Tutorial 2

Question P3-6

T-accounts for May 31, 2011

Property and Equipment (net)

(BB) $8,362

Retained Earnings

$5,827 (BB)

Accounts Payable

$835 (BB)

Prepaid Expenses

(BB) $82

Accrued Expenses Payable

$1,675 (BB)

Long-term Notes Payable

$667 (BB)

Other Noncurrent Assets

(BB) $1,850

Contributed Capital

$492 (BB)

Receivables

(BB) $1,162

Other current assets

(BB) $1,196

Cash

(BB) $360

Spare parts, supplies and Fuel

(BB) $294

Other noncurrent liabilities

$3,513 (BB)

Other current liabilities

$297 (BB)

Revenue

$0 (BB)

Rent Expense

(BB) $0

Wages Expense

(BB) $0

Temporary T-accounts

Cost of Sales(BB) $0

Transactions

• A) Provided delivery service to customers, receiving $4,567 in accounts receivable and $17,600 in cash

DR. Accounts Receivable $4,567DR. Cash $17,600 CR. Revenue $22,167

Transactions

• B) Purchased new equipment costing $1,345; signed a long-term note

DR. Property and Equipment $1,345 CR. Long-term notes payable $1,345

Transactions

• C) Paid $4,598 cash to rent equipment and aircraft, with $3,067 for rental this year and the rest for rent next year. ?

DR. Prepaid Expenses $4,598 CR. Cash $4,598

DR. Rent Expense $3,067 CR. Prepaid Expenses $3,067

Transactions

• D) Spent $1,348 in cash to maintain and repair facilities and equipment during the year.

DR. Property and Equipment $1,348 CR. Cash $1,348

Transactions

• E) Collected $4,824 from customers on account

DR. Cash $4,824 CR. Accounts Receivable $4,824

Transactions

• F) Repaid $18 on a long term note

DR. Long-term notes payable $18 CR. Cash $18

Transactions

• G) Issued additional stock for $16

DR. Cash $16 CR. Contributed Capital $16

Transactions

• H) Paid employees $10,031 during the year

DR. Wage Expense $10,031 CR. Cash $10,031

Transactions

• I) Purchased in cash and used $5,348 in fuel for the aircraft and equipment during the year.

DR. Spare parts, supplies and fuel $5,348 CR. Cash $5,348

DR. Cost of Sales $5,348 CR. Spare parts, supplies and fuel $5,348

Transactions

• J) Paid $784 on accounts payable

DR. Accounts payable $784 CR. Cash $784

Transactions

• K) Ordered $72 in spare parts and supplies– Only ordered, no goods received yet– Not a transaction

2012 Effects

Property and Equipment (net)

(BB) $8,362(B) 1,345(D) 1,348

(EB) 11,055

Prepaid Expenses

(BB) $82(C) 4,598

$ 3,067 (C)

(EB) $1,613

Other Noncurrent Assets

(BB) $1,850

(EB) $1,850Receivables

(BB) $1,162(A) 4,567

4,824 (E)

(EB) $ 905 Other current assets

(BB) $1,196

(EB) $1,196

Cash

(BB) $360(A) 17,600(E) 4,824(G) 16

$4,598 (C)1,348 (D)

18 (F)10,031 (H)

5,348 (I)784 (J)

(EB) $673 Spare parts, supplies and Fuel

(BB) $294(I) 5,348

(I) 5,348

(EB) $294

Current Assets Noncurrent Assets

Accounts Payable

(J) $784 $835 (BB)

$51 (EB)

Accrued Expenses Payable

$1,675 (BB)

$1,675 (EB)

Long-term Notes Payable

(F) $18 $ 667 (BB)1,345 (B)

$1,994 (EB)

Other noncurrent liabilities

$3,513 (BB)

$3,513 (EB)

Other current liabilities

$297 (BB)

$297 (EB)

Current Liabilities Noncurrent Liabilities

Retained Earnings

$5,827 (BB)

?

Contributed Capital

$492 (BB)16 (G)

$508 (EB)

Stockholder’s Equity

Revenue

$0 (BB)22,167 (A)

22,167 (EB)

Rent Expense

(BB) $0(C) 3,067(EB) $3,067

Wages Expense

(BB) $0(H) 10,031(EB) 10,031

Temporary T-accounts

Cost of Sales(BB) $0(I) 5,348(EB) 5,348

Income StatementFedEx, Inc.

Income StatementFor Year Ended May 31, 2012

(in millions of dollars)Revenues $ 22,167

Cost of Sales 5,348

Gross Margin 16,819

Operating Expenses

Rent 3,067

Wages 10,031

Total Expenses 13,098

Net Income 3,721

Statement of SEFedEx, Inc.

Statement of Stockholder’s EquityFor Year Ended May 31, 2012

(in millions of dollars)Retained Earnings, May 31, 2011 $ 5,827

Add: Net Income for the year 3,721

Retained Earnings, May 31, 2012 $ 9,548

Balance SheetFedEx, Inc.Balance Sheet

As of May 31, 2012(in millions of dollars)

Assets Liabilities

Current Assets: Current Liabilities:

Cash $ 673 Accounts Payable $ 51

Receivables 905 Accrued Expenses Payable 1,675

Prepaid Expenses 1,613 Other current liabilities 297

Spare parts, supplies & fuel 294 Total current liabilities 2,023

Other current Assets 1,196 Long-term Notes Payable 1,994

Total Current Assets: 4,681 Other noncurrent liabilities 3,513

Property and equipment, net 11,055 Stockholder’s Equity

Other noncurrent assets 1,850 Contributed Capital $ 508

Total Assets: 17,586 Retained Earnings 9,548

Total Liabilities and SE 17,586

Statement of Cash FlowsFedEx, Inc.

Statement of Cash FlowsFor Year Ended May 31, 2012

(in millions of dollars)Cash flows from operating activities

Collected from customers $ 22,424

Paid to suppliers and employees (20,761)

Net cash flow from operating activities $ 1,663

Cash flows from investing activities

Cash paid to maintain and repair facilities and equipment (1,348)

Net cash flow from investing activities $ (1,348)

Cash flows from financial activities

Cash received from stock issue 16

Cash paid to repay long-term notes (18)

Net cash flow from financial activities $ (2)

Total Change in Cash 313

Cash at beginning of year 360

Cash at end of year 673

Total Asset Turnover Ratio

• Measures sales generated per dollar of assets. Higher = more efficient at managing assets.

Total Asset Turnover

Ratio

Sales (or Operating) Revenues

Average Total Assets=

(Beginning total assets + ending total assets) / 2

Total Asset Turnover Ratio

1.4422,167

15,446=

(13,306 + 17,586) / 2

Total Asset Turnover Ratio

• 1.44• Very hard to tell anything without comparing

to close competitors