Use the Topps Company's annual report in Appendix B to answer the following questions.

a. What was Topps' net income for 2006?

1. Topps’s Net income for 2006 was $1,239.
b. Did Topps' net income increase or decrease from 2005 to 2006, and by how much?

2. Topp’s net income for 2005 was $10,915 compared to $1,239 for 2006. Therefore,
Topp’s 2006 income was $9,676 less than 2005.

c. What was Topps' accounting equation for 2006?

3. Topps’ total assets for 2006 amount to $268,638. The company’s total liabilities amount to
$64,002. Topps’ total stockholder’s equity for the year was $204,636. When you add the total
liabilities to the stockholder’s equity you get $268,638, which is obviously equivalent to the total
assets amount.

d. Which of the following had the largest percentage change from 2005 to 2006: net sales,
cost of sales, or selling, general, and administrative expenses? Show all computations.

4. Topp’s net sales in 2005 was $294,231 compared to $293,838 in 2006 for a decrease
of .13%. The company’s cost of sales for 2005 was $189,200 compared to $198,054 in
2006 for an increase of 4.6%. Topps’ selling, general, & administrative expenses for
2005 was $92,350 compared to $98,096 for 2006 for an increase of 6.2%. Therefore
selling, general, and administrative expenses had the largest percentage change from
2005 to 2006.

1. Topps’ net income for

Bob and his sister Marsha both attend the

state university. As a reward for their
successful completion of the past year (Bob
had a 3.2 GPA in business, and Marsha had
a 3.7 GPA in art), their father gave each of
them 100 shares of The Walt Disney
Company stock. They have just received
their first annual report. Marsha does not
understand what the information means and
has asked Bob to explain it to her. Bob is
currently taking an accounting course, and
she knows he will understand the financial
statements.
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Required

Assume that you are Bob. Write Marsha a

memo explaining the following financial
statement items to her. In your explanation,
describe each of the two financial statements
and explain the financial information each
contains. Also define each of the elements
listed for each financial statement and
explain what it means.

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Marsha,

A balance sheet is a financial statement that reports a company’s total assets, as well as the claims
against the assets which are your liabilities, and stockholders’ equity. Assets are anything that the
company owns that has economic value. Liabilities are anything that is owed to someone such as a
debt, financial obligation, or potential loss. Stockholder’s equity is the part of a company’s assets that
are owned by people that have stock in the company. Your assets should always equal your liabilities
plus your stockholder’s equity, which is called the accounting equation.

An income statement is a financial report of a company’s profitability and measures the

difference between the revenues and expenses for a specific period of time. Revenue is the entire
amount of income made before any deductions have been made. Expenses are an outflow of cash or
other valuable assets from a company to another person or company. The net income is the total of
the expenses subtracted from the revenue.