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Serial Problem, Success Systems (Continued)
Part 2
General Ledger accounts
Cash Acct. No. 101
Date
Explanation
PR
Debit
Credit
Balance
Oct. 1 55,000 55,000
2 3,300 51,700
5 2,220 49,480
8 1,420 48,060
22 250 52,186
28 384 51,802
30 1,750 50,052
30 2,000 48,052
Accounts Receivable Acct. No.106
Date
Explanation
PR
Debit
Credit
Balance
Oct. 6 4,800 4,800
12 1,400 6,200
15 4,800 1,400
24 3,950 12,618
Computer Supplies Acct. No. 126
Date
Explanation
PR
Debit
Credit
Balance
Serial Problem, Success Systems (Continued)
Prepaid Insurance Acct. No. 128
Date
Explanation
PR
Debit
Credit
Balance
Oct. 5 2,220 2,220
Prepaid Rent Acct. No. 131
Date
Explanation
PR
Debit
Credit
Balance
Date
Explanation
PR
Debit
Credit
Balance
Computer Equipment Acct. No. 167
Date
Explanation
PR
Debit
Credit
Balance
Oct. 1 20,000 20,000
Accounts Payable Acct. No. 201
Date
Explanation
PR
Debit
Credit
Balance
Oct. 3 1,420 1,420
8 1,420 0
A. Lopez, Capital Acct. No. 301
Date
Explanation
PR
Debit
Credit
Balance
Date
Explanation
PR
Debit
Credit
Balance
Serial Problem, Success Systems (Concluded)
Computer Services Revenue Acct. No. 403
Date
Explanation
PR
Debit
Credit
Balance
Oct. 6 4,800 4,800
12 1,400 6,200
Wages Expense Acct. No. 623
Date
Explanation
PR
Debit
Credit
Balance
Advertising Expense Acct. No. 655
Date
Explanation
PR
Debit
Credit
Balance
Oct. 20 1,940 1,940
Mileage Expense Acct. No. 676
Date
Explanation
PR
Debit
Credit
Balance
Miscellaneous Expenses Acct. No. 677
Date
Explanation
PR
Debit
Credit
Balance
Nov. 22 250 250
Repairs Expense—Computer Acct. No. 684
Date
Explanation
PR
Debit
Credit
Balance
Serial Problem, Success Systems (Continued)
Part 3
SUCCESS SYSTEMS
Trial Balance
November 30
Debit Credit
Cash .................................................................. $ 48,052
Accounts receivable ....................................... 12,618
Computer supplies .......................................... 2,545
Prepaid insurance ........................................... 2,220
Prepaid rent ..................................................... 3,300
Repairs expense—Computer ......................... 805
Totals ................................................................ $108,659 $108,659
Reporting in Action — BTN 2-1
1. Polaris reports ($ thousands):
$727,968 in liabilities at December 31, 2011.
2. Polaris reports ($ thousands):
$1,228,024 in assets at December 31, 2011.
3. ($ thousands):
As of December 31, 2010 Debt Ratio = $690,656/$1,061,647= 65.1%
4. Polaris employed less financial leverage as of December 31, 2011, when
5. Solution depends on the financial statements accessed.
Comparative Analysis — BTN 2-2
1. Polaris ($ thousands)
Current year debt ratio: =$727,968/$1,228,024= 59.3%
2. Arctic Cat ($ thousands)
Current year debt ratio: $89,870 / $272,906 = 32.9%
3. Polaris has the higher degree of financial leverage. Polaris’ debt ratio is
markedly higher for the current year than that of Arctic Cat (59.3% vs.
32.9%). This indicates that Polaris carries more debt financing than
Ethics Challenge — BTN 2-3
This case involves a conflict between the need for efficiency and the need
for control. While it makes sense to take and process lunch orders quickly,
The assistant manager’s explanation about the head manager not arriving
until 3 o’clock suggests that the head manager doesn’t know about the
proposed shortcut. Thus, the new employee is faced with the dilemma of
It is possible that the assistant manager does not understand the potential
for fraud and abuse if this shortcut is used. If the relationship between you
and the assistant manager is such that you feel you can do so, you should
If the assistant manager insists, you may want to work as instructed to get
an idea of whether the shortcut is being abused by the assistant manager
and perhaps to find out discreetly whether the head manager knows about
Communicating in Practice — BTN 2-4
MEMORANDUM
To: Lila Corentine
From:
Subject: Financial statements explanation
Date:
The four major financial statements and their purposes are:
• Income statement describes a company’s revenues and expenses along
with the resulting net income or loss over a period of time. It helps
explain how equity changes during a period due to earnings activities.
These financial statements are linked to each other across time.
Specifically, a balance sheet reports an organization’s financial position at
a point in time. The income statement, statement of owner’s equity, and
statement of cash flows report on performance over a period of time. These
Taking It to the Net — BTN 2-5
1. The prior three years’ net income or (loss) for Amazon are ($ millions):
2. The three years net cash provided by operations follows ($ millions):
3. In 2011, Amazon had net income of $631 million and operating cash
flows of $3,903 million; and, in that same year, cash increased by only
$1,492 million (see its statement of cash flows).
Teamwork in Action — BTN 2-6
<Instructor note: There is no specific solution to this activity.>
The following sample solution gives a summary outline of what a minimum report
needs to include. Assume a team member selects assets:
Category: Assets
a. Increases (decreases) in assets are debits (credits) to asset accounts.
Debit means left side, credit means right side. The normal side of an
account refers to the side where increases are recorded. For assets, this
is the debit, or left, side.
d. Paid rent expense with $2,000 cash.
e. Assets = Liabilities + Owner, Capital – Withdrawals + Revenues – Expenses
Entrepreneurial Decision — BTN 2-7
There are several issues that Misa and Jennifer should consider. Those
considerations include the following three issues (among others):
• If they choose to contribute their own funds for the expansion, they will
be risking their own savings, but they will not have the expense of
interest payments, nor will they have the risk of the inability to repay a
loan.
Entrepreneurial Decision — BTN 2-8
1.
MARTIN MUSIC SERVICES
Balance Sheet
December 31, 2013
Assets Liabilities
Cash .................................... $ 3,600 Accounts payable ................... $ 2,200
Prepaid rent ....................... 9,400
Store supplies .................... 6,600 Equity
2.
Debt ratio = Total liabilities / Total assets = $17,800 / $80,700 = 22.1%
3. The prospects of a bank loan are likely to be good. (i) The debt ratio
indicates that 78% of the company’s funding is from equity. Also, there
are no debt obligations requiring periodic payments. This implies low
risk. (ii) The level of return on assets is very high. This implies good
return.
Hitting the Road — BTN 2-9
Findings will vary. It is advisable that the instructor obtain a few classified
sections from newspapers that were published over the period of the
assignment. If student reports lack responses for question 2, it is
Global Decision — BTN 2-10
1. An analysis of return on assets suggests that Polaris (18.5%) yields the
2. An analysis of the debt ratio suggests that Polaris (59.3%) presents the
greatest risk, while Arctic Cat (32.9%) presents the least risk. KTM’s
3. In this case, there is no clear answer based on these two ratios alone.
Polaris has a relatively higher return on assets but also the highest debt
ratio of the three companies. Arctic Cat has a slightly higher return on
assets compared to KTM but is much lower than that for Polaris.
