Report Week: Two Make The Following Changes To The

Reportweek Twomake The Following Changes To The

Make the following changes to the exercises and problems based on various accounting and financial reporting scenarios, including journal entries, cash flow statements, ratios, and treatment of transactions for different companies during specified periods. The tasks involve preparing financial statements, analyzing transactions, and applying accounting principles to record, classify, and interpret data from case studies, ensuring adherence to relevant accounting standards and accurately reflecting the business activities.

Sample Paper For Above instruction

The complexity of accounting for various business transactions necessitates a systematic approach to recording, analyzing, and interpreting financial data. Proper classification and treatment of transactions not only ensure compliance with accounting standards but also facilitate accurate financial analysis and decision-making. This paper explores the preparation of cash flow statements under different methods, journal entries for installment sales, and the application of financial ratios to test the reasonableness of reported data, using hypothetical company scenarios and actual data where applicable.

Introduction

In contemporary financial accounting, the accurate recording and reporting of transactions are vital for providing stakeholders with reliable and timely information. Transactions such as sales, investments, financing activities, and long-term contracts must be reflected appropriately on the financial statements. The use of ratios further aids in verifying the integrity and reasonableness of these reports. This paper discusses practical applications of accounting principles through case studies involving Bluebonnet Bakers, Wainwright Corporation, Tiger Enterprises, and other entities, illustrating the importance of disciplined financial reporting and analytical methods.

Preparation of Cash Flow Statements

The statement of cash flows is a crucial financial statement that depicts how a firm generates and utilizes cash during a specific period. Under the direct method, operating cash flows are derived directly from cash receipts and payments, whereas the indirect method adjusts net income for non-cash transactions and changes in working capital. For example, Bluebonnet Bakers’ 2011 cash flows highlight collections from customers and payments for inventories and salaries, which need to be classified under operating activities. Investments include sales of investments and the purchase of equipment, while financing involves proceeds and payments pertaining to notes payable and dividends.

Similarly, Wainwright Corporation’s transactions, including issuance of stock, equipment purchase, inventory purchase, and collection from customers, require classification into financing, investing, or operating activities, along with an assessment of cash effects. Proper analysis of each transaction ensures the accuracy of the resulting cash flow statement and reflects the true liquidity position of the company.

Journal Entries for Installment Sales and Long-term Contracts

Accountants must record installment sales using specific journal entries that recognize revenue, gross profit, and cash collections over the period of installment payments. For example, Charter Corporation’s entries involve recording installment receivables, recognizing gross profit as collections occur, and adjusting inventory and deferred gross profit accounts accordingly.

Similarly, long-term contracts such as those undertaken by Sanderson Construction require detailed calculations under different revenue recognition methods, including percentage-of-completion, completed-contract, and IFRS standards. These methods impact the timing and recognition of revenue and gross profit, influencing the reported income for each period. The choice of method and assumptions about costs to complete significantly affect the financial statements and require careful estimation and judgment.

Ratio Analysis and Reasonableness Testing

Financial ratios serve as tools for auditors to verify the consistency and plausibility of reported balances. Using ratios such as profit margin, return on assets, gross profit margin, inventory and receivables turnover, acid-test ratio, current ratio, and debt-to-equity ratio, auditors can estimate what current balances should approximate based on prior relationships. For example, if Covington Pike’s net income and sales are known, ratios can help estimate total assets and liabilities, thereby uncovering discrepancies or confirming reported data.

In cases where unusual or infrequent gains/losses, changes in accounting principles, or restructuring costs are encountered, proper classification and disclosure are essential. Accounting standards provide specific guidance on how to treat these items, ensuring transparency and comparability across periods.

Case Study: Material Transactions and Their Treatment

Several scenarios illustrate how material transactions are handled in financial reporting. For instance, bond repurchases at a loss are treated as unusual or infrequent items, affecting net income and disclosures. Changes in depreciation methods or useful lives require adjustments reflected as changes in accounting estimates or principles, impacting depreciation expense and asset values. Sale of retail outlets classified as discontinued operations must be presented separately to inform users of ongoing versus discontinued activities.

Accurate classification and disclosure support stakeholders in understanding the financial position, performance, and prospects of the entity, emphasizing compliance with accounting standards.

Conclusion

Effective financial reporting requires meticulous recording and analysis of transactions, application of appropriate accounting principles, and strategic use of ratios for validation. The case studies and scenarios discussed underscore the importance of disciplined accounting practices to produce transparent and reliable financial statements. As businesses navigate complex transactions, adherence to standards and careful judgment ensure that financial reports truly reflect the economic reality of the entities, fostering trust and informed decision-making among users.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice (15th ed.). Cengage Learning.
  • accountants at Work. (2020). Financial Reporting and Analysis Guidelines. Harvard Business Review Press.
  • Financial Accounting Standards Board (FASB). (2018). Accounting Standards Codification (ASC). FASB.
  • Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (16th ed.). Wiley.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • International Financial Reporting Standards (IFRS). (2022). IFRS Foundation.
  • Gibson, C. H. (2018). Financial Reporting & Analysis (13th ed.). Cengage Learning.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2017). Financial Statements: A User Perspective. Wiley.
  • Lev, B. (2021). The End of Accounting and the Path Forward for Investors and Managers. McGraw-Hill Education.
  • Higgins, R. C. (2022). Analysis for Financial Management (12th ed.). McGraw-Hill Education.

Related Assignments