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Unformatted text preview: 21 CHAPTER 2 A Further Look at Financial Statements Study Objectives 1. Identify sections of a classified balance sheet. 2. Identify and compute ratios for analyzing a company’s profitability. 3. Explain the relationship between a retained earnings statement and a statement of stockholders’ equity. 4. Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. 5. Use the statement of cash flows to evaluate solvency. 6. Explain the meaning of generally accepted accounting principles. 7. Discuss financial reporting concepts. Summary of Questions by Study Objectives and Bloom’s Taxonomy Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT Questions 1. 1 K 5. 1 K 9. 4, 5 C 13. 6, 7 K 17. 6 C 2. 1 K 6. 2, 4, 5 C 10. 4, 5 K 14. 7 C 18. 7 K 3. 1 C 7. 2, 4, 5 K 11. 2, 4, 5 C 15. 7 C 19. 7 C 4. 1 C 8. 4 C 12. 6 K 16. 7 C 20. 7 C Brief Exercises 1. 1 K 4. 3 K 7. 6 K 9. 7 K 11. 7 K 2. 1 AP 5. 4 AP 8. 7 K 10. 7 K 12. 7 K 3. 2 AP 6. 4, 5 AP Exercises 1. 1 AP 4. 1 AP 7. 1, 3, 4 AP 9. 4 AP 11. 7 K 2. 1 AP 5. 1 AP 8. 4 AP 10. 4, 5 AP 12. 7 C 3. 1 AP 6. 2 AP Problems: Set A 1. 1 AP 3. 1, 3 AP 5. 2, 4, 5 AP 7. 2, 4, 5 AP 8. 6, 7 E 2. 1, 3 AP 4. 2, 4, 5 AN 6. 2, 4, 5 AP Problems: Set B 1. 1 AP 3. 1, 3 AP 5. 2, 4, 5 AP 7. 2, 4, 5 AP 8. 6, 7 E 2. 1, 3 AP 4. 2, 4, 5 AN 6. 2, 4, 5 AP 22 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Prepare a classified balance sheet. Simple 10–20 2A Prepare financial statements. Moderate 20–30 3A Prepare financial statements. Moderate 20–30 4A Compute ratios; commenting on relative profitability, liquidity, and solvency. Moderate 20–30 5A Compute and interpret liquidity, solvency, and profitability ratios. Simple 10–20 6A Compute and interpret liquidity, solvency, and profit ability ratios. Moderate 15–25 7A Compute ratios and compare liquidity, solvency, and profitability for two companies. Moderate 15–25 8A Comment on the objectives and qualitative characteristics of accounting information. Simple 10–20 1B Prepare a classified balance sheet. Simple 10–20 2B Prepare financial statements. Moderate 20–30 3B Prepare financial statements. Moderate 20–30 4B Compute ratios; commenting on relative profitability, liquidity, and solvency. Moderate 20–30 5B Compute and interpret liquidity, solvency, and profitability ratios. Simple 10–20 6B Compute and interpret liquidity, solvency, and profit ability ratios. Moderate 15–25 7B Compute ratios and compare liquidity, solvency, and profitability for two companies. Moderate 15–25 8B Comment on the objectives and qualitative characteristics of accounting information. Simple 10–20 23 ANSWERS TO QUESTIONS 1.A company’s operating cycle is the average time that is required to go from cash to cash in producing revenues....
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 Fall '07
 Loster
 Balance Sheet, ........., Generally Accepted Accounting Principles

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