Questions from Financial Accounting

Q: Firms often enter into transactions that are peripheral to their core operations

Firms often enter into transactions that are peripheral to their core operations but generate gains and losses that must be reported on the income statement. Provide an example in which a gain generat...

Q: A firm has experienced an increasing current ratio but a decreasing operating

A firm has experienced an increasing current ratio but a decreasing operating cash flow to current liabilities ratio during the last three years. What is the likely explanation for these results?

Q: Financial accounting rules require firms to assess whether they will recover carrying

Financial accounting rules require firms to assess whether they will recover carrying amounts of long-lived assets and, if not, to write down the assets to their fair value and recognize an impairment...

Q: Nestle´ Group, a multinational food products firm based in Switzerland

Nestle´ Group, a multinational food products firm based in Switzerland, recently issued its financial statements. The auditor’s opinion attached to the financial statements stated the following: ‘‘In...

Q: Loss contingencies may or may not give rise to accounting liabilities.

Loss contingencies may or may not give rise to accounting liabilities. Financial reporting requires firms to recognize a loss contingency when two criteria are met. Describe the two criteria and provi...

Q: On June 24, Year 4, a major airline entered into

On June 24, Year 4, a major airline entered into a revolving accounts receivable facility (Facility) providing for the sale of $489 million of a defined pool of accounts receivable (Receivables) throu...

Q: Diviney Company wants to raise $50 million cash but for various

Diviney Company wants to raise $50 million cash but for various reasons does not want to do so in a way that results in a newly recorded liability. The firm is sufficiently solvent and profitable, so...

Q: Firms such as Deere & Company and Macy’s, Inc., often

Firms such as Deere & Company and Macy’s, Inc., often sell their receivables as a means of obtaining financing. Should firms selling receivables remove the receivables from the balance sheet, or shoul...

Q: The concept of accounting quality has several dimensions, but two characteristics

The concept of accounting quality has several dimensions, but two characteristics often dominate: the accounting information should be a fair representation of performance for the reporting period, an...

Q: Exhibit 1.25 presents common-size income statements and balance

Exhibit 1.25 presents common-size income statements and balance sheets for seven firms that operate at various stages in the value chain for the pharmaceutical industry. These common- size statements...