response 2

Question 1

There are three classifications of cash flows which are Operating, Investing and Financing. Within each there are specific transactions that will create net cash used or net cash flows. Describe your understanding of 2 separate transactions within each classification and provide a detailed example of the accounting for each number that will be shown on the Statement of Cash Flows.

Respond to this... “Operating activities involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services, and cash payment to suppliers and employees for acquisitions of inventory and expenses. Investing activities generally involve long-term assets and include making and collecting loans and acquiring and disposing of investments and productive long-lived assets. Financing activities involve liability and stockholders’ equity items and include obtaining cash from creditors and repaying the amounts borrowed and obtaining capital from owners and providing them with a return on, and a return of, their investment” (Kieso, Weygandt, & Warfield, 2013, pg. 1412).

The operating activities are income statement items. The cash inflows are tied to sales of goods or services as well as returns on loans and equity securities. The cash outflows include payments to suppliers for inventory, employees for services, government for taxes, lenders for interest, and others for expenses. The investing activities are generally long term asset items. The cash inflows are tied to the sale of PP&E, sale of debt or equity securities, and from the collection of principal on loans to other entities. The Cash outflows include the purchase of PP&E, debt or equity securities, and making loans to other entities. The financing activities are generally long term liabilities and equity items. The cash inflows are tied to sale of equity securities and issuances of debt in bonds and notes. The cash outflows are those to stockholders as dividends and the redemption of long-term debt or reacquiring capital stock. (Kieso, Weygandt, & Warfield, 2013).

 

References

Kieso, D. E., Weygandt, J. J., Warfield, T. D. (2013). Intermediate Accounting, 15th Edition. [VitalSource Bookshelf Online]. Retrieved from https://ambassadored.vitalsource.com/#/books/9781118722671/

Question 2

In recent years, the treatment of the intangible asset "Goodwill" has undergone significant change as a result of the implementation of FASB 142. Goodwill is the value of a going concern. You can't touch it. You can't bank it. You can't sell it separately. By itself, it is valueless.

Assuming that all unrelated acquisitions are at "arm's length," what is all the fuss about valuing Goodwill? Why should you be concerned about it?

Respond to this... “Because goodwill and some intangible assets will no longer be amortized, the reported amounts of goodwill and intangible assets (as wells as total assets) will not decrease at the same time and in the same manner as under previous standards. There may be more volatility in reported income than under previous standards because impairment losses are likely to occur irregularly and in varying amounts” (Summary of Statement No 142, 2001).

“A common concern was that a measurement using the present value of cash flow computations would be subject to capitalization rate fluctuations that could cause unintended results. Interest rate changes could reduce the value of goodwill even when the underlying cash flows are relatively stable. Under, the rule, write-downs are not reversible, meaning that a temporary fluctuation of interest rate could cause a permanent impairment of goodwill" (Lewis, Lippitt, & Mastracchio Jr, 2001, p. 28).

 

Lewis, E. E., Lippitt, J. W., & Mastracchio Jr, N. J. (2001, October). Users' Comments on SFAS 141 and 142 on Business Combinations and Goodwill. CPA Journal, 71(10), 26. Retrieved October 10, 2016, from http://eds.a.ebscohost.com.ezproxy.rasmussen.edu/eds/detail/detail?sid=e2e4d539-2ceb-4255-aadf-097b9ad5feb9%40sessionmgr4010&vid=1&hid=4113&bdata=JnNpdGU9ZWRzLWxpdmU%3d#AN=5422942&db=bth

Summary of Statement No 142. (2001, June). Retrieved from Financial Accounting Standards Board: http://www.fasb.org/summary/stsum142.shtml

Question 3

For years, companies used master files to store data. Databases are now being used in their place. Why did this transformation take place? What are the advantages and disadvantages of using databases rather than files? Why is it important for an accountant to understand how a database works? Identify at least three functions in which an accountant would use a database.

Respond to this... A file is a collection of similar records, where as a database is a collection of interrelated files. Databases allow so much more files to be stored nowadays than they used too. A master file was too hard to try to share with others and across applications, was hard to adapt to new systems, but files were easy and great for one single performance. Databases may be much more complex than the file technology and slower performance, but they are more superior. Databases can be used to share data across applications.   A database management system is “important because it manages data efficiently and allows users to perform multiple tasks with ease.” It’s important for accountants to learn how the database works so they can work together with others in company to make sure all works well. They can have an understanding of what happens in each step, where they can find certain files, and how to fix an issue – or who to go to when it happens.  Three functions within a business that an accountant would use a database for are: Accounting and finance, marketing and sales, and human resources. Within each department they can have a shared database in the information system to support the company’s operations and management.