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financial accounting 11th edition
Questions and Answers of
Financial Accounting 11th Edition
Composition of Cash Using Y for yes and N for no, indicate whether each of the following items should or should not be included with cash and cash equivalents on the balance sheet.Cash in a checking
Bank Reconciliation Indicate whether each of the following items is an adjustment to the balance per books (BK) or to the balance per bank statement (BS) on a reconciliation that adjusts the bank
Sarbanes-Oxley Act Provide answers to each of the following questions.1. Who is responsible for establishing and maintaining an adequate internal control structure for a company?2. Who provides an
Business Documents Number each of the following documents to indicate the order in which each document would be used.Purchase order Invoice approval form Check and remittance advice Purchase
Cash Equivalents Systematic Enterprises invested its excess cash in the following instruments during December 2008:Certificate of deposit, due January 31, 2011 $ 75,000 Certificate of deposit, due
Items on a Bank Reconciliation Assume that a company is preparing a bank reconciliation for the month of June. It reconciles the bank balance and the book balance to the correct balance. For each of
Petty Cash Fund On January 2, 2008, Cleaver Video Stores decided to set up a petty cash fund. The treasurer established the fund by writing and cashing a $300 check and placing the coin and currency
Internal Control The university drama club is planning a raffle. The president overheard you talking about internal control to another accounting student, so she asked you to set up some guidelines
Segregation of Duties The following tasks are performed by three employees, each of whom is capable of performing all of the tasks. Do not concern yourself with the time required to perform the
Composition of Cash Using Y for yes and N for no, indicate whether each of the following items should be included in cash and cash equivalents on the balance sheet. If an item should not be included
Internal Control Procedures You are opening a summer business, a chain of three drive-through snow-cone stands. You have hired other college students to work and have purchased a cash register with
The Design of Internal Control Documents Motel $49.99 has purchased a large warehouse to store all supplies used by housekeeping departments in the company’s expanding chain of motels. In the past,
Cash and Liquid Assets on the Balance Sheet The following accounts are listed in a company’s general ledger. The accountant wants to place the items in order of liquidity on the balance
Internal Control At Morris Mart Inc., all sales are on account. Mary Morris-Manning is responsible for mailing invoices to customers, recording the amount billed, opening mail, and recording the
Adjusting Entries Flood Relief Inc. prepares monthly financial statements and therefore adjusts its accounts at the end of every month. The following information is available for June 2008:a. Flood
Effects of Adjusting Entries on the Accounting Equation Refer to the information provided for Flood Relief Inc. in Problem 4-1A.Required 1. Prepare a table to summarize the required adjusting entries
Adjusting Entries—Annual Adjustments Ogonquit Enterprises prepares annual financial statements and adjusts its accounts only at the end of the year. The following information is available for the
Recurring and Adjusting Entries Following are the accounts of Dominique Inc., an interior decorator. The company has been in the decorating business for ten years and prepares quarterly financial
Use of Account Balances as a Basis for Adjusting Entries—Annual Adjustments The following account balances are taken from the records of Laugherty Inc. at December 31, 2008. The Supplies account
Use of a Trial Balance as a Basis for Adjusting Entries Lori Matlock operates a graphic arts business. A trial balance on June 30, 2008, before recording any adjusting entries, appears as
Effects of Adjusting Entries on the Accounting Equation Refer to the information provided for Matlock Graphic Arts Studio in Problem 4-6A.Required 1. Prepare a table to summarize the required
Reconstruction of Adjusting Entries from Account Balances Zola Corporation records adjusting entries each month before preparing monthly financial statements.The following selected account balances
Use of a Trial Balance to Record Adjusting Entries in T Accounts Lewis and Associates has been in the termite inspection and treatment business for five years. An unadjusted trial balance at June 30,
Effects of Adjusting Entries on the Accounting Equation Refer to the information provided for Lewis and Associates in Problem 4-9A.Required Prepare a table to summarize the required adjusting entries
Revenue and Expense Recognition and Closing Entries Two years ago Sue Stern opened an audio book rental shop. Sue reports the following accounts on her income statement:Sales $84,000 Advertising
Ten-Column Work Sheet and Closing Entries (Appendix)The unadjusted trial balance for Forever Green Landscaping on August 31, 2008, follows.Required 1. Enter the unadjusted trial balance in the first
Ten-Column Work Sheet and Financial Statements (Appendix)The following unadjusted trial balance is available for Tenfour Trucking Company on January 31, 2008:Required 1. Enter the unadjusted trial
Comparing Two Companies in the Same Industry: Kellogg’s and General Mills Refer to the financial information for Kellogg’s and General Mills reproduced at the end of the book for the information
Reading and Interpreting Nordstrom’s Notes—Revenue Recognition The following excerpt is taken from Note 1 on page 33 of Nordstrom’s 2006 annual report:Revenue Recognition We record revenues net
Reading and Interpreting Sears Holdings Corporation’s Notes—Revenue Recognition The following excerpt is taken from page 65 of the Sears Holdings Corporation (parent company of Kmart and Sears)
Depreciation Jenner Inc., a graphic arts studio, is considering the purchase of computer equipment and software for a total cost of $18,000. Jenner can pay for the equipment and software over three
Revenue Recognition and the Matching Principle Listum & Sellum Inc. is a medium-sized midwestern real estate company. It was founded five years ago by its two principal stockholders, Willie Listum
Advice to a Potential Investor Century Company was organized 15 months ago as a management consulting firm. At that time, the owners invested a total of $50,000 cash in exchange for stock. Century
Identify the forms of inventory held by different types of businesses and the types of costs incurred.
