ACTIVITY 1 CHAPTER 1 CROSSWORD PUZZLE

Interpreting and Analyzing Financial Statements 6e Karen Schoenebeck Holtzman (Solutions Manual All Chapters)

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6e Introduction Page 15 Chapter 1

ACTIVITY 1 CHAPTER 1 CROSSWORD PUZZLE

Across

• Statement reporting all amounts as percentages

(2 Words)

• Analysis used to compare revenues over a 5-year period
• Net income earned, but not yet distributed to

stockholders (2 Words)

• Analysis revealing relationships among two or more

accounts

• Activity including cash transactions involving long-term

assets

• Statement reporting assets and how they are financed

(abbreviation)

• Statement reporting changes in contributed capital and

retained earnings (2 Words)

• Assets = Liabilities + ____ (abbreviation)
• Activity including cash transactions from a company's

central business

• Measures how efficiently assets are used to generate

revenue (2 Words)

• Amounts owed
• Proportion of assets financed by debt (2 Words)
• Statement reporting changes in cash (2 Words)
• Reveals how efficiently assets generate profits

(3 Words) Down

• System for recording, classifying, and summarizing

financial information

• Wholesale costs of inventory sold (abbreviation)
• Activity including cash transactions that involve

stockholders and creditors

• Amounts earned selling to or servicing customers
• Items of value
• Costs incurred to produce revenues
• Rules for preparing the financial statements

(abbreviation)

• Amounts paid-in by stockholders to purchase stock

(2 Words)

• Amounts to be paid to suppliers (2 Words)
• Principle that requires assets be recorded at the amount

paid for them (2 Words)

• Statement reporting profitability (2 Words)
• Profit (loss), earnings, or the bottom line (2 Words)
• Proportion of profit from revenue (abbreviation)
• Amounts to be received from customers (abbreviation)
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6e Introduction Page 16 Chapter 1

ACTIVITY 2 THE FOUR FINANCIAL STATEMENTS

Purpose: • Identify the four financial statements.

• Understand the basic information provided by each financial statement.Accounting is the system of recording, classifying, and reporting financial information. Four financial statements report this information: balance sheet, income statement, statement of stockholders’ equity, and the statement of cash flows.

BALANCE SHEET

Assets Liabilities Stockholders’ equity The Balance Sheet (BS) provides a snapshot of a company’s financial position as of a certain date. It reports assets, items of value such as inventory and equipment, and whether the assets are financed with liabilities (debt) or stockholders’ equity (equity).

INCOME STATEMENT

Revenues (Expenses) Net income The Income Statement (IS) reports the company’s profitability during an accounting period. It reports revenues, amounts received from customers for products sold or services provided, and expenses, the costs incurred to produce revenues. The difference is net income.

STATEMENT OF STOCKHOLDERS’ EQUITY

Retained earnings, beginning Contributed capital, beginning

• Net income + Issuance of shares

(Dividends) (Repurchase to retire shares) Retained earnings, ending Contributed capital, ending The Statement of Stockholders’ Equity (SE) reports if the earnings (net income) of this accounting period are distributed as dividends or retained in the business as retained earnings. It also reports amounts paid-in (contributed) by stockholders to purchase common stock and preferred stock.

STATEMENT OF CASH FLOWS

Cash inflows (Cash outflows) Change in the cash account The Statement of Cash Flows (CF) reports cash inflows and cash outflows during an accounting period.

Q1 Which financial statement reports:

• whether assets are primarily financed with debt or equity? (BS / IS / SE / CF)
• whether the company was profitable or not? (BS / IS / SE / CF)
• cash received from customers during the accounting period? (BS / IS / SE / CF)
• dividends declared by the board of directors for shareholders? (BS / IS / SE / CF)
• retained earnings at the beginning of the accounting period? (BS / IS / SE / CF)
• the expenses of a corporation? (BS / IS / SE / CF)
• the assets of a corporation? (BS / IS / SE / CF) 3 / 4

6e Introduction Page 17 Chapter 1

ACTIVITY 3 BALANCE SHEET

Purpose: • Understand the information provided by the balance sheet.

• Identify asset, liability, and stockholders’ equity accounts reported on the balance sheet.• Understand the accounting equation.PEPSICO (PEP*) 12/25/2010 BALANCE SHEET ($ in millions)

ASSETS LIABILITIES

Cash and cash equivalents $ 5,943 Accounts payable $ 3,865 Short-term investments 426 Short-term debt 4,898 Accounts receivable, net 6,323 Other current liabilities 7,129 Inventories 3,372 Long-term debt 19,999 Other current assets 1,505 Other noncurrent liabilities 11,098 Property, plant, and equipment, net 19,058 Goodwill 14,661 STOCKHOLDERS' EQUITY Other intangible assets 13,808 Contributed capital 4,449 Long-term investments 1,368 Retained earnings 37,090 Other noncurrent assets 1,689 Treasury stock and other equity (20,375) Total Assets $68,153 Total L & SE $68,153 The balance sheet reports assets and the amount of financing from liabilities and stockholders’ equity as of a certain date. This relationship is summarized by the accounting equation, which is: Assets = Liabilities + Stockholders’ Equity Assets are items of value that a corporation owns or has a right to use. Typical asset accounts include cash, accounts receivable, inventory, equipment, buildings, and land. Accounts receivable are amounts to be received in the future from customers.Liabilities are amounts owed to creditors; the amount of debt owed to third parties. Typical liability accounts include accounts payable, wages payable, notes payable, and bonds payable. The key word found in many liability accounts is payable. Accounts payable are amounts to be paid in the future to suppliers.Stockholders’ Equity is the portion of assets the owners own free and clear. Stockholders’ equity may also be referred to as shareholders’ equity or owners’ equity. Typical stockholders’ equity accounts include: Contributed Capital—Amounts paid-in (contributed) by stockholders to purchase common stock and preferred stock.Retained Earnings—Net income earned by the company since its incorporation and not yet distributed as dividends.Q1 Identify the accounting equation amounts for PepsiCo Corporation using the information above.Assets $68,153 million = Liabilities $46,989 million + Stockholders’ Equity $21,164 million Q2 Assets can either be financed with liabilities or stockholder’s equity.Q3 Will the accounting equation hold true for every corporation? (Yes / No / Can’t tell) Why?Assets will always be financed by either liabilities (debt) or stockholders’ equity. Assets are either owned free and clear by the owners (equity) or financed by creditors (debt).

• Stock market symbols are shown in parentheses.
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