 million
E) There is not enough information to determine the answer.
Answer: B
Rationale: $4,570 + $1,264 - $82 = $5,752

LO: 3
8. United Airlines’ 2016 balance sheet reported the following (in millions)
Total Assets $40,091

Total Liabilities 31,485
Contributed Capital 3,573
What was United Airlines’ total liabilities and stockholders’ equity at December 31, 2016?
A) $36,518 million
B) $40,091 million
C) $35,058 million
D) $8,606 million
E) $36,518 million
Answer: B
Rationale: Assets = Liabilities + Stockholders Equity. Assets = $40,091 so this is the total of liabilities
and equity combined.

LO: 3
9. On October 2, 2016 Starbucks Corporation reported, on its Form 10-K, the following (in millions):
Total assets $14,329.5

Total stockholders’ equity 5,890.7
Total current liabilities 4,546.9
What did Starbucks report as total liabilities on October 2, 2016?

A) $ 12,516.7 million
B) $ 6,377.3 million
C) $ 995.0 million
D) $ 8,438.8 million
Answer: D
Rationale: Assets = Liabilities + Stockholders Equity. $14,329.5 = Liabilities + $5,890.7
Therefore, Liabilities = $8,438.8 on October 2, 2016.

LO: 3
10. In its 2016 annual report, Snap-On Incorporated reported the following (in millions):
Current assets $1,884.0

Total shareholders’ equity $2,635.2
Total liabilities $2,088.0
What did Snap-On report as total assets at year-end 2016?

A) $3,885.8 million
B) $2,796.2 million
C) $4,723.2 million
D) $3,526.6 million
Answer: C
Rationale: Assets = Liabilities + Stockholders Equity. Assets = $2,088.0 + $2,635.2
Therefore, Assets = $4,723.2

LO: 3
11. In its 2016 annual report, Kohl’s Corporation reported the following (in millions):
Total assets $13,574

Total shareholders’ equity $ 5,177
Total liabilities $ 8,397
What proportion of Kohl’s Corporation is financed by nonowners?

A) 61.9%
B) 44.2%
C) 53.5%
D) 77.0%
Answer: A
Rationale: Nonowner financing for Kohl’s assets is provided from liabilities (the shareholders are the
owners). $8,397 / $13,574 = 61.9%
Topic: Balance Sheet—Numerical calculations required (more challenging; requires calculation of

total assets before ratio can be calculated.)
LO: 3
12. In its 2016 annual report, Mattel Inc. reported the following (in millions):
Total liabilities $ 4,086.0

Total shareholders’ equity $2,407.8
What proportion of Mattel is financed by nonowners?

A) 64.6%
B) 53.0%
C) 78.6%
D) 62.9%
Answer: D
Rationale: Nonowner financing for Mattel’s assets is provided from liabilities (the shareholders are the
owners). Assets = Liabilities + Equity.
Assets = $4,086.0 + $2,407.8 = $6,493.8
$4,086.0 / $6,493.8 = 62.92%

Topic: Income Statement—Numerical calculations required
LO: 3
13. The Goodyear Tire & Rubber Company’s December 31, 2016 financial statements reported the
following (in millions)
Sales $15,158
Cost of sales $10,972
Other expenses (excluding cost of sales) $ 2,902
What did Goodyear report for net income for the year ending December 31, 2016?
A) $29,032 million
B) $ 1,284 million
C) $ 4,186 million
D) $13,874 million
E) $ 8,070 million
Answer: B
Rationale: Sales – Cost of sales – Other expenses = Net income
$15,158 – $10,972– $2,902 = $1,284
Topic: Income Statement—Numerical calculations required

LO: 3
14. Intel Corporation reported the following on its 2016 income statement (in millions)
Sales revenue $59,387

Gross profit $36,191
Total expenses $23,317
What did Intel report for cost of goods sold during 2016?
A) $23,196 million
B) $15,502 million
C) $36,478 million
D) $12,874 million
Answer: A
Rationale: Sales – Cost of goods sold = Gross profit
$59,387 – Cost of goods sold = $36,191
Therefore, Cost of goods sold = $23,196

Topic: Income statement—Numerical calculations required
LO: 3
15. On October 2, 2016, Starbucks Corporation reported, on its Form 10-K, the following (in millions):
2016 2015
Total expenses $18,497.0 $16,403.4
Operating income $4,171.9 $3,601.0
Net earnings $2,818.9 $2,759.3
What amount of revenues did Starbucks report for the year ending October 2, 2016?
A) $24,883.4
B) $25,208.8
C) $24,558.0
D) $21,315.9
Answer: D
Rationale: Revenues – Total expenses = Net earnings
Revenues – $18,497.0 = $2,818.9
Therefore, Revenues were $21,315.9
Topic: Income Statement—Numerical calculations required (more challenging; requires calculation

of growth rate.)
LO: 3
16. On October 2, 2016, Starbucks Corporation reported, on its Form 10-K, the following (in millions):
2016 2015
Operating income $4,171.9 $3,601.0
Net earnings $2,818.9 $2,759.3
Calculate year-over-year increase or (decrease) in net earnings, in percentage terms.

A) (33.8)%
B) 22.0%
C) 16.5%
D) 2.2%
Answer: D
Rationale: During the year, net earnings increased compared to the prior year. This increase is
calculated as ($2,818.9 – $2,759.3) / $2,759.3 = 2.2%.

Topic: Income Statement—Numerical calculations required (more challenging; requires
calculation of gross profit and ratios for two years.)
LO: 3
17. In its 2016 annual report, Caterpillar Inc. reported the following (in millions):
2016 2015
Sales $38,537 $47,011
Cost of goods sold $28,309 $33,546
As a percentage of sales, did Caterpillar’s gross profit increase or decrease during 2016?
A) Gross profit increased from 26.8% to 28.6%
B) Gross profit decreased from 28.6% to 26.5%
C) Gross profit increased from 71.4% to 73.2%
D) Gross profit decreased from 73.2% to 71.4%
E) There is not enough information to answer the question.
Answer: B
Rationale: Sales – Cost of goods sold = Gross profit. In 2015, gross profit to sales was 28.6%.
This ratio decreased to 26.5% in 2016.
Topic: Statement of Cash Flows—Numerical calculations required

LO: 3
18. The Goodyear Tire & Rubber Company’s December 31, 2016, financial statements reported the
following (in millions).
Cash December 31, 2016 $1,132

Cash from operating activities $1,504
Cash from investing activities $(973)
Cash from financing activities $(875)
What did Goodyear report for cash on its December 31, 2015 balance sheet?
A) $1,476 million
B) $2,281 million
C) $3,711 million
D) $ 715 million
Answer: A
Rationale: Cash, beginning of year + Cash from operating activities + Cash from investing activities +
Cash from financing activities = Cash at end of year
Cash, beginning of year + $1,504 – $973- $875 = $1,132.
Cash, beginning of year = $1,476

Topic: Statement of Cash Flows—Numerical calculations required
LO: 3
19. Procter & Gamble’s June 30, 2016, financial statements reported the following (in millions):
Cash, beginning of year $ 6,836

Cash, end of year $ 7,102
Cash from operating activities $15,435
Cash from investing activities $ (5,575)
What did Procter & Gamble report for cash from financing activities for the year ended June 30, 2016?
A) $ 9,514 million
B) $ 20,961 million
C) $ (20,961) million
D) $ (9,594) million
E) $ 7,067 million
Answer: D
Rationale: Cash, beginning of year + Cash from operating activities + Cash from investing activities +
Cash from financing activities = Cash at end of year
$6,836 + $15,435 – $5,575 + Cash from financing = $7,102
Cash from financing = $(9,594)

LO: 5
20. A company’s return on assets (ROA) can be disaggregated to reveal which of the following (select all
that apply):
A) Financial leverage
B) Profit margin
C) Sales growth
D) Asset growth
E) Asset turnover
Answer: B and E
Rationale: ROA can be disaggregated into profit margin and asset turnover. Financial leverage and
sales growth are not components of this ratio. Asset growth affects the calculation via the denominator,
but can’t be disaggregated directly.
Topic: Return on Equity

LO: 5
21. The ratio of net income to equity is also known as:
A) Total net equity ratio
B) Profit margin
C) Return on equity
D) Net income ratio
Answer: C
Rationale: The ratio of net income to equity is called ROE, return on equity, and measures how
profitable the company was given the shareholders’ investment.