Show that you understand how wholesalers and retailers account for sales of merchandise.
Show that you understand how wholesalers and retailers account for cost of goods sold.
Use the gross profit ratio to analyze a company’s ability to cover its operating expenses and earn a profit.
Explain the relationship between the valuation of inventory and the measurement of income.
Apply the inventory costing methods of specific identification, weighted average, FIFO, and LIFO by using a periodic system.
Analyze the effects of the different costing methods on inventory, net income, income taxes, and cash flow.
Analyze the effects of an inventory error on various financial statement items.
Apply the lower-of-cost-or-market rule to the valuation of inventory.
Explain why and how the cost of inventory is estimated in certain situations.
Analyze the management of inventory.
Explain the effects that inventory transactions have on the statement of cash flows.
Explain the differences in the accounting for periodic and perpetual inventory systems and apply the inventory costing methods using a perpetual system.
The inventory of a retailer is limited to a single type of cost, the purchase price of the inventory it sells. The three distinct types of cost to a manufacturer area. direct materials, direct labor,
The three forms or states in the development of inventory for a manufacturer area. direct materials, direct labor, and finished goods.b. direct materials, direct labor, and manufacturing overhead.c.
Net sales is equal toa. sales revenue less sales returns and allowances and sales discounts.b. sales revenue less cost of goods sold.c. sales revenue less selling and administrative expenses.d. none
What type of account is Sales Discounts?a. contra-assetb. revenuec. contra-revenued. expense
Cost of goods available for sale is equal toa. cost of goods sold less beginning inventory.b. beginning inventory less ending inventory.c. beginning inventory less cost of goods sold.d. none of the
The type of inventory system in which the Inventory account is updated at the time of each sale is calleda. a periodic system.b. a perpetual system.c. an accrual system.d. none of the above.
The gross profit ratio is computed bya. dividing gross profit by net sales.b. dividing net sales by gross profit.c. dividing gross profit by cost of goods sold.d. none of the above.
To evaluate a company’s gross profit ratio,a. the ratio should be compared with those of prior years.b. the ratio should be compared with those of competitors.c. the ratio should be compared with
Why is it important that the proper amount be assigned to inventory?a. Because the amount assigned to inventory will affect the amount eventually recorded as cost of goods sold.b. Because the amount
Which of the following should not be included in the cost of inventory?a. freight cost incurred to buy inventoryb. cost of insurance taken out during the time inventory is in transitc. cost to store
For which of the following products is a company most likely to use the specific identification method?a. boxes of soap in a grocery storeb. automobiles at a car dealerc. car batteries at an auto
Which inventory method assigns the most recent costs to ending inventory?a. FIFOb. LIFOc. weighted averaged. specific identification
Which inventory method results in the least amount of income before taxes, assuming a period of rising prices?a. FIFOb. LIFOc. weighted average costd. none of the above
The LIFO conformity rule requires that if a companya. uses LIFO in reporting income to stockholders, it also must use LIFO on its tax return.b. uses LIFO on its tax return, it also must use LIFO in
A company erroneously omits one section of its warehouse in the year-end inventory. The error will result ina. an overstatement of cost of goods sold for the current year.b. an understatement of cost
A company erroneously counts the same section of its warehouse twice in the year-end inventory. Assuming no error is made in the year-end count the following year, the error will result ina. an
A note to Kellogg’s financial statements states that “[i]nventories are valued at the lower of cost (principally average)or market.” Why do you think the application of the
The use of the lower-of-cost-or-market rule to value inventory is justified on the basis of what principle?a. costb. materialityc. conservatismd. reliability
The journal entry to write down inventory to its market value results in a(n)a. gain on the income statement.b. loss on the income statement.c. direct charge (debit) to retained earnings.d. increase
The gross profit method can be useda. to estimate the amount of inventory destroyed in a flood when the periodic system is used.b. to estimate the amount of inventory on hand at an interim date, such
A company’s entire inventory is destroyed in a fire. Beginning inventory was $25,000. Net sales and purchases up to the date of the fire were $70,000 and $40,000, respectively. The company
Which of the following strategies should a company pursue concerning its inventory?a. Maintain an inventory stock much higher than anticipated demand so that there is virtually no risk of running out
