Case 2. Kevin Sailors, the CEO of Candle Corporation, was discussing the financial statements with the company accountant. Weak cash flows had resulted in the company borrowing a lot of money. Kevin wanted to know why the money borrowed was included as
Why would Kevin want the interest paid to be included in the financing activities section? Why would the accountant state that interest paid should not be included in the financing activities section? Can the statement of cash flows be omitted? What ethical issues are involved? Do you have any additional thoughts?
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- 2. A new manager of a retail company suggests that the company should prepare its Statement of Profit or Loss on the basis of cash receipts and cash expenditures (except for the acquisition of fixed assets, such as plant and equipment). He argues that managers, investors, creditors, and others are more interested in cash receipts and disbursements than in accrual-based accounting. Do you think he is correct? Explain.arrow_forward1. You are the auditor of a company and you came upon the inspection of a transaction concerning its receivables. The company did not transfer all the significant risks and rewards of its certain accounts receivable to a bank and the bank agreed to give a cash advance to the company less any finance charges and not yet releasing an amount for a contingency on sales return transactions. Which of the following receivable financing most likely occurred? A. Factoring with recourse B. Discounting with recourse C. Assignment with notification D. Discounting without recourse E. Factoring without recourse 2. An auditor decided to render sales cut-off as part of auditing an audit client’s accounts receivable. Entries in the Sales Journal from December 16, 2016 to the subsequent period January 15, 2017 were vouched to the supporting documents. Which of the following is correct regarding the January entries? A. January sales journal entries vouched back to the…arrow_forwardQ1. Suppose you are an auditor who has been tasked with looking into the internal controls at a company. How can you evaluate the company's internal controls to see if they are sufficient? Q2. Why do companies use the allowance method to account for bad debts? Describe the diverse methods used to estimate bad debts in an accounting system. Provide examples for each method. LONG answer with explanation for these two questionsarrow_forward
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- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning