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principles of financial accounting
Questions and Answers of
Principles Of Financial Accounting
Assume the H.A. Rod store in London began July with 50 (thousand) goods that cost £19.00 each. The sale price of each of these goods was £36.00. During July, H.A. Rod completed the following
Trade Cars Ltd had opening stock in February of 150 car wheels that cost £77.00 each.During February, the garage made the following purchases:Trade Cars Ltd’s closing balance consists of 214
The records of Fordie Car Manufacturer Ltd include the following for a line of car exhausts at 31 March of the current year:The sales revenue generated during the year is £11,200.Required 1 Prepare
The extract profit and loss account of Air Control Specialists Ltd is as follows (in millions):Assume that in early 2009 it was discovered that the closing stock for 2006 was understated by £50
UK Airways Ltd is nearing the end of its first year of operations. The company made stock purchases of £745,000 during the year, as follows:Sales for the year are 5,500 units for £1,500,000 of
Assume a Parda factory outlet store began August 20x9 with 65 units of goods that cost £140 each. The sale price of these units was £270. During August, the store completed the following inventory
Accounting records for The Best Pie Ltd include the following information for the year ended 31. December 20x8 (amounts in thousands):Required 1 Journalise The Best Pie Ltd’s stock transactions
You have found a source which can supply you with popular movies on DVDs at £2.50 each (normal retail price £7.99 and upwards). As a student, and being inexperienced, you see an opportunity of
Established less than 50 years ago, Honda Motor Co. Ltd. of Japan is a leading international manufacturer of automobiles and the largest manufacturer of motorcycles in the world. As a Japanese
Each contributed \($50,000\) cash to start the business and received 4,000 shares of capital. The store completed its first year of operations on December 31, 2011. On that date, the following
On January 1, 2013, three individuals organized West Company as a corporation. Each individual invested \(\$ 10,000\) cash in the business. On December 31, 2013, they prepared a list of resources
A company has total assets of \(\$ 500,000\) and noncurrent assets of \(\$ 400,000\). Current liabilities are \(\$ 40,000\). What is the current ratio?a. 12.5b. 10.0c. 2.5d. Cannot be determined
Positive financial leverage indicatesa. Positive cash flow from financing activities.b. A debt-to-equity ratio higher than 1 .c. A rate of return on assets exceeding the interest rate on debt.d. A
If a potential investor is analyzing three companies in the same industry and wishes to invest in only one, which ratio is least likely to affect the investor's decision?a. Quick ratio.b. Earnings
A company has quick assets of \(\$ 300,000\) and current liabilities of \(\$ 150,000\). The company purchased \(\$ 50,000\) in inventory on credit. After the purchase, the quick ratio would bea.
Annual interest expense for a single bond issue continues to increase over the life of the bonds. Which of the following explains this?a. The market rate of interest has increased since the bonds
When using the effective-interest method of amortization, interest expense reported in the income statement is impacted by thea. Par value of the bonds.b. Coupon rate of interest stated in the bond
Katz Corporation has issued 400,000 shares of common stock and holds 20,000 shares in treasury. The charter authorized the issuance of 500,000 shares. The company has declared and paid a dividend of
A company issued 100,000 shares of common stock with a par value of \(\$ 1\) per share. The stock sold for \(\$ 20\) per share. By what amount does stockholders' equity increase?a. \(\$ 100,000\)c.
What is goodwill?
Which of the following is true regarding the economic return from investing ratio?a. This ratio is used to evaluate how efficiently a company manages its total assets.b. This ratio is used to
Lamichael Company purchased 100 percent of the outstanding voting shares of Darrell Corporation in the open market for \(\$ 200,000\) cash and Darrell was merged into Lamichael Company. On the date
Which of the following is not a component of the cost of inventory?a. Administrative overheadc. Raw materialsb. Direct labord. Factory overhead
Miga Company and Porter Company both bought a new delivery truck on January 1, 2008. Both companies paid exactly the same cost, \(\$ 30,000\), for their respective vehicles. As of December 31 , 2011
Barber, Inc., followed the practice of depreciating its building on a straight-line basis. A building was purchased in 2011 and had an estimated useful life of 25 years and a residual value of \(\$
Ryan, Inc., uses straight-line depreciation for all of its depreciable assets. Ryan sold a used piece of machinery on December 31, 2012, that it purchased on January 1, 2011, for \(\$ 10,000\). The
Under what method(s) of depreciation is an asset's net book value the depreciable base (the amount to be depreciated)?a. Straight-line methodb. Declining-balance methodc. Units-of-production
Thornton Industries purchased a machine for \(\$ 45,000\) and is depreciating it with the straight-line method over a life of 10 years, using a residual value of \(\$ 3,000\). At the beginning of the
Company \(X\) has borrowed \(\$ 100,000\) from the bank to be repaid over the next five years, with payments beginning next month. Which of the following best describes the presentation of this debt
How is working capital calculated?a. Current assets multiplied by current liabilities.b. Current assets plus current liabilities.c. Current assets minus current liabilities.d. Current assets divided
Jacobs Company borrowed 100,000 at 8 percent interest for three months. How much interest does the company owe at the end of three months?a. \(\$ 8,000\)b. \(\$ 2,000\)c. \(\$ 800\)d. \(\$ 200\)
Fred wants to save enough money each year so that he can purchase a sports car in January 2013. Fred receives a large bonus from his employer every December 31.He anticipates that the car will cost
A company has been successful in reducing the costs of its manufacturing process by relocating the factory to another locale. What effect will this factor have on the company's gross profit
You have determined that Company \(X\) estimates bad debt expense with an aging of accounts receivable schedule. Company X's estimate of uncollectible receivables resulting from the aging analysis
What is a contra-asset? Give an example of one.
