CE 460 Chapter 9 - 14 Answer Key

CE 460 Chapter 9 - 14 Answer Key - CE 460 Homework #5 9.1...

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CE 460 – Homework #5 9.1 The cash based accounting system is the simplest form of accounting in which income is only taken into account when cash is actually received with no attempt to match revenue with the expenses incurred to make them . On the other hand the accrual method takes into account the period in which profits and expenses were incurred even if they have not been received yet. Pg 240 9.2 Financial statements are used to determine the financial health of the company; of these the most important are the income statement which tells the story of how profits/losses were earned over the year, and the balance sheet which is a snapshot of a firm’s present assets, liabilities and equity. However when looking at these statements one must realizes that these only show what has occurred in the past and can be of little use to predict the future. Pg 243-7 9.3 A current ratio is a ratio that is found be dividing the current assets by current liabilities. A current ratio of 1.52 means that for every dollar of liabilities there are 1.52 dollars of current assets. However, a quick ratio is computed exactly like a current ratio except current assets is subtracted by inventory which is not seen to be as liquid, this amount is then divided by current liabilities. Since the company has a quick ratio of .72 this means that for every dollar of liabilities, there is only .72 dollars of liquid current assets to pay off the debt meaning that the company must focus on liquidity and try to reduce inventory. Pg 249 9.4 By utilized rental equipment, a company can actually improve its ratio of assets to liabilities. 9.5 Straight-line depreciation, depreciates a value of an asset evenly over its useful life. This is the simplest depreciation method and spread the deprecation expense in a “rational” method over its useful life, rather than trying to mimic the actual decline of value. On the other hand, accelerated depreciation takes the greatest depreciation during the early years of an asset versus its later years. This is a very advantageous when used to external tax purposes since this allows the greatest amount of value to be recovered, reducing taxes and improving cash flow. 9.6 Differences between lump-sum contracts, unit-price contract and cost-plus contracts: When a payment request is made for a lump-sum contract it will be prepared by the contractor and be a sum that includes all work done by either the contractor or sub-
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contractors in a period such as a month denoted by a % of work completed. Since this method uses relatively few “work classifications”, it is more apt to contain estimations due to the laborious effort required to take note of the actual work completed in these often-interrelated categories. On the other hand payment requests made for unit price contracts will be based upon the actual amount of unit work completed during a period such as a month. This can be achieved in various ways such as verifying the amount of material that has been used up or taking field surveys of the amount of dirt excavated etc. However, on this payment request type the owner sends the contractor a pay request for
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CE 460 Chapter 9 - 14 Answer Key - CE 460 Homework #5 9.1...

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