Chapter 01 – Introducing Financial Accounting
Problem 1-11B (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
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
interest rate paid on the bond.
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
Chapter 01 – Introducing Financial Accounting
Serial Problem — SP 1 Success Systems
Assets
Liabilities
+
Equity
Date
Cash
+
Accounts
Receivable
+
Computer
Supplies
+
Computer
System
+
Office
Equipment
=
Accounts
Payable
+
Common
Stock
–
Dividends
+
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.
55,000
+
4,800
+
1,420
+
20,000
+
8,000
=
1,420
+
83,000
+
4,800
8
– 1,420
– 1,420
Bal.
53,580
+
4,800
+
1,420
+
20,000
+
8,000
=
0
+
83,000
+
4,800
12
+
1,400
+
1,400
Bal.
53,580
+
6,200
+
1,420
+
20,000
+
8,000
=
0
+
83,000
+
6,200
15
+ 4,800
–
4,800
Bal.
58,380
+
1,400
+
1,420
+
20,000
+
8,000
=
0
+
83,000
+
6,200
17
– 805
–
$ 805
Bal.
57,575
+
1,400
+
1,420
+
20,000
+
8,000
=
0
+
83,000
+
6,200
–
805
20
– 1,940
–
1,940
Bal.
55,635
+
1,400
+
1,420
+
20,000
+
8,000
=
0
+
83,000
+
6,200
–
2,745
22
+ 1,400
–
1,400
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
31
– 3,600
–
$3,600
Bal.
$52,560
+
$5,208
+
$1,420
+
$20,000
+
$8,000
=
$ 0
+
$83,000
–
$3,600
+
$11,408
–
$3,620
Chapter 01 – Introducing Financial Accounting
Reporting in Action — BTN 1-1
1. An organization’s total assets are equal to its total liabilities plus total
2. Return on assets is net income divided by the average total assets
3. We know that net income equals total revenues less total expenses. For
4. Apple’s return on assets of 28.5% is good given that it exceeds its
5. Answer depends on the current annual report information obtained.
Comparative Analysis — BTN 1-2
($ millions)
Apple
Google
1. Total assets =
Liabilities + Equity
$176,064
$93,798
2. Return on assets
$41,733
$10,737
[($176,064 + $116,371)/2]
[($93,798 + $72,574)/2]
28.5%
12.9%
3. Revenues-Expenses
= Net income
$156,508-
Expenses =$41,733
$50,175 –
Expenses =$10,737
→ Expenses =
Expenses = $114,775
Expenses = $39,438
4. Analysis of return on assets: Apple’s 28.5% return is good given the
5. Analysis conclusions: Google’s return is adequate (better when compared
to the industry norm); Apple’s return is arguably very good. Both
Chapter 01 – Introducing Financial Accounting
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
affected parties by allowing such a fee arrangement to exist. The
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 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
Chapter 01 – Introducing Financial Accounting
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
3. Identification of advantages or disadvantages of the form of business
organization chosen.
Chapter 01 – Introducing Financial Accounting
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