SOLUTION MANUAL FOR
FINANCIAL ACCOUNTING FOR MANAGERS 1ST EDITION BY WAYNE THOMAS
AND DAVID SPICELAND AND MARK NELSON
CHAPTER 1
A FRAMEWORK FOR FINANCIAL ACCOUNTING
REAL WORLD PERSPECTIVES
RWP1-1 EDGAR Nike (ticker: NKE)
Requirement 1
a. $23,717 million
b. $9,040 million
c. Total liabilities = Total assets – total shareholder’s equity
$23,717 – $9,040 = $14,677 million
Requirement 2
a. $39,117 million. Revenue increased from the previous year.
b. $4,029 million. Net income increased from the previous year.
Requirement 3
a. Operating cash flow = $5,903 million. Operating cash flow was more positive
than the previous year.
b. Investing cash flow = −$264 million. Investing cash flow went from positive to
negative from the previous year.
c. Financing cash flow = −$5,293 million. Financing cash flow was more negative
than the previous year.
RWP1-2 EDGAR Netflix Inc (ticker: NFLX)
Requirement 1
a. Average paying membership increased by 23% and average monthly revenue per
paying membership increased by 5%.
b. $2,795,434 / $20,156,447 = 13.9%
c. $2,652,462, 13% of revenues
Requirement 2
a. $9,801,215 / $24,504,567 = 40%
b. $33,141 million
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
Solutions Manual, Chapter 5 5-1
, equirement 3
a. $20,723,441. Long-term debt went up from the previous year.
b. $736,969
Requirement 4
9%
Requirement 5
a. Ernst & Young LLP
b. Yes
RWP1-3 EDGAR General Mills Inc. (ticker: GIS)
Requirement 1
First Quarter.
Requirement 2
August 26, 2018. The same quarter of last year is used as the comparison quarter.
Requirement 3
The quarterly report includes 15 notes.
RWP1-4 EDGAR Nordstrom Inc. (ticker: JWN)
Requirement 1
The COVID-19 pandemic.
Requirement 2
On March 23, 2020, the Company announced that it would be taking several steps in an abundance
of caution to proactively strengthen its financial flexibility and navigate through this unprecedented
situation. Specifically, the Company suspended its quarterly dividend beginning in the second
quarter of 2020, drew down $800 million on its Revolving Credit Facility, targeted further
reductions of more than $500 million in operating expenses, capital expenditures, and working
capital, and suspended share repurchases.
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
5-2 Financial Accounting for Managers
,RWP1-5 Financial Analysis: American Eagle
($ in thousands)
Requirement 1
Total assets = $3,328,679
Total liabilities = $2,080,826
Stockholders’ equity = $1,247,853
Assets = Liabilities + Stockholders’ Equity
$3,328,679 = $2,080,826 + $1,247,853
Requirement 2
Consolidated Statements of Operations
Requirement 3
Net sales = $4,308,212
Net income = $191,257
Requirement 4
Inflows Outflows
Investing activities Sale of available-for-sale Capital expenditures for
investments property and equipment
Financing activities Net proceeds from stock Repurchase of common stock
options exercised
Requirement 5
The company’s auditor is Ernst & Young LLP.
The auditor states, ―We have audited the accompanying consolidated balance sheets of American
Eagle Outfitters, Inc. (the Company) as of February 1, 2020 and February 2, 2019, the related
consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows
for each of the three years in the period ended February 1, 2020, and the related notes (collectively
referred to as the ―consolidated financial statements‖). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at February
1, 2020 and February 2, 2019, and the results of its operations and its cash flows for each of the three
years in the period ended February 1, 2020, in conformity with U.S. generally accepted accounting
principles.‖
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
Solutions Manual, Chapter 5 5-3
, RWP1-6 Financial Analysis Case: The Buckle, Inc.
($ in thousands)
Requirement 1
Total assets = $867,890
Total liabilities = $478,742
Stockholders’ equity = $389,148
Assets = Liabilities + Stockholders’ Equity
$867,890 = $478,742 + $389,148
Requirement 2
Consolidated Statements of Income
Requirement 3
Net sales = $900,254
Net income = $104,429
Requirement 4
Inflows Outflows
Investing activities Proceeds from sales/maturities Purchases of investments
of investments
Financing activities There are none Payment of dividends
Requirement 5
The company’s auditor is Deloitte & Touche LLP.
