Accounting

Q1. EXPLAIN HOW A WORKING RELATIONSHIP IS DIFFERENT FROM A PERSONAL RELATIONSHIP

Brief :

Part A

1. Assumethatfinancial statements for PepsiCo for the years ending December 31, 2014 and 2013 has been received. Answer the following questions:

  • If you were a banker, why would you need data from the financial statement of PepsiCo’s?
  • If you were a potential capitalist in PepsiCo stock, what data you want from their financial statements?
  • If you were a labour negotiator for a union that represents a group of PepsiCo’s employees, which financial statement would provide the useful information?

2. Discuss accounting assumption principle that has been violated in each situation below:

  • Melissa is the proprietor of Missy’s Tea Shop, a sole proprietorship. She acquires a new computer for her personal usage. Melissa records computer as an asset.
  • The Candle Store is facing problems related to finance. It has no plans to liquidate but decided to utilize market value to report their assets since they plan on moving to a smaller store.
  • Henry is a new accountant for Acme Foods. He is busy and has decided that he can prepare the financial records every two years.
  • Houston Electronics acquire an office building several years ago for $500,000. The office building could be sold today for $850,000. The accountant will now show the building as an asset on the books for $850,000.
  1. measureloan requests at Eastwood National Bank. One loan request is from Surfer Dude Supplies, a small company. Richard Tracy, the CEO, is seeking $105,000 and brings you a financial statement for his first year of operations ended December 31.
  2. Dividends, are a distribution of income, not an expense. What is the difference? Why can’t the firm list them as an expenditure.
  3. Read the following case and response the questions:

Geopetro is independent oil and natural gas Company which is headquarters in San Francisco,

California. It recently received an audit opinion. The following is an extract from Geopark’s 2012 report:

The consolidated financial statements are prepared assuming that the Organization will proceed as a going concern. As determined in Note 2 to the consolidated financial statements, the Organization has obtained recurring net losses resulted in an accumulated deficit of $49.7 million as of December 31, 2012.  The Company has restricted cash and working capital to fund its coming operations. These components increase doubt about the ability of the organization to continue as a going concern. The plans regarding those matters are also represented in Note 2. The consolidated financial statements do not include any adjustments.

Required:

  • What is the aim of an auditors’ report?
  • What is a going concern? Define.
  • What are the auditors saying about these specific companies?
  • Are losses, restructuring, and the disposal of segments necessarily precursors to the demise of the company?
  1. Merck & Co. Inc., a global health care organization that produces prescription medicines, has been a defendant in a number of product liability lawsuits. In the notes to Merck’s 2012 financial statements, the firm states: “There are several different unfinished judicial proceedings regarding the Company, mainly product liability and intellectual property lawsuits. It is not practicable to anticipate the conclusion of such proceeding, either the probability of loss is remote or any possible loss related with the resolution of such proceedings is not anticipated to the Company’s financial position, effect of operations or cash flows either individually or in the multiple.”

Required:

State what Merck means by this statement.  Include what is mean by “material” and “remote.” Who is in the best place to ascertain the outcome of a lawsuit?