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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Case 1-75 CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT

Cam and Anna met during their freshman year of college as they were standing in line to buy tickets to a concert. While waiting in line, the two shared various aspects of their lives) Cam, whose father was an executive at a major record label. was raised in New York Some of his favorite memories were meeting popular musical artists-from the Rolling Stones to the Black Eyed Peas-as he accompanied his father on business trips. Anna. on the other hand. was born and raised in a small. rural town in southern Georgia. Her fondest childhood memories involved singing with her family. who often performed at county fairs and other small events, Even though they had different backgrounds, they felt an instant bond through their shared passion for music. Over the next couple of years, this friendship strengthened as they attended numerous concerts and other events together.

While on a road trip to see a new hand during their senior year, Cam and Anna started discussing their future career plans. Both had an entrepreneurial spirit and were seeking a way to combine their majors in business with their passion for music. Cam had recently overheard his father discussing how many artists were unhappy with the current concert promoters. Anna had heard similar complaints from her cousin. whose band recently had their first top 25 hit. When Cam suggested that he and Anna form a concert promotion business. they both knew they had found the perfect careers.

Concert promoters sign artists, usually through the artists’ agents. to contracts in which the promoter is responsible for organizing live concert tours. Typically. this includes booking the venue, pricing the tour. advertising the tour. and negotiating other services from local vendors. In general. the barriers to entry in the concert promotion industry are relatively low. with one of the more important items being forming a relationship with the various artists. Through their industry contacts (Cam’s father. Anna’s cousin]. they felt that they could develop a client list relatively easily. A second major barrier would be to obtain the up-front cash necessary to promote the tour properly.

Since their friendship had started many years ago as they were trying to get front row seats. they decided to name their business Front Row Entertainment. With their first big decision made, it was time to get to work.

Required:

Cam and Anna will need to prepare financial statements to report company performance. What type of information does each financial statement provide? Be sure to describe the insights that each financial statement provides to users.

To determine

Concept Introduction:

Financial statements: Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement, Balance sheet, Statement of owner’s equity and Cash flows statements.

Accounting information is useful for the users because it provides the summarized and analytical reports at one place which helps the users to fulfill their objectives. The groups that create demand for the financial information are explained as follows:

  • Lender or creditors
  • Owners
  • Investors
  • Government
  • Employees

The information provided by each type of financial statement and their use for different users.

Explanation

The four financial statements and their purpose are explained as follows:

Financial statements: Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement, Balance sheet, Statement of owner’s equity and Cash flows statements.

Income Statement:

Income Statement is the part of the financial statement which is prepared to calculate the net income earned by the organization. In the income statement, all expenses are subtracted from the revenues to calculate the net income. It is prepared for a particular period.

Balance Sheet: The Balance sheet is a summary of Assets, Liabilities and equity accounts that reports the financial position of the business as on a specific date. Assets are further classifies into Current Assets, Long Term Investments, Plant Assets and Intangible assets. And Liabilities are further classified into Current Liabilities and Long term liabilities.

Statement of owner’s equity:

The Statement of owner’s equity shows the changes made in the owner’s equity during the period.

Cash Flow statement:

The Cash flow statement shows the movement of cash during a particular period...

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