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    Tree Top Airlines began as a small commuter line * years ago but has grown into the seventh largest airline in America, with a strong regional route system. In addition, it has many routes to America's commercial centers and a few selected international routes. Tree Top has a fleet of 350 planes and approximately 7,000 employees, who (by company policy) must all be stockholders. The company grew rapidly after airline deregulation using a clever combination of long-term financing from banks and leasing companies and is now the largest employer in its home state. Its stock is widely traded on the American stock Exchange. In light of the company's rapid growth, the controller is performing a detailed complete reevaluation of the firm's accounting information system. While the system has been updated and improved constantly through the years, the controller is concerned whether it is providing useful information to the appropriate parties.

    A) Identify the parties that have an economic interest in Tree Top Airlines.

    B) For each party, identify the type of information that should be provided by Tree Top's accounting information system.

    © BrainMass Inc. brainmass.com December 24, 2021, 4:45 pm ad1c9bdddf
    https://brainmass.com/business/accounting/information-provided-accounting-systems-5720

    SOLUTION This solution is FREE courtesy of BrainMass!

    A) Identify the parties that have an economic interest in Tree Top Airlines.

    Stockholders
    Banks
    Leasing Companies
    Employees

    B) For each party, identify the type of information that should be provided by Tree Top's accounting information system.

    The employees are stockholders, hence their information requirements are clubbed with Stockholders. Both the banks and leasing companies are interested in the cash flow of the company to see whether their interest/ lease rentals are serviced (how liquid the company is). Hence they are clubbed together.

    Stockholders and Employees:
    The information they require are:
    Profitability or efficiency measures such as Revenue to total assets, Net Profit margin, Return on total asset, Rate of return on stockholder's equity (Net income/ Average Stockholder's Equity), Earnings Per Share. Payout ratio ( dividend per share/ earnings per share ).
    Market Value ratios such as Price/Earnings Ratio, Dividend yield.

    Banks and Leasing Companies : Investors in debt securities in this case the banks seek assurance that the operations would provide cash to meet the requirements of payment of interest and principal to them. Leasing companies are interested in getting their rental payments. Thus the banks and leasing companies would be interested in the cash flow from operations.
    The information they would like to have are:

    Budgets (schedule of the amounts and timings of cash payments)
    The amount of debt the Tree Top Airlines has. Debt to equity ratio is an important measure (to see whether Tree Top Airlines is excessively leveraged and whether there is a risk of bankruptcy).
    Liquidity ratios like the current ratios, cash ratios, quick ratios
    Interest coverage measured by times interest earned (income before interest expense and income tax/ interest expense).

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 4:45 pm ad1c9bdddf>
    https://brainmass.com/business/accounting/information-provided-accounting-systems-5720

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