Chapter 2, Problem 2.1E

Accounting equation The total assets and total liabilities (in millions) of McDonalds Corporation (MCD) and Star-bucks Corporation (SBUX) follow:

Owner’s equity represents which of the following? a. the total of retained earnings plus paid-in capital b. the sum of the retained earnings and accounts receivable account balances c. the business owner’s/owners’ share of the company, also known as net worth or net assets d. the amount of funding the company has from issuing bonds

Assume the following relationships for the Brown Corporation:                        Sales / Assets                                           1.5Return on assets (ROA)                            3%Return on equity (ROE)                            5% Calculate the firm’s profit margin and debt-to-assets ratio, assuming the company uses debt and common equity.

Under What headings will you show the following items in the Balance sheetof a company:1) Securities Premium account2) Preliminary Expenses3) Bills Receivable4) Goodwill5) Authorised share Capital

Which financial statement conveys a company’s ability to generate profits in the current period? a. Income statement.b. Statement of cash flows.c. Balance sheet.d. Statement of stockholders’ equity.

To determine the amount of debt a corporation has, the user should examine: O A. Income statement B. Statement of Retained Earnings C. Statement of Cash Flows D. Balance Sheet

For each item below, indicate to which category of elements of financial statements it belongs. a.    Retained earnings. b.    Sales. c.    Additional paid-in capital. d.    Inventory. e.    Depreciation. f.    Loss on sale of equipment. g.    Interest payable. h.    Dividends. i.    Gain on sale of investment. j.    Issuance of common stock.

Sheridan Company provides you with the following condensed balance sheet information: Current assets Equity investments Equipment (net) Intangibles Total assets Current and long-term liabilities Stockholders' equity Common stock ($5 par) Paid-in capital in excess of par Retained earnings Total liabilities and stockholders' equity (1) (2) (3) (4) Liabilities and Stockholders' Equity (5) Assets Total assets For each of the following transactions, indicate the dollar impact (if any) on the following five items: (1) total assets, (2) common stock, (3) paid-in capital in excess of par, (4) retained earnings, and (5) stockholders' equity. (Each situation is independent.) a. Sheridan declares and pays a $0.50 per share cash dividend. Common stock Paid-in capital in excess of par Retained earnings $20,200 Total stockholders' equity 120,300 154,200 decrease no effect no effect decrease decrease < $41,300 < 59,400 248,300 55,000 $404,000 $109,300 294,700 $404,000 $ LA tA LA LA

1. What amount of total assets does the company report on its balance sheet? 2. What amount of total liabilities does the company report on its balance sheet? 3. Using the accounting equation, determine the company’s stockholders’ equity. Compare this amount to the amount of stockholders’ equity reported on the company’s balance sheet.