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Problem 1-8B (60 minutes) Parts 1 and 2
Assets
=
Liabilities
+
Equity
Date
Cash
+
Accounts
Receivable
+
Office
Supplies
+
Office
Equipment
+
Excavating
Equipment
=
Accounts
Payable
+
R. Truro,
Capital
-
R. Truro,
With-
drawals
+
Reve-
nues
-
Expen-
ses
July
1
+ $80,000
=
+
$80,000
2
- 700
-
$700
Bal.
79,300
=
80,000
-
700
3
- 1,000
+
$5,000
+ $4,000
Bal.
78,300
+
5,000
=
4,000
+
80,000
-
700
6
- 600
+
$ 600
Bal.
77,700
+
600
+
5,000
=
4,000
+
80,000
-
700
8
+ 7,600
+
$7,600
Bal.
85,300
+
600
+
5,000
=
4,000
+
80,000
+
7,600
-
700
10
+
$2,300
+ 2,300
Bal.
85,300
+
600
+
2,300
+
5,000
=
6,300
+
80,000
+
7,600
-
700
15
+
$8,200
+
8,200
Problem 1-8B (Continued)
Part 3
Truro Excavating Co.
Income Statement
For Month Ended July 31
Revenues
Total expenses ........................................... 2,555
Net income ........................................................... $18,245
Truro Excavating Co.
Statement of Owner’s Equity
For Month Ended July 31
R. Truro, Capital, July 1 ............................. $ 0
R. Truro, Capital, July 31 ........................... $96,445
Truro Excavating Co.
Balance Sheet
July 31
Assets Liabilities
Cash .................................... $ 87,545 Accounts payable .............. $ 7,100
Accounts receivable ......... 5,000
Office supplies ................... 3,700 Equity
Office equipment ............... 2,300 R. Truro,Capital .................. 96,445
Excavating equipment ...... 5,000 ________
Total assets ........................ $103,545 Total liabilities & equity ..... $103,545
Problem 1-8B (Concluded)
Part 3—continued
Truro Excavating Co.
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)
Cash paid for utilities ..................................................
(295)
Cash paid to employees ..............................................
(1,560)
Net cash provided by operating activities .................
$12,645
Net increase in cash ....................................................
$87,545
Cash balance, July 1 ....................................................
0
Cash balance, July 31 ..................................................
$87,545
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 1-9B (60 minutes) Parts 1 and 2
Assets
=
Liabilities
+
Equity
Cash
+
Accounts
Receivable
+
Office
Supplies
+
Office
Equipment
+
Building
=
Accounts
Payable
+
Notes
Payable
+
N. Mitchell,
Capital
-
N. Mitchell,
With-
drawals
+
Reve-
nues
-
Expen-
ses
a.
+ $90,000
+
$20,000
+
$110,000
b.
- 40,000
+
$150,000
+
$110,000
Bal.
50,000
+
20,000
+
150,000
=
110,000
+
110,000
c.
- 25,000
+
25,000
Bal.
16,750
+
2,800
+
1,200
+
46,700
+
150,000
=
2,900
+
110,000
+
110,000
-
11,500
+
6,800
-
750
i.
+ 1,800
-
1,800
Bal.
18,550
+
1,000
+
1,200
+
46,700
+
150,000
=
2,900
+
110,000
+
110,000
-
11,500
+
6,800
-
750
j.
- 700
- 700
Bal.
17,850
+
1,000
+
1,200
+
46,700
+
150,000
=
2,200
+
110,000
+
110,000
-
11,500
+
6,800
-
750
k.
- 2,500
-
2,500
Bal.
$15,350
+
$1,000
+
$1,200
+
$46,700
+
$150,000
=
$2,200
+
$110,000
+
$110,000
-
$11,500
+
$6,800
-
$3,250
Problem 1-9B (Concluded)
Part 3
Nico’s Solutions’ net income = $6,800 - $3,250 = $3,550
Problem 1-10B (15 minutes)
1. Return on assets equals net income divided by average total assets.
a. AT&T return: $4,184/ $269,868 = 0.016 or 1.6%
2. On strictly the amount of sales to consumers, AT&T’s sales of
$126,723 are greater than Verizon’s sales of $110,875.
assets.
