Provide brief but complete responses to the following. Drafts should have at least bullet points.
1. Why should items that have no physical substance (i.e., intangibles) be considered to be assets?
2. Name three limitations of the Balance Sheet.
3. What is the operating cycle?
4. What is working capital? How does working capital relate to the operating cycle?
5. What are accounting policies? Why is it important that they be disclosed?
6. What does “earnings management” mean? How does this relate to “quality of earnings”? (see discussion in text in Chapter 4)
7. What does gross profit represent? [NOTE, I am NOT asking for the calculation, but rather what does it “mean”…] Given this, how would gross profit (also known as gross margin) be computed for a service organization?
8. How should the effect of most prior period adjustments be reported in the financial statements? What was the reasoning for this decision?
9. If net income is already provided, why show earnings per share on the Income Statement?
10. Why might top management feel compelled to speed up revenue recognition inappropriately? (give three reasons)