Topic: Return on Equity—Numerical calculations required
LO: 5
22. Sales for the year = $324,882, Net Income for the year = $36,610, Income from equity investments =
$8,603, and average Equity during the year = $123,650. Return on equity (ROE) for the year is:
A) 29.6%
B) 11.3%
C) 22.7%
D) 127.6%
E) There is not enough information to answer the question.
Answer: A
Rationale: Return on equity = Net income / Average Equity
$36,610 / $123,650 = 29.6%.
Topic: Return on Assets—Numerical calculations required

LO: 5
23. Sales for the year = $246,687, Net Income for the year = $22,965, and average Assets during the year
= $136,357. Return on Assets (ROA) for the year is:
A) 53.8%
B) 16.8%
C) 9.3%
D) There is not enough information to calculate ROA.
Answer: B
Rationale: ROA = Net Income / Average assets
Therefore ROA equals $22,965 / $136,357 = 16.8%.
Topic: Return on Assets—Numerical calculations required (more challenging because net income
is not provided, must be calculated.)
LO: 5
24. Sales for the year = $831,066, Profit margin =18%, and average Assets during the year = $647,770.
Return on Assets (ROA) for the year is:
A) 17.1%
B) 23.1%
C) 64.0%
D) There is not enough information to calculate ROA.
Answer: B
Rationale: ROA = Net Income / Average assets. We are not given Net income, but we do know that
profit margin is 18%. Thus we can calculate:
Net income as Sales × PM = $831,066 x 18% = $149,592

ROA = $149,592 / $647,770 = 23.1%

Topic: Return on Assets—Numerical calculations required (more challenging because average
assets are not provided; must be calculated.)
LO: 5
25. On December 31, 2016, Harley-Davidson, Inc., reported, on its Form 10-K, the following (in millions):
2016 2015
Total assets $9,890 $9,973
Total sales $5,996 $5,995
Net income $692 $752
Calculate return on assets (ROA) for 2016.

A) 7.0%
B) 62.8%
C) 71.5%
D) 7.5%
Answer: A
Rationale: Return on assets = Net income / Average assets. A simple way to calculate average assets
is to take the average of the beginning and ending assets: ($9,890 + $9,973) / 2 = $9,932. ROA = $692
/ $9,932 = 0.0697 = 7.0%
Topic: Five Forces of Competitive Industry

LO: 4
26. Which of the following are not one of the five forces that determine a company’s competitive intensity?
(Select as many as apply)
A) Bargaining power of suppliers
B) Threat of substitution
C) Ability to obtain financing
D) Threat of entry
E) Threat of regulatory intervention
Answer: C and E
Rationale: The five forces of the competitive industry include: industry competitors, bargaining power
of buyers, bargaining power of suppliers, threat of substitution, and threat of entry.
Topic: Business Environment

LO: 4
27. Which of the following are relevant in an analysis of a company’s business environment? (Select as
many as apply)
A) Financing
B) Labor
C) Buyers
D) Governance
E) All of the above
Answer: E
Rationale: The components of business analysis are: life cycle, outputs, buyers, inputs, competition,
financing, labor, governance, and risk.

Exercises
Topic: Financial Accounting Vocabulary

LO: 3, 5
1. Match the item on the left to a numbered item on the right to complete each sentence.
A) Resources that a company owns or controls are 1. liabilities

called _________________.
B) The difference between a company’s assets and its 2. return on assets

equity is equal to _______________.
C) Net income divided by average assets is known 3. assets

as ____________.
D) Sales, cost of goods sold and all other expenses are 4. income statement
necessary to calculate a company’s ______________.
5. net income
Answer:
A) 3 B) 1 C) 2 D) 5
Topic: Financial Accounting Vocabulary

LO: 3
2. Match the item on the left to a numbered item on the right to complete each sentence.
A) Companies report assets, liabilities, and equity 1. income statement

on the _________________.
B) Sales, cost of goods sold, and net income are 2. balance sheet
found on the _______________.
C) Changes in contributed capital during the period 3. statement of cash flows

are explained on the ____________.
D) The _______________ reports cash from 4. statement of stockholders’ equity

financing activities.
5. financial statements
Answer:
A) 2 B) 1 C) 4 D) 3

Topic: Income Statement Components
LO: 3
3. Fill in the blanks to complete Whole Foods’ Income Statement ($ millions).
WHOLE FOODS
Income Statement
For Year Ended September 25, 2016
Sales $15,724
Cost of goods sold and occupancy costs ?
Gross profit $ 5,411
Operating expenses ?
Operating income $ 857
Answer:
WHOLE FOODS
Income Statement
Sales $15,724
Cost of goods sold and occupancy costs 10,313
$
Gross profit 5,411
Operating expenses 4,554
Operating income $ 857
Topic: Income Statement Components

LO: 3
4. Fill in the blanks to complete Procter & Gamble’s Income Statement ($ millions).
PROCTER & GAMBLE

Income Statement
For Year Ended June 30, 2016
Sales $ ?
Expenses 51,930
Earnings before income taxes 13,369
Income taxes ?
Net earnings from continuing operations $10,027
Net earnings from discontinued operations 577
Net earnings $10,604
Answer:
PROCTER & GAMBLE

Income Statement
For Year Ended June 30, 2016
Sales $65,299
Expenses 51,930
Earnings before income taxes 13,369
Income taxes 3,342
Net earnings from continuing operations $10,027
Net earnings from discontinued operations 577
Net earnings $10,604

Topic: Statement of Cash Flow Components
LO: 3
5. Fill in the blanks to complete Whole Food’s Statement of Cash Flows ($ millions).
WHOLE FOODS
Statement of Cash Flows
Net cash from operating activities $1,116
Net cash from investing activities (895)
Net cash from financing activities (107)
Net change in cash ?
Cash at beginning of year ?
Cash at end of year $ 351
Answer:
WHOLE FOODS
Net cash from operating activities $1,116
Net cash from investing activities (895)
Net cash from financing activities (107)
Net change in cash 114
Cash at beginning of year 237
Cash at end of year $ 351
Topic: Balance Sheet Components

LO: 3
6. Fill in the blanks to complete Whole Foods’ Balance Sheet ($ millions).
WHOLE FOODS
Balance Sheet
September 25, 2016
Cash $ 351 Current liabilities $ 1,341
Non-cash assets ? Long-term liabilities ?
_ ____ Stockholders’ equity 3,224
Total assets $6,341 Total liabilities and equity $ ?
Answer:
WHOLE FOODS
Balance Sheet
September 25, 2016
Cash $ 351 Current liabilities $ 1,341
Non-cash assets 5,990 Long-term liabilities 1,776
____ _ Stockholders’ equity 3,224
Total assets $6,341 Total liabilities and equity $ 6,341

