Financial Acct

Topics: Stock, Finance, Generally Accepted Accounting Principles Pages: 3 (484 words) Published: October 6, 2008
Financial and Managerial Accounting

M1-21 Applying the Accounting Equation and Computing Financing Proportions

Use the accounting equation to compute the missing financial amounts (a), (b), (c). Which of these companies is more owner financed? Which of these companies is more non-owner financed? Discuss why the proportion of the owner financing might differ across these three businesses.

($ millions) Assets = Liabilities + Equity

Hewlett Packard….$74,708 = $36,962 + (a)
General Mills ……$18,227 = $ (b) + $4,175
General Motors…..$ (c) = $365,057 + $6,814

M1-21 Team Answer:

1A) Hewlett Packard the Equity is $37,746 (37,746 + 36,962 = 74,708)

1B) General Mills the Liabilities are $14,052 (14,502 + 4,175 = 18,227)

1C) General Motors the Assets are $371,871(365,057 + 6,814 = 371,871)

1D) While looking over the three businesses it appears that Hewlett Packard is the most owner financed. The owner financed portion is 50.5247095%.

1E) While looking over the three businesses it appears that General Motors is the most non-owner financed. The owner financed portion is 1.8323558%.

1F) The reason the owner financed is different between these companies is because the business and market verticals they are in can affect financing rates, assets needed, liabilities, and much more.

For example:

Hewlett Packard is in the technology industry where the risks are higher and change is constant. To keep up with the market demand, financing is needed to stay consistent with current technology and create new technology as well. So, owners would need more equity since the risks are higher and when risks are higher the costs to borrow money is higher.

General Mills and General Motors are in more of a constant market where change happens, but at a much slower rate. Also, they are in a market where a portion of there portfolio fall more in the line of needs more than wants. People need...
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