(L.O. 3) In meeting the objective of financial reporting, financial statements should provide:

a. information about the investors in the business entity.

b. information about the liquidation values of the resources held by the enterprise.

c. information that is useful in assessing cash flow prospects.

d. information that will attract new investors.

Approach and Explanation: Before you read the possible answers, mentally describe the objective of financial reporting and its emphasis. Then carefully read the suggested answers. As you read an answer choice, note whether it is a match to your description or not. The objective of financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders and other creditors in decisions about providing resources to the entity. When making these decisions, investors and creditors are interested in assessing (1) the company’s ability to generate net cash flows and (2) management’s ability to protect and enhance the assets of the company, which will be used to generate future net cash inflows. (Solution = c.)