Solution manual accounting 25th editon warren chapter 05

CHAPTER 5
ACCOUNTING SYSTEMS
DISCUSSION QUESTIONS
1.

The individual accounts receivable ledger accounts provide business managers information on the
status of individual customer accounts, which is necessary for managing collections. Managers need
to know which customers owe money, how much they owe, and how long the amount owed has been
outstanding.

2.

The major advantages of the use of special journals are substantial savings in record-keeping

expenses and a reduction of record-keeping errors.

3.

a.
b.

400
None

4.

a.
b.

400
1

5.

a.

Sometime following the end of the current month, one of two things may happen: (1) an overdue
notice will be received from Kelly Co., and/or (2) a letter will be received from Kelley Co.,

informing the buyer of the overpayment. (It is also possible that the error will be discovered at the
time of making payment if the original invoice is inspected at the time the check is being written.)

b.

The schedule of accounts payable would not agree with the balance of the accounts payable
account. The error might also be discovered at the time the invoice is paid.

c.

The creditor will call the attention of the debtor to the unpaid balance of $800.

d.

The error will become evident during the verification process at the end of the month. The total
debits in the purchases journal will be less than the total credits by $3,600.

6.

a.
b.
c.

Purchases journal

Cash payments journal
Purchases journal

7.

An electronic form is a software window that provides the inputs for a particular transaction. For
example, a check form provides the inputs (payee, amount, date) for a cash payment transaction. An
electronic invoice provides the inputs (customer, amount sold, item sold) for recording revenues
earned on account.

8.

The use of controlling accounts to verify the accuracy of subsidiary accounts is used in a manual
system. In a computerized system, it is assumed that the computer will accurately sum the individual
transactions in the subsidiary accounts in determining the aggregate balance.

9.

For automated systems that use electronic forms, the special journals are not used to record original
transactions. Rather, electronic forms capture the original transaction detail from an invoice, for
example, and automatically post the transaction details to the appropriate ledger accounts.

10.

E-commerce can be used by a business to conduct transactions directly with customers. Thus, an
order can be received directly from the customer’s Internet input and cash can be received from the
credit card. Many times, the cash is received prior to actually shipping the product, resulting in a
faster revenue/collection cycle. Reducing paperwork throughout the cycle also improves the
efficiency of the process. For example, all of the accounting transactions can be fed automatically
from the initial Internet-based inputs.

d.
e.

Cash payments journal
Cash payments journal

5-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


CHAPTER 5

Accounting Systems

PRACTICE EXERCISES
PE 5–1A
REVENUE JOURNAL

Invoice
No.

Date

Nov.

7
17
23

121

122
123

Account Debited

Post.
Ref.

Accounts Rec. Dr.
Fees Earned Cr.

Drew Co.

Triple A Inc.
Whaley Co.

290
470
610

PE 5–1B
REVENUE JOURNAL
Invoice
No.

Date

Apr.

6
11
19

78
79
80

Account Debited

Post.
Ref.

Accounts Rec. Dr.
Fees Earned Cr.

Lemon Co.
Hitchcock Inc.
Fletcher Inc.

1,240
2,570
990

PE 5–2A
May

20.

Collected cash of $100 from Matrix Communications Inc. (Invoice No. 527).
Amount posted from page 106 of the cash receipts journal.

27.

Provided $90 of services on account to Matrix Communications Inc.,
itemized on Invoice No. 579. Amount posted from page 92 of the revenue
journal.

10.

Provided $750 services on account to Moravian Products Inc., itemized
on Invoice No. 119. Amount posted from page 24 of the revenue journal.

17.

Collected cash of $610 from Moravian Products Inc. (Invoice No. 106).

PE 5–2B
Aug.

Amount posted from page 46 of the cash receipts journal.


CHAPTER 5
PE 5–3A

PURCHASES JOURNAL

Date

Feb.

Account Credited

11
14
27

Post.
Ref.

Celebration Supplies Inc.
Fun 4 All Supplies Inc.
Office Space Inc.

Accounts
Payable
Cr.

Party

Supplies
Dr.

440
290
2,350

PE 5–3B

Other
Accounts
Dr.

Post.
Ref.

Amount

440
290
Office Furniture

2,350

PURCHASES JOURNAL

Date

Nov.

Accounting Systems

Account Credited

6
14

22

Carry Out Supply Inc.
Zell Computer Inc.
Carry Out Supply Inc.

Post.
Ref.

Accounts
Payable
Cr.

