Chap001 Solution Manual

# 4 we know from the accounting equation that the total

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4. We know from the accounting equation that the total of liabilities plus equity (financing) must equal the total for assets (investing). Since average total assets are \$2,000,000, we know the average total of liabilities plus equity (financing) must equal \$2,000,000 . Problem 1-11B (15 minutes) 1. Return on assets equals net income divided by average total assets. a. AT&T return: \$12,535/ \$266,999 = 0.047 or 4.7% b. Verizon return: \$10,358/ \$214,937 = 0.048 or 4.8% 2. On strictly amount of sales to consumers, AT&T’s sales of \$123,018 are greater than Verizon’s sales of \$107,808. 3. Success in returning net income from the amount invested is revealed by the return on assets ratio. Part 1 showed that AT&T has a marginally lower return on assets of 4.7% versus Verizon with a 4.8% return on assets. 1-51

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Chapter 01 - Accounting in Business Problem 1-11B (concluded) 4. Current performance figures suggest both are almost equally successful in generating income based on assets. Based on this information alone, it would be difficult to differentiate between the two companies. Nevertheless, we would look for additional information in financial statements and other sources for further guidance. For example, if AT&T could reduce its expenses, or reduce its assets without reducing income, it could potentially be a more appealing investment given its greater market share. We would also look for consumer trends, market expansion, competition, and product development and promotion plans. Problem 1-12B A (20 minutes) Case 1. Return : No return is generated. Risk : Moderate Risk. By hiding money at home a person risks loss by theft or fire. Also such a strategy might result in a loss of purchasing power in the event of inflation. Case 2. Return : Expected winnings from your bet. Risk : Depends on the probability of your horse finishing the race in a position consistent with the odds assigned the horse for the race. Case 3. Return : Expected return on your stock investment (both dividends and stock price changes). Risk : Depends on the current and future performance of Nike’s stock price (and dividends). Case 4. Return : Expected return on the bond is a function of the interest rate paid on the bond. Risk : Very low because the full faith and credit of the U.S. government back savings bonds. 1-52
Chapter 01 - Accounting in Business Problem 1-13B B (15 minutes) I. Financing Activities A. Owner financing—investing resources in the company B. Non-owner (creditor) financing—borrowing money from a bank II. Investing Activities A. Buying resources (assets) B. Selling resources (assets) III. Operating Activities A. Use of assets to carry out plans B. Management of internal functions—R&D, marketing, and so forth [Note: Planning activities are the ideas, goals, and tactics for implementing financing, investing, and operating activities.] Problem 1-14B B (15 minutes) 1. C 5. C 2. A 6. A 3. B 7. C 4. C 8. C 1-53

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Chapter 01 - Accounting in Business Serial Problem — SP 1 Business Solutions Assets = Liabilities + Equity Date Cash + Accounts Receivable + Computer Supplies + Computer System + Office Equipment = Accounts Payable + S. Rey, Capital - S. Rey, Withdrawals + Revenues - Expense s Oct.
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