1. Why should management be concerned about the efficiency of the end-of-period procedures?
2. Spectrum Company had an increase in sales and net income during its last fiscal year, but cash decreased and the firm was having difficulty paying its bills by the end of the year. What factors might cause a shortage of cash even though a firm is profitable?
3. For the last three years, the balance sheet of Smith Hardware Center, a large retail store, has shown a substantial increase in merchandise inventory. Why might management be concerned about this development?
4. Why is it important to compare the financial statements of the current year with those of prior years?
5. Should a manager be concerned if the balance sheet shows a large increase in current liabilities and a large decrease in current assets? Explain your answer.
6. The latest income statement prepared at Patel Company shows that net sales increased by 10 percent over the previous year and selling expenses increased by 25 percent. Do you think that management should investigate the reasons for the increase in selling expenses? Why or why not?
7. Why is it useful for management to compare a firm’s financial statements with financial information from other companies in the same industry?