Chapter 1 Introduction to Accounting and Business

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Example
Exercises
Prepare a statement of cash flows for Sentinel Travel Service for the year ended
August 31, 2014.

EE 1-8 p. 22 PE 1-8A  Ratio of liabilities to stockholders’ equity OBJ. 6

The following data were taken from Mesa Company’s balance sheet:

Dec. 31, 2014 Dec. 31, 2013

Total liabilities $547,800 $518,000
Total stockholders’ equity 415,000 370,000
a. Compute the ratio of liabilities to stockholders’ equity.
b. Has the creditor’s risk increased or decreased from December 31, 2013, to December
31, 2014?

EE 1-8 p. 22 PE 1-8B  Ratio of liabilities to stockholders’ equity OBJ. 6

The following data were taken from Alvarado Company’s balance sheet:
Dec. 31, 2014 Dec. 31, 2013
Total liabilities $4,085,000 $2,880,000
Total stockholders’ equity 4,300,000 3,600,000
a. Compute the ratio of liabilities to stockholders’ equity.
b. Has the creditor’s risk increased or decreased from December 31, 2013, to December
31, 2014?

Exercises

EX 1-1  Types of businesses OBJ. 1

The following is a list of well-known companies.
1. Alcoa Inc.  9. Ford Motor Company
2. Boeing 10. Gap Inc.
3. Caterpillar 11. H&R Block
4. Citigroup Inc. 12. Hilton Hospitality, Inc.
5. CVS 13. Procter & Gamble
6. Dow Chemical Company 14. SunTrust
7. eBay Inc. 15. Walmart Stores, Inc.
8. FedEx

a. Indicate whether each of these companies is primarily a service, merchandise, or

manufacturing business. If you are unfamiliar with the company, use the Internet to
locate the company’s home page or use the finance Web site of Yahoo (http://finance
.yahoo.com).
b. For which of the preceding companies is the accounting equation relevant?

EX 1-2  Professional ethics OBJ. 1

A fertilizer manufacturing company wants to relocate to Yellowstone County. A report
from a fired researcher at the company indicates the company’s product is releasing toxic
by-products. The company suppressed that report. A later report commissioned by the
company shows there is no problem with the fertilizer.
Should the company’s chief executive officer reveal the content of the unfavor-
able report in discussions with Yellowstone County representatives? Discuss.