Part 1: Transactions and Financial Statements
Prepare a Balance Sheet and Income Statement for the 3 months (first quarter) during which all of the following took place. You may want to indicate what you have added and subtracted from each account first, then prepare the financial statements with only the ending balances. This will allow you to take care when recording each event and allow me to give you credit for those steps you do correctly even if your ending balance is not correct. You should present the ending balance sheet and income statement and not only the accounts with additions and subtractions.
The following accounts appear in the ledger (the "books") of Manner Consultants, Inc.: Cash,; Accounts Receivable; Office Equipment; Prepaid Subscriptions; Accounts Payable; Common Stock; Retained Earnings; Consulting Fees Earned; Salaries Expense; Rent Expense; Telephone and Utilities Expense.
1. Manner is started by 5 people each of whom contributes $3,900 cash in exchange for common stock.
2. Manner purchases office equipment for $10,400 with payment due in 120 days.
3. Manner paid $700 cash for rent for the first three months of operation.
4. Manner paid $9,600 for subscriptions to research data bases to be used over the entire first year of operation.
5. Manner consultants worked on four engagements an the firm billed the clients $11,300 for their services.
6. Manner paid $6,000 cash to the vendor who sold Manner the equipment in 2 above.
7. Manner paid its one part-time office staff assistant salary for this entire period -- $2,800 cash.
8. Following the billing described in 5 above, clients paid $9,400 in cash.
9. Manner received bills totaling $180 for telephone and utilities services and will pay this early in the next quarter.
10. Manner declares and pays a dividend of $1,500 in cash to its shareholders.
Part 2: Cash Flow From Operations
Write a brief answer to the following question. You may use bullet points or essay format. In either case, please use 12 point font and limit your response to one page.
Starbucks Corporation is the leading retailer, roaster and brander of specialty coffee in the world. It has more than 10,000 locations around the globe. It also sell various bottled drinks, ice cream and other products through partnerships with other companies. In addition, it owns several other brands, e.g., Seattle's Best Coffee.
While Starbucks has had a few periods of slow growth, overall it has been a star performer since going public (through an IPO) in 1992. Its net income and cash flow from operations have increased by more than 20 times over the past two decades.
Both net income and cash flow from operations are important in assessing the financial health of a company. Starbucks is generating much more cash than income. What reasons could there be for this?
Year Approx. Net Income Approx. Cash from operations
1995 -0- -0-
1996 40 180
1997 60 170
1998 100 190
1999 110 205
2000 108 320
2001 200 415
2002 210 418
2003 280 605
2004 400 810
2005 480 940
All figures (except years) are in millions of dollars. For this quiz, approximate figures are used. These are not exact numbers from the firm's financial statements.
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