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1、ConfirmingPagesLEARNINGOBJECTIVESAfterstudyingthischapter,youshouldbeableto:1.Recognizetheinformationconveyedineachofthefourbasicfinancialstatementsandthewaythatitisusedbydifferentdecisionmakers(investors,creditors,andLecturePresentationLP-1managers).p.4www.mhhe.com/libby7e2
2、.Identifytheroleofgenerallyacceptedaccountingprinciples(GAAP)indeterminingthecontentoffinancialstatements.p.183.Distinguishtherolesofmanagersandauditorsintheaccountingcommunicationprocess.p.204.Appreciatetheimportanceofethics,reputation,andlegalliabilityinaccounting.p.21lib1
3、1021_ch01_002-041.indd228/05/101:31PMConfirmingPagesCHAPTERONEFINANCIALSTATEMENTSANDBUSINESSDECISIONSnJanuary,ExeterInvestorspurchasedMaxidriveCorp.,afast-growingmanufacturerofpersonalcomputerdiskdrives,for$33million.ThepriceExeterpaidwasdeterminedbyIconsideringthevalueofMax
4、idrive’sassets,itsdebtstoothers,itsabilitytosellgoodsformorethanthecosttoproducethem,anditsabilitytogeneratethecashnecessarytopayitscurrentbills.MuchofthisassessmentwasbasedFOCUSCOMPANY:onfinancialinformationthatMaxi-driveprovidedtoExeterintheformoffinancialstatements.ByJuly
5、,ExeterMaxidriveCorporationhaddiscoveredavarietyofproblemsinthecompany’soperationsandVALUINGANACQUISITIONitsfinancialstatements.MaxidriveUSINGFINANCIALSTATEMENTappearedtobeworthonlyabouthalfINFORMATION*ofwhatExeterhadpaidforthecom-pany.Furthermore,Maxidrivedidnothaveenoughca
6、shtopayitsdebttoAmericanBank.ExeterInvestorsfiledalawsuitagainstthepreviousownersandothersresponsibleforMaxidrive’sfinancialstate-mentstorecoveritslosses.UNDERSTANDINGTHEBUSINESSThePlayersMaxidrivewasfoundedbytwoengineerswhohadformerlyworkedforGeneralData,thenaman-ufacturero
7、flargecomputers.Predictingtheriseindemandforpersonalcomputerswithaharddiskdrive,theystartedacompanytomanufacturethiscomponent.Thefoundersinvestedamajorportionoftheirsavings,becomingthesoleownersofMaxidrive.Asiscommoninnewbusi-nesses,thefoundersalsofunctionedasmanagersofthebu
8、siness(theywereowner-managers).*TheMaxidrivecaseisarealisticrepresentationo
