Chapter 1, Problem 2.5AA

a.

To determine

Introduction: Accounting equation is founded on the premise of a double-entry accounting system which states that for every debit entry there is a corresponding credit entry. In this way, the accounts remain balanced after every transaction has been recorded.

Requirement 1

Total amount of assets invested in A and G in the current year.

b.

To determine

Introduction: The return on assets is a financial ratio which states that how profitably a company has employed its assets. In other words, how the company has utilized its assets to generate income.

Requirement 2

The return on assets of the company for the current year of A and G.

c.

To determine

Introduction: Expenses are incurred to generate revenues and thus, form an essential part of the income statement.

Requirement 3

The total expenses of the A and G company for the current year.

d.

To determine

Introduction: Comparison between similar companies in the same industry is crucial to the assessment of the company’s performance. A company’s financial ratios, when compared with the industry data, can reveal lots of valuable information which the financial statements can not reveal.

Requirement 4

The A’s and G’s return on assets for the current year is better or worse than the competitor’s average return.

e.

To determine

Introduction: Investors greatly rely on financial or accounting ratios along with the financial statements before making decisions for investing in a particular company. The limitations of financial statements can be removed by incorporating the ratios into the analysis and making investment decisions.

Requirement 5

Whether one should invest in G or A company based on return on assets.