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Chap001 Solution Manual

Accountbooks total amount of liabilities and equity

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AccountBook’s total amount of liabilities and equity consists of the bank loan and the owner investments. Specifically: Total assets = Bank Loan + Owner investment = Liabilities + Equity $750,000 = $500,000 + $250,000 (b) AccountBook’s total amount of assets equals its total amount of liabilities plus equity, which is $750,000. 2. Return on assets = $80,000 / $750,000 = 0.107 = 10.7% AccountBook’s 10.7% return slightly exceeds its competitors’ average return of 10%. Assuming AccountBook can continue to earn 10.7% or more, Mark Zuckerberg should consider further investment in the new company. Global Decision BTN 1-9 1. Nokia’s net income and revenues figures are computed using Euros, which is the currency of Europe. In contrast, Research In Motion and Apple compute their financial figures in U.S. dollars. Accordingly, one must convert these figures into comparable monetary units for business decisions that depend on direct comparisons of these numbers. Moreover, Nokia’s figures are computed according to International Financial Reporting Standards (IFRS) following pronouncements of the IASB, while Research In Motion and Apple use U.S. GAAP per the FASB. One should adjust these figures for any significant differences in accounting measurements to yield an ‘apples-to-apples’ comparison. 2. Nokia’s return on assets ratio eliminates differences in monetary units (between Euros and dollars). Consequently, we need not focus on differences in Euros and dollars for ratio comparisons provided we are comfortable with measurement techniques underlying the financial figures. However, any comparisons using the return on assets ratio are still impacted by potential differences in IFRS GAAP as applied by Nokia compared to U.S. GAAP applied by Research In Motion and Apple. 1-59
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