7.Buchanan Company has the following financial data on December 31, 2010 and 2009:
12/31/09
12/31/10
Cash
$14,000
$19,000
Accounts receivable
12,000
4,000
Inventory
15,000
Net plant and equipment
5,000
3,000
Current liabilities
8,000
18,000
Common stock
Retained earnings
31,000
2,000
Buchanan 's 2010 income statement reported:
Revenue
$160,000
Cost of goods sold
150,000
Gross margin
$ 10,000
Depreciation expense
Net income
$ 8,000
Buchanan 's 2010 data from its statement of cash flows:
Cash flow from operations
$ 42,000
Cash flow from investing activities
0
Cash flow from financing activities, including dividends paid
(22,000)
Required: Using appropriate ratios, comment on the change in Buchanan's solvency position and assess the probable cause of the change from 2009 to 2010.
8.Why are all companies not audited by certified public accountants?
9.Briefly explain how management may influence the quality of earnings of a company.
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