Chapter One Demo Problem

The stores owned and franchised by Krispy Kreme Donuts can each make between 4,000 and 10,000 donuts per day. This capacity and the fanatical loyalty of its customers have made this expanding company a great success. Following is a list of the financial statement items and amounts adapted from a recent Krispy Kreme Donuts income statement and balance sheet. The numbers are presented for the year ended January 28, 2001. Accounts payable Accounts receivable Cash Contributed capital General and administrative expenses Income tax expense Inventories Net income Notes payable Operating expenses Other assets Other expenses Other liabilities Pretax income Property and equipment Retained earnings Sales revenues Short-term investments Total assets Total expenses Total liabilities Total liabilities and stockholders' equity Total revenues Total stockholders' equity $ 14,697 24,733 7,026 85,060 20,061 9,058 12,031 14,725 3,526 250,690 31,260 6,181 26,474 23,783 78,340 41,736 300,715 18,103 171,493 276,932 44,697 171,493 300,715 126,796

Prepare a balance sheet and an income statement for the year. Krispy Kreme Donuts Inc. Balance Sheet At January, 28, 2001 Assets Cash Short-term investments Accounts receivable Inventories Property and equipment Other assets $ 7,026 18,103 24,733 12,031 78,340 31,260 Stockholders' Equity Contributed capital Retained earnings Total stockholders' equity Total assets $ 171,493 Total liabilities and stockholders' equity $ 85,060 41,736 126,796 171,493 Liabilities Accounts payable Notes payable Other liabilities Total liabilities $ 14,697 3,526 26,474 44,697

Krispy Kreme Donuts Inc. Income Statement For the Year Ended January, 28, 2001 Revenues Sales revenues Total revenues Expenses Operating expenses General and administrative expenses Other expenses Total expenses Pretax income Income tax expense Net income 250,690 20,061 6,181 276,932 23,783 9,058 $ 14,725 $ 300,715 300,715

Requirement 2: Specify the information provided by the above two statements.

Requirement 3: Indicate the other two statements that would be included in its annual report.

Requirement 4: Suggest why Krispy Kreme would voluntarily subject its statement to an independent audit.