LO: 3
7. Fill in the blanks to complete the Procter & Gamble Balance Sheet ($ millions).
PROCTER & GAMBLE

Balance Sheet
June 30, 2016
Cash $ 7,102 Current liabilities $ ?
Non-cash assets ? Long-term liabilities 38,383
_ ____ Stockholders’ equity 57,983
Total assets $ ? Total liabilities and equity $127,136
Answer:
PROCTER & GAMBLE

Balance Sheet
June 30, 2016
Cash $ 7,102 Current liabilities $ 30,770
Non-cash assets 120,034 Long-term liabilities 38,383
_______ Stockholders’ equity 57,983
Total assets $127,136 Total liabilities and equity $127,136
Topic: Retained Earnings Reconciliation

LO: 3
8. Whole Foods reports the following balances in its stockholders’ equity accounts. Fill in the blanks.
($ millions) 2016 2015 2014

Retained earnings beginning of year ? ? $1,265
Net income ? 536 579
Dividends (174) (186) ?
Other (1) (1) 0
Retained earnings end of year $2,349 $2,017 ?
Answer:
($ millions) 2016 2015 2014

Retained earnings beginning of year $2,017 $1,668 $1,265
Net income 507 536 579
Dividends (174) (186) (176)
Other (1) (1) 0
Retained earnings end of year $2,349 $2,017 $1,668

LO: 5
9. Procter & Gamble reports the following items in their financial statements. Fill in the blanks.
($ millions) 2016 2015

Average assets $128,316 $136,881
Net earnings 10,604 ?
Return on assets ? 5.219%
Answer:
($ millions) 2016 2015

Average assets $128,316 $136,881
Net earnings 10,604 7,144
Return on assets 8.264% 5.219%

LO: 5
10. Whole Foods reports the following items in their financial statements. Fill in the blanks.
($ millions) 2016
Average assets $6,041
Sales 15,724
Net income 507
Return on assets ?
Profit margin ?
Asset turnover ?
Answer:
($ millions) 2016
Average assets $6,041
Sales 15,724
Net income 507
Return on assets 8.39%
Profit margin 3.22%
Asset turnover 2.60

Problems
Topic: Other Financial Information

LO: 3
1. In addition to the four financial statements, list three sources of financial information available to
external stakeholders?
Answer:
Any three from the list below
• Management Discussion and Analysis (MD&A)
• Management’s report on internal controls
• Annual corporate report
• Auditor’s report and opinion
• Notes to financial statements
• Proxy statements
• Various regulatory filings for SEC and IRS, etc.
Topic: Constructing Financial Statements

LO: 3
2. In its October 2, 2016 annual report, Starbucks Corporation reports the following items.
($ millions) 2016
Cash flows from operations $4,575.1
Total revenues 21,315.9
Shareholders’ equity 5,890.7
Cash flows from financing (1,753.5)
Total liabilities 8,438.8
Cash, ending year 2,128.8
Expenses 18,497.0
Noncash assets 12,200.7
Cash flows from investing (2,222.9)
Net earnings 2,818.9
Cash, beginning year 1,530.1
a. Prepare the balance sheet for Starbucks for October 2, 2016.

b. Prepare the income statement for Starbucks for the year ended October 2, 2016.
c. Prepare the statement of cash flows for Starbucks for the year ended October 2, 2016.

Answer:
a.
STARBUCKS CORPORATION
Balance Sheet
October 2, 2016
($ millions)
Cash $2,128.8 Total liabilities $8,438.8
Non-cash assets 12,200.7 Shareholders’ equity 5,890.7
Total assets $14,329.5 Total liabilities and equity $14,329.5
b.
Income Statement
For Year Ended October 2, 2016
($ millions)
Total revenues $21,315.9
Expenses 18,497.0
Net earnings $2,818.9
c.
For Year Ended October 2, 2016
($ millions)
Cash flows from operations $4,575.1
Cash flows from investing (2,222.9)
Cash flows from financing (1,753.5)
Net change in cash 598.7
Cash, beginning year 1,530.1
Cash at end of year $2,128.8

Topic: Constructing Financial Statements
LO: 3
3. In its December 31, 2016 annual report, Mattel, Inc. reports the following items.
($ thousands) 2016
Net cash flows from operating activities $594,509
Net sales 5,456,650
Stockholders’ equity 2,407,782
Net cash flows from financing activities (305,882)
Total assets 6,493,794
Cash, ending year 869,531
Expenses 5,138,628
Noncash assets 5,624,263
Net cash flows from investing activities (311,910)
Net income 318,022
Cash, beginning year $892,814
a. Prepare the balance sheet for Mattel, Inc. for December 31, 2016.
b. Prepare the income statement for Mattel, Inc. for the year ended December 31, 2016.
c. Prepare the statement of cash flows for Mattel, Inc. for the year ended December 31, 2016.
Answer:
a.
MATTEL, INC.
Balance Sheet
December 31, 2016
($ thousands)
Cash $869,531 Total liabilities $4,086,012
Noncash assets 5,624,263 Stockholders’ equity 2,407,782
Total assets $6,493,794 Total liabilities and equity $6,493,794
b.
MATTEL, INC.
Income Statement
For Year Ended December 31, 2016
($ thousands)
Net sales $5,456,650
Expenses 5,138,628
Net income $318,022
c.
MATTEL, INC.
($ thousands)
Net cash flows from operating activities $594,509
Net cash flows from investing activities (311,910)
Net cash flows from financing activities (305,882)
Net change in cash (23,283)
Cash, beginning year 892,814
Cash at end of year $869,531

Topic: Statement of stockholders’ equity from raw data
LO: 3
4. In its December 31, 2016, annual report, Mattel, Inc. reports the following items:
($ thousands) 2016
Retained earnings, December 31, 2015 $3,745,815
Treasury stock, December 31, 2015 (2,494,901)
Treasury stock, December 31, 2016 (2,246,749)
Net income for 2016 318,022
Contributed capital, December 31, 2015 2,231,239
Dividends during 2016 518,478
Stock issued during 2016 962
Prepare the statement of stockholders’ equity for Mattel, Inc. for the year ended December 31, 2016.
Answer:
MATTEL, INC.
Statement of Stockholders’ Equity
Contributed Retained
Capital Earnings Other Equity Total
December 31, 2015 $2,231,239 $3,745,815 $(2,494,901) $3,482,153
Net income 318,022 318,022
Stock issuance 962 962
Dividends (518,478) (518,478)
Other (Treasury stock) __________ __________ 68,152 68,152
December 31, 2016 $2,232,201 $3,545,359 $(2,426,749) $3,350,811
Topic: Balance Sheet Relations

LO: 3
5. Nike, Inc. has a fiscal year-end of May 31. On May 31, 2015, Nike, Inc. reported $21,597 million in
assets and $12,707 million in equity. During fiscal 2016, Nike’s assets decreased by $201 million while
its equity decreased by $449 million.
What were Nike’s total liabilities at May 31, 2015 and May 31, 2016?
Answer:
Assets = Liabilities + Equity
May 31, 2015: $21,597 = Liabilities + $12,707; Liabilities = $8,890
May 31, 2016: $21,597 - $201 = Liabilities + ($12,707 - $449); Liabilities = $9,138.