Office
Supplies
Dr.

330
1,950
195

Other
Accounts
Dr.

Post.
Ref.

Amount

330
Office Equipment
195

5-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1,950


CHAPTER 5

Accounting Systems

PE 5–4A
Dec.

11.

Made purchases of $2,340 on account from Martin Computer Services
Inc. (Invoice No. 75). Amount posted from page 8 of the purchases
journal.

19.

Paid $5,540 to Martin Computer Services Inc. on account (Invoice No. 43).
Amount posted from page 46 of the cash payments journal.

PE 5–4B
Jan.

11.

Paid $64 to Colonial Inc. on account (Invoice No. 122). Amount posted
from page 71 of the cash payments journal.

26.

Made purchases of $72 on account from Colonial Inc. (Invoice No. 139).
Amount posted from page 55 of the purchases journal.

PE 5–5A

Horizontal analysis:
2014

Retail
Wholesale
Total revenue

2013

$110,000
140,000
$250,000

$ 92,000
164,000
$256,000

Increase/(Decrease)
Amount
Percent

$ 18,000
(24,000)
$ (6,000)

19.6%
–14.6%
–2.3%

Vertical analysis:
2014
Amount

Retail
Wholesale
Total revenue

$110,000
140,000
$250,000

2013
Percent

44.0%
56.0%
100.0%

Amount

$ 92,000
164,000
$256,000

Percent

35.9%
64.1%
100.0%

5-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


CHAPTER 5

Accounting Systems

PE 5–5B
Horizontal analysis:
Increase/(Decrease)
2014

Camping
Fishing
Total revenue

2013

$280,000
140,000
$420,000

$240,000

160,000
$400,000

Amount

Percent

$ 40,000
(20,000)
$ 20,000

16.7%

–12.5%
5.0%

Vertical analysis:
2014

Amount

Camping
Fishing
Total revenue

$280,000
140,000
$420,000

2013

Percent

66.7%
33.3%
100.0%

Amount

$240,000
160,000
$400,000

Percent

60.0%
40.0%
100.0%

CHAPTER 5

Accounting Systems

EXERCISES
Ex. 5–1
1.
2.

General ledger accounts: (e)
Subsidiary ledger accounts: (a), (b), (c), (d)

Ex. 5–2
a., b., and c.
Accounts Receivable
Mar.

1 Bal.

480

Mar.

31

6,795

Mar.

31 Bal.

7,275

Eco-Systems
Mar.

Mar.

20
31 Bal.

1,700
1,700

Hazmat Safety Co.
Mar.
Mar.

1
31 Bal.

Masco Co.

2,875
2,875

Sunrise Enterprises

Mar.

10

980

Mar.

Mar.

31 Bal.

980

Mar.

27

1 Bal.

1,240

480

Mar.

31 Bal.

1,720

d.
ZETA SERVICES INC.
Accounts Receivable Customer Balances
March 31, 2014
Eco-Systems
Hazmat Safety Co.
Masco Co.
Sunrise Enterprises

Total accounts receivable

$1,700
2,875
980
1,720
$7,275


Ex. 5–3
a.
b.

c.
d.
e.

Cash receipts journal
General journal
Cash receipts journal
General journal (not a revenue transaction)
Cash receipts journal

f.
g.

h.
i.
j.

Cash receipts journal
General journal
Cash receipts journal
Cash receipts journal
Revenue journal

f.
g.

h.
i.
j.
k.

General journal
Purchases journal
Purchases journal
Purchases journal
Cash payments journal
General journal

Ex. 5–4
a.
b.
c.
d.
e.

General journal
Cash payments journal
Cash payments journal
Cash payments journal
General journal

Ex. 5–5
Apr.

3.

Provided service on account; posted from revenue journal page 44.

6.

Granted an invoice adjustment or corrected an error related to sale of
April 3; posted from general journal page 11. This does not represent

a collection of cash, since the credit was not posted from the cash receipts
journal.

24.

Received cash for balance due; posted from cash receipts journal page 81.


Ex. 5–6
a.
REVENUE JOURNAL
Invoice

No.

Date

Sept.

2
3
14
22

201

202
203
204

Account Debited

Triple Play Corp.
Mid States Inc.
Triple Play Corp.
Rose Co.

30

Post.
Ref.

Accounts Rec. Dr.
Fees Earned Cr.

380
295
320
650
1,645

b.

$1,645
$1,645

Debit to Accounts Receivable [from revenue journal column total in (a)].
Credit to Fees Earned [from revenue journal column total in (a)].

c.

