After reading case 2-2 in your text, “The Dangerous Morality of Managing Earnings,” thoroughly answer the two questions below. Think about how the interrelatedness of the financial statements plays...

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ANSWER TO QUESTION NO.1
Managing of the earnings has been the most important aspect of all the business firms or the
companies. There are generalizations which should be made by the companies so that these
earnings are properly utilized by the company and are distributed amongst the stakeholders and
also amongst the employees of the company. It is necessary for the company to make sure that
their earnings are being properly utilized and managed by the company. For this purpose, there
has to be generalization which will work in the benefit of the company and with the help of that
the earnings to be apportioned in a proper way.
The five generalizations of the company as founded for the study of managing earnings are as
follows;
1. It helps the company in managing their earning is that fact that the Profits earned by the
company is of residual in nature. Profit is the excess of income over all the expenses
incurred by the company in the production of different goods and commodities. As the
profit is residual, it becomes difficult for the company to determine whether they will be
able to prosper in the long run or not. For example, if the profit earned is 21% of the total
expenses done by the company, then it consists of all the expenses for the funds as created
by the company. Hence, a...