The auditor states, ―We have audited the accompanying consolidated balance sheets of The Buckle,
Inc. and subsidiary (the "Company") as of February 1, 2020 and February 2, 2019, the related
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for
each of the three fiscal years in the period ended February 1, 2020, and the related notes and the
schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of February 1, 2020 and February 2, 2019, and the results of its operations and its cash
flows for each of the three fiscal years in the period ended February 1, 2020, in conformity with
accounting principles generally accepted in the United States of America.‖
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
5-4 Financial Accounting for Managers
,RWP1-7 Comparative Analysis: American Eagle vs. Buckle
Requirement 1
The total assets of American Eagle are higher than the total assets of The Buckle.
Requirement 2
The total liabilities of American Eagle are higher than the total liabilities of The Buckle.
A higher amount of liabilities does not necessarily mean a higher chance of bankruptcy. The
probability of bankruptcy relates to the ability of a company to repay its liabilities as they become
due. If sufficient resources are available, then high levels of debt can be paid.
Requirement 3
Ability to repay debt.
The ratio of total liabilities to total assets can be used as one measure of a company’s ability to repay
its liabilities. The higher the ratio, the more difficult it will be for a company to pay its liabilities.
Requirement 4
The net income of American Eagle is higher than the net income of The Buckle. When one
company has a higher net income than another company does, this does not always mean the
company’s operations are more successful. One company may be larger than another company so it
has higher net income in absolute dollar amounts because operations are larger, but it may be
making less profit per dollar of invested assets.
Requirement 5
Ability to generate profits.
Net income provides a measure of a company’s ability to generate profit for its owners. In the case
of American Eagle and The Buckle, the owners are the stockholders of the company. An increase in
net income is a desirable characteristic of a company that, along with other factors, increases the
value (or stock price) of the company to its owners.
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
Solutions Manual, Chapter 5 5-5
, RWP1-8 Ethics
Requirement 1
Yes.
The role of an auditor is to express an independent, professional opinion of the extent to which
financial statements are prepared in compliance with Generally Accepted Accounting Principles. An
auditor’s ethics might be challenged because of the need to retain the client as a source of revenue.
In this case, the auditor might fear losing the audit fee if it upsets its largest client by requiring a
correction to the financial statements because of questionable accounting practices. The company
may fire the auditor and retain the services of someone else. This problem is further worsened by the
company offering an additional $200,000 in audit fees this year and the promise of continued
services for the next five years. Management may be using these monetary incentives as a way to
entice the auditor to allow certain reporting practices. If the auditor upsets the client, the auditor
faces the possibility of losing revenue each year from audit services.
Requirement 2
No.
Auditors are not employees of the company. They are hired by a company as an independent party.
To the extent they feel management’s reporting practices violate Generally Accepted Accounting
Principles, they can issue an opinion stating so.
Requirement 3
Yes.
Although ultimate responsibility for fair presentation of financial statements lies with management,
the auditor’s opinion lends additional credibility to those financial statements. These statements are
useful to investors, creditors and others for making decisions. In addition, if the auditor detects that
financial statements are misstated and does not disclose this opinion, then the auditor likely faces
monetary penalties and other sanctions that could limit its ability to perform any audits in the future.
Requirement 4
No.
Even though the auditor faces this ethical dilemma, they serve an important role in the reporting of
financial information to help investors and creditors make decisions. Auditors follow a strict set of
guidelines in providing auditing services. In addition, they typically face severe legal and monetary
penalties in the case of negligence or willful allowance of materially misstated financial statements
by management. The auditor should issue an opinion stating its belief that financial statements are
materially misstated.
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
5-6 Financial Accounting for Managers
, RWP1-9 Great Adventures Continuing General Ledger Case
Requirement 1
The three primary forms of business organizations include sole proprietorship, partnership, and
corporation. The major advantage of a corporation is limited liability. Stockholders of a corporation
are not held personally responsible for the financial obligations of the corporation. Owners of sole
proprietorships or partnerships remain personally liable for activities of the business. Because of the
higher risk of personal injury due to outdoor adventure activities, it is recommended that Great
Adventures be organized as a corporation.