Topic: Calculating ROA
LO: 5
6. Use Southwest Airlines’ 2016 financial statement information, below to answer the following:
a. Calculate Southwest Airlines’ return on assets (ROA) for the year ending December 31, 2016.
b. Disaggregate Southwest Airlines’ ROA into profit margin (PM) and asset turnover (AT). Explain
what each ratio measures.
($ millions)
Total operating revenues $20,425
Net income 2,244
Total assets, beginning of year 21,312
Total assets, end of year 23,286
Equity, end of year 8,441
Answer:
a. Return on Assets = Net income / Average assets
= $2,244 / [0.5 x ($21,312 + $23,286)] = 10.06%
Return on assets measures profitability of a company—specifically, how well a company has
employed its average assets in generating net income.
b. Profit Margin = Net income / Sales

= $2,244 / $20,425 = 10.99%
Profit Margin is an income to sales ratio that reflects the profitability of sales of a company.
Southwest Airlines has a profit margin of 10.99% meaning the company records 10.99 cents of net
income (after paying taxes) for every dollar of sales.
Asset Turnover = Sales / Average assets

= $20,425 / [0.5 x ($21,312 + $23,286)] = 0.916
Asset turnover reflects the effectiveness in generating sales from assets. Southwest Airlines’ asset
turnover ratio of 0.916, means that the company generates $0.916 in sales for every $1.00 of
assets.

Topic: Calculating ROA and ROE
LO: 5
7. Below are several financial statement items for fiscal year 2016 for two grocery chains, Whole Foods
Market, an upscale organic grocer, and The Kroger Co. a mainstream grocer. ($ millions)
Whole Foods The Kroger

($ millions) Market Co.
Net income $ 507 $ 1,957
Sales 15,724 115,337
Average assets 6,041 35,201
Average stockholders’ equity 3,497 6,754
a. Calculate each company’s return on assets (ROA) and return on equity (ROE). Comment on any
differences you observe.
b. Disaggregate the ROA for each company into profit margin (PM) and asset turnover (AT). Explain
why Whole Foods has a higher ROA, is it because of PM or AT or both?
Answer:
a. Return on Assets = Net income / Average assets
Whole Foods = $507 / $6,041 = 8.39%;
Kroger = $1,957 / $35,201 = 5.56%
Return on equity = Net income / Average stockholders’ equity

Whole Foods: = $507 / $3,497 = 14.50%;
Kroger = $1,957 / $6,754 = 28.98%
While Whole Foods has a higher return on assets than Kroger; Kroger has a higher return on equity.
b. Profit margin = Net income / Sales

Whole Foods = $507 / $15,724 = 3.22%;
Kroger = $1,957 / $115,337 = 1.70%
Asset turnover = Sales / Average assets

Whole Foods = $15,724 / $6,041 = 2.60;
Kroger = $115,337 / $35,201 = 3.28
Whole Foods has a higher return on assets because its profit margin is higher that Kroger’s. This
appears reasonable since Whole Foods is an upscale grocer. Kroger’s asset turnover is higher
than Whole Foods turnover. Thus, Kroger is more efficient.

Topic: Competitive Analysis
LO: 4
8. List three of the five competitive forces that confront the company and determine its competitive
intensity. Briefly explain each force that you list.
Answer:
These following are the five forces that are key determinants of profitability.
1) Industry competition: Competition and rivalry raise the cost of doing business as companies must
hire and train competitive workers, advertise products, research and develop products, and other
related activities.
2) Bargaining power of buyers: Buyers with strong bargaining power can extract price concessions
and demand a higher level of service and delayed payment terms; this force reduces both profits
from sales and the operating cash flows to sellers.
3) Bargaining power of suppliers: Suppliers with strong bargaining power can demand higher prices
and earlier payments, yielding adverse effects on profits and cash flows to buyers.
4) Threat of substitution: As the number of product substitutes increases, sellers have less power to
raise prices and/or pass on costs to buyers; accordingly, threat of substitution places downward
pressure on profits of sellers.
5) Threat of entry: New market entrants increase competition; to mitigate that threat, companies
expend monies on activities such as new technologies, promotion, and human development to
erect barriers to entry and to create economies of scale.
Topic: The Effect of the Sarbanes-Oxley Act

LO: 5
10. Accounting debacles, such as in the case of Enron, brought to light the necessity of accuracy in financial
reporting and accountability of management. Describe how the introduction of the Sarbanes-Oxley Act
has changed the requirements of financial reporting.
Answer:
Congress introduced the Sarbanes-Oxley act as a way of restoring confidence in the integrity of
financial statement reporting of publicly traded companies. The Act requires the chief executive officer
and chief financial officer of the company to personally sign-off on the accuracy and completeness of
financial statements and the integrity of the company’s system of internal controls. This requirement is
designed to hold management personally accountable for negligence in financial reporting and
encourage vigilance in monitoring the company’s financial accounting system.

Essay Questions
Topic: Costs and Benefits of Disclosure

LO: 1
1. Explain the benefits and costs associated with a company's disclosure of information.
Answer:
Supplying information benefits a company by helping it to compete in capital, labor, input, and output
markets. A company’s performance hinges on successful business activities and the markets’
awareness of that success. Economic incentives exist for those companies that disclose reliable
accounting information, especially when the company discloses good news about products, processes,
management, etc. Direct costs associated with the disclosure of information pertain to its preparation
and dissemination. More significant are other costs including competitive disadvantage, litigation
potential, and political costs. Managers must weigh these costs and benefits to determine how much
information to voluntarily disclose.
Topic: Demand for Financial Accounting Information

LO: 2
2. List three users of financial accounting information and explain how each might use financial
information.
Answer:
Managers and employees—Managers and employees demand financial information on the financial
condition, profitability and prospects of their companies for their own well-being and future earnings
potential. They also demand comparative financial information on competing companies and other
business opportunities. This permits them to conduct comparative analyses to benchmark company
performance and condition.
Investment Analysts and information intermediaries—Investment analysts and other information

intermediaries, such as financial press writers and business commentators, are interested in predicting
companies’ future performance. Expectations about future profitability and the ability to generate cash
impact stock price and a company’s ability to borrow money at favorable terms. Financial reports reflect
information about past performance, current resources available to companies, and information about
claims on those resources. This information allows analysts to make informed assessments about
future financial performance and condition so they can provide stock recommendations or write
commentaries.
Creditors and suppliers—Creditors and other lenders demand financial accounting information to help
decide loan terms, dollar amounts, interest rates and collateral. Suppliers similarly demand financial
information to establish credit sales terms and to determine their long-term commitment to supply-chain
relations. Both creditors and suppliers use financial information to continuously monitor and adjust their
contracts and commitments with a debtor company.
Stockholders and directors—Shareholders and directors demand financial accounting information to

assess the profitability and risks of companies. Shareholders look for information useful in their
investment decisions. Both directors and shareholders use accounting information to evaluate
manager performance. Managers similarly use such information to request further compensation and
managerial power from directors. Outside directors are crucial to determining who runs the company,
and these directors use accounting information to evaluate manager performance.
Continued next page

Customers and strategic partners—Customers demand accounting information to assess the ability of
the company to provide products or services as agreed and to assess the company’s staying power
and reliability. Strategic partners wish to estimate the company’s profitability to assess the fairness of
returns on mutual transactions and strategic alliances.
Regulators and tax agencies—Regulators and tax agencies demand accounting information for tax
policies, antitrust assessments, public protection, price setting, import-export analyses and various
other uses. Timely and reliable information is crucial to effective regulatory policy. Moreover,
accounting information is often central to social and economic policy.
Voters and their representatives—Voters and their representatives to national, state and local
governments demand accounting information for policy decisions. The decisions can involve
economic, social, taxation and other initiatives. Voters and their representatives also use accounting
information to monitor government spending. Contributors to nonprofit organizations also demand
accounting information to assess the impact of their donations.