A company began the year with $50,000 in inventory and ended the year with $70,000 in inventory. Cost of goods sold for the year amounted to $720,000. Assuming 360 days in a year, how long, on
On a statement of cash flows prepared using the indirect method, a decrease in inventory isa. deducted from net income.b. added to net income.c. ignored.d. deducted from net income or added to net
A company’s change in accounts payable was added back to net income on the statement of cash flows prepared using the indirect method. This is an indication that the amount owed to suppliers during
For which inventory method does the dollar amount of inventory on hand at the end of the period not differ regardless of whether a company uses a periodic or a perpetual inventory system?a. weighted
Moving average is the name given to the use ofa. the specific identification method used with a perpetual inventory system.b. an average cost method used with a periodic inventory system.c. an
Net Sales McDowell Merchandising reported sales revenue, sales returns and allowances, and sales discounts of $57,000, $1500, and $900, respectively, in 2008.Required Prepare the net sales section of
Cost of Goods Sold The following amounts are taken from White Wholesaler’s records. (All amounts are for 2008.)Inventory, January 1 $14,200 Inventory, December 31 10,300 Purchases 87,500 Purchase
Inventory Valuation Busby Corp. began the year with 75 units of inventory that it paid $2 each to acquire. During the year, it purchased an additional 100 units for $3 each. Busby sold 150 units
Lower of Cost or Market Glendive reports its inventory on a FIFO basis and has inventory with a cost of $78,000 on December 31. The cost to replace the inventory on this date would be only
Inventory Turnover Sidney began the year with $130,000 in merchandise inventory and ended the year with $190,000.Sales and cost of goods sold for the year were $900,000 and $640,000,
What are three distinct types of costs that manufacturers incur? Describe each of them. (Appendix)
When a company gives a cash refund on returned merchandise, why doesn’t it just reduce Sales Revenue instead of using a contra-revenue account? (Appendix)
What do credit terms 3/20, n/60 mean? How valuable to the customer is the discount offered in these terms? (Appendix)
What is the difference between a periodic inventory system and a perpetual inventory system? (Appendix)
How have point-of-sale terminals improved the ability of mass merchandisers to use a perpetual inventory system? (Appendix)
In a periodic inventory system, what kind of account is Purchases? Is it an asset or an expense or neither? (Appendix)
Why are shipping terms such as FOB shipping point or FOB destination point important in deciding ownership of inventory at the end of the year? (Appendix)
How and why are transportation-in and transportation-out recorded differently? (Appendix)
How is a company’s gross profit determined? What does the gross profit ratio tell you about a company’s performance during the year? (Appendix)
What is the relationship between the valuation of inventory as an asset on the balance sheet and the measurement of income? (Appendix)
What is the justification for including freight costs incurred in acquiring incoming goods in the cost of the inventory rather than simply treating the cost as an expense of the period? What is the
What are the inventory characteristics that would allow a company to use the specific identification method? Give at least two examples of inventory for which the method is appropriate. (Appendix)
How can the specific identification method allow management to manipulate income? (Appendix)
What is the significance of the adjective weighted in the weighted average cost method? Use an example to illustrate your answer. (Appendix)
Which inventory method, FIFO or LIFO, more nearly approximates the physical flow of products in most businesses?Explain your answer. (Appendix)
York Inc. manufactures notebook computers and has experienced noticeable declines in the purchase price of many of the components it uses, including computer chips. Which inventory costing method
Which inventory costing method should a company use when it wants to minimize taxes? Does your response depend on whether prices are rising or falling? Explain your answers. (Appendix)
The president of Ace Retail is commenting on the company’s new controller: “The woman is brilliant! She has shown us how we can maximize our income and at the same time minimize the amount of
What does the term LIFO liquidation mean? How can it lead to poor buying habits? (Appendix)
Historical-based costing methods are sometimes criticized for leading to inventory profits. In a period of rising prices, which inventory costing method will lead to the most “inventory profit”?
Is it acceptable for a company to disclose in its annual report that it is switching from some other inventory costing method to LIFO to save on taxes? Explain. (Appendix)
Delevan Corp. uses a periodic inventory system and is counting its year-end inventory. Due to a lack of communication, two different teams count the same section of the warehouse. What effect will
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