1. Refer to the definition of assets on page 216. Discuss how a leased building might qualify as an asset of the lessee (tenant) under this definition.
2. Kathleen Battle says, “Retained earnings should be reported as an asset, since it is earnings which are reinvested in the business.” How would you respond to Battle?
3. The creditors of Chester Company agree to accept promissory notes for the amount of its indebtedness with a proviso that two thirds of the annual profits must be applied to their liquidation. How should these notes be reported on the balance sheet of the issuing company? Give a reason for your answer.
4. What is the purpose of a statement of cash flows? How does it differ from a balance sheet and an income statement?
5. The net income for the year for Genesis, Inc. is $750,000, but the statement of cash flows reports that the cash provided by operating activities is $640,000. What might account for the difference?