In: Accounting
identifying areas where a firm might incur substantial losses. |
preparing financial statements for the annual report. |
making sure a firm has adequate cash available |
managing a firm’s risk exposure in financial and commodity markets. |
2. Why is a mission statement important to a firm?
It is updated annually whenever management wants to pursue a new idea to communicate the plan to investors. |
It is a necessary part of loan applications. |
Managers should support the mission with appropriate operating plans. |
It gives investors insight into the risk/expected return trade-off for the firm. |
3. In what ways does a limited partnership differ from a corporation?
Limited liability of owners |
Taxation |
Ease of start-up |
Some owners do not participate in the day-to-day operations of the firm |
4. Which of the following suffers from double taxation of dividends?
General partnership |
Limited partnership |
Corporation |
Limited liability company |
5. Which of the following is usually not found in the annual report?
Income statement |
Statement of cash flows |
Disclosure of the names of major customers |
Discussion of current and future business opportunities |
6. The main difference between the accounting and a financial perspective of a firm’s operations is that the financial perspective does which of the following?
Focuses on cash flows |
Is historical in nature |
Tracks assets and depreciates them over time according to set techniques |
Focuses on firm profits |
7. What combination of income statements and balance sheets is needed to create the statement of cash flows?
Two most recent balance sheets and most recent income statement |
Most recent balance sheet and income statement |
Two most recent income statements and most recent balance sheet |
Two most recent income statements and two most recent balance sheets |
1. Making sure a firm has adequate cash available.
Explanation: The treasurer is resposible for running the treasury function of the company. He is responsible for liquidity management, cash and finance needs of the company.
2. Managers should support the mission with appropriate operating plans.
Explanation: The mission statement shows what is the business of a company and what does it want to achieve in terms of sales. It provides the guidance to the managers on how to plan their activities for achieving this mission.
3. Taxation
Explanation: In limited partnership, the tax is passed on to the partners for paying. In Corporation, the corporation pays its own taxes.
4. Corporations
Explanation: In corporations, the corporation pay tax on their income during the year and post distributing the after tax earning to the shareholder, the same is again taxed in the hands of the shareholders as their income.
5. Disclosure of the names of major customers
Explanation:The Annual Report contains Income Statement, Cash Flows and Management Discussion and Analysis which gives present and future business opportunities. It does not contain names of major customers.
6. Focuses on cash flows
Explanation: The Financial perspective of a firm’s operations focusses on cash flows in order to determine fund position and also to forecast future finance requirements. Financial perspective is more analytical in nature whereby it analyses the position of a firm's operation.
7. Two most recent balance sheets and most recent income statement
Explanation: This is becasue in order to prepare the cash flow statement, the cash position as well as changes from one period to another period needs to be known before preparing the cash flow.