Financial Accounting (5th Edition) (What's New in Accounting)
5th Edition
ISBN: 9780134727790
Author: Robert Kemp, Jeffrey Waybright
Publisher: PEARSON
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Chapter 8, Problem 1SBA
1.
To determine
Discuss the kind of response that might come from the banker regarding the net income as it relates to
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Assume you are the controller of a large corporation and the ceo has requested that you explain to them why the net income that you are reporting for the year is so low when the cell owes for a fact that cash accounts are much higher at the end of the year than they were at the beginning of the year write a memo to the ceo to offer some possible explanations for the disparity between financial statement net income and the change in cash during the year
Your managers showed you the income statement for your company. The income statement shows a net income of 5.4%, yet your manager says the company will need to borrow money to meet their financial obligations.
How is this possible? Please address the following issues in your discussion this week:
How can a company make a profit and still be short of cash?
In accrual accounting, we record sales when they occur, not when the cash is collected. How does this affect cash flow?
How does the purchase of fixed assets or additional inventory adversely affect cash flow?
Read the article “Why Cash Management Is Key to Business Success.” After reading, answer the following questions:
1) What happens when a business is unable to generate enough cash?
2) What does the article have to say about accounts receivable, accounts payable, and inventories?
3) Is it bad for a company to have too much cash? Justify your answer.
Chapter 8 Solutions
Financial Accounting (5th Edition) (What's New in Accounting)
Ch. 8 - Prob. 1DQCh. 8 - Prob. 2DQCh. 8 - Prob. 3DQCh. 8 - What is depreciation, and why is it used in...Ch. 8 - Prob. 5DQCh. 8 - Which depreciation method would be moot...Ch. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQ
Ch. 8 - Prob. 1SCCh. 8 - Prob. 2SCCh. 8 - How should a capital expenditure for a long-term...Ch. 8 - Which depreciation method usually produces the...Ch. 8 - Prob. 5SCCh. 8 - Prob. 6SCCh. 8 - Prob. 7SCCh. 8 - Prob. 8SCCh. 8 - Prob. 9SCCh. 8 - Prob. 10SCCh. 8 - Prob. 11SCCh. 8 - Prob. 12SCCh. 8 - Prob. 1SECh. 8 - Long-term asset terms (Learning Objective 1) 5-10...Ch. 8 - Prob. 3SECh. 8 - Lump-sum purchase (Learning Objective 2) 5-10 min....Ch. 8 - Errors in accounting for long-term assets...Ch. 8 - Concept of depreciation (Learning Objective 3)...Ch. 8 - Depreciation methods (Learning Objective 3) 10-15...Ch. 8 - Depreciation methods (Learning Objective 3) 10-15...Ch. 8 - Prob. 9SECh. 8 - Prob. 10SECh. 8 - Prob. 11SECh. 8 - Prob. 12SECh. 8 - Prob. 13SECh. 8 - Prob. 14SECh. 8 - Prob. 15SECh. 8 - Other long term assets (Learning Objective 8) 5-10...Ch. 8 - Prob. 17SECh. 8 - Prob. 18AECh. 8 - Prob. 19AECh. 8 - Prob. 20AECh. 8 - Prob. 21AECh. 8 - Depreciation methods (Learning Objective 3) 15-20...Ch. 8 - Prob. 23AECh. 8 - Prob. 24AECh. 8 - Prob. 25AECh. 8 - Prob. 26AECh. 8 - Prob. 27AECh. 8 - Prob. 28AECh. 8 - Prob. 29AECh. 8 - Prob. 30AECh. 8 - Prob. 31AECh. 8 - Prob. 32BECh. 8 - Prob. 33BECh. 8 - Prob. 34BECh. 8 - Prob. 35BECh. 8 - Prob. 36BECh. 8 - Prob. 37BECh. 8 - Prob. 38BECh. 8 - Prob. 39BECh. 8 - Prob. 40BECh. 8 - Prob. 41BECh. 8 - Prob. 42BECh. 8 - Prob. 43BECh. 8 - Prob. 44BECh. 8 - Prob. 45BECh. 8 - Long-term asset costs and partial-year...Ch. 8 - Journalizing long-term asset transactions...Ch. 8 - Prob. 48APCh. 8 - Prob. 49APCh. 8 - Prob. 50APCh. 8 - Prob. 51APCh. 8 - Prob. 52APCh. 8 - Prob. 53BPCh. 8 - Journalizing long-term asset transactions...Ch. 8 - Prob. 55BPCh. 8 - Prob. 56BPCh. 8 - Prob. 57BPCh. 8 - Prob. 58BPCh. 8 - Prob. 59BPCh. 8 - Prob. 1CECh. 8 - Prob. 1CPCh. 8 - Continuing Financial Statement Analysis Problem...Ch. 8 - Prob. 1EIACh. 8 - Prob. 2EIACh. 8 - Financial Analysis Purpose: To help familiarize...Ch. 8 - Prob. 1IACh. 8 - Prob. 1SBACh. 8 - Written Communication A client of yours notified...