Requirement 2
Account Name Financial Statement Account
Cash Balance sheet Asset
Common Stock Balance sheet Equity
Service Revenue Income statement Revenue
Salaries Expense Income statement Expense
Accounts Payable Balance sheet Liability
Equipment Balance sheet Asset
Advertising Expense Income statement Expense
Supplies Balance sheet Asset
Salaries Payable Balance sheet Liability
Insurance Expense Income statement Expense
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
Solutions Manual, Chapter 5 5-7
FINANCIAL ACCOUNTING FOR MANAGERS 1ST EDITION BY WAYNE THOMAS
AND DAVID SPICELAND AND MARK NELSON
CHAPTER 1
A FRAMEWORK FOR FINANCIAL ACCOUNTING
REAL WORLD PERSPECTIVES
RWP1-1 EDGAR Nike (ticker: NKE)
Requirement 1
a. $23,717 million
b. $9,040 million
c. Total liabilities = Total assets – total shareholder’s equity
$23,717 – $9,040 = $14,677 million
Requirement 2
a. $39,117 million. Revenue increased from the previous year.
b. $4,029 million. Net income increased from the previous year.
Requirement 3
a. Operating cash flow = $5,903 million. Operating cash flow was more positive
than the previous year.
b. Investing cash flow = −$264 million. Investing cash flow went from positive to
negative from the previous year.
c. Financing cash flow = −$5,293 million. Financing cash flow was more negative
than the previous year.
RWP1-2 EDGAR Netflix Inc (ticker: NFLX)
Requirement 1
a. Average paying membership increased by 23% and average monthly revenue per
paying membership increased by 5%.
b. $2,795,434 / $20,156,447 = 13.9%
c. $2,652,462, 13% of revenues
Requirement 2
a. $9,801,215 / $24,504,567 = 40%
b. $33,141 million
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
Solutions Manual, Chapter 5 5-1
, equirement 3
a. $20,723,441. Long-term debt went up from the previous year.
b. $736,969
Requirement 4
9%
Requirement 5
a. Ernst & Young LLP
b. Yes
RWP1-3 EDGAR General Mills Inc. (ticker: GIS)
Requirement 1
First Quarter.
Requirement 2
August 26, 2018. The same quarter of last year is used as the comparison quarter.
Requirement 3
The quarterly report includes 15 notes.
RWP1-4 EDGAR Nordstrom Inc. (ticker: JWN)
Requirement 1
The COVID-19 pandemic.
Requirement 2
On March 23, 2020, the Company announced that it would be taking several steps in an abundance
of caution to proactively strengthen its financial flexibility and navigate through this unprecedented
situation. Specifically, the Company suspended its quarterly dividend beginning in the second
quarter of 2020, drew down $800 million on its Revolving Credit Facility, targeted further
reductions of more than $500 million in operating expenses, capital expenditures, and working
capital, and suspended share repurchases.
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
5-2 Financial Accounting for Managers
,RWP1-5 Financial Analysis: American Eagle
($ in thousands)
Requirement 1
Total assets = $3,328,679
Total liabilities = $2,080,826
Stockholders’ equity = $1,247,853
Assets = Liabilities + Stockholders’ Equity
$3,328,679 = $2,080,826 + $1,247,853
Requirement 2
Consolidated Statements of Operations
Requirement 3
Net sales = $4,308,212
Net income = $191,257
Requirement 4
Inflows Outflows
Investing activities Sale of available-for-sale Capital expenditures for
investments property and equipment
Financing activities Net proceeds from stock Repurchase of common stock
options exercised
Requirement 5
The company’s auditor is Ernst & Young LLP.
The auditor states, ―We have audited the accompanying consolidated balance sheets of American
Eagle Outfitters, Inc. (the Company) as of February 1, 2020 and February 2, 2019, the related
consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows
for each of the three years in the period ended February 1, 2020, and the related notes (collectively
referred to as the ―consolidated financial statements‖). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at February
1, 2020 and February 2, 2019, and the results of its operations and its cash flows for each of the three
years in the period ended February 1, 2020, in conformity with U.S. generally accepted accounting
principles.‖
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
Solutions Manual, Chapter 5 5-3
, RWP1-6 Financial Analysis Case: The Buckle, Inc.
($ in thousands)
Requirement 1
Total assets = $867,890
Total liabilities = $478,742
Stockholders’ equity = $389,148
Assets = Liabilities + Stockholders’ Equity
$867,890 = $478,742 + $389,148
Requirement 2
Consolidated Statements of Income
Requirement 3
Net sales = $900,254
Net income = $104,429
Requirement 4
Inflows Outflows
Investing activities Proceeds from sales/maturities Purchases of investments
of investments
Financing activities There are none Payment of dividends
Requirement 5
The company’s auditor is Deloitte & Touche LLP.
