ACCT 117 - Chapter I Problem set B Homework

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1. 1-1B a. Randy Gentry's Produce Stand i. Form of Organization: 1. Sole Proprietorship ii. Reasons: 1. Randy manages the entire operation, which is tiny in scale. 2. There is no indication of any outside investors or partners. 3. It provides flexibility and simplicity, making it ideal for summer work. b. Dave Boyce and Davey Lopez's Swing-Set Manufacturing Business i. Form of Organization: 1. Corporation ii. Reasons: 1. They intend to expand outside their current market and anticipate that additional funding would be required. 2. Corporations can raise funds more easily by issuing shares. 3. Corporations' separate legal entity status protects owners from personal responsibilities. c. Three Chemistry Professors at LU's Enzyme Business i. Form of Organization: 1. Partnership or Limited Liability Company (LLC) ii. Reasons: 1. The company was founded by three persons who each contributed equally. 2. Partnerships are simple to form, and each member usually has an equal vote in company decisions. 3. An LLC could also be considered because it provides limited liability protection, which is important given the potential legal requirements in their venture's experimental character. d. Marty Wells' Vitamin Store Expansion i. Form of Organization: 1. Corporation ii. Reasons: 1. She intends to build a national chain, which will necessitate a significant investment. 2. Corporations can readily raise funds by selling stock. 3. Given that Marty has no personal assets or savings, a corporation's limited liability clause would safeguard her personal assets from company difficulties. 4. Even if she wants to keep control, she can do so by creating different classes of stock, with one class having more voting power. e. Charles Keuhl and Peg Lambing's Consulting Business i. Form of Organization: 1. Partnership ii. Reasons: 1. They both have similar backgrounds and appear to be approaching the firm with complementing talents. 2. A collaboration provides for shared accountability and decision-making. 3. They may not require as much initial cash as other types of enterprises like a consulting business, making the simplicity of a partnership appealing.
2. 1-2B a. An Investor Considering Purchasing Common Stock from the 24/7 Fitness Company i. Primary Emphasis: 1. Income Statement ii. Justification: 1. The investor intends to retain the shares for at least three years, thus they are interested in the company's long-term profitability trends. 2. The income statement discloses the company's sales, expenses, and profits, which aids in determining the company's ability to generate future earnings. b. Xerox Considering Extending Credit To a New Customer i. Primary Emphasis: 1. Balance Sheet ii. Justification: 1. Xerox would like to assess the customer's financial stability and ability to pay within the credit period specified. 2. The balance sheet provides an overview of a company's liquidity position and ability to satisfy short-term obligations by providing a snapshot of its assets, liabilities, and equity. c. T he President of American Airlines Determining Cash for Dividends and Equipment i. Primary Emphasis: 1. Statement of Cash Flows ii. Justification: 1. The president is concerned about cash generation and spending. 2. The cash flow statement gives a complete report on the cash sources and uses in operating, investing, and financing operations. This aids in determining the company's potential to earn enough cash to fund dividends as well as capital expenditures. d. PNC Bank Considering Extending a Loan To a Small Company i. Primary Emphasis: 1. Balance Sheet ii. Justification: 1. When issuing a loan, the bank will be most concerned with the company's solvency and capacity to satisfy long-term obligations. 2. The balance sheet shows the total assets, liabilities, and equity of the company. To determine the company's financial health and ability to repay the loan, the bank would examine its debt levels, asset valuations, and overall equity position.
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