Questions from Financial Accounting

Q: An entrepreneur claimed that her new company had generated both superior profit

An entrepreneur claimed that her new company had generated both superior profit margin performance and superior asset turnover performance. Explain whether such an outcome is likely to happen.

Q: “The measurement of assets and liabilities relates closely to the measurement

“The measurement of assets and liabilities relates closely to the measurement of revenues and expenses.” Explain.

Q: Distinguish between a cost and an expense.

Distinguish between a cost and an expense.

Q: Both interest expense on borrowing and dividends on common stock reduce net

Both interest expense on borrowing and dividends on common stock reduce net assets and reduce shareholders’ equity. Accountants treat interest as an expense in measuring net income but do not treat di...

Q: Why is it important to separate the income from discontinued operations from

Why is it important to separate the income from discontinued operations from the income from continuing operations on the income statement?

Q: Accounting treats cash discounts taken on the purchase of merchandise or equipment

Accounting treats cash discounts taken on the purchase of merchandise or equipment as a reduction in the amount recorded for the assets acquired. What justification can you see for this treatment?

Q: Some of the assets of one firm correspond to the liabilities of

Some of the assets of one firm correspond to the liabilities of another firm. For example, an account receivable on the seller’s balance sheet is an account payable on the buyer’s balance sheet. For e...

Q: The acquisition of equipment by assuming a mortgage is a transaction that

The acquisition of equipment by assuming a mortgage is a transaction that firms cannot report in their statement of cash flows but must report in a supplemental schedule or note. Of what value is info...

Q: Under what circumstances will the rate of return on equity exceed the

Under what circumstances will the rate of return on equity exceed the rate of return on assets? Under what circumstances will it be less?

Q: A firm generated net income for the current year, but cash

A firm generated net income for the current year, but cash flow from operations was negative. How can this happen?