The auditor states, ―We have audited the accompanying consolidated balance sheets of The Buckle,
Inc. and subsidiary (the "Company") as of February 1, 2020 and February 2, 2019, the related
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows, for
each of the three fiscal years in the period ended February 1, 2020, and the related notes and the
schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of February 1, 2020 and February 2, 2019, and the results of its operations and its cash
flows for each of the three fiscal years in the period ended February 1, 2020, in conformity with
accounting principles generally accepted in the United States of America.‖
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
5-4 Financial Accounting for Managers
,RWP1-7 Comparative Analysis: American Eagle vs. Buckle
Requirement 1
The total assets of American Eagle are higher than the total assets of The Buckle.
Requirement 2
The total liabilities of American Eagle are higher than the total liabilities of The Buckle.
A higher amount of liabilities does not necessarily mean a higher chance of bankruptcy. The
probability of bankruptcy relates to the ability of a company to repay its liabilities as they become
due. If sufficient resources are available, then high levels of debt can be paid.
Requirement 3
Ability to repay debt.
The ratio of total liabilities to total assets can be used as one measure of a company’s ability to repay
its liabilities. The higher the ratio, the more difficult it will be for a company to pay its liabilities.
Requirement 4
The net income of American Eagle is higher than the net income of The Buckle. When one
company has a higher net income than another company does, this does not always mean the
company’s operations are more successful. One company may be larger than another company so it
has higher net income in absolute dollar amounts because operations are larger, but it may be
making less profit per dollar of invested assets.
Requirement 5
Ability to generate profits.
Net income provides a measure of a company’s ability to generate profit for its owners. In the case
of American Eagle and The Buckle, the owners are the stockholders of the company. An increase in
net income is a desirable characteristic of a company that, along with other factors, increases the
value (or stock price) of the company to its owners.
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
Solutions Manual, Chapter 5 5-5
, RWP1-8 Ethics
Requirement 1
Yes.
The role of an auditor is to express an independent, professional opinion of the extent to which
financial statements are prepared in compliance with Generally Accepted Accounting Principles. An
auditor’s ethics might be challenged because of the need to retain the client as a source of revenue.
In this case, the auditor might fear losing the audit fee if it upsets its largest client by requiring a
correction to the financial statements because of questionable accounting practices. The company
may fire the auditor and retain the services of someone else. This problem is further worsened by the
company offering an additional $200,000 in audit fees this year and the promise of continued
services for the next five years. Management may be using these monetary incentives as a way to
entice the auditor to allow certain reporting practices. If the auditor upsets the client, the auditor
faces the possibility of losing revenue each year from audit services.
Requirement 2
No.
Auditors are not employees of the company. They are hired by a company as an independent party.
To the extent they feel management’s reporting practices violate Generally Accepted Accounting
Principles, they can issue an opinion stating so.
Requirement 3
Yes.
Although ultimate responsibility for fair presentation of financial statements lies with management,
the auditor’s opinion lends additional credibility to those financial statements. These statements are
useful to investors, creditors and others for making decisions. In addition, if the auditor detects that
financial statements are misstated and does not disclose this opinion, then the auditor likely faces
monetary penalties and other sanctions that could limit its ability to perform any audits in the future.
Requirement 4
No.
Even though the auditor faces this ethical dilemma, they serve an important role in the reporting of
financial information to help investors and creditors make decisions. Auditors follow a strict set of
guidelines in providing auditing services. In addition, they typically face severe legal and monetary
penalties in the case of negligence or willful allowance of materially misstated financial statements
by management. The auditor should issue an opinion stating its belief that financial statements are
materially misstated.
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
5-6 Financial Accounting for Managers
, RWP1-9 Great Adventures Continuing General Ledger Case
Requirement 1
The three primary forms of business organizations include sole proprietorship, partnership, and
corporation. The major advantage of a corporation is limited liability. Stockholders of a corporation
are not held personally responsible for the financial obligations of the corporation. Owners of sole
proprietorships or partnerships remain personally liable for activities of the business. Because of the
higher risk of personal injury due to outdoor adventure activities, it is recommended that Great
Adventures be organized as a corporation.
Requirement 2
Account Name Financial Statement Account
Cash Balance sheet Asset
Common Stock Balance sheet Equity
Service Revenue Income statement Revenue
Salaries Expense Income statement Expense
Accounts Payable Balance sheet Liability
Equipment Balance sheet Asset
Advertising Expense Income statement Expense
Supplies Balance sheet Asset
Salaries Payable Balance sheet Liability
Insurance Expense Income statement Expense
©McGraw Hill LLC. All rights reserved. No reproduction or further distribution permitted without the prior written consent of McGraw Hill LLC
Solutions Manual, Chapter 5 5-7
