Exercises chapter 23 PDF

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Exercises chapter 23...

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Exercises chapter 23 23.23: Referring to the research study discussed in chapter 23, some limitations of the financial statement analysis done in BE 23-21 are as follows: 1. Uncertainty about the nature and role of the financial statements. For example, the composition of selling, general, and administrative expenses is uncertain, and it is uncertain whether the income statements have been audited. This may lead users to misinterpret and/or place inappropriate reliance on the information. 2. Uncertainty about the nature of business operations portrayed. For example, the company’s type of business activities and the economic environment that the company operates in are unknown. 3. Uncertainty due to limitations of financial statement measurements and disclosures. The measurements in the income statements are not well understood, because there are no additional disclosures about the accounting policies and practices followed. 4. Uncertainty about management’s motives and intentions. Management’s choices in determining the accounting policies and methods may be motivated by a need to maximize bonuses over time, for example. 23.4: (a) Revenue test: 10% X $398,000 = $39,800. Segments A ($140,000), B ($40,000) and D ($190,000) meet this test. (b) Operating profit test: 10% of the greater of (in absolute terms) segments with a loss or segments with profit: Loss segments: 5,000 + 2,000 = 7,000 Profitable segments: $25,000 + $8,000 + $500 = $33,500 (greater of above x 10%): 10% X $33,500 = $3,350. Segments A ($25,000), B ($8,000), and C ($5,000 absolute amount) meet this test. (c) Identifiable assets test: 10% X $351,000 = $35,100. Segments A ($240,000), C ($36,000) and D ($49,000) meet this test....