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    GAAP/FASB, Internal Control, Financial Statement Analysis

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    Resources: Chapters 7, 8, and 15 of Financial Accounting

    Chapter 7: Accounting Principles
    1. (a) What are generally accepted accounting principles (GAAP)?
    (b)What bodies provide authoritative support for GAAP?
    2. What elements comprise the FASB's conceptual framework?

    Chapter 8: Internal Control
    E8-5 Listed below are five procedures followed by The Beat Company.
    1. Several individuals operate the cash register using the same register drawer.
    2. A monthly bank reconciliation is prepared by someone who has no other cash responsibilities.
    3. Ellen May writes checks and also records cash payment journal entries.
    4. One individual orders inventory, while a different individual authorizes payments.
    5. Unnumbered sales invoices from credit sales are forwarded to the accounting department
    every four weeks for recording.


    Indicate whether each procedure is an example of good internal control or of weak internal control.
    If it is an example of good internal control, indicate which internal control principle is being
    followed. If it is an example of weak internal control, indicate which internal control principle is
    violated. Use the table below.

    Identify internal control weaknesses over cash disbursements and suggest improvements. (SO 2, 4)

    Identify internal control weaknesses for cash disbursements and suggest improvements. (SO 4)

    Indicate whether procedure is good or weak internal control. (SO 2, 3, 4)

    Procedure IC Good or Weak? Related Internal Control Principle

    Chapter 15: Financial Statement Analysis
    BE15-1 You recently received a letter from your Uncle Frank. A portion of the letter is presented below.

    You know that I have a significant amount of money I saved over the years. I am thinking about starting an investment program. I want to do the investing myself, based on my own research and analysis of financial statements. I know that you are studying accounting, so I have a couple of questions for you. I have heard that different users of financial statements are interested in different characteristics of companies. Is this true, and, if so, why? Also, some of my friends, who are already investing, have told me that comparisons involving a company's financial data can be made on a number of different bases. Can you explain these bases to me?

    Write a letter to your Uncle Frank which answers his questions.
    BE15-2 Drew Carey Corporation reported the following amounts in 2007, 2008, and 2009.

    2007 2008 2009
    Current assets $200,000 $230,000 $240,000
    Current liabilities $160,000 $168,000 $184,000
    Total assets $500,000 $600,000 $620,000

    (a) Identify and describe the three tools of financial statement analysis.
    (b) Perform each of the three types of analysis on Drew Carey's current assets.

    Identify and use tools of financial statement analysis. (SO 2, 3, 4, 5)

    BE15-11 The following data are taken from the financial statements of Morino Company.

    2009 2008
    Accounts receivable (net), end of year $ 550,000 $ 520,000
    Net sales on account 3,960,000 3,100,000
    Terms for all sales are 1/10, n/60.

    (a) Compute for each year (1) the receivables turnover and (2) the average collection period. At the end of 2007, accounts receivable (net) was $480,000.
    (b) What conclusions about the management of accounts receivable can be drawn from these data?

    Evaluate collection of accounts receivable. (SO 5)

    Show all calculations to receive credit.

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    Solution Summary

    This solution is comprised of several financial accounting problems that deal with several different topics. These topics include the following: Explain the meaning of GAAP and identify the key items of the FASB's conceptual framework. Identify the principles of internal control. Identify and calculate the tools of financial statement analysis. Evaluate the collection of accounts receivable. The problems shown here are taken from Financial Accounting, 6th ed, Wiley Publishing, however, the detail step-by-step explanation of these complicated topics provides students with a clear understanding of the concepts. Thank you for using BrainMass.com. Have a great day!