Analyzing Transactions Using the Financial Statement Effects Template (LO3)

Following are selected transactions of Mogg Company. Record the effects of each using the financial
statement effects template.
1. S hareholders contribute $10,000 cash to the business in exchange for common stock.
2. E mployees earn $500 in wages that have not been paid at period-end.
3. I nventory of $3,000 is purchased on credit.
4. The inventory purchased in transaction 3 is sold for $4,500 on credit.
5. The company collected the $4,500 owed to it per transaction 4.
6. E quipment is purchased for $5,000 cash.
7. Depreciation of $1,000 is recorded on the equipment from transaction 6.
8. The Supplies account had a $3,800 balance at the beginning of this period; a physical count at
period-end shows that $800 of supplies are still available. No supplies were purchased during this
period.
9. The company paid $12,000 cash toward the principal on a note payable; also, $500 cash is paid to
cover this note's interest expense for the period.
10. The company received $8,000 cash in advance for services to be delivered next period.

P2-42. Comparing Cash Flows Across Retailers (LO1)
Following are selected accounts from the income statement and the statement of cash flows for several
retailers, for their fiscal years ended in 2013.



Net
Income Cash Flows from ($ millions) Sales (Loss) Operating Investing Financing
Macy's . . . . . . . . . . . . . . . . . . $ 27,686 $ 1,335 $ 2,261 $ (863) $ (2,389)
Home Depot, Inc. . . . . . . . . . 74,754 4,535 6,975 (1,432) (5,034)
Staples, Inc. . . . . . . . . . . . . . 24,381 (211) 1,219 (342) (812)
Target Corp. . . . . . . . . . . . . . 73,301 2,999 5,325 (2,855) (2,488)
Wal-Mart Stores . . . . . . . . . . 469,162 16,999 25,591 (12,611) (11,972)
Required
a. Compute the ratio of net income to sales for each company. Rank the companies on the basis of this
ratio. Do their respective business models give insight into these differences?
b. Compute net cash flows from operating activities as a percentage of sales. Rank the companies on
the basis of this ratio. Does this ranking coincide with the ratio rankings from part a? Suggest one
or more reasons for any differences you observe.
c. Compute net cash flows from investing activities as a percentage of sales. Rank the companies on
the basis of this ratio. Does this ranking coincide with the ratio rankings from part a? Suggest one
or more reasons for any differences you observe.
d. All of these companies report negative cash flows from financing activities. What does it mean for a
company to have net cash outflow from financing?