14) Team Instructions: Divide the class into teams of three or four people. Each team member
should work the following problem separately outside of class. Then give the students time in
class to compare answers with their teammates and put together a final correct copy of the
problem. Each team should turn in only one copy of the problem for grading. All team members
will receive the same grade.
Part A: Record the transactions in the following accounting equation worksheet by filling in the
amount using “()” if the amounts are negative. Also fill in the account title from the list of
accounts below (use the abbreviations given):
Account – abbreviation Account – abbreviation Account – abbreviation
Cash Inventory – inv Rent expense – Rent exp
Common stock – CS Interest expense – Int exp Sales revenue – Sales
Cost of goods sold – COGS Net income – NI Wages expense – Wages exp
Dividends – Div Note payable – NP
Part B: Using the information from Part A, fill in the missing information on the following
financial statements.
Part C: Using the transactions and financial statements from Parts A and B, answer the
following questions:
Part D: Write the name of the one financial statement where the following information is found.
15) Match the following terms with the appropriate definitions. Each term is to be used only
once.
a. Interest
b. Contribution or contributed capital
c. Entrepreneur
d. Principal
e. Retained earnings
f. Comparative balance sheets
g. Multistep income statement
_____ 1. A person who starts a business.
_____ 2. A statement that reports two consecutive fiscal years.
_____ 3. The cost of borrowing money.
_____ 4. Reports gross profit on sales (or gross margin) and operating income as subtotals.
_____ 5. The equity that results from doing business that is kept in the company.
_____ 6. The amount of money borrowed.
_____ 7. An owner’s investment in a company.
1) Good business planning involves the identification of risks such as operating risks and
financial risks.
2) Managers are required to maximize shareholders’ equity in the business, which often requires
them to “cook the books.”
3) A control is an activity performed to minimize or eliminate risk.
4) Bea Rich is enthusiastic about starting her catering business. She feels confident that she has a
great concept and can handle the day-to-day details of running a business. However, this is her
first attempt at running her own business. Advise Bea on the risks associated with starting a
business.
5) Doug Depp is the manager at Chutes, Inc. that sells parachutes. Management’s next year’s
bonus is based on the current year’s net income. In an effort to increase his bonus, Doug decides
to buy the pull-cord used in making the company’s parachutes from a less reputable supplier. The
supplier’s prices are lower, but the pull-cords are less reliable in successfully opening the
parachute.
a. Explain how net income will be higher if the cheaper pull-cord is used in the parachutes sold
to Chutes, Inc.’s customers.
b. Discuss whether Doug is acting in the best interest of the company and its owners.
c. Discuss the ethical issue and what the consequences of Doug’s actions may be.
6) Ima Broke is the sole owner of Miracles, Inc. Ima needs another loan from a bank to expand
her business. In order to improve the chances of receiving a loan, she decides to report the
principal of one of Miracles, Inc.’s loans as contributed capital instead of a liability on the
balance sheet. Discuss the ethical issue with Ima’s treatment of the loan.
7) Team Instructions: Divide the class into teams of three or four people. Each team member
should work the following problem separately outside of class. Then give the students time in
class to compare answers with their teammates and put together a final correct copy of the
problem. Each team should turn in only one copy of the problem for grading. All team members
will receive the same grade.
Doug Depp is your manager at Chutes, Inc. which sells parachutes. Management’s next year’s
bonus is based on the current year’s net income. In an effort to increase his bonus, Doug decides
to buy the pull-cord used in making the company’s parachutes from a less reputable supplier. The
supplier’s prices are lower, but the pull-cords are less reliable in successfully opening the
parachute. Discuss with your team members the pros and cons of buying the cheaper pull-cord.
As a team, decide what the president of the company could do in the future to avoid having the
company face this type of scenario.
8) Team Instructions: Divide the class into teams of three or four people. Each team member
should work the following problem separately outside of class. Then give the students time in
class to compare answers with their teammates and put together a final correct copy of the
problem. Each team should turn in only one copy of the problem for grading. All team members
will receive the same grade.
Search the internet for information about the WorldCom Inc. fraud in 2002. With your group,
write a brief description of the fraud and discuss the ethical issue.
9) Provide students with copies of real merchandising companies’ annual reports, or give
students the Web addresses of real merchandising companies and ask them to print out the
annual reports. All team members should work with the same company’s annual report. Each
team should in hand in only one copy of the answers, along with its annual report.
Answer the following questions using the annual report assigned to your group:
1 What is the name of your company?
2 What is the company’s form of ownership?
3 What is the date of the company’s most recent fiscal yearend?
4 What is the amount of the company’s total cost of goods sold? $
5 Was the company profitable?
6 How much are the company’s total liabilities? $
7 What term does the company use for owner’s equity?
8 What is the name of the financial statement that shows revenues and expenses?
9 For the two most recent years shown, which year had the higher net income?
10 For the two most recent years shown, which year had the higher net income?
11 Who might be interested in these financial statements?
10) Match each of the following with the appropriate definition. Each term is to be used only
once.
a. Financing activities
b. Risk
c. Investing activities
d. Retained earnings
e. Control
f. Operating activities
_____ 1. An activity performed to minimize or eliminate a risk.
_____ 2. Anything that exposes a company to potential injury or loss.
_____ 3. Cash transactions that relate to the routine operations needed to run a business.
_____ 4. Transactions involving the sale and purchase of long-term assets used in a business.
_____ 5. Transactions related to obtaining resources from long-term borrowing and from issuing
stock.
_____ 6. The earnings kept by the company.