ACC 100 Study Guide - Midterm Guide: Cash Flow Statement, Free Cash Flow, Retained Earnings

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5 Mar 2013

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How to analyze ethical dilemmas: recognize ethical situation and ethical issues involved, identify and analyze the main elements in the situation, identify the alternatives, and weight the impact of each alternative on different groups. 2 types of users of financial documents: internal users, marketing managers, production supervisors, finance directors, company officers, external users. Investors: creditors, taxing authorities, regulatory agencies, customers, labour unions, economic planners. Businesses involved in 3 types of activities: financing activities, borrowing money and selling shares for cash, notes payable, bank indebtedness, long-term debt, mortgage payable, share capital. *creditors are paid before shareholders in the event of liquidation: investing activities, buying assets (property, plant and equipment) Investments: operating activities: (sales revenue, service revenue, interest revenue, accounts receivable. Revenues > expenses = net earnings (net income) Statement of earnings reports revenues and expenses to show how successful a company performed during a period of time.

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Instructions: Analyze the situation below using the 6-stepapproach to resolving ethical dilemmas on the next page. You shoulddiscuss each step of the approach in a separate paragraph.Therefore your finished paper should be 6 paragraphs long andapproximately 2-3 pages typed in 12-point font and double spaced.Prepare the paper in Word format and submit in the dropbox set upin Western Online by the due date listed there. This assignment isworth 60 pts in total with 50% of points for content and adherenceto the 6-step approach and 50% on grammatical style andpresentation (writing skills).

Jon Williams, CPA, is in the middle of the real-life soap opera,âTaxing Days of Our Livesâ

The Cast of Characters:

Oneway Corporation is Jonâs audit and tax client. The threedirectors are the officers and the only three stockholders, eachowning exactly one-third of the shares

President Jack founded the company and is now nearingretirement. As an individual, he is also Jonâs tax client.

Vice President Jill manages the day-to-day operations. She hasbeen instrumental in increasing the business and its profits.Jillâs individual tax work is done by CPA Phil.

Treasurer Bill has been a long-term, loyal employee and has beenresponsible for many innovative financial transactions and reportsof great benefit to the business. He is Jonâs close personal friendand an individual tax client. (Side Note: Another CPA in Jonâsaudit firm is the partner assigned to the audit engagement ofOneway Corporation to maintain auditor independence for thisengagement.)

The Request

President Jack discussed with CPA Jon the tax consequences tohim as an individual of selling his one-third interest in OnewayCorporation to Vice President Jill. Later, meeting with Bill todiscuss his individual tax problems, Jon learns that Bill fearsthat Jack and Jill will make a deal, put him in a minorityposition, and force him out of the company. Bill says, âJon, wehave been friends a long time. Please keep me informed about Jackâsplans, even rumors. My interest in Oneway Corporation represents mylife savings and my resources for my kidâs college. Remember,youâre little Ottoâs godfather.â

Thinking back, Jon realized that Vice President Jill has alwaysbeen rather hostile. Chances are that Phil would get the Onewayengagement if Jill acquires Jackâs shares and controls thecorporation. Nevertheless, Bill will probably suffer a great dealif he cannot learn about Jackâs plans, and Jonâs unwillingness tokeep him informed will probably ruin their close friendship. Jonponders the problem. âOneway Corporation is my client, but acorporation is only a âlegal entityâ. The stockholders personifythe real entity, so they are collectively my clients, and I cantransmit information among them as though they were one person.Right? On the other hand, Jack and Bill engage me for individualtax work, and information about oneâs personal affairs is really nobusiness of the other. âWhat to do? What to do?â

Ethical Model 1. Obtain the relevant facts.

