BUS591 – Financial Statement and Analysis
Week 1 Homework Assignment Templates
Instructions: Only enter data in the yellow boxes. The remaining areas are already completed
for you.
Save the file as follows: lastnamewk1.docx
Submit to the assignment box before the due date. (Late assignments will receive a late
penalty).
Grading Rubric: There are a total of 68 “questions” for you to answer (as determined by the
yellow box). Each item is worth 0.06 points for a total of 4.00 points.
P1-3B, Prepare an income statement, retained earnings statement, and balance sheet;
discuss results.
Instructions:
(a) Prepare an income statement and a retained earnings statement for the month of May and
a balance sheet at May 31, 2014.
SHAW’S GARDEN
Income Statement
For the Month Ended May 31, 2014
Revenues
Service Revenue
Expenses
Salaries & Wages
Maintenance
Insurance
Advertising
Total expenses
Net income
$10,400
$1,900
$2,100
$400
$1800
$6,200
$4,200
SHAW’S GARDEN
Retained Earnings Statement
For the Month Ended May 31, 2014
Retained earnings, May 1
Add:
Net Income
Less:
Dividends
Retained earnings, May 31
$0
$4,200
$0
$1,600
$2,600
SHAW’S GARDEN
Balance Sheet
May 31, 2014
Assets
Cash
Accounts Receivable
Equipment
Total assets
Liabilities and Stockholders' Equity
Liabilities
Accounts Payable
Notes Payable
Total liabilities
Stockholders' equity
Common Stock
$45,000
Retained Earnings
$2,600
Total stockholders' equity
Total liabilities and stockholders' equity
$10,800
$8,400
$58,800
$78,000
$4,400
$26,000
$30,400
$47,600
$78,000
(b) Briefly discuss whether the company’s first month of operations was a success.
The company’s first month would be considered a success. There was not a loss but there
was a profit of $4,200. Which was a 9.3% return on the investment.
(c) Discuss the company’s decision to distribute a dividend.
The decision can be reviewed as a risk because lenders may see that cash payment in a
negative light since the company still owes $26,000 in notes payable. On the flipside they
retained most of their earnings and had enough cash to pay the dividend.
P1-4B, Determine items to be included in a statement of cash flows, prepare a cash flow
statement and discuss the results.
Instructions:
(a) Determine which items should be included in a statement of cash flows and then prepare
the statement for Preacher Corporation.
Anything that uses the format of cash that does not have a paper trail. Cash paid out or cash
received.
PREACHER CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Cash received from customers
$162,000
Cash paid to suppliers
$-154,000
Net cash provided by operating activities
Cash flows from investing activities
Cash paid to purchase equipment
$-20,000
Net cash used by investing activities
Cash flows from financing activities
Cash received from issuing bongs payable
Cash dividends paid
Net cash provided by financing activities
Net increase in cash
$8000
$-20,000
$40,000
$-2,000
$38,000
$26,000
(b) Comment on the adequacy of net cash provided by operating activities to fund the
company’s investing activities and dividend payments.
Net cash is $2000. The cash paid for purchases of equipment is $20,000. Net cash from
operating activities is not adequate enough to pay dividends and for purchases of equipment.
(Continued)
P2-7B, Compute values and ratios for the following; discuss results.
Instructions:
(a) For each company, compute these values and ratios:
be sure to show your computations!
Working Capital
Current ratio (round to
two decimal places)
Debt to total assets ratio
Free cash flow
Earnings per share
Home Depot
$1968 million
Lowe’s
$935 million
1.15
1.12
0.60
$4,848
2.376
0.47
$2,964
1.896
(b) Compare the liquidity, profitability and solvency of the two companies.
The current ratio for both companies is above 1, which means good liquidity and high
measure of safety. Profitability is upward because both companies have positive returns.
Lowe’s has a debt ratio of 0.47 which is better than Home Depot’s 0.60. 0.5 or lower is
considered reasonable.