$ 320

($0 + $380 + $320 – $380)


Ex. 5–7
a. and b.
May

Aladdin Co.

1 Bal.
14

Bal.

Borman Co.

505
1,140

May

1,645

Bal.

4
22

1,670
3,150
4,820

Life Star Inc.
May

9

Bal.

2,870
2,870

c.
Accounts Receivable
May

1 Bal.

31

Bal.

Fees Earned

505

May

8,830
9,335

Bal.

31

8,830
8,830

d.
EVERGREEN CONSULTING INC. Accounts
Receivable Customer Balances May 31,
2014

Aladdin Co.
Borman Co.
Life Star Inc.
Total accounts receivable

$1,645
4,820
2,870
$9,335

The total in the schedule above agrees with the T account balance for the
accounts receivable controlling account in part (c).

e.

A computerized system would likely use an electronic form specially designed
for recording sales transactions, such as an electronic invoice form. The
transaction details would be input into the form fields and submitted. Once
submitted, the transaction would be saved and automatically posted as a debit
to the individual customer account receivable and a credit to the revenue
account. There would be no control totals posted to a controlling account.


Ex. 5–8
FANTASY PRODUCTIONS INC.

Accounts Receivable Customer Balances
July 31, 2014
Amber Communications Inc.
Crowne Studios Inc.
Franklin Broadcasting Co.
Gold Coast Media Inc.

$3,940
1,250
2,200
0
$7,390

Total accounts receivable
Accounts Receivable
(Controlling)

$ 3,670
13,640
(9,920)
$ 7,390

Balance, July 1, 2014
Total debits (from revenue journal)

Total credits (from cash receipts journal)
Balance, July 31, 2014

Ex. 5–9

REVENUE JOURNAL
Invoice
No.

Date

2014

Oct.

2
8
12
22

512
513
514
515

Account Debited

Albany Co.
Gabriel Co.
Ells Inc.
Electronic Central Inc.

31
CASH RECEIPTS JOURNAL

Page

Post.
Ref.
√
√
√
√

8

Accounts Rec. Dr.
Fees Earned Cr.

670
275
840
150
1,935

Page

12


Account Credited

Date

2014
Oct.

4
19
27
29

CMI Inc.

Ells Inc.
Fees Earned
Albany Co.

31

Fees Earned

31

Post.
Ref.

Fees Earned
Cr.

√

Accts.
Rec. Cr.

215
475

√

670

215
475
145
670

1,360

90

1,595

145
√

90
235

Cash
Dr.

Ex. 5–10
a.
REVENUE JOURNAL
Invoice

No.

Date

2014
Dec.

3
8
18
28

622
623
624
625

31

Account Debited

Post.

Accounts Rec. Dr.

Ref.

Fees Earned Cr.

√

Palace Corp.
Sunny Style Inc.
Amex Services Inc.
Veritas Co.

2,340
1,690
2,750
980
7,760

√

√
√

Total
CASH RECEIPTS JOURNAL

Date

2014
Dec.

Account

Post.

Fees
Earned

Credited

Ref.

Cr.

5
12
23
30

Champion Co.
Veritas Co.
Palace Corp.
Fees Earned

31

Total

19

Page

√

Accts.
Rec.
Cr.

880
1,130
2,340

√
√

80
80

25

Page

4,350

Cash
Dr.

880
1,130
2,340
80
4,430

b.
AUTUMN COVE INC.
Accounts Receivable Customer Balances
December 31, 2014
Amex Services Inc.

$2,750

Sunny Style Inc.
Veritas Co.

1,690
980
$5,420

Total accounts receivable
The total of the customer accounts on December 31, 2014, $5,420, equals the
balance of the accounts receivable controlling account, shown as follows:

Dec.

1
31

Dec. 31

Bal.
Bal.

Accounts Receivable
2,010
Dec. 31
7,760
5,420

4,350

Ex. 5–10 (Concluded)
c.

The accounts receivable subsidiary ledger is needed to track customer services
provided on account and customer collections. Without the subsidiary ledger, it
would not be possible for Autumn Cove Inc. to know who owes how much for
services rendered. Furthermore, without the subsidiary ledger, it would be
impossible to manage collections from individual customers.

Ex. 5–11

1.
2.
3.

General ledger account: (b), (f), (h), (j), (k), (l)
Subsidiary ledger account: (a), (c), (d), (e), (g), (i)
No posting required: (m)

Ex. 5–12
1.
2.
3.

