Question

PB1-3 Reporting Amounts on the Four Basic Financial Statements LO 1-2 

Cheese Factory Incorporated reported the following information for the fiscal year ended August 31, 2018 .

Required:

Prepare the four basic financial statements for the fiscal year ended August 31, 2018 .

PB1-4 Evaluating Financial Statements LO 1-3 

Refer to PB1-3 

Required:

1. Did Cheese Factory's cash balance increase or decrease during the year ended August 31, 2018? Which financial statement shows the reasons for this change?

2. What would Cheese Factory's 2018 net income have been had it given a 5 percent pay increase to all employees on September 1, 2017? Which financial statement did you use to answer this?

Answer 1

1. CHEESE FACTORY INCORPORATED

Income statement

For the year ended August 31,2015

Revenues : Sales revenue $1660000    Total revenues $1660000 Expenses :    Salaries and wages expenses 955000    Utilities expenses 530000    Office expenses 95000          Total expenses 1580000 Net income $80000

2. CHEESE FACTORY INCORPORATED

Statement of retained earnings

For the year ended august 31,2015

Retained earnings , beginnings $410000 ADD : Net income 80000 LESS : Dividends (10000) Retained earnings , ending $480000

CHEESE FACTORY INCORPORATED

Blance sheet at august 31,2015

Assets :    Cash $80000    Accounts receivable 15000    Supplies 25000    Prepaid rent 50000    Equipment 755000 Total assets $925000 Liabilities :    Accounts payable $145000    Notes payable 30000    Salaries and wages payable 170000 Total liabilities $345000 Stockholders Equity :    Common stock 100000    Retained earnings 480000 Total stockholders' equity 580000 Total liabilities and stockholders' equity $925000

CHEESE FACTORY INCORPORATED

Statement of cash flows

For the year ended august 31, 2015

Cash flows from operating activities : Cash received from customers $1661000 Cash paid to suppliers and employees (1490000) Cash provided by operating activities $171000 Cash flows from investing activities : Cash paid to purchase equipment (40000) Cash used in investing activities (40000) Cash flows from financing activities : Additional investments by stockholders 34000 Cash received from borrowings 5000 Repayments of borrowings (155000) Dividends paid to stockholders (10000) Cash used in financing activities (126000) Change in cash 5000 Cash at september 1,2014 75000 Cash at august 31,2015 $80000

1a. The statement of cash flows shows that the Chesse factory increased its cash balance by $5000 , during the year ended August 31, 2015.

1b. Statement of cash flows .

2a. The income statement shows that the Cheese factory earned net income of $80000 during the year ended august 31,2015 , after having deducted salaries and wages expenses of $955000. A 5% increase in pay would result in additional salaries and wages expenses of $47750 ($955000 * 0.05) , which would decrease net income to $32250 ($80000 - $47750) . (This answer ignores the possible income tax savings that would be created by having greater salaries and wages expenses.)

2b. Income statement

Answer 2

Cheese Factory Requirement 1 1660000 80000 Statement of Income For the period ending 31.8.2018 Sales Revenue Less: Saalries and Wages Expense Utilities Expense Office Expenses Net Income 955000 530000 Balance sheet As at 31.8.2018 Assets Cash Accounts Receivable Supplies Prepaid Rent Equipment Total Assets 95000 1580000 80000 15000 25000 50000 755000 925000 Statement of Retained Earnings For the period ending 31.8.2018 Beginning Balance Add:Net Income Less:Dividends Ending Balance 410000 80000 -10000 480000 Liabilities Accounts Payable Notes Payable Salaries and Wages Payable Total Liabilities 145000 30000 170000 345000 Statement of Cash flow For the period ending 31.8.2018 Cashflow from Operating Activity Cash received from customers Cash paid to suppliers and employees Cash provided by operating activties Stockholders Equity Common Stock Retained Earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 100000 480000 580000 925000 1661000 1490000 171000 The statement of cash flows shows that the Cheese Factory increased its cash balance by $5,000, during the year ended August 31, 2018. Cashflow from Investing Activity Cash paid to purchase Equipment Cash used in Investing Actiivties -40000 -40000 Requirement 2 Cashflow from Financing Activity Additional Investments by stockholders Cash received from borrowings Repayments of borrowings Dividends paid to stockholders Cash used in Financing Actiivties Change in Cash Cash at september 1.9.2017 Cash at september 31.8.2018 34000 5000 - 155000 -10000 The income statement shows that the Cheese Factory earned net income of $80,000 during the year ended August 31, 2018, after having deducted salaries and wages expense of $955,000. A 5% increase in pay would result in additional salaries and wage expense of $47,750 ($955,000 x 0.05), which would decrease net income to $32,250 ($80,000 - $47,750). (This answer ignores the possible income tax savings that would be created by having greater salaries and wages expense.) - 126000 5000 75000 80000