Provide brief but complete (i.e., succinct) responses to the following:
1. Name the two groups with claims on a company's assets. Which has the primary claim and why?
2. Why are the financial statements usually presented in a comparative format?
3. Why is a prepaid expense recorded as an asset?
4. what is the difference between recognition and disclosure?
5. What is "accumulated other comprehensive income"? Why is this used instead of the income statement for certain items (and what are these items...)?
6. What does Retained Earnings represent? Should a company have as much cash as Retained Earnings?
7. What does gross profit represent? [I am NOT asking for the calculation, but rather what does it "mean"...] Given this, how would gross profit (also known as gross margin) be computed for a service organization?
8.If net income is already provided, why show earnings per share on the Income Statement?
9. Why are most business time-value-of-money problems handled as present value?
10. What kind of an annuity is involved for bonds? WHY?
11. If the allowance method is used for bad debts, identify the effect of the following transactions on net income, net A/R, current assets, and the current ratio: Write out the journal entries and equations to help answer these...
- recognition of bad debt expense
- write-off of an account and
- collection of an account previously written off.
12. What does the "discount" on a non-interest-bearing note represent? [Note that I am NOT asking how you compute it, but rather what does the "discount" means!] Does it make any difference what the discount represents if the note is a receivable or a payable? Explain why or why not.
13. What is the purpose of adjusting entries? What two general categories of accounts are involved in every adjusting entry?
14. If you are evaluating an insurance company's financials to buy its stock (or even to lend it money), what are the implications if its unearmed premium revenue balance decreased from the beginning of the year to the end of the year?