LO: 3
3. What are the three broad groups that make up a balance sheet? List and define each.
Answer:
Assets—Investments which are expected to produce revenues, either directly when the asset is sold
or indirectly, like a manufacturing plant that produces inventories for sale or a corporate office building
that house employees supporting revenue-generating activities of the company.
Liabilities—Borrowed funds (accounts payable, accrued liabilities, and obligations to lenders or bond
investors).
Equity—Capital that has been invested by the shareholders, either directly via the purchase of stock
(net of any repurchases of stock from its shareholders by the company) or indirectly in the form of
retained earnings that have been reinvested into the business and not paid out as dividends.
Topic: Owner vs. Nonowner Financing

LO: 3
4. Businesses rely on financing activities to fund their operating and investments. Explain the difference
between owner and nonowner financing, and explain the benefits and risks involved in relying more
heavily on each type of financing.
Answer:
Owner financing, also called equity, refers to money given to the business in exchange for partial control
of the company. Stocks are the most common form of owner financing. Companies are not obligated
to guarantee a return on owner investments. However, if returns are unacceptable to owners, they may
use their power to take the business in different directions. In sum, owner financing provides cash inflow
to the company without any guarantee of repayment. Control over the company is vested in the
shareholders.
Nonowner financing refers to money given to the business in exchange for a guaranteed repayment,
usually with interest. Loans and bonds are very common examples of nonowner investment. The risk
to the company lies in potential default if operations decline. The benefit is that the company does not
need to cede operational control to its creditors, unless it defaults on its repayment. In sum, nonowner
financing allows the current owners to maintain full control of the company, but requires repayment with
interest.
Companies that rely more heavily on owner financing are said to be financed conservatively.
Companies that rely more heavily on nonowner financing are said to be financed less conservatively.

Topic: Usefulness of ROA for Managers
LO: 5
5. Investors and lenders place significant importance on management’s effectiveness in generating a high
return on assets (ROA). Explain how ROA is also important for managers’ analysis of its own
performance, particularly when ROA is disaggregated.
Answer:
Return on assets (ROA) is a helpful measure of a company’s profitability. In its most basic form, ROA
is a ratio between net income and average assets, i.e. it indicates the return the company is earning
from its assets. While ROA is a valuable indicator for investors, it is just as valuable for company
managers. This is because ROA indicates how successful managers are in acquiring and using
investments on behalf of shareholders. ROA is particularly useful for managers when it is disaggregated
into more focused, meaningful components.
Return on assets can be disaggregated into profit margin (PM), which measures profitability and asset
turnover (AT), which measures efficiency or productivity.
The ratio of net income to sales is called profit margin and the ratio of sales to average assets is called
asset turnover. The profit component reflects the amount of profit from each dollar of sales, and the
productivity component reflects the effectiveness in generating sales from assets.
This disaggregation yields additional insights into the factors that cause overall ROA to change during
the year. It could be that the company is more or less profitable or that the company is more or less
efficient or both. This disaggregation provides more information than just knowing that ROA has
increased or decreased during the year.

