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Problem 1-9B (60 minutes) Parts 1 and 2
Assets
=
Liabilities
+
Equity
Date
Cash
+
Accounts
Receivable
+
Office
Supplies
+
Office
Equipment
+
Roofing
Equipment
=
Accounts
Payable
+
Common
Stock
-
Dividends
+
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
Bal.
85,300
+
8,200
+
600
+
2,300
+
5,000
=
6,300
+
80,000
+
15,800
-
700
17
+
3,100
+ 3,100
Bal.
85,300
+
8,200
+
3,700
+
2,300
+
5,000
=
9,400
+
80,000
+
15,800
-
700
23
- 2,300
- 2,300
Bal.
83,000
+
8,200
+
3,700
+
2,300
+
5,000
=
7,100
+
80,000
+
15,800
-
700
25
+
5,000
+
5,000
Bal.
83,000
+
13,200
+
3,700
+
2,300
+
5,000
=
7,100
+
80,000
+
20,800
-
700
28
+ 8,200
-
8,200
Bal.
91,200
+
5,000
+
3,700
+
2,300
+
5,000
=
7,100
+
80,000
+
20,800
-
700
30
- 1,560
-
1,560
Bal.
89,640
+
5,000
+
3,700
+
2,300
+
5,000
=
7,100
+
80,000
+
20,800
-
2,260
31
- 295
-
295
Bal.
89,345
+
5,000
+
3,700
+
2,300
+
5,000
=
7,100
+
80,000
+
20,800
-
2,555
31
- 1,800
-
$1,800
Bal.
$87,545
+
$ 5,000
+
$3,700
+
$2,300
+
$5,000
=
$7,100
+
$80,000
-
$1,800
+
$20,800
-
$2,555
Problem 1-9B (Continued)
Part 3
Rivera Roofing Company
Income Statement
For Month Ended July 31
Rivera Roofing Company
Balance Sheet
July 31
Assets Liabilities
Cash .................................... $ 87,545 Accounts payable .............. $ 7,100
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)
Cash paid for utilities ..................................................
(295)
Cash paid to employees ..............................................
(1,560)
Net cash provided by operating activities .................
$12,645
Cash flows from investing activities
Purchase of roofing equipment ..................................
(1,000)
Purchase of office equipment .....................................
(2,300)
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
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
Problem 1-10B (15 minutes)
1. Return on assets is net income divided by average total assets (the
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
4. We know from the accounting equation that the total of liabilities plus
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Solutions Manual, Chapter 1
49
Problem 1-11B (15 minutes)
1. Return on assets equals net income divided by average total assets.
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.
3. Success in returning net income from the amount invested is revealed
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.
Risk: Moderate Risk. By hiding money at home a person
Case 2. Return: Expected winnings from your bet.
Case 3. Return: Expected return on your stock investment (both
Case 4. Return: Expected return on the bond is a function of the
Problem 1-13BB (15 minutes)
1.
O
5.
O
2.
F
6.
F
3.
I
7.
O
4.
O
8.
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
II. Investing Activities
[Note: Planning activities are the ideas, goals, and tactics for implementing
financing, investing, and operating activities.]
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
Bal.
43,580
+
4,800
+
1,420
+
20,000
+
8,000
=
0
+
73,000
+
4,800
12
+
1,400
+
1,400
Bal.
43,580
+
6,200
+
1,420
+
20,000
+
8,000
=
0
+
73,000
+
6,200
15
+ 4,800
-
4,800
Bal.
48,380
+
1,400
+
1,420
+
20,000
+
8,000
=
0
+
73,000
+
6,200
17
- 805
-
$ 805
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
-
$3,408
Reporting in Action — BTN 1-1
1. An organization’s total assets are equal to its total liabilities plus total
2. Return on assets is net income divided by the average total assets
3. We know that net income equals total revenues less total expenses. For
4. Apple’s return on assets of 19.3% is good given that it exceeds its
competitors’ return on assets of roughly 10% for this period.
5. Answer depends on the current annual report information obtained.
Comparative Analysis — BTN 1-2
($ millions)
Apple
Google
1. Total assets =
Liabilities + Equity
$207,000
$110,920
2. Return on assets
$37,037
$12,920
[($207,000 + $176,064)/2]
[($110,920 + $93,798)/2]
19.3%
12.6%
3. Revenues-Expenses
= Net income
$170,910- Expenses
=$37,037
$59,825 – Expenses
=$12,920
→ Expenses =
Expenses = $133,873
Expenses = $46,905
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
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 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
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:
2. Return on assets = $80,250 / $750,000 = 0.107 = 10.7%
AccountApp’s 10.7% return slightly exceeds its competitors’ average
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
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
