This is “End-of-Chapter Exercises”, section 2.5 from the book Business Accounting (v. 2.0).
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Which of the following is not an example of an uncertainty that companies often face in their financial reporting?
Which of the following is true about U.S. GAAP?
Questions 3, 4, and 5 are based on the following:
Mike Gomez owns a music store called Mike’s Music and More. The store has inventory for sale that includes pianos, guitars, and other musical instruments. Mike rents the building in which his store is located, but owns the equipment and fixtures inside it. Last week, Mike’s Music made sales of $3,000. Some of the sales were made in cash. Some were made to customers who have an account with Mike’s Music and are billed at the end of the month. Last month, Mike’s Music borrowed $10,000 from a local bank to expand the amount of inventory being sold.
Which of the following is not an asset owned by Mike’s Music?
Which of the following is a liability to Mike’s Music?
Which of the following statements is true?
The Acme Company reports financial information to potential investors. The information is said to be “presented fairly according to U.S. GAAP.” What does that mean?
Which of the following statements is true?
The Remingshire Corporation paid $2,000 at the end of the week to employees who worked for the business during that week. The corporation also paid another $3,000 at the end of the week for rent on the retail space that was occupied that week. Which of the following statements is true?
Officials for the Boston Company have just borrowed $25,000 on a three-year loan from a bank. Which of the following is true?
Professor Joe Hoyle discusses the answers to these two problems at the links that are indicated. After formulating your answers, watch each video to see how Professor Hoyle answers these questions.
Your roommate is an English major. The roommate knows that you are taking a course in financial accounting. The roommate has never once considered taking a class in business and is interested in what you are learning. One evening, while listening to some music on the Internet, you mention that financial accounting is a type of language. The roommate is completely baffled by this assertion and wants to know how anything in accounting could possibly resemble a language such as English. How would you respond?
Your uncle has worked for a large office supply business for the past twenty years. He is responsible for a small team of employees who do the interior design work for each of the company’s stores located around the country. One day he sends you the following e-mail:. “As a reward for twenty years of service, my company has offered to sell me one thousand shares of their capital stock for $23 per share. That’s $23,000, and that is a lot of money. I’ve never been interested in this aspect of business, but I don’t want to make a dumb decision. The company furnished me with a set of financial statements that are just full of numbers and odd terms. At one point, I found a statement that this information was presented fairly in conformity with U.S. Generally Accepted Accounting Principles. I understand you are taking a financial accounting course in college. What is meant by ‘presented fairly’? What is meant by ‘U.S. Generally Accepted Accounting Principles’? Most important, why is this important to me as I look through financial statements in hopes of making a good decision?”
Mark each of the following with an (A) to indicate it is an asset, an (L) to indicate it is a liability, an (R) to indicate it is revenue, or an (E) to indicate it is an expense.
For each of the following, indicate at least one area of uncertainty that would impact the financial reporting of the balance.
For each of the following events, indicate whether the net assets of the reporting company increase, decrease, or remain the same.
Go to http://www.aboutmcdonalds.com/. At the McDonald’s Web site, click on “Investors” at the left of the page. Click on “Annual Reports” on the right of the next screen. Finally, click on “2010 Annual Report” to download. Answer the following questions:
IBM Corporation provides information about accounting to help decision makers understand the financial statements that the business provides. Go to the following URL and read the sections presented on “Assets” and on “Liabilities.”
For the coverage of assets, and then also for liabilities, list two pieces of information that you already knew based on the coverage here in Chapter 2 "What Should Decision Makers Know in Order to Make Good Decisions about an Organization?". Next, list one piece of information about both assets and liabilities that you learned from the IBM essay.
Go to http://www.google.com/finance/. In the box labeled “Get quotes,” enter “Johnson & Johnson.” On the page that appears, scroll down and find “Investor Relations” on the right side. Click on that link and then click on “Annual Reports” on the left side of the next page. Click on “2010 Annual Report” in the middle of the next page that appears. After the annual report downloads, scroll to page 41. You should find a listing of the company’s assets and liabilities.