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referred to had proved so satisfactory that the wages of the girls were
increased by 1/ per week.
At this meeting the appointment and wages of the engineer were
discussed at some length, and it was suggested that the wages which
were being paid to him were not enough for the job, but it was
explained by the chairman that his wages would be raised after he
had proved his capacity.
A GENERAL MANAGER.
The directors were gradually coming to the opinion that it was not
possible for them to keep in that close touch with the work of all the
various departments in their spare time which was necessary, and
had discussed the subject on several occasions. The result was that a
definite motion “to appoint a general manager” was tabled and was
discussed on two or three occasions, after which a special committee
was appointed to go into the whole question of the management of
the Federation. When this special committee brought in their report,
it was adopted in principle in the somewhat vague form, “that
someone be appointed to represent the committee during working
hours.” Naturally, this gave rise to several questions at the following
general meeting of the Society, but no definite expression of opinion
for or against was forthcoming from the meeting, so that the
committee were left to pursue their own way unfettered. This they
did at a later meeting by advertising for a general manager, who
should be possessed of a good, general knowledge of business, and be
in sympathy with the movement. As to his duties, it was agreed that
all goods should be purchased by the committee through him, and
invoiced to one centre, and that he should conduct all
correspondence and see that the instructions of the committee were
carried out, as well as maintaining discipline, regularity, and good
order. Mr James Bain, secretary, and Mr James Young, director,
were amongst the applicants for the position, and, perhaps for that
reason, it was decided to take a ballot vote on the seven candidates
who had been interviewed. The result was that Mr Young was
appointed, and it was agreed that he take up his duties on 29th May
1899.
THE TEAROOMS.
The tearoom adventure was proving only moderately successful,
and, in reply to a question, the chairman admitted at one meeting
that the profit shown on the balance-sheet had all been made by the
purvey department. At another meeting, he stated in reply to a
question about electricity that at M‘Neil Street, where they generated
their own current, they found electric lighting to be cheaper than gas,
but where they had to take their supplies from the Corporation it was
more costly, his reply being—“In West Nile Street, where we get our
supply from the Corporation, it is nearly killing the place.” The organ
of the Traders’ Association made great fun of this remark, stating
that “the tearooms in West Nile Street must be in a perilous
condition when the difference in the cost of gas and electricity is
nearly killing the business”; and went on to point out that “tearooms
must have a practical proprietor.” “Here, then, is an excellent
example of the fact that where overcharges cannot be made on the
goods sold, Co-operation cannot prosper.” Doubtless the
Commercial Record man was entitled to his little chuckle, but his
premises being faulty, his conclusions were equally faulty. There
were other factors than overcharges which entered into the failure of
the U.C.B.S. to make a commercial success of their tearoom business,
and led to its being finally abandoned. It is probable that the West
Nile Street place was too large and too heavily rented to permit any
firm, however experienced, to make tearooms a success in a back
street. Then, the people who acquire the tearoom habit are business
people, and are therefore not too friendly disposed to any Co-
operative enterprise and, having a very wide choice of such
establishments, their prejudices took them elsewhere. That Co-
operative tearooms can be made a success, even in Glasgow, the
Drapery and Furnishing Society has proved, but it is questionable
whether Co-operative tearooms anywhere, which are not conducted
as an adjunct to other businesses, and very near to central drapery or
similar premises, have ever proved successful, and there is no place
in Great Britain where the ordinary tearoom is so good as in
Glasgow, and, therefore, where a Co-operative tearoom which is
called to stand on its own legs, so to speak, has such strenuous
competition to face.
In August 1899 Mr Robert Watson resigned to take over the
management of the S.C.W.S. dining and purvey department, and a
Mr J. M. Picken was appointed his successor. The management of
the purvey and tearoom departments were also separated. Mr Picken
did not prove a success, however, and was succeeded by Mr
Thomson. At the end of the lease, the Society decided to give up the
Main Street purveying branch, but to keep on the tearooms. At
several general meetings suggestions had been made that the Society
should open tearooms of a cheaper class, to suit the pockets of the
workers, and the committee made some inquiries about this but
found that the rents in the city were very high. A place in Clydebank
was considered but abandoned owing to the lack of accommodation,
and also because of opposition to the project from the committee of
Clydebank Society. It was decided finally to fit up the Main Street
shop for this purpose, but, after a short trial, the tearoom there was
given up.
THE DELIVERY QUESTION.
For some unexplained reason the people of Glasgow and district
have always been particularly addicted to the consumption of new
bread. Time after time efforts have been made to wean them from
this indigestion-producing habit, but all in vain until the Great War
came and with it a shortage of grain, necessitating the husbanding of
the nation’s bread supplies. Then, without any fuss, with scarcely a
murmur even, the people submitted for two years to a restriction
which prohibited the sale of bread until it had been out of the ovens
for a period of at least twelve hours. This demand for new bread had
always been a source of worry to the Baking Society. There was, on
the one hand, the restrictions imposed by the Operatives’ Union as to
the hour of commencing work, which regulated the hour at which the
bread came out of the ovens; on the other hand, there was the
demand of the members of local societies for new bread at an early
hour and, as a consequence, the demands by the societies for early
delivery of bread. These demands for early delivery the Society was
only able partially to meet; and the distance of some of the shops
from the centre made it quite impossible that they should be
supplied with bread which was steaming hot from the oven. Hence,
week after week, the committee had to deal with complaints about
lateness of delivery. Time after time the chairman appealed to
societies at the quarterly meetings to be less insistent in their
demands for hot bread, but without avail, for no sooner did one
society respond for a little to these appeals than others began to
demand that they get the bread hot and early.
At length, toward the end of 1898, the subject was taken up by the
Convention of City Societies, and the Baking Society’s board being
only too willing to render all the assistance in their power, a
representative meeting was held in the Union Hall, West Nile Street,
at which Mr James Bain, secretary of the U.C.B.S., read a paper. Mr
Bain entitled his paper “Our Bread Delivery,” and dealt at length
with the craze for new bread and the difficulties which it imposed on
bakers and baking firms. He began by describing the evil conditions
which it had introduced into the baking trade, the principal of which
was probably the “jobber,” or half-day man. Alluding to a
correspondence which had been going on in a Glasgow paper for
some time, he said that they, in M‘Neil Street, could not describe the
jobbers as anything but clean, respectable, intelligent tradesmen, the
majority of whom were only waiting until a regular opening occurred
for them. Under a more humane system, however, they could all be
dispensed with, and all the men required could be employed
regularly. Mr Bain pointed out that the limited time between the
hour when the bakers started work and that at which societies
demanded that they should have their bread delivered was too short
to allow the bread to be thoroughly and carefully prepared. The rush
did not allow the bread room workers the time necessary to pack the
vans carefully, so that it frequently happened that the bread was
crushed and bruised into shapes it was never intended to assume.
The demand for new bread also entailed great hardships on the
bakers because of the early hour at which they had to begin work,
and he was convinced, he said, that bread baked in the morning and
delivered in the afternoon, and bread baked in the afternoon and
delivered next morning, would be healthier and more suitable for
use. All the medical opinion was against the use of new bread;
certain chemical changes took place in the bread after it was baked
and before it was fit for consumption, and some hours were
necessary to permit these changes to take place. He suggested, as a
remedy, that the Co-operative societies should lead the way in
fostering a demand for stale bread, and that the bakers, through their
Union, should assist in educating the general public into a more
rational system.
Commenting on this subject, the Scottish Co-operator said:—
“It is the duty of co-operators to make arrangements which will allow those
who produce the bread to work under conditions which will allow them to live
more enjoyable lives than they do at present. There are no reasons why they
should not begin work at 6 a.m., and the first delivery of bread might be made
by 11 o’clock, while that baked in the afternoon could be kept until next
morning, and delivered as soon as the stores are open. All that is required to
make this possible is a little rational co-operation between the Baking Society,
the distributive societies, the salesmen, and the members.”
Unfortunately, this rational co-operation was not forthcoming; the
practice continued, and it required a world war, which accustomed
the people to many other and greater inconveniences, to bring about
a reform which practically everyone believes to be desirable.
GLASGOW EXHIBITION.
The Society had guaranteed £500 towards the expenses of the
Glasgow Industrial Exhibition, and the directors were desirous of
taking every advantage of the Exhibition as an advertising medium.
At first it was proposed that there should be a joint Co-operative
stall, in which the two Wholesale societies, the Paisley
Manufacturing Society, and the Baking Society should take part. The
S.C.W.S. had been trying to obtain a plot of ground, and had
succeeded, on the understanding that they should pay £2,000 of the
cost, and the U.C.B.S. £1,300, but this arrangement was departed
from, on the ground, as stated in the Baking Society’s minutes, that
neither the English Wholesale Society nor the Paisley Manufacturing
Society were taking part. The Baking Society then decided to proceed
themselves and, after having made arrangements with two bakery
machinery manufacturing firms, they made an offer for the right to
erect a model bakery in the Exhibition. This offer was not accepted,
however, although it was considerably higher than the offer which
was finally accepted, the reason given being that the exhibit offered
by the Baking Society was not likely to be so interesting as that of
either of the two other firms which offered. The affair caused a
considerable amount of discussion at the time, and the opinion was
freely expressed that, while no doubt could be cast on the good faith
of the Exhibition committee themselves, they had been misled by the
experts whom they had consulted, and that the most interesting of
the proposed exhibits, as well as the one which would have paid the
Exhibition committee best to accept, was that of the Baking Society.
However, if they were unable to exhibit a model bakery in full
working order, and including a biscuit oven as well as bread making,
they were able to secure a stance where they were able to make a
display of goods which attracted much attention.
Among other methods which they adopted to advertise their goods
and to keep the salesmen of the societies in touch with new
departments and new goods, was a monthly letter, which they issued
to salesmen, in which attention was called to anything which was
new. During this period, also, they began to pack their biscuits in
fancy, enamelled tins, and these had a great sale. The cake shows
also were proving of great value in increasing the trade in this
Christmas luxury; each year’s show meaning a big increase in sales;
that for 1901 showing an increase of 6,255 large cakes and of 629
dozens of small cakes over the sales of the preceding season.
In the autumn of 1901 the delegates to the Irish Conference
Association were the guests of the Federation in Glasgow, which
provided them with lodgings and took them for visits to Shieldhall,
the Bakery, and the Municipal Buildings, as well as for a drive round
the principal places of interest in the city. In 1901 the Society won
first prize for oatcakes at the Bakers’ Exhibition held in the
Agricultural Hall, London. Earlier, too, as a result of a discussion
which had taken place at a meeting of Glasgow Town Council, the
committee sent one of their loaves to the City Analyst to be analysed.
The analyst’s report was to the effect that the loaf had been weighed
before being analysed; and he stated:—“We are of opinion that this is
a loaf of the best quality. It contains an extra large proportion of
albuminous compound and the minimum of water.”
At the beginning of 1902 the directors agreed to furnish one of the
bedrooms at Seamill Home, while another was furnished by the
heads of departments, and, at the quarterly meeting immediately
following, the delegates voted £500 as a donation towards the
building fund for the Inland Home at Galashiels. Other donations
were:—£20 to the Gladstone Memorial, £50 to the Festival Fund,
£40 to the Indian Famine Fund, £50 to the Lord Provost of
Glasgow’s Special War Relief Fund, £25 to the Owen Memorial Fund,
£500 to the Glasgow Technical College Fund, and £20 to the Thomas
Slater Testimonial, as well as smaller sums to many other deserving
objects.
EXTENSIONS.
During this period the extensions were neither so numerous nor so
extensive as in that which immediately preceded it, for the increase
in trade did not continue at a rate quite so rapid, but, nevertheless,
several rather important extensions were made. Entry into the
workshops, which were in course of completion in the summer of
1898, was secured in the autumn of that year, and to the new stables
shortly afterwards, and about that time it was agreed to extend the
biscuit factory and to utilise the old stable building, after
reconstruction, as a biscuit warehouse and packing department. A
considerable number of new machines were also purchased, these
including fourteen or fifteen “dough-dividers” of a new pattern,
manufactured by Werner, Pfleiderer & Perkins Ltd., at a cost of over
£200 each, and a machine for the manufacture of sugar wafers.
Three new travelling ovens were also procured for the biscuit factory.
At the June 1899 quarterly meeting power was given to complete the
South York Street building, operations on which had been suspended
for nearly two years. At a later period it was agreed to roof in the
north end of the courtyard and build a new reel oven there. It was
also decided to increase the accommodation for the oatcake factory,
so that the number of hot-plates might be increased from 80 to 140.
A proposal which occasioned some discussion at one or two of the
general meetings of the Society was that of the directors to begin a
provident fund for the employees. A number of employees had a sick
benefit fund of their own, but it was proving inadequate to meet the
demands on it, and those in charge approached the directors for
assistance. This was granted, but, as the directors recognised that
unless it was placed on a more or less compulsory basis it was not
likely to secure the necessary stability, they had several consultations
with representatives of the employees, and then took a ballot vote of
the whole of the employees on the proposals which were submitted
to them. This vote showed a majority of three to one of the
employees in favour of the scheme, which was then brought before
the delegates for their consideration and approval. Permission to
hold a special meeting of the Society for the purpose of altering the
rules to permit of a provident fund for the employees being
established was granted, but at the special meeting the vote for the
alteration of the rules was one less than the number necessary to give
the requisite two-thirds majority, and so the proposal was defeated
for the time being.
In the autumn of 1898 Mr Ballantyne resigned from his position of
stable inspector, after having acted in that capacity for the long
period of 28 years. At the quarterly meeting he was thanked for the
long service he had given to the Society. The committee decided that
the office should be abolished. Just at the end of this period it was
decided to open a distributive depot in Falkirk, for the purpose of
supplying the societies in that district. It was reported to the
committee that there were altogether nineteen societies within a
radius of twelve miles having 38 shops, which were purchasing over
500 tins of biscuits and 5,000 lbs. of oatcakes weekly. The new
system was going to be more costly at the beginning, but the
committee were under the impression that the trade would so
increase under the new system that it would more than compensate
for the additional cost.
At the end of 1901 the value of the Society’s property, including
land, buildings, and fixtures, was £145,450, while the share capital,
reserve, and insurance funds amounted to £102,441. Thus 70·5 per
cent. of the total value of the buildings was covered. At the end of
1889, only 23 per cent. of the value had been so covered, and,
notwithstanding the great increase in the value of the properties
which had taken place since that time, the capital, reserve, and
insurance funds had increased so much more rapidly that this very
desirable result had been achieved in twelve years. The trade had
grown very rapidly also in the same period, and, just at the close of
the period, permission was granted to the directors to hold a
demonstration for the purpose of celebrating a turnover of 3,000
sacks per week.
CHAPTER XIII.
CLYDEBANK BRANCH.
PRELIMINARY NEGOTIATIONS—THE BRANCH DECIDED ON

