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    snowblack's Avatar
    snowblack Posts: 7, Reputation: 1
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    #1

    Sep 21, 2009, 11:40 AM
    Equation doesn't match
    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's Avatar
    ebaines Posts: 12,131, Reputation: 1307
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    #2

    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's Avatar
    snowblack Posts: 7, Reputation: 1
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    #3

    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's Avatar
    snowblack Posts: 7, Reputation: 1
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    #4

    Sep 21, 2009, 12:10 PM
    Oh I forgot to add investments in my list it's
    Investments: 436.6
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
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    #5

    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's Avatar
    snowblack Posts: 7, Reputation: 1
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    #6

    Sep 21, 2009, 12:34 PM

    Many thanks!!
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