Financial Reporting And Analysis, 7th Edition Solution Manual

Financial Reporting And Analysis, 7th Edition Solution Manual helps you grasp fundamental concepts with detailed textbook-based explanations.

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Financial Reporting and Analysis (7thEd.)Chapter1SolutionsThe Economic and Institutional Setting for Financial ReportingProblemsProblemsP1-1.Demand for accounting information (LO 1-1)Requirement 1:a)Existing shareholdersuse financial accounting information as part oftheir ongoing investment decisions—should more shares of common orpreferred stock be purchased, should some shares be sold, or should currentholdings be maintained? Financial statements help investors assess theexpected risk and return from owning a company’s common and preferredstock. They are especially useful for investors who adopt a “fundamentalanalysis” approach.Shareholders also use financial accounting information to decide how to voteon corporate matters like who should be elected to the board of directors,whether a particular management compensation plan should be approved,and if the company should merge with or acquire another company. Acting onbehalf of shareholders, the Board of Directors hires and fires the company’stop executives. Financial statement information helps shareholders and theboard assess the performance of company executives. Dismissals of topexecutives often occur following a period of deteriorating financialperformance.b) Financial statement information helpsprospective(potential) investorsidentify stocks consistent with their preferences for risk, return, dividend yield,and liquidity. Here too, financial statements are especially useful for thoseinvestors that adopt a “fundamental approach.”c)Financial analystsdemand accounting information because it is essentialfor their jobs. Equity (stock) and credit (debt) analysts provide a wide range ofservices ranging from producing summary reports and recommendationsabout companies and their securities to actively managing portfolios forinvestors that prefer to delegate buying and selling decisions to professionals.Analysts rely on information about the economy, individual industries, andparticular companies when providing these services. As a group, analystsconstitute probably the largest single source of demand for financialaccounting information—without it, their jobs would be difficult, if notimpossible, to do effectively.

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