General ledger account: (a), (c), (e), (f), (g), (i), (k), (l)
Subsidiary ledger account: (b), (d), (h)
No posting required: (j)

Ex. 5–13
May

6.

Purchased services, supplies, equipment, or other commodities on
account; posted from purchases journal page 44.

14.

Received an invoice adjustment or corrected an error related to
purchase of May 6; posted from general journal page 12. (A payment
would be recorded in the cash payments journal.)

16.

Paid balance owed; posted from cash payments journal page 23.

CHAPTER 5

Accounting Systems

Ex. 5–14
a.

PURCHASES JOURNAL

Date

June

b.

c.

Account Credited

4
9
16
21
30

Office Universe Inc.
Tek Village, Inc.
Office Universe Inc.
Paper-to-Go Inc.
Total

$3,645
$855

Post.
Ref.

Accounts
Payable
Cr.

490
2,790
140
225
3,645

Office

Supplies
Dr.

Other
Accounts
Dr.

Post.
Ref.

Amount

490
Office Equipment
140
225
855

Credit to Accounts Payable [from purchases journal column total in (a)].
Debit to Office Supplies [from purchases journal column total in (a)].

$140 ($0 + $490 + $140 – $490)

5-13

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2,790

2,790


CHAPTER 5

Accounting Systems

Ex. 5–15

a. and b.

Enviro-Wash Supplies Inc.
Jan.

4
26

Bal.

Little Co.
570

350

Jan.

920

Bal.

1 Bal.
15

410

290
700

Office Mate Inc.
Jan.

19

Bal.

3,050
3,050

c.
Accounts Payable
Jan.

Cleaning Supplies
1 Bal.

31
Bal.

410

Jan.

4,260

Bal.

31

1,210
1,210

4,670

d.
WALLACE WINDOW CLEANERS INC.
Accounts Payable Creditor Balances
January 31, 2014
$ 920
700
3,050
$4,670

Enviro-Wash Supplies Inc.

Little Co.
Office Mate Inc.
Total supplier account balances
The total in the schedule above agrees with the T account balance for the
accounts payable control account in (c).
e.

A computerized system would likely use an electronic form specially designed
for recording purchase transactions. The transaction details would be input
into the form fields and submitted. Once submitted, the transaction would be
saved and automatically posted as a debit to an appropriate asset account and
a credit to the individual creditor accounts payable account. There would be

no control totals posted to a controlling account.

5-15
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


Ex. 5–16
OUT OF EDEN LANDSCAPING CO.
Accounts Payable Creditor Balances
April 30, 2014
$ 6,010
4,550

7,810
0
$18,370

Augusta Sod Co.
Concrete Equipment Co.
Home Centers Lumber Co.
Schott’s Fertilizer
Total accounts payable
Accounts Payable
(Controlling)
Balance, April 1, 2014

Total credits (from purchases journal)
Total debits (from cash payments journal)
Balance, April 30, 2014

$ 1,990
23,790
(7,410)
$18,370


CHAPTER 5

Accounting Systems

Ex. 5–17
PURCHASES JOURNAL

Date

2014
Mar.

Post.
Ref.

Account Credited

3
12
18
20
31

Sani-Fresh Products Inc.
Porter Products Inc.
Liquid Klean Supplies Inc.

Bowman Laundry Service

Accounts
Payable
Cr.

Cleaning
Supplies
Dr.

190
320

245
130
885

190
320
245

(21)

(14)

√
√
√
√

Laundry Service Expense
755

CASH PAYMENTS JOURNAL

Ck.
No.

Date

2014
Mar.

1
8
15
26
31
31

57
58
59
60
61

Account Debited

Liquid Klean Supplies Inc.
Equipment
Bowman Laundry Service

Sani-Fresh Products Inc.
Salary Expense

Post.
Ref.

Other
Accounts
Dr.

Page

Other
Accounts
Dr.

Accounts
Payable
Dr.

325

√
18

√
√
51

2,850
150
190
5,900
8,750

665
(21)

41
Cash
Cr.

325
2,850
150
190
5,900
9,415
(11)

5-17
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Page

36

Post.
Ref.

Amount

53

130
130


CHAPTER 5

Accounting Systems

Ex. 5–18

a.
PURCHASES JOURNAL

Date

2014
June

Post.
Ref.

Account Credited

4
13
19
27
30

Best Friend Supplies Inc.
Poodle Pals Inc.
Office Helper Inc.
Meow Mart Inc.

