Analyzing the Effects of Transactions Using T-Accounts, Preparing Financial Statements,. and Evaluating the Total Asset Turnover Ratio (AP3-6)
Following are account balances (in millions of dollars) from a recent FedEx annual report, followed by several typical transactions. Assume that the following are account balances on May 31. 201 I:
Account | Balance |
Property and equipment (net) | 58,362 |
Retained earnings | 5.827 |
Accounts payable | 835 |
Prepaid expenses | 82 |
Accrued expenses payable | 1,675 |
Long-term notes payable | 667 |
Other noncurrent assets | 1,850 |
Contributed capital | S 492 |
Receivables | 1,162 |
Other current assets | 1.196 |
Cash | 360 |
Spare parts, supplies, and fuel | 294 |
Other noncurrent liabilities | 3.513 |
Other current liabilities | 297 |
These accounts are not necessarily in good order and have normal debit or credit balances. Assume the following transactions (in millions of dollars) occurred the next year ending May 31, 2012:
a. Provided delivery service to customers, receiving 54,567 in accounts receivable and $17.600 in cash.
b. Purchased new equipment costing 51,345; signed a long-term note.
c. Paid $4.598 cash to rent equipment and aircraft, with 53,067 for rental this year and the rest for rent next year.
d. Spent 51,348 cash to maintain and repair facilities and equipment during the year.
e. Collected 54,824 from customers on account.
f. Repaid $ 18 on a long-term note (ignore interest).
g. Issued additional stock for S16.
h. Paid employees S10,031 during the year.
i. Purchased for cash and used $5,348 in fuel for the aircraft and equipment during the year.
j. Paid $784 on accounts payable.
k. Ordered $12 in spare parts and supplies.
Required:
1. Prepare T-accounts for May 31, 2011, from the preceding list: enter the respective beginning balances. You will need additional T-accounts for income statement accounts; enter zero for beginning balances.
2. For each transaction, record the 2012 effects in the T-accounts. Label each using the letter of the transaction. Compute ending balances.
3. Prepare an income statement, statement of stockholders' equity, balance sheet, and statement of cash flows in good form for May 31, 2012.
4. Compute the company's total asset turnover ratio for the year ended May 31, 2012. What does it suggest to you about FedEx?
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