PDA

View Full Version : Equation doesn't match


snowblack
Sep 21, 2009, 11:40 AM
I was given this information...

The following items (in U.S. millions) were taken from a recent balance sheet of NIKE, Inc.
Accts Payable: $843.9
Accts Receivable: 2,262.1
Cash: 1,388.1
Inventories: 1,811.1
Land/Bldg/Eq: 1,605.8
Notes Payable: 763.3
Other Assets: 1,289.9
Other Liabilities: 1,542.2
Retained Earnings: 4,396.5
Share capital: 1,247.7

Show the amounts in NIKE's accounting equation by calculating the value of NIKE's total assets, total liabilities and total shareholder's equity

My total comes to:
Assets (accts receivable, cash, inventories, land/bldg/eq & other assets): 8,357
Liabilities (note payable, accts payable & other liabilities): 3,149.4
Shareholders' Equity (Investments, retained earnings and share capital): 6,080.8

Using the accounting equation: Assets = Liablities + Shareholders equity. The calculation does not match. What am I missing here? Or did I misunderstand the question?

ebaines
Sep 21, 2009, 12:02 PM
Sharaholder's equity should be retained earnings + share capital + treasury shares. Ssince thereare no treasury shares I get $4396.5 + $1247.7 = $5644.2. How did you get $6080.8? You mention "investments" - what did you mean by that?

snowblack
Sep 21, 2009, 12:09 PM
I am not even sure myself of the "investments". Since investment is usually from the "owners" so I included that into the owner's equity section of the equation.

The list with the prices was all I got.

snowblack
Sep 21, 2009, 12:10 PM
Oh I forgot to add investments in my list it's
Investments: 436.6

ebaines
Sep 21, 2009, 12:17 PM
OK, looks like you added investments to shareholder equity, but it's actually an asset. These are investments owned by the company - hence an asset. Add the investment amount to your assets and you'll find that you get:

Assets: $8793.6
Liabilities: $3149.4
Assets - Liabilities = $5644.2

Share capital + retained earnings = $5644.2

So it works.

snowblack
Sep 21, 2009, 12:34 PM
Many thanks!!