Problem 1-9B (Continued)
Part 3
Rivera Roofing Company
Income Statement
For Month Ended July 31
Revenues
Roofing fees earned …………….……………... $20,800
Expenses
Rent expense…………………………….….…….. $ 700
Salaries expense………………..….….….…..… 1,560
Rivera Roofing Company
Statement of Retained Earnings
For Month Ended July 31
Retained earnings, July 1……………….….… $ 0
Add: Net income……………..…………….…... 18,245
Rivera Roofing Company
Balance Sheet
July 31
Assets Liabilities
Cash……………………………... $ 87,545 Accounts payable…….….…. $ 7,100
Accounts receivable......... 5,000
Office supplies………………. 3,700 Equity
Problem 1-9B (Concluded)
Part 3—continued
Rivera Roofing Company
Statement of Cash Flows
For Month Ended July 31
Cash flows from operating activities
Cash received from customers1……………………..…….. $15,800
Cash paid for rent………………..…………….………………… (700)
Cash paid for supplies………….…………….…………..…... (600)
Net cash provided by operating activities….…..…..... $12,645
Cash flows from investing activities
Purchase of roofing equipment……………….…..….…... (1,000)
Net cash used by investing activities….….…............. (3,300)
Cash flows from financing activities
Investments from stockholders…………….…….….….… 80,000
Cash dividends…………….……………………………………... (1,800)
Net cash provided by financing activities................. 78,200
1$7,600 + $8,200 = $15,800
Part 4
If the $5,000 purchase on July 3 had been acquired through an additional
owner investment of cash, then:
(a) total assets would be larger by $1,000,
Problem 1-10B (15 minutes)
1. Return on assets is net income divided by average total assets (the
average amount invested). For Ski-Doo Company this return is
computed as:
2. Return on assets does not seem satisfactory for the risk involved in
3. We know that revenues less expenses equal net income. Taking the
revenues and net income numbers for Ski-Doo Company we obtain:
4. We know from the accounting equation that the total of liabilities plus
equity (financing) must equal the total for assets (investing). Since
Problem 1-11B (15 minutes)
1. Return on assets equals net income divided by average total assets.
b. Verizon return: $10,198/ $225,233 = 0.045 or 4.5%
2. On strictly the amount of sales to consumers, AT&T’s sales of $126,723
3. Success in returning net income from the amount invested is revealed
assets.
4. The reported figures suggest Verizon is more successful in generating
income based on assets. Based on this information alone, we would be
better advised to invest in Verizon than AT&T.
Problem 1-12BA (20 minutes)
Case 1. Return: No return is generated.
event of inflation.
Case 2. Return: Expected winnings from your bet.
assigned the horse for the race.
Case 3. Return: Expected return on your stock investment (both
dividends and stock price changes).
Case 4. Return: Expected return on the bond is a function of the
interest rate paid on the bond.
Problem 1-13BB (15 minutes)
1. O 5. O
Problem 1-14BB (15 minutes)
I. Financing Activities
II. Investing Activities
III. Operating Activities
A. Use of assets to carry out plans