Accounting
27th Edition
ISBN: 9781337272094
Author: WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher: Cengage Learning,
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Chapter 16, Problem 16.1CP
Ethics in Action
Lucas Hunter, president of Simmons Industries Inc., believes that reporting operating cash flow per share on the income statement would be a useful addition to the company’s just completed financial statements. The following discussion took place between Lucas Hunter and Simmons' controller, John Jameson, in January, after the close of the fiscal year:
Lucas: I’ve been reviewing our financial statements for the last year. I am disappointed that our net income per share has dropped by 10% from last year. This won't look good to our shareholders. Is there anything we can do about this?
John. What do you means? The past is the past, and the numbers are in. There isn’t much that can be done about it Our financial statements were prepared according to generally accepted accounting principles, and I don’t see much leeway for significant change at this point.
Lucan No, no. I’ve not suggesting that we “cook the books”. But look at the cash flow from operating activities on the statement of
John. Well, the cash flow from operating activities is on the statement of cash flows, so I guess users will be able to see the improved cash flow figures there
Lucas: This is true, but somehow I think this information should be given a much higher profile. I don't like this information being “buried” in the statement of cash flows. You know as well as I do that many users will focus on the income statement Therefore. I think we ought to include an operating cash flow per share number on the face of the income statement—someplace under the earnings per share number In this way, users will get the complete picture of our operating performance. Yes, our earnings per share dropped this year, but our cash flow from operating activities improved! And all the information is in one place where users can see and compare the figures. What do you think?
John I've never really thought about it like that before I guess we could put the operating cash flow per share on the income statement, underneath the earnings per share amount. Users would really benefit from this disclosure. Thanks for the idea—I'll start working on it.
Lucas: Glad to be of service.
How would you interpret this situation? Is John behaving in an ethical and professional manner?
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Head DonuLs Inc. is a retailer of designer headphones, earphones, and hands-free audio devices. Polly Ester, the company president, is reviewing the company's financial statements after the close of the fiscal year and is troubled that earnings decreased by 10%. She shares her concerns with the company's chief accountant, Lucas Simmons, who points out that the drop in earnings was balanced by a 20% increase in cash flows, from operating activities. Polly is encouraged by the increase in cash flows from operating activities, but is worried that investors might miss this information because it is “buried" in the statement of cash flows. To make it easier for investors to find this information, she instructs Lucas to include an operating cash flow per share number on the face of the income statement, directly below earnings per share. While Lucas is concerned about using such an unconventional financial reporting tactic, he agrees to include the information on the income statement.Is…
You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the company’s financial statements, including comparing Lydex’s performance to its major competitors. The company’s financial statements for the last two years are as follows:
Lydex CompanyComparative Balance Sheet
This Year
Last Year
Assets
Current assets:
Cash
$
1,020,000
$
1,260,000
Marketable securities
0
300,000
Accounts receivable, net
2,940,000
2,040,000
Inventory
3,660,000
2,100,000
Prepaid expenses
270,000
210,000
Total current assets
7,890,000
5,910,000
Plant and equipment, net
9,640,000
9,110,000
Total assets
$
17,530,000
$
15,020,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities
$
4,070,000
$
3,100,000
Note payable, 10%
3,700,000
3,100,000
Total liabilities
7,770,000
6,200,000…
[The following information applies to the questions displayed below.]
You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the company’s financial statements, including comparing Lydex’s performance to its major competitors. The company’s financial statements for the last two years are as follows:
Lydex CompanyComparative Balance Sheet
This Year
Last Year
Assets
Current assets:
Cash
$
1,010,000
$
1,250,000
Marketable securities
0
300,000
Accounts receivable, net
2,900,000
2,000,000
Inventory
3,650,000
2,000,000
Prepaid expenses
270,000
210,000
Total current assets
7,830,000
5,760,000
Plant and equipment, net
9,620,000
9,100,000
Total assets
$
17,450,000
$…
Chapter 16 Solutions
Accounting
Ch. 16 - Prob. 1DQCh. 16 - Prob. 2DQCh. 16 - A corporation issued 2,000,000 of common stock in...Ch. 16 - A retail business, using the accrual method of...Ch. 16 - Prob. 5DQCh. 16 - A long-term investment in bonds with a cost of...Ch. 16 - A corporation issued 2,000,000 of 20-year bonds...Ch. 16 - Fully depreciated equipment costing 50,000 is...Ch. 16 - Prob. 9DQCh. 16 - Name five common major classes of operating cash...
Ch. 16 - Prob. 16.1APECh. 16 - Prob. 16.1BPECh. 16 - Adjustments to net incomeindirect method Ripley...Ch. 16 - Prob. 16.2BPECh. 16 - Changes in current operating assets and...Ch. 16 - Changes in current operating assets and...Ch. 16 - Prob. 16.4APECh. 16 - Prob. 16.4BPECh. 16 - Land transactions on the statement of cash flows...Ch. 16 - Land transactions on the statement of cash flows...Ch. 16 - Prob. 16.6APECh. 16 - Prob. 16.6BPECh. 16 - Cash payments for merchandisedirect method The...Ch. 16 - Cash payments for merchandisedirect method The...Ch. 16 - Prob. 16.8APECh. 16 - Prob. 16.8BPECh. 16 - Prob. 16.1EXCh. 16 - Effect of transactions on cash flows State the...Ch. 16 - Classifying cash flows Identify the type of cash...Ch. 16 - Cash flows from operating activitiesindirect...Ch. 16 - Cash flows from operating activitiesindirect...Ch. 16 - Prob. 16.6EXCh. 16 - Prob. 16.7EXCh. 16 - Determining cash payments to stockholders The...Ch. 16 - Reporting changes in equipment on statement of...Ch. 16 - Prob. 16.10EXCh. 16 - Reporting land transactions on statement of cash...Ch. 16 - Prob. 16.12EXCh. 16 - Reporting land acquisition for cash and mortgage...Ch. 16 - Reporting issuance and retirement of longterm debt...Ch. 16 - Prob. 16.15EXCh. 16 - Prob. 16.16EXCh. 16 - Prob. 16.17EXCh. 16 - Statement of cash flowsindirect method The...Ch. 16 - Prob. 16.19EXCh. 16 - Prob. 16.20EXCh. 16 - Determining selected amounts for cash flows from...Ch. 16 - Prob. 16.22EXCh. 16 - Cash flows from operating activitiesdirect method....Ch. 16 - Prob. 16.24EXCh. 16 - Free cash flow The financial statement for Nike,...Ch. 16 - Free cash flow Lovato Motors Inc. has cash flows...Ch. 16 - Statement of cash flowsindirect method The...Ch. 16 - Prob. 16.2APRCh. 16 - Statement of cash flowsindirect method The...Ch. 16 - Prob. 16.4APRCh. 16 - Prob. 16.5APRCh. 16 - Prob. 16.1BPRCh. 16 - Statement of cash flowsindirect method The...Ch. 16 - Statement of cash flowsindirect method The...Ch. 16 - Statement of cash flowsdirect method The...Ch. 16 - Statement of cash flowsdirect method applied to PR...Ch. 16 - Ethics in Action Lucas Hunter, president of...Ch. 16 - Prob. 16.3CPCh. 16 - Using the statement of cash flows You are...Ch. 16 - Dillip Lachgar is the president and majority...
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