The FASB has developed the Financial Accounting Standards Board Accounting Standards Codification (or more simply “the Codification”). The FASB’s primary goal in developing the Codification is to provide in one place all the authoritative literature related to a particular topic. To provide easy access to the Codification, the FASB also developed the Financial Accounting Standards Board Codification Research System (CRS). CRS is an online, real-time database that provides easy access to the Codification. The Codification and the related CRS provide a topically organized structure, subdivided into topic, subtopics, sections, and paragraphs, using a numerical index system. You may find this system useful in your present and future studies, and so we have provided an opportunity to use this online system as part of the Expand Your Critical Thinking section.
Academic access to the FASB Codification is available through university subscriptions, obtained from the American Accounting Association, for an annual fee of $150. This subscription covers an unlimited number of students within a single institution. Once this access has been obtained by your school, you should log in and familiarize yourself with the resources that are accessible at the FASB Codification site.
Every company needs to plan in order to move forward. Its top management must consider where it wants the company to be in three to five years. Like a company, you need to think about where you want to be three to five years from now, and you need to start taking steps now in order to get there.
Provide responses to each of the following items.
a. Where would you like to be working in three to five years? Describe your plan for getting there by identifying between five and 10 specific steps that you need to take in order to get there.
b. In order to get the job you want, you will need a résumé. Your résumé is the equivalent of a company’s annual report. It needs to provide relevant information that is a faithful representation about your past accomplishments so that employers can decide whether to “invest” in you. Do a search on the Internet to find a good résumé format. What are the basic elements of a résumé?
c. A company’s annual report provides information about a company’s accomplishments. In order for investors to use the annual report, the information must provide a faithful representation. How can you assure that the information on your résumé provides a faithful representation about you and your accomplishments? d. Prepare a résumé assuming that you have accomplished the five to 10 specific steps you identified in part (a). Also, provide evidence that would give assurance that the information is a faithful representation.
In this chapter, you learned how to use many tools for performing a financial analysis of a company. When making personal investments, however, it is most likely that you won’t be buying and bonds in individual companies. Instead, when most people want to invest in stock, they buy mutual funds. By investing in a mutual fund, you reduce your risk because the fund diversifies by buying the stock of a variety of different companies, bonds, and other investments, depending on the stated goals of the fund. Before you invest in a fund, you will need to decide what type of fund you want. For example, do you want a fund that has the potential of high growth (but also high risk), or are you looking for lower risk and a steady stream of income? Do you want a fund that invests only in U.S. companies, or do you want one that invests globally? Many resources are available to help you with these types of decisions.
Do an Internet search on “Motley Fool Here’s How to Determine Your Ideal Asset Allocation Strategy” and then complete the investment allocation questionnaire. Add up your total points to determine the type of investment fund that would be appropriate for you.
Much information about specific companies is available on the Internet. Such information includes basic descriptions of the company’s location, activities, industry, financial health, and financial performance.
Go to the Yahoo! Finance website and then type in a company name, or use the index to fi nd company name. Choose Profi le and then perform instructions (a)–(c) below. Next, click on the company’s specifi c industry to identify competitors. Perform instructions (d)–(g) below.
a. What is the company’s industry?
b. What was the company’s total sales?
c. What was the company’s net income?
d. What are the names of four of the company’s competitors?
e. Choose one of these competitors.
f. What is this competitor’s name? What were its sales? What was its net income?
g. Which of these two companies is larger by size of sales? Which one reported higher net income?
If you haven’t already done so, in the not-too-distant future you will prepare a résumé. In some ways, your résumé is like a company’s annual report. Its purpose is to enable others to evaluate your past, in an effort to predict your future.
A résumé is your opportunity to create a positive first impression. It is important that it be impressive—but it should also be accurate. In order to increase their job prospects, some people are tempted to “inflate” their résumés by overstating the importance of some past accomplishments or positions. In fact, you might even think that “everybody does it” and that if you don’t do it, you will be at a disadvantage.
