Exam 1: Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

Understanding financial reports requires an understanding of the activities of the business.Describe at least four investing activities that firms use to obtain the productive capacity to carry out its business activities.

Broke Inc is experiencing a cash flow problem finding that its cash decreases, even though net income increases. Which of the following is/are a possible reason(s)?

Retained earnings represent the net assets (total assets - total liabilities) a firm derives from its earnings that exceed the dividends.

To carry out their plans, firms require financing, that is, funds from owners and creditors.When the firm raises funds from owners, which of the following is true?

The cash basis of accounting, as a basis for measuring performance for a particular accounting period, has/have which of the following weakness(es)?

The balance sheet of Old Gold Mines for the year ended June 30, 20x2, showed a balance in retained earnings of $6,000 million at the end of 20x2 and $4,600 million at the end of 20x1.Net income for 20x2 was $2,400, million.Compute the amount of dividends Old Gold Mines declared during 20x2.

The balance sheet of Copper Industries, a producer of copper, showed retained earnings of $26,000 million at March 31, 20x1.At March 31, 20x2, the balance in retained earnings was $70,500 million .Copper declared dividends during the year ended March 31, 20x2, of $3,500 million.Compute Copper's net income for the year ended March 31, 20x2 (fiscal 20x1).

_____ are the end results toward which the firm directs its energies.

A natural business year ends when most activities in an operating cycle have been substantially concluded.

(CMA adapted, Jun 94 #6) Accounting systems vary widely from one business to another, depending on the size of the firm, the volume of data to be handled, and the nature of the business.An accounting system should provide information for management decision-making and generate reports on the enterprise's financial condition and operations.The accounting profession relies on general-purpose financial statements to provide information to users; the intent of these general-purpose statements is to provide the most useful information possible to diverse user groups at minimal cost.The principal financial statements used for public reporting purposes are the statement of earnings (income statement), statement of financial position (balance sheet), and statement of cash flows. Required: a.Financial statements should provide information that is useful to users. Describe the level of sophistication expected of the external users of financial statements. b. For each of the financial statements listed below, define its purpose and briefly explain how it meets the needs of external users. 1. Statement of earnings. 2. Statement of financial position. 3. Statement of cash flows. c. Footnotes and responsibility for the financial statements 1. Explain the role of the notes to the financial statements. 2. Explain management's responsibility for the financial statements. 3. Explain the auditor's responsibility for the financial statements.

_____ refers to converting a noncash item to cash, for example, collecting an account receivable.

A firm makes investments to obtain productive capacity to carry out its business activities.

_____ reflect values at the balance sheet date, so they reflect that day's economic conditions.

Revenues are:

Selected balance sheet amounts for Puff Group International Limited, a diversified electronics firm, appears next, as of December 31, 2014, and December 31, 2013.Compute the missing amounts for the two years.

Performance measured using the cash basis is not sensitive to the timing of cash expenditures.

The activities of a business include establishing goals and strategies, obtaining financing, making investments and conducting operations.

Describe the accrual basis of accounting.

Who under the oversight of the firm's governing board, prepares the financial statements?

The _____ report changes in assets and liabilities over a period of time, similar to a motion picture.