4. Current performance 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.
Nevertheless, we would look for additional information in financial
Problem 1-11B (15 minutes)
1. Return on assets is net income divided by average total assets (the
average amount invested). For Carbondale Company this return is
computed as:
$201,000 / $3,000,000 = 0.067 or 6.7%.
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 Carbondale Company we
obtain:
4. We know from the accounting equation that the total of liabilities plus
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.
Case 4. Return: Expected return on the bond is a function of the
interest rate paid on the bond.
Risk: Very low because the full faith and credit of the U.S.
government back savings bonds.
Fundamental Accounting Principles, 21st Edition
50
Problem 1-13BB (15 minutes)
1.
O
5.
O
2.
F
6.
F
3.
I
7.
O
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
Serial Problem — SP 1 Success Systems
Assets
=
Liabilities
+
Equity
Date
Cash
+
Accounts
Receivable
+
Computer
Supplies
+
Computer
System
+
Office
Equipment
=
Accounts
Payable
+
A. Lopez,
Capital
-
A. Lopez,
Withdrawals
+
Revenues
-
Expenses
Oct.
1
+$55,000
$20,000
+
$8,000
+
$83,000
3
+
$1,420
+ $1,420
Bal.
55,000
+
1,420
+
20,000
+
8,000
=
1,420
+
83,000
6
+
$4,800
+
$ 4,800
Bal.
57,035
+
0
+
1,420
+
20,000
+
8,000
=
0
+
83,000
+
6,200
-
2,745
28
+
5,208
+
5,208
Bal.
57,035
+
5,208
+
1,420
+
20,000
+
8,000
=
0
+
83,000
+
11,408
-
2,745
31
- 875
-
875
Bal.
56,160
+
5,208
+
1,420
+
20,000
+
8,000
=
0
+
83,000
+
11,408
-
3,620
Fundamental Accounting Principles, 21st Edition
52
Reporting in Action — BTN 1-1
1. An organization’s total assets are equal to its total liabilities plus total
000s).
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. Polaris’s return on assets of 19.9% is good given that it slightly exceeds
its competitors’ return on assets of approximately 18% for this period.
Comparative Analysis — BTN 1-2
($ thousands)
Polaris
Arctic Cat
1. Total assets =
Liabilities + Equity
$1,228,024
$272,906
3. Revenues-Expenses
= Net income
$2,656,949-
Expenses =$227,575
$464,651 -
Expenses =$13,007
4. Analysis of return on assets: Polaris’s 19.9% return is good given the
5. Analysis conclusions: Arctic Cat’s return is undesirable (poor when
compared to the industry norm); Polaris’s return is arguably very good.
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
4. Ethical considerations guiding this decision include the potential harm to
Communicating in Practice — BTN 1-4
1. Deciding whether Twitter 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 pro-
proprietorship (and not LLC), the personal assets of the owners are
available to repay the loan. In this case, a loan officer will want information
Fundamental Accounting Principles, 21st Edition
54
Taking It to the Net — BTN 1-5
(in thousands)
2011
2010
2009
2008
2007
Revenues ............
$31,128
$28,437
$28,539
$31,878
$31,573
Net income ..........
3,911
3,580
3,719
4,961
4,745
1. Rocky Mountain Chocolate Factory’s (RMCF) revenues grew slightly
2. Net income performance for RMCF improved from 2007 to 2008 and from
2010 to 2011. Its net income grew nearly 5% and 9.5%, respectively.
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.]
Entrepreneurial Decision — BTN 1-7
1. (a) AccounTwit’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
2. Return on assets = $80,250 / $750,000 = 0.107 = 10.7%
AccounTwit’s 10.7% return slightly exceeds its competitors’ average
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.
Fundamental Accounting Principles, 21st Edition
56
Global Decision — BTN 1-9
1. KTM’s net income and revenues figures are computed using Euros,
which is the currency of Europe. In contrast, Polaris and Arctic Cat
compute their financial figures in U.S. dollars. Accordingly, one must
convert these figures into comparable monetary units for business
decisions that depend on direct comparisons of these numbers.
2. KTM’s return on assets ratio eliminates differences in monetary units
(between Euros and dollars). Consequently, we need not focus on
