2.19: Beyond the numbers—Critical thinking
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Business decision case A John Jacobs lost his job as a carpenter with a contractor when a recession hit the construction industry. Jacobs had been making USD 50,000 per year. He decided to form his own company, Jacobs Corporation, and do home repairs.
The following is a summary of the transactions of the business during the first three months of operations in 2010:
Jan. 15 Stockholders invested USD 40,000 in the business.
Feb. 25 Received payment of USD 4,400 for remodeling a basement into a recreation room. The homeowner purchased all of the building materials.
Mar. 5 Paid cash for an advertisement that appeared in the local newspaper, USD 150.
Apr. 10 Received USD 7,000 for converting a room over a garage into an office for a college professor. The professor purchased all of the materials for the job.
11 Paid gas and oil expenses for automobile, USD 900.
12 Miscellaneous business expenses were paid, USD 450.
15 Paid dividends of USD 2,000.
a. Prepare journal entries for these transactions.
b. Post the journal entries to T-accounts.
c. How profitable is this new venture? Should Jacobs stay in this business?
Annual report analysis B Refer to the Annual Report of The Limited, Inc. in the Annual Report Appendix. Perform horizontal and vertical analyses of the liabilities and stockholder's equity sections of the balance sheets for the two most recent years shown. Horizontal analysis involves showing the dollar amount and percentage increase or decrease of the latest year over the preceding year amounts. Vertical analysis involves showing the percentage of total liabilities and stockholder's equity that each account represents as of the balance sheet dates. Write comments on any important changes between the two years that are evidence of decisions made by management.
Annual report analysis C In The Home Depot's recent Annual Report, the following passages appear:
The primary key to our success is our 39,000 employees who wear those orange aprons you see in our stores.
Few great achievements—in business or in any aspect of life—are reached and sustained without the support and involvement of large numbers of people committed to shared values and goals they deem worthy. Indeed, one need look no further than the business section of the morning newspaper to read of how yet another "blue chip" American business, entrenched in and isolated by its own bureaucracy, has lost the support of its employees and customers...
Frankly, the biggest difference between The Home Depot and our competitors is not the products on our shelves, it is our people and their ability to forge strong bonds of loyalty and trust with our customers...
...Contrary to conventional management wisdom, those at the top of organization charts are not the source of all wisdom. Many of our best ideas come from the people who work on the sales floor. We encourage our employees to challenge senior management directives if they feel strongly enough about their dissenting opinions...
...We want our people to be themselves and to be bold enough to apply their talents as individuals. Certainly, people can often perceive great risk acting this way. Thus, we go to great lengths to empower our employees to be mavericks, to express differences of opinion without fear of being fired or demoted...We do everything we can to make people feel challenged and inspired at work instead of being threatened and made to feel insecure. An organization can, after all, accomplish more when people work together instead of against each other.
Write answers to the following questions:
a. Do you think The Home Depot management regards its employees more as expenses or assets? Explain.
b. What does The Home Depot regard as its most valuable asset? Explain your answer.
c. Is The Home Depot permitted to list its human resources as assets on its balance sheet? Why or why not?
d. Could its philosophy regarding its employees be the major factor in its outstanding financial performance? Explain.
Ethics case – Writing experience D Refer to "An ethical perspective: Financial deals, Inc.". Write out the answers to the following questions:
a. What motivated Larry to go along with unethical and illegal actions? Explain.
b. What are Larry's options now? List each possibility.
c. What would you do if you were Larry? Describe in detail.
d. What do you think the real Larry did? Describe in detail.
Group project E In teams of two or three students, interview in person or by speakerphone a new staff member who has worked for a CPA firm for only one or two years. Seek information on the advantages and disadvantages of working for a CPA firm. Also, inquire about the nature of the work and the training programs offered by the firm for new employees. As a team, write a memorandum to the instructor summarizing the results of the interview. The heading of the memorandum should contain the date, to whom it is written, from whom, and the subject matter.
Group project F With one or two other students and using library resources, write a report on the life of Luca Pacioli, sometimes referred to as the father of accounting. Pacioli was a Franciscan monk who wrote a book on double-entry accounting in 1494. Be careful to cite sources and treat direct quotes properly. (If you do not know how to do this, ask your instructor.)