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Question
For managerial purposes, i.e., making decisions regarding the firm's operations, the standard financial statements as prepared by accountants under generally accepted accounting principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations. Related to these modifications, which of the following statements is CORRECT?
a. The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.
b. The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, the firm's value is based on its future cash flows because future cash flows indicate how much the firm can distribute to its investors.
c. The standard statements provide useful information on the firms individual operating units, but management needs more information on the firms overall operations than the standard statements provide.
d. The standard statements focus on cash flows, but managers should be less concerned with cash flows than with accounting income as defined by GAAP.
e. The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm. Thus, under GAAP, there is no room for accountants to adjust the results to make earnings look better.
Answer
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% of capacity utilized 40%
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u200b
Target FA/Sale ratio = Actual FA/Full capacity sales = 16.0%
LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.
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a. 3.84 times
b. 3.23 times
c. 3.63 times
d. 3.60 times
e. 3.40 times
ANSWER: e
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Growth rate 15%
Projected sales $678.5
Req. inventories = $30.2 + 0.25 Projected sales
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u200b
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LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.
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u200b
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u200b
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u200b
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u200b
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