{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}


Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1-1 Odd-numbered Solutions CHAPTER 1 INTRODUCTION TO BUSINESS ACTIVITIES AND OVERVIEW OF FINANCIAL STATEMENTS AND THE REPORTING PROCESS Questions, Short Exercises, Exercises, Problems, and Cases: Answers and Solutions 1.1 The first question at the end of each chapter requires the student to review the important concepts or terms discussed in the chapter. In addition to the definitions or descriptions in the chapter, a glossary appears at the end of the book. 1.3 A balance sheet reports the assets, liabilities, and shareholders’ equity of a firm at a moment in time (similar to a snapshot), whereas the income statement and statement of cash flows report amounts for a period of time (similar to a motion picture). 1.5 As Chapter 3 makes clear, firms do not necessarily recognize revenues when they receive cash or recognize expenses when they disburse cash. Thus, net income will not necessarily equal cash flow from operations each period. Furthermore, firms disburse cash to acquire property, plant and equipment, repay debt, and pay dividends. Thus, net income and cash flows usually differ. A profitable firm will likely borrow funds in order to remain in business, but eventually operations must generate cash to repay the borrowing. 1.7 A wide range of individuals and entities (creditors, investors, security analysts, governmental agencies) use financial accounting reports for a broad range of purposes. If each firm selected whatever format and content of financial reports it deemed best, the resulting reporting process would probably be incomprehensible to many users. Accounting reports generated for internal management purposes, on the other hand, satisfy the information needs of a more limited set of users. Standardization is, therefore, not as necessary. 1.9 The accounting method would be uniform but the resulting information in the financial statements may not provide uniform measures of financial position or results of operations. If the economic characteristics of firms’ activities differ, then different accounting methods may be needed to reflect these differences.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Odd-numbered Solutions 1-2 1.11 We would disagree. Within capital market settings, someone must analyze and interpret financial accounting reports if market prices are to incorporate information from those reports. The principal message of efficient market research is that digestion of such information occurs very quickly. In addition, there are many users and uses of financial accounting reports outside of a capital market setting (lending, antitrust regulation, competitor analysis). 1.13 (Mattel; balance sheet relations.) (Amounts in Millions) Share- Current + Noncurrent = Current + Noncurrent + holders’ Assets Assets Liabilities Liabilities Equity ? + $2,071 = $1,649 + $832 + $1,979 Current assets total $2,389 million.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}