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Week 2 Problems BE1-5 In alphabetical order below are balance sheet items for Mantle Company at December 31, 2010. Prepare a balance sheet following the format of Illustration 1-8. Accounts payable $75,000 Accounts receivable 81,000 Cash 22,000 Common stock 28,000 E1-4 This information relates to Denson Co. for the year 2010. Retained earnings, January 1, 2010 $64,000 Advertising expense 1,800 Dividends paid during 2010 6,000 Rent expense 10,400 Service revenue 53,000 Utilities expense 2,400 Salaries expense 30,000 Hint: Prepare income statement and retained earnings statement. (SO 4) Instructions After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2010. E1-5 The following information was taken from the 2006 financial statements of pharmaceutical giant Merck and Co. All dollar amounts are in millions Retained earnings, January 1, 2006 $37,980.00 Materials and production expense 6,001.10 Marketing and administrative expense 8,165.40 Dividends 3,318.70 Sales revenue 22,636.00 Research and development expense 4,782.90 Tax expense 1,787.60 Other revenue 2,677.10 Hint: Prepare income statement and retained earnings statement. (SO 4) Instructions (a) After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2006. (b) Suppose that Merck decided to reduce its research and development expense by 50%. What would be the short-term implications? What would be the long-term implications? How do you think the stock market would react? (B) Immediately their net income would increase by over 2,391,000,000.00 and that would also increase their retained earning Long term however if they aren’t developing for the future they won’t have increased revenue in the future E1-9 Here are incomplete financial statements for Garrett, Inc. GARRETT, INC. Balance Sheet Assets Liabilities and Stockholders’ Equity Cash $ 5,000 Liabilities Inventory 10,000 Accounts payable $ 5,000 Building 45,000 Stockholders’ equity Total assets $60,000 Common stock (a) Retained earnings (b) Total liabilities and stockholders’ equity$60,000 Income Statement Revenues $85,000 Cost of goods sold (c) Administrative expenses 10,000 Net income $ (d) Retained Earnings Statement Beginning retained earnings $10,000 Add: Net income (e) Less: Dividends5,000 Ending retained earnings $25,000

Week 2 Problems  BE1-5 In alphabetical order below are balance sheet items for Mantle Company at December 31, 2010. Prepare a balance sheet following the format of Illustration 1-8.  Accounts payable $75,000  Accounts receivable 81,000  Cash 22,000  Common stock 28,000  E1-4 This information relates to Denson Co. for the year 2010.  Retained earnings, January 1, 2010 $64,000  Advertising expense 1,800  Dividends paid during 2010 6,000  Rent expense 10,400  Service revenue 53,000  Utilities expense 2,400  Salaries expense 30,000  Hint: Prepare income statement and retained earnings statement.  (SO 4)  Instructions  After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2010.  E1-5 The following information was taken from the 2006 financial statements of pharmaceutical giant Merck and Co. All dollar amounts are in millions  Retained earnings, January 1, 2006 $37,980.00  Materials and production expense 6,001.10  Marketing and administrative expense 8,165.40  Dividends 3,318.70  Sales revenue 22,636.00  Research and development expense 4,782.90  Tax expense 1,787.60  Other revenue 2,677.10  Hint: Prepare income statement and retained earnings statement.  (SO 4)  Instructions  (a) After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2006.  (b) Suppose that Merck decided to reduce its research and development expense by 50%. What would be the short-term implications? What would be the long-term implications? How do you think the stock market would react?  (B) Immediately their net income would increase by over 2,391,000,000.00 and that would also increase their retained earning  Long term however if they aren’t developing for the future they won’t have increased revenue in the future  E1-9 Here are incomplete financial statements for Garrett, Inc.  GARRETT, INC.  Balance Sheet  Assets Liabilities and Stockholders’ Equity  Cash $ 5,000 Liabilities  Inventory 10,000 Accounts payable $ 5,000  Building 45,000 Stockholders’ equity  Total assets $60,000 Common stock (a)  Retained earnings (b)  Total liabilities and stockholders’ equity$60,000  Income Statement  Revenues $85,000  Cost of goods sold (c)  Administrative expenses 10,000  Net income $ (d)  Retained Earnings Statement  Beginning retained earnings $10,000  Add: Net income (e)  Less: Dividends5,000  Ending retained earnings $25,000

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