Chapter 10 Solutions

Chapter 10 Solutions - 10-1 Instructors Manual for...

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10- 1 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 3E Chapter 10 REPORTING THE RESULTS OF OPERATIONS— THE ACTIVITY AND CASH FLOW STATEMENTS QUESTIONS FOR DISCUSSION 10-1. The Activity Statement is often referred to by other names, including the Income Statement, Statement of Changes in Net Assets, the Operating Statement, Profit and Loss (P&L) Statement, Earnings Report, Statement of Revenues and Expenses, and Statement of Revenues and Expenditures. 10-2. All organizations need to measure their net income, surplus, or excess of revenues over expenses. This allows them to determine whether their asset inflows exceed or fall short of their asset outflows. Public service organizations need to have adequate profits to sustain, update, and expand the services provided. Failure to earn a profit, or at least break even, can endanger the organization. However, because their mission is largely one of public service, many organizations do not wish to maximize their profits. The purpose of the income statement is to provide management with information they need to steer the organization as necessary to best accomplish its objectives. 10-3. Revenues and expenses can only be recorded if certain conditions are met. Revenues are recorded if they have been earned and realized. The first requirement, being earned, is met only if the organization has provided goods or services to the customer. If a legal transfer has occurred, raising a legal right to collect payment, then the revenues have been earned. To be realized we must be able to objectively measure the amount of money owed, and there must be a reasonable likelihood of eventual collection. Support recognition is allowed even though the gift has not been received, and even though no goods or services have actually been provided. In fact, pledges are enforceable contracts. We record pledges as support if there is a specific amount and a reasonable likelihood of collection. 10-4. Some types of expenses are product costs, and other types of costs are period costs. Product costs are those expenses that are directly connected to providing goods and services. They become expenses as they get used up. Period costs are those that relate to the passage of time, rather than the direct provision of services. They become expenses as they expire over time. For example, rent on a machine for a specific month or year expires as time passes. 10-5. It is unlikely that all numbers in the organization’s bookkeeping records are exactly correct. If numbers are reported to the nearest dollar or to the penny, there is an inference of greater accuracy than is likely to actually exist. By rounding off numbers, the financial statements provide a better sense to the user that this is approximately what has occurred, rather than exactly and precisely what has happened.
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Chapter 10: Reporting the Results of Operations: The Activity and Cash Flow Statements 10-2 10-6. This is a fairly open-ended question. Although the revenue from telephone is down, there is an
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Chapter 10 Solutions - 10-1 Instructors Manual for...

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