Accounts
Payable
Cr.

Pet
Supplies
Dr.

255
710
2,670
400

4,035

400
1,365

(21)

(14)

√
√
√

√

Date

2014
June

6
18
23
30
30

345
346
347
348

Account Debited

Labradore Inc.
Meow Mart Inc.
Best Friend Supplies Inc.
Cleaning Expense

Post.
Ref.

√
√
√
54

16

Post.

Ref.

Amount

255
710
Office Equipment

CASH PAYMENTS JOURNAL

Ck.
No.

Other
Accounts
Dr.

Page

Accounts
Payable
Dr.

360

240
255
65
65

2,670
2,670

Page

Other
Accounts

Dr.

18

855
(21)

22
Cash
Cr.

360

240
255
65
920
(11)


CHAPTER 5

Accounting Systems

Ex. 5–18 (Concluded)

b.
HAPPY TAILS INC.
Accounts Payable Creditor Balances
June 30, 2014
$ 400

Meow Mart Inc.
Poodle Pals Inc.
Office Helper Inc.

710
2,670

$3,780

Total creditor (supplier) accounts
The total of the creditor accounts on June 30, 2014, $3,780, equals the
balance of the accounts payable controlling account, shown as follows:
Accounts Payable
June

30

855

June
Bal.

c.

1 Bal.
30

600
4,035
3,780

Happy Tails Inc. uses a subsidiary ledger for accounts payable to track its credit
purchases and payments to the individual supplier. This is needed so that it
knows how much it owes to each individual supplier. Without the subsidiary
ledger, it would be difficult for it to accurately pay suppliers for the amount
owed in a timely manner.

Ex. 5–19
a. Two errors were made in balancing the accounts in the subsidiary ledger:
(1) The Castle Chemical Supplies Inc. transaction of March 9 should have
resulted in a balance of $14,300 instead of $14,000, and the account
balance at March 12 should have been $14,000 instead of $13,700. The
account balance at March 20 should have been $8,200 instead of $7,900.

(2) The Hudson Bay Minerals Co. transaction of March 25 should have resulted
in a balance of $2,700 instead of $1,700.

5-19
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.


Ex. 5–19 (Concluded)
b.
KLONDIKE ASSAY SERVICES INC.
Accounts Payable Creditor Balances
March 31, 2014

C. D. Greer and Son
Castle Chemical Supplies Inc.
Cutler and Powell
Hudson Bay Minerals Co.
Valley Power

$15,750
8,200
7,800
2,700
3,150
$37,600

Total accounts payable

Ex. 5–20
Revenue journal: (c)
Cash receipts journal: (a)
Purchases journal: (d)
Cash payments journal: (b)
General journal: (e)

Ex. 5–21
1.

The Cash column is for debits (not credits).
2.

The Other Accounts column is for credits (not debits).

3.

A better order of columns would be to place the Other Accounts Cr. column
to the left of the Fees Earned Cr. column.
A recommended and corrected cash receipts journal is as follows:
CASH RECEIPTS JOURNAL

Date

Account
Credited

Post.
Ref.

12

Page

Other

Fees

Accts.

Accounts
Cr.

Earned
Cr.

Rec.
Cr.

Cash
Dr.


Ex. 5–22

a.

In the electronic invoice form from QuickBooks® shown above, typical

fields for data input can be identified as follows:
1.
2.
3.
4.

b.

Customer name and address
Date and invoice number
Description of item sold
Amount of revenue

The customer Accounts Receivable is debited, and Fees Earned is credited.
A computerized accounting system does not require posting to a separate
accounts receivable control account. In this case, the total accounts receivable
reported on the balance sheet is merely the sum of the balances of the individual
customer account balances. That is, the accounts receivable account summarizes
the customer accounts automatically.


Ex. 5–22 (Concluded)
c.

Controlling accounts are not posted at the end of the month in a computerized
accounting system. In addition, special journals are not normally used to
accumulate transactions. Transactions are recorded through data input
into electronic forms (or for infrequent transactions, by an electronic general
journal). Balances of affected accounts are automatically posted and updated
from the information recorded on the form. If desired, the computer can provide
a printout of the monthly transaction history for a particular account, which
provides the same information as a journal. In addition, the controlling account
is not separately posted. In a manual system, separate posting to the
controlling account provides additional control by reconciling the controlling
account balance against the sum of the individual customer account balances.
However, in a computerized accounting system, there are no separate

postings to a controlling account because the computer is not going to make
posting or mathematical errors. Therefore, there is no need for the additional
control provided by posting a journal total to a controlling account.