—THE HUNT FOR A SITE—THE BUILDING ERECTED—
INCREASING TRADE—FURTHER EXTENSIONS—A
DISASTROUS FIRE—THE PREMISES REBUILT—A BAD
SMASH—PRIZE WINNERS—GOVERNMENT CONTRACTS.
The time was now fast approaching when the committee were to
be called on once again to consider the question of branching out.
For some time the members of Clydebank Society had been a little
restive. They demanded new bread, and they demanded that they
should have it early in the day. This demand the directors were
finding it difficult to meet, for the campaign in favour of stale bread,
with a later start in the mornings for the bakers and a reasonable
working day, had not borne much fruit. At length, towards the end of
1900, a request for a deputation from the Baking Society’s board was
received from Clydebank directors. This deputation on their return
reported that they had been informed that there had been an
agitation among the members of Clydebank Society for a bakery of
their own, and before they would do anything the committee of the
society had wished to consult with the directors of the U.C.B.S. as to
what the Federation was prepared to do. The deputation suggested
that if the Clydebank directors would undertake to recommend to
their members the erection by the U.C.B.S. of a branch bakery, they
on the other hand would make the same recommendation to the
delegates at the quarterly meeting. As Clydebank committee were
divided in opinion on the matter, however, it was decided that the
question should be delayed until further developments took place.
It was not until ten months after the events recorded above that
anything further was heard of the proposal to erect a branch at
Clydebank, and then it came in the form of information that the
society had agreed to erect a bakery for themselves. The directors of
the Baking Society decided to send a letter expressing surprise that
they had not been informed of what was proposed before the
decision was arrived at. To this the Clydebank people replied that
they would be willing to discuss the matter still; and another
deputation was appointed to meet with them. In giving instructions
to their deputation, the directors of the Baking Society decided to
offer that, if the Clydebank Society delayed taking action, they would
recommend to the first quarterly meeting of the Baking Society the
erection of a branch to meet the needs of the Clydebank district. The
result of this meeting was that a special meeting of the members of
Clydebank Society was called, at which representatives of the Baking
Society were invited to be present. The minutes are silent as to what
transpired at this meeting, but, from the fact that at the quarterly
meeting of the Baking Society the directors came forward with a
recommendation that a branch be established in Clydebank, it is
evident that the meeting had been of a friendly nature. The
chairman, in supporting the proposal at the quarterly meeting, stated
that the delivery of bread, which had much to do with the question
being raised, had greatly improved in the interval; but as the
question had again been brought up in Clydebank, the committee
had considered the whole matter, and were of opinion that no further
extension should be made at M‘Neil Street in the meantime.
Delegates from Kinning Park and Cowlairs moved delay, and the
consideration of the question was put back for three months. At the
next quarterly meeting, however, the chairman stated that the
reasons which he had given at last meeting for the step which the
board advocated had become more forcible in the interval. The trade
of the Federation was growing so rapidly that if the delegates did not
agree to this proposal something else would have to be done to lessen
the congestion at M‘Neil Street. On the recommendation being put to
the vote, it was carried by a large majority.
Some little time elapsed, however, before suitable ground was
procured and the plans approved, and it was not until the end of
August that operations really commenced. Land was feued between
Yoker and Clydebank at John Knox Street and abutting on the North
British Railway, and here a large building consisting of three storeys
and attics was erected, having accommodation on two floors for
thirty-two large draw-plate ovens. The upper floors were to be
utilised as flour stores, and a large sifting and blending plant was
erected. Ample lavatory and bath accommodation was provided for
the workers, and arrangements were made at the back of the building
whereby the railway wagons ran underneath a wing of the building,
allowing the flour to be lifted direct from the wagons to the store.
Ample stabling and van accommodation was provided at the end of
the building, and the precaution was taken to secure sufficient land
to render any future extensions easy. The interior walls were lined
throughout with white glazed brick, and everything that skill could
devise was done to make the new building a model bakery. The total
cost of the new building and equipment was about £17,000, and all
the work of erection was carried out by the Society’s own workmen,
while the Society could congratulate itself on the fact that no accident
of any sort involving danger to life or limb took place during its
erection.
Only eight ovens were erected at first, as it was thought that the
production from these would meet the requirements of the societies
in the district. Since then, however, further extensions have taken
place. The first eight ovens erected were gas fired, but at the June
1904 quarterly meeting the directors in their report had to admit that
the results had not been what were expected, and it was possible that
some change might have to be made. The draw-plate ovens would be
a distinct improvement if they could be made as steady and reliable
as were the Scotch ovens, and Scottish engineers were directing their
attention to this, the report stated. The difficulty with one section of
the ovens continued, however, and before long it was decided to
abandon gas-firing and fire by coke.
EDUCATIONAL COMMITTEE
1. JOHN SIMPSON.
2. ALEXANDER BUCHANAN.
3. JOHN B. WALKER.
4. JOHN TOWART, Secretary.
5. JOHN YOUNG, Chairman.
6. JAMES H. FORSYTH, Treasurer.
7. JOHN URQUHART.
8. MARY KENNEDY.
9. HUGH MURDOCH.
PRIZE SILVER BAND
H. A. MELLOR, Bandmaster. WILLIAM MILLER, President.

