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PS_01_Solution_(APSCW_F2009)

# PS_01_Solution_(APSCW_F2009) - FINANCIALACCOUNTING...

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BUSI W3013 Solution to Problem Set 01 | Page 1 F INANCIAL A CCOUNTING BUSI W3013 | F ALL 2009 S OLUTION TO P ROBLEM S ET 01 P ROFESSOR A NDREW S CHMIDT I. Applying the Accounting Equation (\$ millions) 1. Using the accounting equation: Assets (\$50,715) = Liabilities (\$11,627) + Equity (?) Thus: \$39,088 = Equity High tech companies must contend with a substantial amount of risk relating to changing technology. Future cash flows are, therefore, not as certain and cannot support high levels of debt. Thus, the company uses equity financing; 77.1% in the case of Intel. 2. Using the accounting equation at the beginning of the year: Assets (\$5,598) = Liabilities (?) + Equity (\$1,036) Thus: Beginning Liabilities = \$4,562 Using the accounting equation at the end of the year: Assets (\$5,598 + \$486) = Liabilities (\$4,562 + \$241) + Equity (?) Thus: Ending Equity = \$1,281 Alternative approach to solving part 2: Assets(\$486) = Liabilities(\$241) + Equity(?) where “ ” refers to “change in.” Thus: Ending Equity = \$486 - \$241 = \$245 and Ending equity = \$1,036 + \$245 = \$1,281 3. Retained Earnings is the balance sheet account that provides the link between the balance sheet and the income statement. Each accounting period, Retained Earnings is updated by the net income (loss) reported for that period (and is reduced by any dividends that are paid to shareholders).

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