Fundamentals of Financial Accounting, 5/e 2-50
PB2-3 (continued)
Req. 7
Starbucks Apple
Current Ratio = $5,460* = 1.01 Current Ratio = $73,300 = 1.68
$5,380** $43,700
ANSWERS TO SKILLS DEVELOPMENT CASES
S2-1
1. D
S2-2
Req. 1
Lowe’s:
Assets = Liabilities + Shareholders’ Equity
$32,732,000,000 = $20,879,000,000 + $11,853,000,000
The Home Depot:
Assets = Liabilities + Shareholders’ Equity
S2-2 (continued)
Req. 4
Financing for the Lowe’s investment in assets has come more from liabilities than
stockholders’ equity. Lowe’s liabilities have financed $20,879,000,000 of the total
assets of the company and stockholders’ equity has financed $11,853,000,000.
The more the company has in assets and the less it has in liabilities, the more likely the
S2-3
S2-4
Req. 1
Assets = Liabilities + Stockholders’ Equity
$15,000 = $15,000 + 0
Ponzi received $15,000 cash ($5,000 from each of the three lenders) in exchange for a
promise to repay that money in 90 days. The 50% interest that Ponzi is paying is not a
S2-5
Req. 1
The president is concerned with the amount of assets that are reported on the balance
sheet because investors and creditors judge the riskiness of the company by comparing
the amount of recorded assets to liabilities. The greater the amount of the company’s
assets for a given amount of liabilities, the less risky the company appears to investors
and creditors.
Req. 2
Fundamentals of Financial Accounting, 5/e 2-55
S2-6
The major deficiency in this balance sheet is the inclusion of the owner’s personal
residence as a business asset. Under the separate entity assumption, each business
S2-7
ANSWERS TO CONTINUING CASE
CC2-1
Req. 1
a.
Cash (+A) …………………………………………………………………
80,000
Common Stock (+SE) ……………………………………………
80,000
b.
Land (+A) ………………………………………………………………….
9,000
Cash (-A) ………………………………………………………………
2,000
Note Payable (long-term) (+L) …………………………..……..
7,000
c.
This is an exchange of only promises, so it is not a
transaction.
d.
Equipment (+A) …………………………………………………………
18,000
Cash (-A) ……………………………………………………………..
18,000
e.
Supplies (+A) ……………………………………………………………..
1,000
Accounts Payable (+L) ………………………………………
1,000
f.
Accounts Payable (-L) …………………………………………………
350
Cash (-A) …………………………………………………………
350
g.
No transaction. Separate entity assumption.
Cash (A)
Supplies (A)
Equipment (A)
Beg.
0
Beg.
0
Beg.
0
(a)
80,000
2,000
(b)
(e)
1,000
(d)
18,000
18,000
(d)
350
(f)
End.
59,650
End.
1,000
End.
18,000
Land (A)
Beg.
0
(b)
9,000
End.
9,000
Accounts Payable (L)
0
Beg.
(f)
350
1,000
(e)
650
End.
Notes Payable
(long-term) (L)
0
Beg.
7,000
(b)
7,000
End.
Common Stock (SE)
0
Beg.
80,000
(a)
80,000
End.
Fundamentals of Financial Accounting, 5/e 2-57
CC2-1 (Continued)
Req. 3
NICOLE’S GETAWAY SPA
Balance Sheet
At April 30
Assets
Current Assets
Cash
Supplies
Total Current Assets
Equipment
Land
Total Assets
$ 59,650
1,000
60,650
18,000
9,000
$ 87,650
Liabilities
Current Liabilities
Accounts Payable
Total Current Liabilities
Notes Payable
Total Liabilities
$ 650
650
7,000
7,650
Stockholders’ Equity:
Common Stock
Retained Earnings
Total Stockholders’ Equity
80,000
0
80,000
Total Liabilities and Stockholders’ Equity
$ 87,650
Req. 4
The current ratio indicates the proportion of current assets relative to current liabilities.