Chapter 1: Accounting Analysis

COMPANY ANALYSIS 1. Apple Financial Statement Analysis o Total Liabilities: Determine the total liabilities Apple reports for fiscal years ending September 28, 2019 and September 29, 2018 from its financial statements. o Total Assets: Identify the total assets Apple reports for the same fiscal years. o Debt Ratio Calculation: Compute Apple’s debt ratio for these fiscal years. The debt ratio is calculated as: Debt Ratio=Total LiabilitiesTotal Assets×100 o Round the result to one decimal place. o Financial Leverage: Analyze which year, 2019 or 2018, reflects greater use of financial leverage based on the debt ratio. 2. Comparative Analysis of Apple and Google o Debt Ratios: Calculate and compare the debt ratios for Apple and Google for the current and prior years. o Financial Leverage Comparison: Determine which company, Apple or Google, has higher financial leverage in the current year based on their debt ratios. 3. Extended Analysis Including Samsung o Samsung’s Debt Ratio: Compute Samsung’s debt ratios for the current and prior years. o Leverage Trend: Assess whether Samsung’s financial leverage increased or decreased in the current year. o Investment Risk: Compare Samsung’s current-year debt ratio with Apple’s and Google’s to evaluate whether Samsung is a riskier or less risky investment. Discussion Questions 1. Account Categories: Identify two examples each of asset, liability, and equity accounts. 2. Note Payable vs. Account Payable: Explain the difference between these two liability types. 3. Processing Business Transactions: Discuss the steps involved in recording and processing business transactions. 4. General Journal Entries: Describe the types of transactions recorded in a general journal and how debits and credits are listed. 5. Journal vs. Ledger: Clarify whether a transaction should be recorded first in a journal or a ledger and the rationale. 6. Debit Balances in Expense Accounts: Explore why expense accounts have debit balances, given that assets are resources with debit balances. 7. Trial Balance Purpose: Explain why a trial balance is prepared. 8. Correcting Journal Errors: Describe how errors in journalizing and posting should be corrected. 9. Financial Statements: Identify the four primary financial statements and explain the information reported in a balance sheet and income statement. 10. Time Period in Income Statements: Explain the importance of knowing the time period an income statement covers. 11. Asset, Liability, Equity Definitions: Define assets, liabilities, and equity and specify which financial statement is referred to as the statement of financial position. Beyond the Numbers: Ethical Challenge 1. Cash Register Ethics: As a cashier, you’re faced with an ethical dilemma regarding not entering sales during a busy lunch hour, which could lead to cash discrepancies and potential theft by the assistant manager. You're asked to: o Propose two alternative courses of action and explain why they could be considered. Communicating in Practice 1. Explaining Financial Statements: Write a memorandum explaining the purpose of the four financial statements (balance sheet, income statement, cash flow statement, and statement of changes in equity) and how they are linked over time. Taking it to the Net: Amazon Analysis 1. Amazon 10-K Analysis: o Identify Amazon's net income or net loss for the years 2016, 2017, and 2018. o Analyze whether Amazon’s operating activities provided or used cash for these years. o Discuss how Amazon's cash balance increased by only $10,317 million in 2018 despite high net income and operating cash flows. Teamwork in Action: Accounting Equation 1. Expanded Accounting Equation: o Form expert teams to analyze and draft reports on key accounting components (assets, liabilities, equity, etc.), including how increases and decreases affect the accounting equation and financial statements. Entrepreneurial Decision: Financing 1. Financing Expansion: o Katrina Lake is deciding between self-funding or borrowing for expansion. Identify two key issues she should consider when deciding on financing methods. 2. Martin Music Services: o Prepare a balance sheet for Martin Music Services and compute its debt ratio and return on assets. Based on the results, assess the likelihood of securing a $30,000 bank loan.