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Principles of Accounting, Volume 1: Financial Accounting

Thought Provokers

Principles of Accounting, Volume 1: Financial AccountingThought Provokers
TP 1.

LO 4.1Assume you are the controller of a large corporation, and the chief executive officer (CEO) has requested that you explain to them why the net income that you are reporting for the year is so low, when the CEO knows for a fact that the cash accounts are much higher at the end of the year than they were at the beginning of the year. Write a memo to the CEO to offer some possible explanations for the disparity between financial statement net income and the change in cash during the year.

TP 2.

LO 4.2Search the US Securities and Exchange Commission website (https://www.sec.gov/edgar/searchedgar/companysearch.html), and locate the latest Form 10-K for a company you would like to analyze. Submit a short memo:

  • State the name and ticker symbol of the company you have chosen.
  • Review the company’s end-of-period Balance Sheet for the most recent annual report, in search of accruals and deferrals.
  • List the name and account balance of at least four accounts that represent accruals or deferrals—these could be accrued revenues, accrued expenses, deferred (unearned) revenues, or deferred (prepaid) expenses.
  • Provide the web link to the company’s Form 10-K, to allow accurate verification of your answers.
TP 3.

LO 4.3Search the web for instances of possible impropriety relating to earnings management. This could be news reports, Securities and Exchange Commission violation reports, fraud charges, or any other source of alleged financial statement judgment lapse.

  • Write down the name and industry type of the company you are discussing.
  • Describe the purported indiscretion, and how it relates to mis-reporting earnings or shady accounting.
  • Estimate the impact of the potential misrepresented amount.
  • Note: You do not have to have proof that a compromise occurred, but you do need to have a source of your reporting of the potential trouble.
  • Provide the web link to the information you found, to allow accurate verification of your answers.
TP 4.

LO 4.4Assume you are employed as the chief financial officer of a corporation and are responsible for preparation of the financial statements, including the adjusting process and preparation of the adjusted trial balance. The company is facing a slow year, and after your adjusting entries, the financial statements are accurately reflecting that fact. However, as you are discussing the matter with your boss, the chief executive officer (CEO), he suggests that you have the power to make further adjustments to the statements, and that you should use that power to “adjust” the profits and equity into a stronger position, so that investor confidence in the company’s prospects will be restored.

Write a short memo to the CEO, stating your intentions about what you can and/or will do to make the financial statements more appealing. Be specific about any planned adjustments that could be made, assuming that normal period-end adjustments have already been reflected accurately in the financial statements that you prepared.

TP 5.

LO 4.5Search the SEC website (https://www.sec.gov/edgar/searchedgar/companysearch.html) and locate the latest Form 10-K for a company you would like to analyze. Submit a short memo:

  • State the name and ticker symbol of the company you have chosen.
  • Review the company’s end-of-period Balance Sheet, Income Statement, and Statement of Retained Earnings.
  • Reconstruct an adjusted trial balance for the company, from the information presented in the three specified financial statements.
  • Provide the web link to the company’s Form 10-K, to allow accurate verification of your answers.
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