Determining Financial Statement Effects of Various Transactions and Identifying Cash Flow Effects

1
Determining Financial Statement Effects of
Various Transactions and Identifying Cash
Flow Effects

• P3-3
• Group 3

2
Prompt

• According to its annual report, Wendys
  International serves the best hamburgers in the
  business and other fresh food including salads,
  chicken sandwiches, and baked potatoes in more
  than 6,400 restaurants worldwide. The company
  operates its own restaurants and sells franchises
  to others. The following activities were inferred
  from a recent annual report.

3
Questions

• For each of the transactions, complete the
  tabulation, indicating the effect ( for increase
  and for decrease) of each transaction.
  (Remember that ALSE, R-ENI, and NI affects SE
  through Retained Earnings.) Write NE if there is
  no effect.
• Where, if at all, would each transaction be
  reported on the statement of cash flows? Use O
  for operating activates, I for investing
  activities, F for financing activities, and NE if
  the transaction would not be included on the
  statement.

4
A. Purchased additional investments.
Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement Income Statement
Assets Liabilities Stockholders Equity Revenues Expenses Net Income
/- NE NE NE NE NE

• Investing activity

5
B. Served food to customers for cash.
Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement Income Statement
Assets Liabilities Stockholders Equity Revenues Expenses Net Income
NE NE

• Operating activity

6
C. Used food and paper products.
Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement Income Statement
Assets Liabilities Stockholders Equity Revenues Expenses Net Income
- NE - NE -

• No effect

7
D. Paid Cash Dividends
Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement Income Statement
Assets Liabilities Stockholders Equity Revenues Expenses Net Income
- NE - NE NE NE

• Financing activity

8
E. Incurred restaurant operating costs in
company-owned facilities paid part in cash
and the rest on account.
Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement Income Statement
Assets Liabilities Stockholders Equity Revenues Expenses Net Income
- - NE -

• Operating activity

9
F. Sold franchises, receiving part in cash and
the rest in notes due from franchises.
Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement Income Statement
Assets Liabilities Stockholders Equity Revenues Expenses Net Income
NE NE

• Operating activity

10
G. Paid interest on debt
Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement Income Statement
Assets Liabilities Stockholders Equity Revenues Expenses Net Income
- NE - NE -

• Operating activity

11
H. Purchased food and paper products paid
part in cash and the rest on account.
Balance Sheet Balance Sheet Balance Sheet Income Statement Income Statement Income Statement
Assets Liabilities Stockholders Equity Revenues Expenses Net Income
/- NE NE NE NE

• Operating activity