2. Identify the ethical issues from the facts.

3. Determine who is affected by the outcome of the dilemma andhow each person or group is affected.

4. Identify the alternatives available to the person who mustresolve the dilemma.

5. Identify the likely consequence of each alternative.

6. Decide the appropriate action.

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QUESTION 1 The knowledge of financial accounting can assist people with decisions such as whether to extend credit to a business. True False 0.2 points Saved QUESTION 2 Employees of a company would not have a reason to use the information provided by financial accounting. True False 0.2 points Saved

QUESTION 3 Financial accounting should be used for assessing the financial health of large organizations only. True False 0.2 points Saved

QUESTION 4 Financial accounting can be helpful for a job candidate who is assessing the financial future of a potential employer. True False 0.2 points Saved QUESTION 5 Lenders might use the information produced by financial accounting when making loan decisions. True False 0.2 points Saved

QUESTION 6 Credit analysts prefer not to use information provided by financial accounting, as it is not accurate. True False 0.2 points Saved

QUESTION 7 Financial accounting is helpful to investment advisors. True False 0.2 points Saved

QUESTION 8 Financial accounting is more useful than managerial accounting. True False 0.2 points Saved

QUESTION 9 The decision to buy or rent equipment is an example of a decision aided by managerial accounting. True False 0.2 points Saved

QUESTION 10 Which of the following statements is true of financial accounting? A. It is used by external parties to make investment decisions. B. It is used to make lease or purchase decisions. C. Managerial accounting is another name for financial accounting, D. It is primarily used to make internal decisions of a business. E. The effectiveness of advertising can be judged using financial accounting. 0.2 points Saved QUESTION 11 The charge for using money over time, often associated with long-term loans, is known as: A. interest. B. principal. C. distribution charge. D. cash dividend. E. preferred dividend. 0.2 points Saved QUESTION 12 Which of the following is a common feature of financial and managerial accounting? A. Both have same objectives B. Both are prepared according to U.S. GAAP C. Both are reported at year end in the annual report D. Both are analyzed by external users while making investment decisions E. Both are used by the management in making decisions 0.2 points Saved

QUESTION 13 Dividends are required to be paid to stockholders on an annual basis. True False 0.2 points Saved

QUESTION 14 An individual who owns one or more shares of stock in a corporation is an owner of that corporation. True False 0.2 points Saved

QUESTION 15 Corporations do not exist as separate legal entities apart from their owners. True False 0.2 points Save Answer

QUESTION 16 It is very difficult to buy or sell ownership shares of a corporation in a stock exchange. True False 0.2 points Saved

QUESTION 17 Stock markets match up investors who wish to buy shares with those who wish to sell them. True False 0.2 points Saved

QUESTION 18 Legal process by which owners of an organization apply to a state government to have it identified as an entity legally separate from its owners is called: A. stocking. B. filling. C. attributing. D. registration. E. incorporation. 0.2 points Saved

QUESTION 19 An advantage of ownership in a sole proprietorship over ownership in a corporation is: A. tax benefits. B. having a board of directors. C. the ability to raise capital through issuance of stock. D. separation of owner and business as legal entities. E. limited liability for debts. 0.2 points Saved

QUESTION 20 Who hires the management of a corporation? A. Stockholders B. Board of directors C. Creditors D. Government E. SEC 0.2 points Saved QUESTION 21 Inventory refers to the: A. excess amount paid for an asset over its fair value. B. intangible assets of a business. C. merchandise bought or manufactured for the purpose of selling. D. amount of net income reinvested by company for future operations. E. revenue generated from investment. 0.2 points Saved QUESTION 22 Investors use financial information to predict whether a: A. company will recruit more employees. B. company's stock price will increase C. company has invested in buildings. D. company will pay salaries. E. company's bond price will increase. 0.2 points Saved

QUESTION 23 Financial accounting can be compared to a portrait. True False 0.2 points Saved

QUESTION 24 Financial statements provide the form and structure for the conveyance of financial information that will create a likeness of the reporting organization. True False 0.2 points Saved

QUESTION 25 The information reported in financial statements must be exact for an investor to make any decision. True False 0.2 points Saved

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ACC 100 Study Guide - Midterm Guide: Cash Flow Statement, Free Cash Flow, Retained Earnings

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