d. $90,000. e. none of the options listed 4. The purchase of an office building by issuing long-term notes payable should be reported as a a. cash outflow in the financing section of the statement of cash flows. b. cash outflow in the investing section of the statement of cash flows. c. cash outflow in the operating section of the statement of cash flows. d. noncash investing and financing activity. e. none of the options listed 5. If beginning capital was $25,000, ending capital is $37,000, and
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Goodwill Everyday companies are purchased and sold, mergers take place, and partnerships are formed all over the world. Once the purchaser and the seller have come to an agreement on a price or the merging companies come to an agreement, accounting needs to have a way to account for the difference between the tangible assets and the sales price and that is where goodwill comes into play. In a business combination, goodwill is measured as the difference between the price paid for an acquired
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Chapter 1 Financial Statements and Business Decisions ANSWERS TO QUESTIONS 1. Accounting is a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers. 2. Financial accounting involves preparation of the four basic financial statements and related disclosures for external decision makers. Managerial accounting involves the preparation of detailed plans, budgets, forecasts, and performance
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on. 2. Internal Information Users—those directly involved in managing and operating an organization. a. Managerial Accounting—is the area of accounting that serves the decision-making needs of internal users. b. Internal Reports—not subject to same rules as external reports. They are designed with special needs of external users in mind. 3. Internal Controls—procedures set up to protect company property and equipment, ensure reliable accounting reports, promote efficiency, and encourage adherence to
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make. Accounting Net Income and Cash Flows Changing a business from one process or industry to another will completely alter the process of recording business transactions. For a company to be considered profitable or successful, the cash flow must be accounted for accurately. The income statement contains noncash expenses and accruals and this is why net income is not an accurate measure of cash flow. This is also the reason for requiring a statement of cash flows and implementing an accrual accounting
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Interest Single Amounts • Annuities • Mixed Flows Understand what is meant by “the time value of money.” Understand the relationship between present and future value. Describe how the interest rate can be used to adjust the value of cash flows – both forward and backward – to a single point in time. Calculate both the future and present value of: (a) an amount invested today; (b) a stream of equal cash flows (an annuity); and (c) a stream of mixed cash flows. Distinguish between an “ordinary annuity”
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assists management decisions making on the process of ensuring growth of the organization. The techniques are divided into two types: one, Traditional (non-discounting) that includes pay back method, accounting rate of return (ARR). Two, discounting cash flow that includes net present value (NPV), internal rate of return (IRR) Profitability Index (PI). Before an investment appraisal is conducted, there are a number of points to keep in mind. Whilst the tool presented will give an evaluation of the worth
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It will look at possible risks factors associated when adding something new to a production line. The paper will talk about cash flow and how that might affect business. It will even talk about potential depreciation that could change over time. A recommendation will be giving to the CEO that will help him arrive at a sound decision for the ABC Company. The overall risk profile of ABC Company based on current economic and industry issues that it may face are described as followed. First, the economic
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Discuss the extent to which the legal and professional regulatory framework of accounting ensures that corporate reports provide reliable, relevant, objective, and comparable information to users. 2. Critically evaluate the importance of discounted cash flow techniques in investment decisions. Illustrate your answer with your examples. 3. Discuss the relative importance profitability and liquidity for the survival of a business and explain how the working capital can be managed to minimise the risk of
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Chapter 1 Multiple Choice Questions 1. This book is mainly about A) financial decisions made by households B) financial decisions made by corporations C) financial decisions made by governments D) none of the above Answer: B Type: Easy Page: 3 2. Finance, generally, deals with A) money B) markets C) people D) all of the above Answer: D Type:
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