JAMES THOMSON, Secretary.
INCREASING TRADE.
It was not long before the manager was again reporting to the
committee that the premises at M‘Neil Street were being congested,
and intimating that they would require to consider the building of
additional ovens at Clydebank or else the opening of a branch in the
east. The result was that four additional ovens were built on a plan
devised by the engineer and foreman baker, and called the “Scott-
Richard” oven. By the 140th quarter the branch was in full working
order, and the number of sacks baked that quarter was 2,502. The
output of the branch continued to increase, and by the 148th quarter
had risen to an average of 352 sacks per week. So rapidly had the
sales of the branch grown that less than eighteen months after it was
opened the directors found it necessary to add other three ovens,
bringing the total up to fifteen. These also were of the Scott-Richard
type.
By the beginning of 1906 the congestion at Clydebank and at
M‘Neil Street had become so great that it was decided to proceed
with the completion of the Clydebank premises at a cost of £10,000.
This extension provided for the erection of sixteen new ovens, thus
practically completing the productive capacity of the building. The
extension was completed in June 1907, and the June quarterly
meeting was held in one of the flats there. Amongst other
innovations introduced during the completion of this extension was a
large water-storage tank of capacity sufficient to provide a day’s
supply of water in event of any breakdown in the public water
supply. Provision was also made for electric power and light, and two
electric lifts were installed.
At the meeting the chairman, Mr D. H. Gerrard, said the branch
was up to date in every respect, and could be characterised as a
modern bakery in every sense of these words, equipped with the
latest and most improved means of production. It was an institution
of which they need not be ashamed—indeed, he would say rather it
was an institution of which they might be justifiably proud that they
were the owners. They were exhorted in the Old Book that they
should forget the things that were behind and press onward to the
things that were before. In a general sense that advice was pretty
good, especially when looking back might have a depressing effect on
one’s spirits; but it might be helpful to take a retrospect of the past
and look for a short time on the day of small things: the days of their
weakness, and ponder over them. After paying a tribute to the work
done for the Baking Society by Mr M‘Culloch, Mr Gerrard went on to
suggest that the United Baking Society was one of the wonders of
modern times, and was an eloquent testimony to the shrewdness and
business qualifications of the working men who had managed it
during the thirty-eight years of its existence. Referring to the branch,
he stated that it had now capacity for a trade of 1,400 sacks per week,
and pointed out that since Clydebank bakery was commenced, in
1902, the trade of the Society had increased by nearly 1,500 sacks per
week.
A DISASTROUS FIRE.
The new premises had only been opened for a few months when,
one Sunday morning in October, those responsible for carrying on
the work of the branch were horrified to discover that fire had
broken out. The fire was first discovered by one of the men employed
in the stables, whose attention was attracted by the sound of
breaking glass. He at once raised the alarm, and while the local fire
brigade was being summoned the stablemen did their best to
overcome the fire, but without success. By the time the local fire
brigade arrived the fire had gained a firm hold, and assistance was
telephoned for to Glasgow. The appliances of the local brigade were
not of much use, and all that the Glasgow brigade were able to do
when they arrived was to confine the fire to the upper floors, which,
with their contents, were completely destroyed. Fortunately the
lower floors were fireproof, and beyond damage by water there was
little harm done.
Arrangements were at once made to transfer the bakers in the
Clydebank factory to M‘Neil Street so as to cause the minimum of
inconvenience to the customers of the Society, and an agreement was
come to with the Operative Bakers’ Union whereby the men were
allowed to begin work an hour earlier in the mornings and two hours
earlier on Saturdays while the reconstruction was taking place.
Fortunately, very little damage was done to the lower part of the
building; but it was decided that in rebuilding the upper portion it
should be made entirely fireproof. For this reason it was decided that
the new roof should be flat and of concrete. The damage done by the
fire amounted to over £10,900. So quickly was the work of
renovation begun that by the Saturday of the week in which the fire
took place a temporary roof had been erected, and the work of
baking had again been started. It is interesting to note here that
Barrhead Society, which had, not long before, completed the erection
of a new bakery of their own, offered to place it at the disposal of the
U.C.B.S. if they should require it; but, fortunately, the directors
found themselves in a position to decline this kind offer.
The facilities for extinguishing a fire of such magnitude possessed
by Clydebank Town Council had proved to be quite inadequate for
the purpose, and a strong protest was made by the board.
Particularly the water pressure had been found quite inadequate for
the work. By the beginning of December the directors had submitted
plans to the Dean of Guild Court for the reconstruction of the
premises, and these were passed on an undertaking being given that
the boiler flue, to a defect in which it was supposed that the fire had
been due, would be built to the satisfaction of the master of works.
The building was quickly completed, and soon work was in full swing
again.

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Test Bank for Financial Statement

Analysis and Valuation, 5th Edition, by

Test Bank for Financial Statement Analysis & Valuation,

Solution Manual for Financial Statement Analysis and

Test Bank for Financial Statement Analysis and

Financial Statement Analysis and Security Valuation

Test Bank for Financial Reporting, Financial Statement

Solution Manual for Financial Reporting Financial

Solution Manual for Financial Reporting, Financial

Test Bank for Financial Reporting Financial Statement

Topic: Users of Financial Statement Information

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Total assets $16,511

Topic: Balance Sheet—Numerical calculations required

Total Assets $40,091

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Total assets $14,329.5

What did Starbucks report as total liabilities on October 2, 2016?

Topic: Balance Sheet—Numerical calculations required

Current assets $1,884.0

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Total assets $13,574

What proportion of Kohl’s Corporation is financed by nonowners?

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What proportion of Mattel is financed by nonowners?

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Sales revenue $59,387

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Calculate year-over-year increase or (decrease) in net earnings, in percentage terms.

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Cash December 31, 2016 $1,132

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Cash, beginning of year $ 6,836