Question
Lets examine a case using Gregs Tunes and Sals Silly Songs. It is now the end of the first year of operations, and the stockholders
Lets examine a case using Gregs Tunes and Sals Silly Songs. It is now the end of the first year of operations, and the stockholders want to know how well each business came out at the end of the year. Neither business kept complete accounting records and no dividends were paid. The businesses throw together the following data at year end:
Sals Silly Songs: Total assets. $23,000 Common stock 8,000 Total revenues 35,000 Total expenses... 22,000 Gregs Tunes: Total liabilities.. $10,000 Common stock.. 6,000 Total expenses.. 44,000 Net income 9,000 Working in the music business, Moore has forgotten all the accounting he learned in college. Siegman majored in English literature, so she never learned any accounting. To gain information for evaluating their businesses, they ask you several questions. For each answer, you must show your work to convince Moore and Siegman that you know what you are talking about. 1. Which business has more assets? 2. Which business owes more to creditors? 3. Which business has more stockholders equity at the end of the year? 4. Which business brought in more revenue? 5. Which business is more profitable? 6. Which of the foregoing questions do you think is most important for evaluating these two businesses? Why? 7. Which business looks better from a financial standpoint?
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