OVERVIEW OF EXERCISES, PROBLEMS, AND CASES

2-1 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 2

Financial Statements and the Annual Report

OVERVIEW OF EXERCISES, PROBLEMS, AND CASES

Estimated Time in Learning Outcomes Exercises Minutes Level

• Describe the objectives of financial reporting.

• Describe the qualitative characteristics of accounting information. 1 10 Easy

• Explain the concept and purpose of a classified balance sheet 2 10 Mod

and prepare the statement. 3 10 Easy

• 10 Easy

12* 10 Mod

• Use a classified balance sheet to analyze a company’s 4 10 Easy

financial position.

• Explain the difference between a single-step and a 6 10 Easy

multiple-step income statement and prepare each type 7 10 Mod of income statement. 12* 10 Mod 13* 15 Mod 14* 5 Easy

• Use a multiple-step income statement to analyze a 8 10 Easy

company’s operations. 13* 15 Mod 14* 5 Easy

• Identify the components of the statement of retained earnings 9 10 Mod

and prepare the statement. 12* 10 Mod

• Identify the components of the statement of cash flows and 10 10 Easy

prepare the statement.

• Read and use the financial statements and other elements 11 20 Diff

in the annual report of a publicly held company.

*Exercise, problem, or case covers two or more learning outcomes

Level = Difficulty levels: Easy; Moderate (Mod); Difficult (Diff)

Using Financial Accounting Information The Alternative to Debits and Credits 8th Edition Porter Solutions Manual Visit TestBankDeal.com to get complete for all chapters

2-2 USING FINANCIAL ACCOUNTING SOLUTIONS MAN UAL

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Problems Estimated and Time in Learning Outcomes Alternates Minutes Level

• Describe the objectives of financial reporting. 12* 45 Diff

• Describe the qualitative characteristics of accounting information. 1 15 Diff
• 15 Mod

10* 35 Mod 11* 20 Mod

• Explain the concept and purpose of a classified balance sheet 3 50 Mod

and prepare the statement.

• Use a classified balance sheet to analyze a company’s 4 20 Easy

financial position. 5 15 Mod 10* 35 Mod 12* 45 Diff

• Explain the difference between a single-step and a 6 30 Mod

multiple-step income statement and prepare each type 7 45 Mod of income statement. 11* 20 Mod

• Use a multiple-step income statement to analyze a

company’s operations.

• Identify the components of the statement of retained earnings

and prepare the statement.

• Identify the components of the statement of cash flows and 8 30 Mod

prepare the statement. 12* 45 Diff

• Read and use the financial statements and other elements 9 30 Diff

in the annual report of a publicly held company.

*Exercise, problem, or case covers two or more learning outcomes

Level = Difficulty levels: Easy; Moderate (Mod); Difficult (Diff)

CHAPTER 2 • FINANCIAL STATEMENTS AND THE ANNUAL REPORT 2-3

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Estimated Time in Learning Outcomes Cases Minutes Level

• Describe the objectives of financial reporting.

• Describe the qualitative characteristics of accounting information. 5 30 Mod

• Explain the concept and purpose of a classified balance sheet

and prepare the statement.

• Use a classified balance sheet to analyze a company’s 1 30 Mod

financial position. 2 20 Mod 6* 30 Mod

• Explain the difference between a single-step and a

multiple-step income statement and prepare each type of income statement.

• Use a multiple-step income statement to analyze a 6* 30 Mod

company’s operations.

• Identify the components of the statement of retained earnings

and prepare the statement.

• Identify the components of the statement of cash flows and 3 25 Mod

prepare the statement.

• Read and use the financial statements and other elements 4 20 Mod

in the annual report of a publicly held company.

*Exercise, problem, or case covers two or more learning outcomes

Level = Difficulty levels: Easy; Moderate (Mod); Difficult (Diff)

2-4 USING FINANCIAL ACCOUNTING SOLUTIONS MAN UAL

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Q U E S T I O N S

• The primary concern to an investor is the future cash to be received from the in-

vestment. However, this does not mean that the cash flows of the company that has been invested in are not relevant. A relationship exists between the cash flows to the investor and those to the company. For example, a company that does not consist- ently generate sufficient cash flows from its operations will not be able to pay cash dividends to the investors over a sustained time.

• The understandability characteristic does not imply that someone must have an ex-

tensive accounting background to be able to use financial statements. However, ac- counting information should be understandable to those who are willing to learn to use it properly. In other words, the information should make sense to someone who spends the time required to have a basic understanding of accounting.

• Relevance is the capacity of accounting information to make a difference in a finan-

cial decision. For example, an income statement is relevant when the use of it has at least the potential to make a difference in an investment decision.

• Comparability is the quality of accounting information that allows comparisons to be

made between or among companies. Without it, financial statements would be very limited in their value. Financial decisions require choices to be made about the in- vestment of limited resources. Investors need assurance that the financial state- ments of companies that they are considering as investments are comparable.

• Comparability is the quality of information that allows for comparisons to be made

between two or more companies, whereas consistency is the quality that allows for comparisons to be made within a single entity from one accounting period to the next.

• The concept of materiality is closely related to the size of a company. For example,

assume that a company must decide whether a $500 expenditure that will benefit fu- ture periods should be expensed immediately or capitalized (i.e., recorded as an as- set). The decision cannot be made without considering the amount in relation to the size of the company. An amount that is immaterial for a large multinational corpora- tion may be material for a smaller business.

• The IASB recognizes the same qualitative characteristics for useful information as

does the FASB. The two groups are working together on a joint conceptual frame- work project, of which the chapter on qualitative characteristics is completed.