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Exam 1: Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

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Question 1

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Understanding financial reports requires an understanding of the activities of the business.Describe at least three operating activities that firms use to generate earnings.

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Operating activities include the followi...

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Question 2

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Which of the following is true?

A) A firm without sufficient cash will not survive.
B) A firm operating profitably will always survive.
C) Examining the cash receipts and disbursements during each month can identify the reasons for any deterioration of the cash balance.
D) a and c
E) all of the above

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Question 3

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FASB board members make standard-setting decisions guided by a conceptual framework that addresses the qualitative characteristics of accounting information. Which of the qualitative characteristics of accounting information holds that the information should be pertinent to the decisions made by users of financial statements, in the sense of having the capacity to affect their resource allocation decisions?

Presented below are statement regarding the roles of participants in the financial reporting process.Identify these as either true or false. If false, explain why the statement is false.

Education Power is a charitable organization that promotes educational opportunities for inner city children and adults.Describe how the four common key activities would differ for this organization as opposed to a for-profit business entity.

When creditors provide funds to a firm, which of the following is/are true?

The accrual basis of accounting is often contrasted with the cash basis of accounting.Which of the following is/are true of the cash basis of accounting?

What is US GAAP?

The number of days between when the employees and suppliers provide goods and services and when the firm pays cash to those employees and suppliers is called the _____ period.

The independent external auditors of a business prepare financial statements to present meaningful information about that business's activities to external users.

Firms communicate the results of their business activities in the _____.

The mix of liabilities plus shareholders' equity reflects a firm's investing decisions, each measured at the balance sheet date.

The current replacement cost of an asset is the amount a firm would have to pay to obtain another asset with identical service potential; it is an entry value that reflects economic conditions at the measurement date.

The balance sheet of Old Gold Mines, a gold mining company, for the year ended June 30, 20x1, showed current assets of $6 million, noncurrent assets of $49 million, noncurrent liabilities of $14 million, and current liabilities of $4 million. Compute the amount of shareholders' equity on Old Gold Mines' balance sheet at the end of 20x1.

The financial statements present aggregated information, for example, the total amount of land, buildings, and equipment.Financial reports provide more detail for some of the items reported in the financial statements, and they provide additional explanatory material to help the user to understand the information in the financial statements.This information appears in _____ that are an integral part of the financial reports.

The statement of cash flows for Goal Corporation, a U.S.retailer, for the year ended February 2, 20x2 (fiscal 20x1) , showed a net cash inflow from operations of $4,100 million, a net cash outflow for investing of $6,200 million, and a net cash inflow for financing of $3,700 million.The balance sheet at February 3, 20x1, showed a balance in cash of $800 million.Compute the amount of cash on the balance sheet at February 2, 20x2.

Patents, licenses, and other contractual rights are tangible, in the sense that the rights have a physical existence.

Briefly describe the International Accounting Standards Board (IASB) and who can use IFRS in the United States?

Examples of factors from the operating environment that would affect a firm's goals and strategies include which of the following?

Here is data from Cellular Communications, Inc. $\begin{array}{lll}&\text { December } 31\\\text { BALANCE SHEET ITEMS }&\text { Year } 7&\text { Year } 6\\\text { Accounts Payable } & \$ 5,219 & \$ 7,873 \\\text { Accounts Receivable } & 58,363 & 48,645 \\\text { Bonds Payable (due Year 20) } & 10,313 & 4,602 \\\text { Cash } & 821 & 668 \\\text { Common Stock } & 560 & 540 \\\text { Income Taxes Payable } & 414 & 580 \\\text { Inventories } & 33,305 & 30,752 \\\text { Other Current Assets } & 2,681 & 742 \\\text { Other Current Liabilities } & 185 & 1,115 \\\text { Other Noncurrent Assets } & 90 & 152 \\\text { Property, Plant, and Equipment } & 21,881 & 15,972 \\\text { Retained Earnings } & 99,969 & 81,627 \\\text { Salaries Payable } & 481 & 594\end{array}$ $\begin{array}{ll}\text { INCOME STATEMENT ITEMS }&\text { Year } 7\\\hline \text { Administrative Expense } & \$ 20,588 \\\text { Cost of Goods Sold } & 246,864 \\\text { Income Tax Expense } & 7,267 \\\text { Interest Expense } & 1,803 \\\text { Sales Revenue } & 361,026 \\\text { Salary and Wage Expense } & 21,367 \\\text { Selling Expense } & 44,795\end{array}$ Required: a.Prepare a comparative balance sheet for Cellular Communications Inc. as of December 31, Year 6 and Year 7. Classify each balance sheet item into one of the following categories: current assets, noncurrent assets, current liabilities, noncurrent liabilities, and shareholders' equity. b.Prepare an income statement for Cellular Communications Inc. for Year 7. c.Prepare a schedule explaining the change in retained earnings between the beginning and the end of Year 7. d.Compare the amounts on Cellular Communications Inc. balance sheet on December 31, Year 6, and December 31, Year 7. Identify the major changes and suggest possible explanations for the changes.