Total revenues Selling and administrative expenses.. Armani, Capital, December 31, Problem A 20 minutes. Expenses Rent expense Salaries expense Cleaning expense Utilities expense Advertising expense The Gram Co. Gram, Capital, May Gram, Capital Cash paid for cleaning Cash paid for telephone Cash paid for utilities Cash paid to employees Net cash provided by operating activities Cash flows from investing activities Purchase of equipment Cash flows from financing activities Investment by owner Withdrawal by owner Cash balance, May Sony, S.
Sony, Capital, December Add: Investment by owner Electrical equipment Sony, Capital Cash paid for supplies Purchase of electrical equipment Cash balance, Dec. Problem A 15 minutes 1. Return on assets is net income divided by the average total assets. Return on assets seems satisfactory for the risk involved in the manufacturing, marketing, and selling of cellular telephones. We know that revenues less expenses equal net income.
We know from the accounting equation that total financing liabilities plus equity must equal the total for assets investing. Problem A 20 minutes 1. Return on assets equals net income divided by average total assets. Coca-Cola return:. Success in returning net income from the average amount invested is revealed by the return on assets. The reported figures suggest that Coca-Cola yields a marginally higher return on assets than PepsiCo.
Based on this information alone, we would be better advised to invest in Coca-Cola than PepsiCo. Nevertheless, and because the returns are not dramatically different, we would look for additional information in financial statements and other sources for further guidance.
For example, if Coca-Cola could dispose of some assets without curtailing its sales level, it would look even more attractive; or, PepsiCo could do likewise, and close the gap. We would also look for consumer trends, market expansion, competition, product development, and promotion plans. Problem AB 15 minutes An organization pursues three major business activities: financing, investing, and operating.
Also note that planning is the glue that links and coordinates these three major activities—it includes the ideas, goals, and strategies of an organization. Equity Income Activities Activities Activities. Calculation of net income for Equity, December 31, Calculation of equity at December 31, Assets Calculation of equity at December 31, Equity, December 31, Calculation of the amount of liabilities at December 31, Assets Plus investments by owner Part 4 Company Y First, compute the beginning balance of equity: Dec.
Finally, find the beginning amount of liabilities by subtracting the beginning balance of equity from the beginning balance of assets: Dec. Audi, Capital, December 31, Problem B 20 minutes. Cash from investing activities Cash from financing activities Cash, December 31, Niko, Capital, June Investment by owner Balance Sheet June 30 Assets Cash Liabilities Accounts payable Niko, Capital Cash paid for advertising Cash balance, June Rivera, Capital, July Cash flows from investing activities Purchase of roofing equipment Purchase of office equipment Cash balance, July Return on assets is net income divided by average total assets the average amount invested.
Return on assets does not seem satisfactory for the risk involved in the manufacturing, marketing, and selling of snowmobile equipment.
We know from the accounting equation that the total of liabilities plus equity financing must equal the total for assets investing. Success in returning net income from the amount invested is revealed by the return on assets ratio. The reported figures suggest Verizon is more successful in generating income based on assets. Nevertheless, we would look for additional information in financial statements and other sources for further guidance.
We would also look for consumer trends, market expansion, competition, and product development and promotion plans. Financing Activities A.
Owner financing—owner invests in the company B. Non-owner creditor financing—borrowing money from a bank. Operating Activities A. Use of assets to carry out plans B. Reporting in Action — BTN 1. Return on assets is net income divided by the average total assets invested. We know that net income equals total revenues less total expenses.
Answer depends on the current annual report information obtained. Ethics Challenge — BTN 1. There are several parties affected. They include the users of financial statements such as shareholders, lenders, investors, analysts, suppliers, directors, unions, regulators, and others.
They also include the accounting firm, which can be sued if deemed a party to misleading statements. Thorne should not accept this fee arrangement. Ethical considerations guiding this decision include the potential harm to affected parties by allowing such a fee arrangement to exist.
The unacceptable nature of such a fee arrangement guards the profession against unethical actions that could undermine its real and perceived value to society. Communicating in Practice — BTN 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.
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. If it is a corporation, the amounts invested in the business by each shareholder are especially important.
The loan officer can also require owners or shareholders to personally guarantee the loan for additional protection for the bank. Specifically, its revenues consistently grew during the 5-year period of through Management must work to continue to pursue policies that grow revenues.
Net income performance for RMCF decreased from through , but substantially rebounded in Its income was similar, but slightly lower, than income.
Management must work to increase and sustain higher profitability levels for long-run success. The IRM provides the master of a Student Data Form that can be duplicated and used to gather information as a basis for forming these teams. The IRM also includes other administrative materials helpful in creating an active learning environment for studying accounting.
This also encourages students to use and explore additional features of e-mail. Specifically: Total assets. Assuming the company can continue to earn Identification of the reasons why the owner s chose this particular form of business organization. Identification of advantages or disadvantages of the form of business organization chosen. Global Decision — BTN 1. In contrast, Apple and Google compute their financial figures in U. Accordingly, one must convert these figures into comparable monetary units for business decisions that depend on direct comparisons of these numbers.
