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Serial Problem — SP 1 Business Solutions
Assets =Liabilities + Equity
Date Cash +Accounts
Receivable +Computer
Supplies +Computer
System +Office
Equipment =Accounts
Payable +Common
Stock -Dividends +Revenues -Expenses
Oct. 1+$45,000 $20,000 + $8,000 + $73,000
3 + $1,420 + $1,420
Bal. 45,000 + 1,420 + 20,000 + 8,000 = 1,420 + 73,000
6 + $4,800 + $ 4,800
Bal. 45,000 + 4,800 + 1,420 + 20,000 + 8,000 = 1,420 + 73,000 + 4,800
8- 1,420 - 1,420
28 + 5,208 + 5,208
Bal. 47,247 + 5,208 + 1,420 + 20,000 + 8,000 = 0 + 73,000 + 11,408 - 2,533
31 - 875 - 875
Bal. 46,372 + 5,208 + 1,420 + 20,000 + 8,000 = 0 + 73,000 + 11,408 - 3,408
31 - 3,600 - $3,600
Bal. $42,772 + $5,208 + $1,420 + $20,000 + $8,000 = $ 0 + $73,000 - $3,600 + $11,408 - $3,408
Reporting in Action — BTN 1-1
1. An organization’s total assets are equal to its total liabilities plus total
equity. Because Apple’s liabilities and equity total $207,000 (in millions),
this implies its amount of assets invested is the same $207,000 (in
millions).
2. Return on assets is net income divided by the average total assets
3. We know that net income equals total revenues less total expenses. For
4. Apple’s return on assets of 19.3% is good given that it exceeds its
5. Answer depends on the current annual report information obtained.
Comparative Analysis — BTN 1-2
($ millions) Apple Google
1. Total assets =
Liabilities + Equity $207,000 $110,920
2. Return on assets $37,037 $12,920
4. Analysis of return on assets: Apple’s 19.3% return is good given the
Ethics Challenge — BTN 1-3
1. There are several parties affected. They include the users of financial
statements such as shareholders, lenders, investors, analysts, suppliers,
directors, unions, regulators and others. They also include the accounting
firm, which can be sued if deemed a party to misleading statements.
2. A major factor in the value of an auditor's report is the auditor's
independence. If an auditor accepted a fee that increases when the client’s
independence.
3. Thorne should not accept this fee arrangement. To avoid compromising
the auditor's independence, Thorne should reject it. (Further, the AICPA
4. Ethical considerations guiding this decision include the potential harm to
affected parties by allowing such a fee arrangement to exist. The
to society.
Communicating in Practice — BTN 1-4
1. Deciding whether Apple is a good loan risk can be difficult because the
planned expansion is risky if customer demand does not meet
expectations. As a loan officer in this situation you would want information
2. How the company is organized is important to a loan officer. If it is a
standard partnership (which it was, and not a LLC), the personal assets of
the owners are available to repay the loan. In this case, a loan officer will
want information about the owners’ financial condition. If it is a
corporation, the amounts invested in the business by each shareholder are
especially important. The loan officer can also require owners or
shareholders to personally guarantee the loan for additional protection for
the bank. Careful execution of these steps should minimize the bank’s risk
of taking on a bad loan.
Taking It to the Net — BTN 1-5
(in thousands) 2013 2012 2011 2010 2009
Revenues............ $36,315 $34,627 $31,128 $28,437 $28,539
Net income.......... 1,478 3,876 3,911 3,580 3,719
1. Rocky Mountain Chocolate Factory’s (RMCF) revenues declined slightly
during the recessionary period of 2007 through 2010 (2007 and 2008
2. Net income performance for RMCF decreased from 2008 through 2010
(2007 and 2008 data are not shown here, but available online). However,
Teamwork in Action — BTN 1-6
Suggestions for forming support/learning teams are in the Instructor’s
Entrepreneurial Decision — BTN 1-7
1. (a) AccountApp’s total amount of liabilities and equity consists of the
bank loan and the owner investments. Specifically:
Total assets = Bank Loan + Owner investment
= Liabilities + Equity
liabilities plus equity, which is $750,000.
2. Return on assets = $80,250 / $750,000 = 0.107 = 10.7%
Hitting the Road — BTN 1-8
Check each student’s report for the following content:
1. (a) Identification of the form of business organization for the business
2. Identification of the reasons why the owner(s) chose this particular
form of business organization.
3. Identification of advantages or disadvantages of the form of business
organization chosen.
[Note: Many instructors have students complete this assignment in teams.]
Global Decision — BTN 1-9
1. Samsung’s net income and revenues figures are computed using
Korean Won (KRW), which is the currency of Korea. In contrast, Apple
and Google compute their financial figures in U.S. dollars. Accordingly,
2. Samsung’s return on assets ratio eliminates differences in monetary
units (between KRW and dollars). Consequently, we need not focus on
Financial and Managerial Accounting, 6th Edition
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