Financial Accounting: An Integrated Statements Approach, 2nd Edition

Dr. Wommack:I’ve thought about doing something like that. Are you making any money?

I mean, is it worth your time?

Dr. Smith:You wouldn’t believe it. I started by opening a bank account with $60,000, and

my July bank statement has a balance of $240,000. Not bad for seven months—all

pure profit.

Dr. Wommack:Maybe I’ll try it in Las Vegas. Let’s have breakfast together tomorrow and you

can fill me in on the details.

Comment on Dr. Smith’s statement that the difference between the opening bank balance

($60,000) and the July statement balance ($240,000) is pure profit.

Obtain the annual reports for three well-known companies, such as Ford Motor Co.,General

Motors,IBM,Microsoft, or Amazon.com. These annual reports can be obtained from a library or

the company’s 10-K filing with the Securities and Exchange Commission at http://www.sec.gov/

edgar.shtml.

To obtain annual report information, click on “Search for Company Filings.” Next, click on

“Search EDGAR Historical Archives.” Key in the company name. EDGAR will list the reports

available for the company. Click on the 10-K (or 10-K405) report for the year you want to down-

load. If you wish, you can save the whole 10-K report to a file and then open it with your word

processor.

Examine the balance sheet for each company and determine the total assets, liabilities, and

stockholders’ equity. Verify that total assets equal the total of the liabilities plus stockholders’

equity.

By satisfying certain specific requirements, accountants may become certified as public accoun-

tants (CPAs), management accountants (CMAs), or internal auditors (CIAs). Find the certifi-

cation requirements for one of these accounting groups by accessing the appropriate Internet

site listed below.

Site Description

http://www.ais-cpa.com This site lists the address and/or Internet link for each

state’s board of accountancy. Find your state’s requirements.

http://www.imanet.org This site lists the requirements for becoming a CMA.

http://www.theiia.org This site lists the requirements for becoming a CIA.

50 Chapter 1 The Role of Accounting in Business

Activity 1-5

The accounting equation

Activity 1-6

Certification requirements for

accountants

ANSWERS TO SELF-STUDY QUESTIONS

1. D A corporation, organized in accordance with state or
   federal statutes, is a separate legal entity in which ownership
   is divided into shares of stock (answer D). A proprietorship
   (answer A) is an unincorporated business owned by one
   individual. A service business (answer B) provides services to
   its customers. It can be organized as a proprietorship, part-
   nership, or corporation. A partnership (answer C) is an unin-
   corporated business owned by two or more individuals.


2. A The resources owned by a business are called assets
   (answer A). The debts of the business are called liabilities
   (answer B), and the equity of the owners is called stockhold-
   ers’ equity (answer D). The relationship between assets, liabil-
   ities, and stockholders’ equity is expressed as the accounting
   equation (answer C).
   3. A The balance sheet is a listing of the assets, liabilities,
   and stockholders’ equity of a business at a specific date
   (answer A). The income statement (answer B) is a summary
   of the revenue and expenses of a business for a specific period
   of time. The retained earnings statement (answer C) summa-
   rizes the changes in retained earnings during a specific period
   of time. The statement of cash flows (answer D) summarizes
   the cash receipts and cash payments for a specific period of
   time.
   4. D The accounting equation is:

AssetsLiabilitiesStockholders’ Equity