1.An account is an important accounting record where financial information is stored until needed. Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the manner in which an account is increased and decreased and its normal balance.
2. Joe Laramie owns and operates Joe's Burgers, a small fast food store, located at the edge of City College campus in Newton, Ohio. After several very profitable years, Joe's Burgers began to have problems. Most of the problems were related to Joe's expansion of the eating area in the restaurant without corresponding increases in the food preparation area. Joe does not have the cash or financial backing to expand further. He has therefore decided to sell his business.
William Sheets is interested in purchasing the business. However, he is located in another city and is unfamiliar with Newton. He has asked Joe why he is selling Joe's Burgers. Joe replies that his elderly mother requires extra care, and that his brother needs help in his manufacturing business. Both are true, but neither is his primary reason for selling. Joe reasons that William should not have asked him anyway, since profitable businesses don't come up for sale.
I. Identify the stakeholders in this situation.
II. Did Joe act ethically in not revealing fully his reasons for selling the business? Why or why not? (Points : 25)
3. (TCO 6) Budgeting and long-range planning are both important aids to management in achieving a company's goals and objectives. Briefly distinguish between budgeting and long-range planning, and indicate how they help managers perform their functions. (Points : 25)
4. (TCO 10) There are three possible approaches for determining a transfer price: negotiated, cost-based, and market-based transfer prices. Explain how the transfer price is determined, under each of the approaches.
5. (TCO 4) The following information is available from the annual reports of Marin Company and Nance Company:
(a) For each company, compute the following ratios:
I. Current ratio
II. Debt to total assets ratio
III. Earnings per share
(b) Based on your calculations, discuss the relative liquidity, solvency, and profitability of the two companies. (Points : 30)
6. (TCO 9) Cheatem and Howe, Attorneys, relies heavily on a color laser printer to process its paperwork. Recently, the printer has not functioned well, and print jobs are not being processed. Management is considering updating the printer with a faster model.