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Assume you are the controller of a large corporation, and the chief executive officer (CEO) has requested that you explain to them why the net income that you are reporting for the year is so low, when the CEO knows for a fact that the cash accounts are much higher at the end of the year than they were at the beginning of the year. Write a memo to the CEO to offer some possible explanations for the disparity between financial statement net income and the change in cash during the year.arrow_forwardSuppose your company has prolonged period of profits that creates a positive cashflow but you see the need to buy new equipment to sustain growth and you also have employees who are giving their best that must be rewarded. In addition, banks are courting you to avail of their corporate loan but you know for a fact that you have substantial amount of cash. How do you handle this situation?arrow_forwardam. 109.arrow_forward
- Accounting data are used to analyze cash flows, and this analysis is critical for decision making. Consider the following case: J&H Corp. recently hired Jeffrey. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. • Last year, J&H Corp. reported a book value of $400 million in current assets, of which 20% is cash, 22% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $340.0 million of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable claims last year. There were no changes in the accounts payables during the reporting period. • The company, however, invested heavily in plant and equipment to support its operations. It…arrow_forward“Cash Is King” for all businesses You can determine a company’s cash situation by analyzing the cash flow statement. The cash flow statement also helps determine whether the company (1) is generating enough cash from its operations to make new investments and pay dividends or (2) will need to generate cash by issuing new debt or selling its assets. Which of the following is true for the statement of cash flows? It reflects cash generated and used during the reporting period. It reflects revenues when earned. Three categories of activities (operating, investing, and financing) generate or use the cash flow in a company. In the following table, identify which type of activity is described by each statement. Operating Activity Investing Activity Financing Activity Yum Co. uses cash to repurchase 10% of its common stock. A pharmaceutical company buys marketing rights to sell a drug exclusively in East Asian markets.…arrow_forward“Cash Is King” for all businesses You can determine a company’s cash situation by analyzing the cash flow statement. The cash flow statement also helps determine whether the company (1) is generating enough cash from its operations to make new investments and pay dividends or (2) will need to generate cash by issuing new debt or selling its assets. Which of the following is true for the statement of cash flows? It reflects revenues when earned. It reflects cash generated and used during the reporting period. A. Three categories of activities (operating, investing, and financing) generate or use the cash flow in a company. In the following table, identify which type of activity is described by each statement. Operating Activity Investing Activity Financing Activity A company records a loss of $70,000 on the sale of its outdated inventory. D and W Co. sells its last season’s inventory to a discount store. Yum…arrow_forward
- Hi, can I have some help with this? Thank you!arrow_forwardA small business owner is having issues with cash flow and is unclear of how to fix the situation. What can they do to make their cash flow position better? What could be the root reasons of the cash flow issu What quick fixes and long-term solutions are available to solve the cash flow iss ue?e?ssue?arrow_forwardA small business owner is experiencing cash flow problems and is unsure of how to address the issue. What steps can they take to improve their cash flow situation? What are the potential causes of the cash flow problem? What short-term and long-term measures can be taken to address the cash flow problem?arrow_forward
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