GM506 diss 2

Can you explain how using LIFO for inventory valuation might affect financial reporting during inflation compared to FIFO, and why companies might prefer one method over the other?

Comment on the following statements with suitable example: i. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall. ii. Explain how return on assets could decline, given an increase in net profit margin. iii. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.

During a period of inflation, an account balance remains constant. With respect to this account, a purchasing power loss will be recognized if the account is a: a. Monetary asset b. Monetary liability c. Nonmonetary asset d. Nonmonetary liability

Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions.  Return on investment Inventory turnover Fixed asset turnover Debt-to-assets ratio

Accrual accounting requires estimates of future outcomes. For example, the reserve for bad debts is a forecast of the amount of current receivables that will ultimately prove uncollectible. Required: Identify and explain three reasons why accounting information might deviate from the underlying economic reality. Cite examples of transactions that might give rise to each of the reasons.

Required: a. Explain why "better matching" occurs with LIFO. b. What is the impact on the carrying value of inventory in the balance sheet when LIFO rather than FIFO is used during periods of inflation?

During a period of inflation, an account balance remains constant. With respect to this account, a purchasing power gain will be recognized if the account is a: a. Monetary liability b. Monetary asset c. Nonmonetary liability d. Nonmonetary asset

"The projected income statement method consists of taking the estimated income statement for the next period and adding or subtracting to the income the items that affect cash and that are not included as sales or as expenses". do you believe the above statement to be true or false? true or false

Which of the following is an example of a conservative accounting practice? a. Estimate the allowance for uncollectible accounts to be a larger amount.b. Do not write down inventory for declines in net realizable value (estimated selling price).c. Record a lower amount of depreciation expense in the earlier years of an asset’s life.d. Record sales revenue before it is actually earned.

What is a question that should be asked about accounts payable when forecasting? a.) What are the costs associated with storing goods? b.) How much bad debt should be anticipated? c.) How much cash is needed on hand to meet current liabilities? d.) How quickly can we replenish goods?

If accrued liabilities are overestimated in the current period, the reported income in a following period will be lower than it should be. Select one: True False

Income can be distorted by factors other than inflation. The most important causes of distortion for inter-industry comparisons are: A. timing of revenue receipts and nonrecurring losses. B. tax write-off policy and different inventory methods. C. A and B D. answer not given

When preparing a projected income statement, which of the following additional information, other than the financial statements would probably not be relevant?  a) Expected capital expenditure b) The competitive environment c) New versus old store mix d) Expected level of macroeconomic activity

Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?  Monetary unit assumption. Periodicity assumption. Going-concern assumption.   Economic entity assumption.

Why is it important to check if debt is decreasing if we have decline in interest expense in financial statement?

What conclusion can be made from the trends showing in the current ratio and debt ratio? Since the debt ratio is increasing and the current ratio is decreasing, we can conclude that long-term liabilities are trending higher than non-current assets. O Since the debt ratio is decreasing and the current ratio is increasing, we can conclude that long-term liabilities are trending lower than non-current assets. O Since the debt ratio is increasing and the current ratio is increasing, we can conclude that long-term liabilities are trending higher than non-current assets. O Since the debt ratio is increasing and the current ratio is increasing, we can conclude that long-term liabilities are trending lower than non-current assets.

Which of the following would increase risk?   a. Raise the level of working capital b. Increase the amount of equity financing c. Increase the amount of short term borrowing d. Decrease the amount of inventory by formulating an effective inventory policy

Which of the following statements is not correct? Select the correct response: The principal amount of a debt is the cash or cash equivalent amount borrowed The carrying amount of a noninterest-bearing note payable due in lump sum will decrease as time goes by When a noncash asset is acquired and the stated rate of interest is different from the current market rate of interest, the cost of the asset is the present value of the future cash payments discounted at the current market rate of interest rather than at the stated interest rate. A company that receives cash in an amount less than the face amount of a noninterest-bearing note payable should record the note at its discounted present value.

Which one of the following statements is correct? Seasonal needs are financed with short-term loans when firms adhere to a flexible financing policy. A flexible financing policy tends to increase the risk of encountering financial distress. Long-term interest rates tend to be less volatile than short-term rates. Most firms tend to finance inventory with long-term debt. Short-term interest rates are generally higher than long-term rates.

Compare and contrast the percent of sales and analysis of receivables method for determining bad debt. Both are acceptable under US GAAP, which one do you think is a better more accurate method and why?

Why is the acid test ratio a more rigorous test of short-term solvency than the current ratio? A. The quick ratio eliminates prepaid expenses for the denominator.B. The quick ratio eliminates prepaid expenses for the numerator.C. The quick ratio eliminates inventories from the numerator.D. The quick ratio considers only cash and marketable investments as current assets.E. The quick ratio eliminates revenue from the numerator.

Which of the following statements is most correct?   a. When actual inflation exceeds expected inflation, debtors gain at the expense of creditors because they repay their loans with depreciated currency. b. When expected inflation exceeds actual inflation, debtors gain at the expense of creditors because they repay their loans with depreciated currency. c. When actual inflation exceeds expected inflation, creditors gain at the expense of debtors because they repay their loans with devalued currency. d. When actual inflation exceeds expected inflation, debtors and creditors both lose because they repay their loans with depreciated currency.

Which of the following assumptions is assumed in the percent of sales forecasting method?     All balance sheet assets accounts are tied directly to sales.     Accounts receivables and inventory are tied directly to sales.     Preferred stock and long-term debt are tied directly to sales.     Fixed assets, but not current assets, are tied directly to sales.

Based on your understanding of the fAactors that affect the cost of money, Identify which of the following statement is true.  a. higher inflation leads to lower interest rates. b. Interest is the price paid to borrow funds.  c. Higher risk leads to lower interest rates.