Chapter 7, Problem 3UJ

To determine

Financial statements: Financial statement of a company includes statement of assets and liabilities, income and expenses, notes to accounts, ratios, working capital and cash flow statements.

Case 1: O. Petroleum Corporation:

(a)

To determine the items other than coin and currency that can be included in “cash”

To determine

(b)

To determine the items that can be included in “cash equivalents”.

To determine

(c)

To determine the meaning of compensating balance arrangements, and how should they be reported in financial statements.

To determine

(d)

To Distinguish: To compute differences between cash equivalents and short-term (temporary) investments.

To determine

(e)

To determine the effect on income from the sale of receivables.

To determine

(f)

To determine the impact of the transaction in part (e) on O’s liquidity.

To determine

Case 2: M. Corporation:

Part 1 (Cash and Cash Equivalents):

(a)

To define: To provide definition for cash equivalent and to give some examples of cash equivalents and differentiate cash equivalents from other types of short-term investments.

To determine

(b)

To calculate: To calculate calculate (1) the current ratio and (2) working capital.

To determine

(c)

To determine the possibility of having too many liquid assets.

To determine

Part 2 (Accounts Receivable):

(a)

To compute: To compute M. Co’s accounts receivable turnover for 2014.

To determine

(b)

To prepare: To prepare journal entries for 2014 based on the information in the disclosure.

To determine

(c)

To determine the accounting for bad debts affects the analysis in Part 2 (a).