Consequently, we need not focus on differences in KRW and dollars for ratio comparisons provided we are comfortable with measurement techniques underlying the financial figures. Need an account? Click here to sign up. Download Free DOC. Download Free PDF. A short summary of this paper. Download Download PDF. Translate PDF. Exercises Problems 1. Identify the activities and 1, 2, 3, 4, 5 1 1, 2 users associated with accounting.
Explain the building blocks of 6, 7, 8, 9, 10 2 3, 4 accounting: ethics, principles, and assumptions. State the accounting 11, 12, 13, 22 1, 2, 3, 4, 5, 8 3, 5 5 1A, 2A 4A equation, and define its components. Analyze the effects of 14, 15, 16, 18 6, 7, 9 4 6, 7, 8 1A, 2A, 4A, business transactions on the 5A accounting equation.
Describe the four financial 17, 19, 20, 21 10, 11 5 9, 10, 11, 12, 2A, 3A, 4A, statements and how they are 13, 14, 15, 16 5A prepared. Identify the activities and users DI Q Q associated with accounting. Q E Q E Q 3. Explain the building blocks of Q Q accounting: ethics, principles, Q E and assumptions. Q E Q DI 3. Yes, this is correct. Virtually every organization and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not-for-profit organizations must use accounting information to operate effectively.
Accounting is the process of identifying, recording, and communicating the economic events of an organization to interested users of the information.
The first step of the accounting process is therefore to identify economic events that are relevant to a particular business. Once identified and measured, the events are recorded to provide a history of the financial activities of the organization. Recording consists of keeping a chronological diary of these measured events in an orderly and systematic manner. The information is communicated through the preparation and distribution of accounting reports, the most common of which are called financial statements.
Examples include financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year.
No, this is incorrect. Bookkeeping usually involves only the recording of economic events and therefore is just one part of the entire accounting process. Accounting, on the other hand, involves the entire process of identifying, recording, and communicating economic events. This is true not only at the time the land is purchased, but also over the time the land is held. In determining which measurement principle to use cost or fair value companies weigh the factual nature of cost figures versus the relevance of fair value.
In general, companies use cost. Only in situations where assets are actively traded do companies apply the fair value principle. An important concept that accountants follow is the historical cost principle. The monetary unit assumption requires that only transaction data that can be expressed in terms of money be included in the accounting records.
This assumption enables accounting to quantify measure economic events. The economic entity assumption requires that the activities of the entity be kept separate and distinct from the activities of its owners and all other economic entities. The three basic forms of business organizations are: 1 proprietorship, 2 partnership, and 3 corporation. One of the advantages Rachel Hipp would enjoy is that ownership of a corporation is represented by transferable shares of stock. This would allow Rachel to raise money easily by selling a part of her ownership in the company.
Another advantage is that because holders of the shares stockholders enjoy limited liability; they are not personally liable for the debts of the corporate entity. Also, because ownership can be transferred without dissolving the corporation, the corporation enjoys an unlimited life. Liabilities are claims against assets. Put more simply, liabilities are existing debts and obligations. The liabilities are: b Accounts payable and g Salaries and wages payable. Yes, a business can enter into a transaction in which only the left side of the accounting equation is affected.
An example would be a transaction where an increase in one asset is offset by a decrease in another asset. An increase in the Equipment account which is offset by a decrease in the Cash account is a specific example. Business transactions are the economic events of the enterprise recorded by accountants because they affect the basic accounting equation.
No, this treatment is not proper. While the transaction does involve a receipt of cash, it does not represent revenues. This transaction is simply an additional investment made by the owner in the business. Net income does appear on the income statement—it is the result of subtracting expenses from revenues.
Indirectly, the net income of a company is also included in the balance sheet. The three steps in the accounting process are identification, recording, and communication. Financial accounting provides reports to help investors and creditors evaluate a company. Congress passed the Sarbanes-Oxley Act to reduce unethical behavior and decrease the likelihood of future corporate scandals.
The standards of conduct by which actions are judged as right or wrong, honest or dishonest, fair or not fair, are ethics. DO IT! R Classifying economic events. C Explaining uses, meaning, and limitations of data. R Keeping a systematic chronological diary of events.
R Measuring events in dollars and cents. C Preparing accounting reports. C Reporting information in a standard format.
I Selecting economic activities relevant to the company. R Summarizing economic events. E Did the company earn a satisfactory income? I Do we need to borrow in the near future? I What does it cost us to manufacture each unit produced? I Which product should we emphasize? E Will the company be able to pay its short-term debts? The historical cost principle requires that assets be recorded and reported at their cost, because cost is faithfully representative and can be objectively measured and verified.
Angela Duffy could benefit if the company is able to attract more investors, but would be harmed if the inappropriate reporting is discovered. Similarly, Jana Barth could benefit by pleasing her boss, but would be harmed if the inappropriate reporting is discovered.
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