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You have recently been hired by Davis & Company, a small public accounting firm. One of the firm's partners, Alice Davis, has asked you to deal with a disgruntled client, Mr. Sean Pitt, owner of the city's largest hardware store. Mr. Pitt is applying to a local bank for a substantial loan to remodel his store. The bank requires accrual based financial statements but Mr. Pitt has always kept the company's records on a cash basis. He does not see the purpose of accrual based statements. His most recent outburst went something like this: "After all, I collect cash from customers, pay my bills in cash, and I am going to pay the bank loan with cash. And, I already show my building and equipment as assets and depreciate them. I just don't understand the problem."
Draft a memo to the client to explain the importance of accrual based financial statements, make sure you: explain the difference between a cash basis and an accrual basis measure of performance, describe why, in most cases, accrual basis net income provide a better measure of performance than net operating cash flow, and explain the purpose of adjusting entries as they relate to the difference between cash and accrual accounting. When following up with your classmates, put yourself in the Mr. Pitt's place, do their explanations make sense? Are you persuaded or still confused? How could your classmates be clearer?
Company had total assets of $200,000, total liabilities of $110,000, and shareholders' equity of $90,000 at the beginning of the year. For the year, Company earned net income of $75,000 and declared cash dividends of $30,000. At the end of the yea..
Suppose 6 months ago a Swiss investor bought a 6-month U.S. Treasury bill at a price of $9,708.74, with a maturity value of $10,000. The exchange rate at that time was 1.420 Swiss francs per dollar. Today, at maturity, the exchange rate is 1.324 S..
Ace manufacturing has entered into a supply agreement with KB toys. KB is very concerned about meeting competitive price points in a profitable way. As a result, they are looking to keep costs as low as possible while delivering a quality product on ..
The risk-free rate with continuous compounding is 3% per annum, the stock price is $30 and the delivery price is $28. Calculate the value of this short forward contract.
determine the after-tax cash flow from the unamortized discount associated with the retirement now of each of these bonds, using the values developed in part (D)
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a 25-year 8 semiannual coupon bond with a par value of 1000 may be called in 4 years at a call price of 1100. the bond
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In a meeting with Flamingo's management team, HJ consultants provided the following information about the industry exposure effectiveness rating per ad, their estimate of the number of potential new customers reached per ad, and the cost for each ..
what is the approximate annual interest rate aka rate of return on investment 210 net
Silas 4-Wheeler, Inc. has an ROE of 18 percent, equity multiplier of 2, and a profit margin of 18.75 percent.
The appropriate market capitalization rate for the unleveraged cash flow is 14% per year, and the firm currently has debt of $4 million outstanding. Use the free cash flow approach to calculate the value of the firm and the firm's equity.
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