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business
financial reporting and analysis

Questions and Answers of Financial Reporting and Analysis

The following financial statements for Lucy Enterprises are provided:Income Statement for Year Ending December 31, 1999 Sales revenues $550,000 Cost of goods sold 210,000 Gross margin $340,000 Salary
Certifications in accounting include the Certificate of Public Accounting (CPA), Certificate of Internal Auditing (CIA), and Certificate of Management Accounting(CMA). Certification examinations must
Find out more about a career in accounting by going to Ohio State University’s home page containing information on “Careers in Finance, Accounting, and Consulting,”located
Go to the home page of the United States Securities and Exchange Commission(SEC) located at:www.sec.gov/Requireda. Briefly describe the role of the SEC. Which laws does it enforce?b. How many
Bowling Green State University maintains the following two Web sites containing a “Directory of CPA Firms”:www.cpafirms.com(www.eyi.com)Access one of these sites and locate the Web page for Ernst
An accounting group has adopted new definitions of earnings or profits. These changes include the following:• Reporting comprehensive earnings, along with net income, for the company.This could
The accounting profession considered increasing its required disclosures and the type of information that is required from public companies. The following paragraphs appeared in The Wall Street
Write a short essay indicating how you might use accounting in a professional or business capacity? p-968
Describe two ways that you have already used accounting information in your personal decisions. p-968
The auditor’s report, shown in Exhibit 1,10, contains much useful information.Write a short essay, or form small groups in your class, discussing the kinds of information you think auditors should
At the end of every year, all employers send W-2 forms to their employees. These forms report the employees’ wages and the amount of tax withheld by the employer. These forms are the government’s
Some members of the financial community believe that annual reports should not only contain historical financial statements but should also contain forecasts by management of future results. Evaluate
Write a short essay describing how information requirements might differ between internal and external users of accounting. p-968
The Homestead Furniture Store has just begun selling a new line of inventory.Management must now decide on an inventory method to use. Method A results in higher net income and higher assets than
Assume that you are employed by a law firm as a staff accountant. The firm has purchased four season tickets for the Colorado Rockies (a baseball franchise).Your boss, one of the partners in the
Following is the auditor’s opinion expressed on the financial statements of Kleen-ware, Inc.:AN AUDITOR’S REPORT The Board of Directors Kleen-ware, Incorporated and Subsidiaries (the Company)We
Refer to the T-shirt business described at the beginning of this chapter. The owner has decided to expand her business by trying to secure a bank loan. After meeting with the bank loan officer, she
Which of the following transactions or events should be recorded in the firm’s accounting records? Explain your answer.a. Cash is received from a sale previously made on credit.b. A year after
Write a short essay identifying three measurement criteria that should be followed by accountants. Indicate why each criterion is important. p-968
Some accountants draw an analogy between developing financial statements and cartography (map making). They maintain that just as maps reflect the geographical reality of the area under study, so
A number of situations exists where more than one accounting principle is acceptable. Why is this advisable? p-968
Why do many businesses that are not regulated by the SEC elect to have their financial statements audited? p-968
What is the relationship between the FASB and the SEC? What role does Congress play in setting accounting standards? p-968
What considerations are used by the FASB in setting GAAP? p-968
Is accounting standard setting an art or a science? Why? p-968
Accounting principle selection has economic effects. How might this affect managers’ behavior? p-968
An old joke goes as follows:• Questioner: What is 2 + 2?• Accountant: Whatever you want it to be.What do you think this joke is designed to communicate? p-968
The selection of accounting principles can affect a firm’s manager’s wealth. Describe these effects. p-968
What information do present and potential creditors need to make decisions?How are financial statements helpful? p-968
What decisions do present and future owners of a business need to make? How are financial statements helpful? p-968
Write a short essay describing four different users of accounting reports and indicate their particular interests. p-968
List the three major financial statements. What information do they contain?How are they different? p-968
Describe the financial accounting process. Discuss its relationship to decision makers. p-968
Compare the cash flows of a business to its profits. How do cash flows differ from income or profits? p-968
List the three types (specialty areas) of accounting. Who are the users of each type of accounting? How do the needs of these users differ? p-968
The chapter discussed two general functions of financial accounting. Briefly describe them. p-968
Assess the importance of ethics in accounting. p-968
List the economic consequences of accounting principle choice. p-968
Describe the role of auditing. p-968
Define generally accepted accounting principles and explain how they are determined. p-968
Identify financial statement users and the decisions they make. p-968
List the three primary financial statements and briefly summarize the information contained in each. p-968
Distinguish among the three major types of accounting. p-968
Define accounting and identify its objectives. p-968
(Similar to Problem 2-33) John’s Anti-Mediation League (JAML) engaged in the following transactions in 1999:1. On January 1, JAML borrowed $100,000 at six percent per year with interest due
Describe each of the steps in the accounting process, as shown below:1. Identify transactions and events 2. Analyze transactions and events in terms of the basic accounting equation.3. Translate the
What are some of the conditions that might cause a trial balance not to be “in balance”? P=59
If a firm never prepared periodic financial statements, would it need to prepare adjusting or closing entries? Why? P=59
Why are closing entries used? P=59
Would a cash-based system have a need for adjusting entries? Why? P=59
Why are adjusting entries used? P=59
Discuss why a firm might use subsidiary ledgers. P=59
Define the term posting. P=59
