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Problem 1-12BA (20 minutes)
Case 1. Return: No return is generated.
Risk: Moderate Risk. By hiding money at home a person
risks loss by theft or fire. Also such a strategy
might result in a loss of purchasing power in the
event of inflation.
government back savings bonds.
Problem 1-13BB (15 minutes)
1. O 5. O
1-1
Problem 1-14BB (15 minutes)
I. Financing Activities
A. Owner financing—owner invests in the company
B. Non-owner (creditor) financing—borrowing money from a bank
1-2
Serial Problem — SP 1 Business Solutions
Assets =Liabilities + Equity
Date Cash +Accounts
Receivable +Computer
Supplies +Computer
System +Office
Equipment =Accounts
Payable +S. Rey,
Capital -S. Rey,
Withdrawals +Revenues -Expenses
Oct. 1+$45,000 $20,000 + $8,000 + $73,000
3 + $1,420 + $1,420
Bal. 47,575 + 1,400 + 1,420 + 20,000 + 8,000 = 0 + 73,000 + 6,200 - 805
20 - 1,728 - 1,728
Bal. 45,847 + 1,400 + 1,420 + 20,000 + 8,000 = 0 + 73,000 + 6,200 - 2,533
22 + 1,400 - 1,400
Bal. 47,247 + 0 + 1,420 + 20,000 + 8,000 = 0 + 73,000 + 6,200 - 2,533
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 - $3,408
1-3
Reporting in Action — BTN 1-1
1. An organization’s total assets are equal to its total liabilities plus total
2. Return on assets is net income divided by the average total assets
invested. For Apple this return is ($ millions):
3. We know that net income equals total revenues less total expenses. For
Apple, we are told net income is $37,037 and revenues are $170,910.
4. Apple’s return on assets of 19.3% is good given that it exceeds its
competitors’ return on assets of roughly 10% for this period.
Comparative Analysis — BTN 1-2
($ millions) Apple Google
1. Total assets =
Liabilities + Equity $207,000 $110,920
2. Return on assets $37,037 $12,920
[($207,000 + $176,064)/2] [($110,920 + $93,798)/2]
19.3% 12.6%
4. Analysis of return on assets: Apple’s 19.3% return is good given the
5. Analysis conclusions: Google’s return is adequate (better when compared
1-4
Ethics Challenge — BTN 1-3
1. There are several parties affected. They include the users of financial
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
3. Thorne should not accept this fee arrangement. To avoid compromising
the auditor's independence, Thorne should reject it. (Further, the AICPA
Code of Professional Conduct forbids auditors from accepting contingent
this action would also be an illegal act for a CPA.)
4. Ethical considerations guiding this decision include the potential harm to
affected parties by allowing such a fee arrangement to exist. The
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
1-5
Taking It to the Net — BTN 1-5
(in thousands) 2013 2012 2011 2010 2009
Net income.......... 1,478 3,876 3,911 3,580 3,719
1. Rocky Mountain Chocolate Factory’s (RMCF) revenues declined slightly
2. Net income performance for RMCF decreased from 2008 through 2010.
However, income increased in 2011 over 2010. Nevertheless, income
declined slightly in 2012 and substantially in 2013. Specifically, its net
Teamwork in Action — BTN 1-6
Suggestions for forming support/learning teams are in the Instructor’s
forming these teams. The IRM also includes other administrative materials
helpful in creating an active learning environment for studying accounting.
[Note: Instructors often have students use the copy function in e-mail to keep
them advised of meeting times and other important team activities. This also
encourages students to use and explore additional features of e-mail.]
1-6
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
$750,000 = $500,000 + $250,000
(b) AccountApp’s total amount of assets equals its total amount of
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
interviewed.
(b) Identification of the main business activities for the business
interviewed.
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.]
1-7
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
1-8
