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You have recently been hired by Davis & Company, a small public accounting firm. One of the firm's partners, Alice Davis, has asked you to deal with a disgruntled client, Mr. Sean Pitt, owner of the city's largest hardware store. Mr. Pitt is applying to a local bank for a substantial loan to remodel his store. The bank requires accrual based financial statements but Mr. Pitt has always kept the company's records on a cash basis. He does not see the purpose of accrual based statements. His most recent outburst went something like this: "After all, I collect cash from customers, pay my bills in cash, and I am going to pay the bank loan with cash. And, I already show my building and equipment as assets and depreciate them. I just don't understand the problem."
Draft a memo to the client to explain the importance of accrual based financial statements, make sure you: explain the difference between a cash basis and an accrual basis measure of performance, describe why, in most cases, accrual basis net income provide a better measure of performance than net operating cash flow, and explain the purpose of adjusting entries as they relate to the difference between cash and accrual accounting. When following up with your classmates, put yourself in the Mr. Pitt's place, do their explanations make sense? Are you persuaded or still confused? How could your classmates be clearer?
your company is considering a new project that will require 1055000 of new equipment at the start of the project. the
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A company issues $5,000,000, 7.8%, 20-year bonds to yeild 8% on January 1, 2007. Using effective-interest amortization, what will the carrying value of bonds be on December 31, 2007 balance sheet?
Thomas L. Friedman argues that many of the barriers protecting businesses and employees from global competition have been broken down due to dramatic improvements in communication and transportation technologies
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