Ex. 5–23
a.

b.

iTunes is an example of a B2C, or business-to-consumer e-commerce
application. The B, or business, is Apple. The C, or consumers, would mostly
be individuals who purchase digital products from the download store.

Cash
Fees Earned

12

c.

The cash receipts journal is used to record debits to Cash from cash sales or
collections on account.

d.

The electronic invoice form can be used for either transactions on account, as
illustrated in the chapter, or for cash sales. The invoice form used for sales on
account is different from the one used for cash sales. The latter invoice form
makes a debit to Cash, rather than a debit to a customer account.

e.

Sales made on B2C e-commerce transactions are computerized transactions,
so a special journal is inappropriate. On an e-commerce site, the consumer
inputs the transaction information on the Web page; thus, there is no need for
a separate electronic form for re-entering the same information to record the
sale. Essentially, the e-commerce application is the form that originates the

sales transaction inside the accounting system. Accounting transactions flow
directly from the shopping cart information directly into the accounting
system.

12


Ex. 5–24
a.

Amazon.com

B2C. Sells books, DVDs, and other products to
individual consumers.

b.

Dell Inc.

B2C and B2B. Sells computer products to both
individuals and corporations. Its site separates
individual and corporate sales.

c.

d.

DuPont

B2B. Specialty chemicals. DuPont Direct® is its B2B

Intuit Inc.

Web application.
B2C and B2B. Arranges its site for both individuals
and businesses, since its products are divided this
way.

e.
f.

L.L. Bean, Inc.
W.W. Grainger, Inc.

B2C. Consumer clothes e-retailer.
B2B. Sells maintenance, repair, and operating
supplies to manufacturing companies.

Ex. 5–25

a.

Horizontal analysis:

United States
International
Global consumer products
Total revenues
b.

Increase/(Decrease)

Recent Year

Prior Year

(in millions)

(in millions)

Amount

Percent

$ 7,560
2,289
707
$10,556

$7,061
1,914
674
$9,649

$499
375

33
$907

7.1%
19.6%
4.9%
9.4%

Vertical analysis:
Recent Year
Amount

United States
International
Global consumer products
Total revenues

$ 7,560
2,289
707
$10,556

Percent

71.6%
21.7%
6.7%
100.0%

Prior Year
Amount

$7,061
1,914
674
$9,649

Percent

73.2%
19.8%
7.0%
100.0%


Ex. 5–25 (Concluded)
c.

The horizontal analysis indicates that the total revenues of Starbucks increased by
over 9% (9.4%) from the prior year to the recent year. This increase is explained by
improvements in consumer confidence experienced during this time. Starbucks was
positively impacted because its product is both premium priced and discretionary.
Thus, as economic times improved, consumers increased consumption and/or
chose more expensive options. Revenues increased by 19.6% internationally, versus
7.1% in the United States. Higher international growth may be the result of more
store openings internationally, than in the United States. Global consumer products
(segment that sells Starbucks-licensed products) had the lowest growth between
the two years. The vertical analysis indicates that the percent of U.S. revenues to
total revenues decreased from 73.2% in the prior year to 71.6% in the recent year.
In this same period, the percent of international revenues to total revenues

increased from 19.8% in the prior year to 21.7% in the recent year. Both analyses
indicate that Starbucks’ international operations grew more than did the U.S.
operations during the two-year period.


Ex. 5–26
a.

Major Product Segments
Filmed Entertainment
Television
Cable Network Programming

Direct Broadcast Satellite Television
Magazines and Inserts
Newspapers and Information Services
Book Publishing
Other
Total revenues
b.

For a Recent
Year
(in millions)
$ 7,631

4,228
7,038
3,802
1,192
6,087
1,269
1,531
$32,778

Percent
23.3%
12.9%

21.5%
11.6%
3.6%
18.6%
3.9%
4.7%
100.0%

News Corporation is very diversified. The Filmed Entertainment segment
has the largest percent of revenues to total revenues at 23.3%. This is a low
percent for a single segment, suggesting little concentration. In addition,
four additional segments have a percent of revenues to total revenues in

excess of 10% (Television, Cable Network Programming, Direct Broadcast
Satellite Television, and Newspapers and Information Services). The three
smallest segments total 12.2% (3.6% + 3.9% + 4.7%) of revenues to total
revenues. Overall, News Corporation is a highly diversified entertainment
company, deriving significant revenues from multiple sources.