Financial Accounting: An Integrated Statements Approach, 2nd Edition

Assume that you are considering developing a nationwide chain of women’s clothing stores.

You have contacted a Houston-based firm that specializes in financing new business ventures

and enterprises. Such firms, called venture capital firms, finance new businesses in exchange for

a percentage of the ownership.

1. In groups of four or five, discuss the different business emphases that you might use in
   your venture.


2. For each emphasis you listed in (1), provide an example of a real world business using
   the same strategy.


3. What percentage of the ownership would you be willing to give the venture capital firm
   in exchange for its financing?

Kristin Stokes and Marikay Blair both graduated from State University in June 2007. After grad-

uation, Marikay took a job as a staff accountant in the Chicago office of PricewaterhouseCoopers,

an international public accounting firm. Kristin began working as a manager in Kleen Electronics,

a wholesale computer hardware and software company, but left after only six months to start

her own consulting business. The following conversation took place between Kristin and Marikay

at their first annual alumni function:

Kristin:Marikay, good to see you again.

Marikay:Yes. It doesn’t seem like it’s been almost a year since we graduated.

Kristin:That’s for sure. It seems like only yesterday we were listening to that boring

commencement speaker. I don’t even remember his name... Robert somebody. Are you

still working for PricewaterhouseCoopers?

Marikay:Yes, it’s been a great year. I’ve worked on 13 companies... it’s been a fantastic

learning experience. Each client has a different culture, management team, problems, and

personality. I’ve learned something new every day. How about you? Are you still

working for Kleen Electronics?

Kristin:No, I quit after six months. My customers really didn’t know what they needed for

computer systems... so... I quit and started a consulting business. I feel like I’m

helping my customers more now than I did before. Besides, I like being my own boss.

Marikay:What’s the name of your business?

Kristin:Stokes Consulting. It’s been amazing. I started with my savings of $5,000 six months

ago. My last bank statement showed I’ve got more than $45,000—”pure profit” of $40,000

in only six months.

Marikay:That’s unbelievable! If you ever need a CPA firm, keep us in mind.

Kristin:Sure. What are friends for anyway?

Comment on Kristin’s statement that she’s earned $40,000 “pure profit” in only six months.

Amazon.com, an Internet retailer, was incorporated in the early 1990s and opened its virtual

doors on the Web shortly thereafter. On the statement of cash flows, would you expect

Amazon.com’s net cash flows from operating, investing, and financing activities to be positive

or negative for its first three years of operation? Use the following format for your answers, and

briefly explain your logic.

Year 1 Year 2 Year 3

Net cash flows from operating activities negative

Net cash flows from investing activities

Net cash flows from financing activities

94 Chapter 2 Basic Accounting Concepts

BUSINESS ACTIVITIES AND RESPONSIBILITY ISSUES

Activity 2-1

Business emphasis

Activity 2-2

Cash accounting

Activity 2-3

Cash flows