Jay Ling, the president and CEO of a well-known electronics retailer, overstated his accomplishments by claiming that he had earned a bachelor’s of science degree, when in fact he had not. Apparently, his employer had not done a background check to ensure the accuracy of his résumé. Should the company have fired him?
The bookkeeper for J.L. Kang Equipment Repair made a number of errors in journalizing and posting, as described below.
1. A credit posting of $525 to Accounts Receivable was omitted.
2. A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.
3. A collection from a customer of $100 in payment of its account owed was journalized and posted as a debit to Cash $100 and a credit to Service Revenue $100.
4. A credit posting of $415 to Property Taxes Payable was made twice.
5. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25 and a credit to Cash $25.
6. A debit of $625 to Advertising Expense was posted as $652.
For each error:
a. Indicate whether the trial balance will balance.
b. If the trial balance will not balance, indicate the amount of the difference.
c. Indicate the trial balance column that will have the larger total.
Consider each error separately. Use the following form, in which error (1) is given as an example.
Selected transactions for Spring Cruises are listed below.
1. Made cash investment to start business.
2. Paid monthly rent.
3. Purchased equipment on account.
4. Billed customers for services performed.
5. Withdrew cash for owner’s personal use.
6. Received cash from customers billed in (4).
7. Incurred advertising expense on account.
8. Purchased additional equipment for cash.
9. Received cash from customers when service was performed.
List the numbers of the above transactions and describe the effect of each transaction on assets, liabilities, and owner’s equity. For example, the first answer is: (1) Increase in assets and increase in owner’s equity.
a. The following are users of financial statements.
Customers …………………………….. Financial regulators
Tax authorities ……………………… Store manager
Labor unions ………………………… Suppliers
Marketing manager ……………. Vice president of finance
Identify the users as being either external users or internal users.
b. The following questions could be asked by an internal user or an external user.
Can we afford to give our employees a pay raise?
Did the company earn a satisfactory income?
Do we need to borrow in the near future?
How does the company’s profitability compare to other companies?
What does it cost us to manufacture each unit produced?
Which product should we emphasize?
Will the company be able to pay its short-term debts?
Identify each of the questions as being more likely asked by an internal user or an external user.
The financial statements of TSMC are presented in Appendix A. The notes accompanying the statements contain the following selected accounts. The complete annual report, including the notes to the financial statements, is available at the company’s website,
Accounts (Trade) Payable Tax Payable
Accounts (Trade) Receivable Interest Expense (finance cost)
Property, Plant, and Equipment Inventories
a. Answer the following questions.
1. What is the increase and decrease side for each account?
2. What is the normal balance for each account?
b. Identify the probable other account in the transaction and the eff ect on that account when:
1. Accounts (Trade) Receivable is decreased.
2. Accounts (Trade) Payable is decreased.
3. Inventories are increased.
c. Identify the other account(s) that ordinarily would be involved when:
1. Interest Expense is increased.
2. Property, Plant, and Equipment is increased.
Below is a list of concepts in the left column, with a description of the concept in the right column. There are more descriptions provided than concepts. Match the description of the concept to the concept.
1. ___ Cash-basis accounting.
a. Monthly and quarterly time periods.
2. ___ Fiscal year.
b. Accountants divide the economic life of a business into artificialtime periods.
3. ___ Revenue recognition principle.
c. Efforts (expenses) should be recognized in the period in which a company uses assets or incurs liabilities to generate accomplishments (revenues).
4. ___ Expense recognition principle.
d. Companies record revenues when they receive cash and record expenses when they pay out cash.
1. ___ Cash-basis accounting.
e. An accounting time period that is one year in length.
f. An accounting time period that starts on January 1 and ends on December 31.
g. Companies record transactions in the period in which the events occur.
h. Recognize revenue in the accounting period in which a performance obligation is satisfied.