Chapter 02 – Accounting System and Financial Statements
Serial Problem, Success Systems (Continued)
Prepaid Insurance Acct. No. 128
Date
Explanation
PR
Debit
Credit
Balance
Oct. 5 2,220 2,220
Date
Explanation
PR
Debit
Credit
Balance
Date
Explanation
PR
Debit
Credit
Balance
Date
Explanation
PR
Debit
Credit
Balance
Date
Explanation
PR
Debit
Credit
Balance
Oct. 3 1,420 1,420
8 1,420 0
Common Stock Acct. No. 307
Date
Explanation
PR
Debit
Credit
Balance
Date
Explanation
PR
Debit
Credit
Balance
Chapter 02 – Accounting System and Financial Statements
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
Date
Explanation
PR
Debit
Credit
Balance
Date
Explanation
PR
Debit
Credit
Balance
28 384 704
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
Chapter 02 – Accounting System and Financial Statements
Serial Problem, Success Systems (Continued)
Part 3
SUCCESS SYSTEMS
Trial Balance
November 30, 2013
Debit Credit
Cash ………………………………………………………… $ 48,052
Accounts receivable ………………………………… 12,618
Computer supplies …………………………………… 2,545
Chapter 02 – Accounting System and Financial Statements
Reporting in Action — BTN 2-1
1. Apple reports ($ millions):
2. Apple reports ($ millions):
3. ($ millions):
4. Apple employed less financial leverage as of September 29, 2012, when
32.9% of its assets were financed by debt, relative to September 24,
5. Solution depends on the financial statements accessed.
Comparative Analysis — BTN 2-2
1. Apple ($ millions)
2. Google ($ millions)
3. Apple has the higher degree of financial leverage. Apple’s debt ratio is
Chapter 02 – Accounting System and Financial Statements
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,
this efficiency is being accomplished by a shortcut that greatly weakens
control over cash receipts. Cash could be received and lost or stolen
because there would be no initial record of how much was received.
Chapter 02 – Accounting System and Financial Statements
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
Chapter 02 – Accounting System and Financial Statements
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
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.
Entrepreneurial Decision — BTN 2-7
There are several issues that company/owner 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
Chapter 02 – Accounting System and Financial Statements
Entrepreneurial Decision — BTN 2-8
1. MARTIN MUSIC SERVICES
Balance Sheet
December 31, 2013
Assets Liabilities
Cash ……………………………… $ 3,600 Accounts payable ………………. $ 2,200
Accounts receivable …….. 9,600 Unearned lesson fees ……….. 15,600
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.
Chapter 02 – Accounting System and Financial Statements
Hitting the Road — BTN 2-9
Findings will vary. It is advisable that the instructor obtain a few classified
Global Decision — BTN 2-10
1. An analysis of return on assets suggests that Apple (28.5%) yields the
2. An analysis of the debt ratio suggests that Apple and Samsung (each at
3. In this case, there is no clear answer based on these two ratios alone.
Apple has a relatively higher return on assets but also the highest debt