Draw a diagram reflecting the parts of the accounting cycle, showing how journals, ledgers, and so on, are used to record transactions. P=59
Define the terms debit and credit. P=59
Generate balance sheets and income statements from general ledger accounts. P=59
Prepare and post closing entries. P=59
Prepare and post adjusting entries. P=59
Calculate account balances. P=59
Prepare and post journal entries. P=59
International Dairy Queen’s annual income statement for the year ended November 30, 1994, and its four quarterly income statements are presented below.Annual ending 11/30/94 11/30/94 2/24/95
Locate the most recent 10-K filing by Gillette Corporation from the EDGAR archives (www.sec.gov/edaux/searches.htm). The “Notes to the Financial Statements”contains detailed segment
TRW, Inc., is a global company that specializes in producing automotive, spacecraft, and information system products. The following (partial) segment data was reported (dollars in millions):December
Examine notes from the financial statements of two different companies to determine how they report segments of their operations. Evaluate the level of disclosure for each firm in terms of the
Assume you have just conducted a preliminary analysis of your firm’s 1999 financial statements. The firm has not prospered in recent years, and you are particularly concerned about violating a
Locate the most recent 10-K filing by Bank One and Time-Warner from the EDGAR archives (www.sec.gov/edaux/searches.htm). Refer to the note on significant accounting policies in “Notes to the
Review the prior chapters in this text and compile a list of at least five areas where estimates are required as part of the accounting measurement process.Determine through your review or through
Discuss why the effects of a change in an accounting estimate are not reported using the “cumulative effects” rule. Discuss the differences between the “cumulative effects”method and the
Why would a change from FIFO, or some other inventory method, to LIFO not require a retroactive adjustment of a firm’s financial statements? What would be the cumulative effect of such an
Identify an accounting change (other than a change in depreciation method)that requires a cumulative adjustment. Create a numerical example of this accounting change and show the effects on net
U. S. Shoe Corporation reported the following income statement information:U.S. Shoe Corporation Consolidated Statement of Earnings (Partial)(Dollars in Thousands)1991 1990 1989 Earnings (loss)
Central Air Conditioning, Inc. purchased machinery for installing air conditioners. The purchase price of the machine on July 1, 2000, was $35,000. The company chose a seven-year life, a
Mesple Music, Inc. purchased musical instrument equipment on January 1, 1999, for $25,000. Mesple depreciated it on the straight-line basis over five years with no salvage value. However, on January
IDQ’s income statement data for the years ended November 30, 2000 and 2001, are presented below (dollars in millions).11/30/00 11/30/01 Net sales $1061 $1154 Cost of goods sold 792 830 Gross profit
IDQ’s income statement data for the year ended November 30, 1999, is presented below (dollars in millions).11/30/99 Net sales $340 Cost of goods sold 249 Gross profit 91 Selling, general, and
The Sisters Coffee Emporium has been researching and developing new exotic coffee flavors and innovative coffee equipment. During 1998, it spent over$250,000 on R&D costs. It is now year-end and the
What are the implications of earnings management? As an external financial analyst, what can be done to combat earnings management?
Identify some methods that might be used to manage earnings that were not described in this chapter. Are these new methods more appropriate or more ethical than the methods already described in the
Describe each of the methods used to manage earnings. Which seem appropriate and ethical? Why?
Discuss each of the motivations for earnings management. Under what circumstances would you support the use of these techniques? Why?
What is earnings management? Why would a manager engage in earnings management? Would an investor or creditor approve of such activities? Under what circumstances would an investor or creditor
Identify the differences between relevance and reliability. Which would a manager emphasize? A financial analyst?
Why should financial analysts not be willing to accept all the information in a firm’s financial statements at face value?
Discuss how economic consequences can affect various users of financial statements. How should those who are affected by economic consequences participate in the development of accounting principles?
How do a firm’s accounting principles affect contracts that are based on the financial statements?
Describe financial accounting’s two primary roles. Discuss the major criteria that financial accounting must adopt as part of its informational role? What other roles or criteria would you suggest?
Why do price-to-earnings (P/E) ratios differ between firms?
Assume that a firm changes from FIFO to LIFO during a period of rising prices.Would a proponent of the EMH predict an increase or decrease in the firm’s share price as a result of the change in
Describe the efficient market hypothesis (EMH). How does it affect financial statement analysis as described in this text?
Why are interim reports less reliable and less useful than annual reports? In what major ways do interim reports differ from annual reports?
Why does a firm’s annual report contain so much information in such a variety of formats? Under what circumstances would a more condensed format be more useful?
Describe why a firm with more foreign operations or more large customers(greater than 10 percent of its volume) might be viewed as having higher risk than a domestic company with many small customers
Why is information about a firm’s major customers reported as part of the notes on the firm’s segment? Why not use a threshold higher than 10 percent as the criterion for determining who is a
Why are domestic and foreign operations separately disclosed? How would this information be helpful to an investor or creditor? P-*96
Why are profits for each segment shown as part of segment reporting? P-*96
Why are the identifiable assets for each segment shown as part of segment reporting? P-*96
Describe what is meant by an industry segment and the types of information that must be reported for each segment. P-*96
Identify three types of segment reporting. Where is this information reported?Why have such types of segment reporting been required? P-*96
Why is a change in reporting entity shown as a retroactive adjustment and not as a prospective adjustment? P-*96
In general, how are the financial statements changed when two firms merge or engage in some similar restructuring? P-*96

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