The questions are as follows:
1. If you see the term goodwill as a line item on the Balance Sheet, what is it referring to? How is goodwill created from an accounting point of view? And, how does the value of goodwill change over time?
2. When we depreciate an asset we recognize the expense of depreciation over the life of the asset. This practice is consistent with the accounting principle know as ________________.
3. If an asset is purchased for $22,000, and has an estimated life of 6 years, and it costs $2,000 to install the asset, and it is not expected to have any salvage value after its six year useful life, how much will the depreciation be in the fourth year recorded on the income statement if the organization used straight-line depreciation? How much will the accumulated depreciation be for that asset on the balance sheet? If the organization uses an accelerated depreciation method such as Sum-of-the-years digit, will the depreciation expense in the fourth year be higher or lower than it would be using the straight line method? Will the accumulated depreciation be higher or lower after the fourth year than it would be using the straight line method?
4. Briefly explain the difference between FIFO and LIFO when accounting for inventories.
5. If cash is normally the first asset listed as a current asset on the balance sheet, what determines the order of the other current assets that are listed?
6. The accounting policies that are important to an organization are customarily noted in the footnotes of the financial statements. Note three policies you would expect to see in such a footnote to a health care organization.
7. For this question you will use the financial Statements for Sentara Healthcare from the course Skill Building activity in Module 9 on Financial Statement Analysis. Using the ratio definitions from the Finkler textbook in Chapter 14 (the page numbers are noted below), compute these ratios for both 2011 and 2010: