Question

Nike, Inc., with headquarters in Beaverton, Oregon, is one of the world's leading manufacturers of athletic shoes and sports apparel. The following activities occurred during a recent year. The amounts are rounded to millions a. Purchased additional buildings for $172 and equipment for $270; paid $432 in cash and signed a long-term note for the rest. b. Issued 100 shares of $2 par value common stock for $345 cash. c. Declared $145 in dividends to be paid in the following year. d. Purchased additional short-term investments for $7,616 cash. e. Several Nike investors sold their own stock to other investors on the stock exchange for $84 f. Sold $4,313 in short-term investments for $4,313 in cash. Required: For each of the events (a) through (), perform transaction analysis and indicate the account, amount, and direction of the effect +for increase and - for decrease) on the accounting equation. Check that the accounting equation remains in balance after each transaction. (If no impact on the accounting equation leave cells blank. Enter your answers in millions.)

Answer 1

Answer:

Nike, Inc.

Transaction Analysis and Indication of the account, amount, and direction of the effect on the accounting equation:

a. Purchased additional buildings for $172 and equipment for $270; paid $432 in cash and signed a long-term note for the rest.

Analysis:

Accounts affected: Building, Equipment, Cash, and Long-term Note Payable

Assets (Building +$172,000,000, Equipment + $270,000,000, Cash -$432,000,000) = Liabilities (Long-term Note Payable + $10,000,000) + Equity

Check: Assets +$10,000,000 = Liabilities + $10,000,000 + Equity

b. Issued 100 shares of $2 par value common stock for $345 cash.

Analysis:

Accounts Affected:  Common Stock, Additional Paid-in Capital (APIC), and Cash

Assets (Cash +$345,000,000) = Liabilities + Equity (Common Stock +$200,000,000 and APIC +$145,000,000)

Check: Assets +$345,000,000 = Liabilities + Equity +$345,000,000

c. Declared $145,000,000 in dividends to be paid in the following year.

Analysis:

Accounts affected: Dividends Payable and Dividends (Retained Earnings)

Assets = Liabilities (Dividends Payable + $145,000,000) + Equity (Retained Earnings - $145,000,000

Check: Assets = Liabilities -$145,000,000 + Equity - $145,000,000

d. Purchased additional short-term investments for $7,616,000,000 cash.

Analysis:

Accounts Affected: Short-term Investments and Cash

Assets(Short-term Investments + $7,616,000,000, Cash -$7,616,000,000) = Liabilities + Equity

Check: Assets = Liabilities + Equity

e. Several Nike investors sold their own stock to other investors on the stock exchange for $84

No impact on the accounting equation.

f. Sold $4,313 in short-term investments for $4,313 in cash.

Analysis:

Accounts Affected: Short-term Investments and Cash

Assets(Short-term Investments - $4,313,000,000, Cash +$4,313,000,000) = Liabilities + Equity

Check: Assets = Liabilities + Equity

Explanation:

In Nike's financial records, the accounting equation is the basis for the double-entry system of accounting.  It shows that the two sides of the financial position of Nike, Inc. are always in balance with the assets = liabilities + equity with the occurrence of each business transaction.  This is because, two or more accounts are always involved and affect equally the two sides if proper accounting has been carried out.