Which of the following accounts would not appear in a closing entry?a. Salary Expensec. Accumulated Depreciationb. Interest Incomed. Retained Earnings
On October 1, 2011, the \(\$ 12,000\) premium on a one-year insurance policy for the building was paid and recorded as Prepaid Insurance. On December 31, 2011 (end of the accounting period), what
On June 1, 2010, Oakcrest Company signed a three-year \(\$ 100,000\) note payable with 9 percent interest. Interest is due on June 1 of each year beginning in 2011. What amount of interest expense
If a company is successful in reducing selling and administrative costs while maintaining sales volume and the sales price of its product, what is the effect on the net profit margin ratio?a. The
When expenses exceed revenues in a given period,a. Retained earnings are not impacted.b. Retained earnings are decreased.c. Retained earnings are increased.d. One cannot determine the impact on
On January 1, 2011, Anson Company started the year with a \(\$ 250,000\) credit balance in Retained Earnings and a \(\$ 300,000\) balance in Contributed Capital. During 2011, the company earned net
During 2011, CliffCo Inc. incurred operating expenses of \(\$ 200,000\), of which \(\$ 150,000\) was paid in cash; the balance will be paid in January 2012. Transaction analysis of operating expenses
Which of the following is the entry to be recorded by a law firm when it receives a \(\$ 2,000\) retainer from a new client at the initial client meeting?a. Debit to Cash, \(\$ 2,000\); credit to
You have observed that the total asset turnover ratio for a retail chain has increased steadily over the last three years. The most likely explanation is which of the following?a. Salaries for upper
This period a company collects \(\$ 100\) cash on an account receivable from a customer for a sale last period. How would the receipt of cash impact the following two financial statements this
As stated in the audit report, or Report of Independent Accountants, the primary responsibility for a company's financial statements lies witha. The owners of the company.b. Independent financial
Which of the following is not a typical note included in an annual report?a. A note describing the auditor's opinion of the management's past and future financial planning for the business.b. A note
What is a T-account? What is its purpose?
At the end of a recent year, The Gap, Inc., reported total assets of \(\$ 7,564\) million, current assets of \(\$ 4,005\) million, total liabilities of \(\$ 3,177\) million, current liabilities of
Which of the following statements are true about globalization methods?a. International licensing involves the creation of a new company that is owned by two or more firms from different countries.b.
Which of the following environmental factors can affect the cost of doing business in a foreign country? (Identify all correct answers.)a. The educational level of the workforce.b. Laws regulating
A country whose citizens are highly group oriented and who accept unequal power distributions between and within organizations would be considered:a. Individualistic and low power distance.b.
On March 1, Laton Products (a U.S. firm) purchased manufacturing inputs from a Mexican supplier for 20,000 pesos, payable on June 1. The exchange rate for pesos on March 1 was \(\$ 0.17\). If the
On January 1, a German company purchased merchandise from a U.S. firm for \(\$ 50,000\), payable on March 1. The exchange rate for the euro on January 1 was \(\$ 1.10\). If the exchange rate
Which of the following usually is least important as a measure of short-term liquidity?a. Quick ratio.b. Debt ratio.c. Current ratio.d. Cash flows from operating activities.
In each of the past five years, the net sales of Plaza Co. have increased at about half the rate of inflation, but net income has increased at approximately twice the rate of inflation. During this
From the viewpoint of a stockholder, which of the following relationships do you consider of least significance?a. The return on assets consistently is higher than the industry average.b. The return
The following information is available from the annual report of Frixell, Inc.:Which of the following statements are correct? (More than one statement may be correct.)a. The return on equity exceeds
Hart Corporation's net income was \(\$ 400,000\) in 2010 and \(\$ 160,000\) in 2011. What percentage increase in net income must Hart achieve in 2012 to offset the decline in profits in 2011?a. \(60
If a company's current ratio declined in a year during which its quick ratio improved, which of the following is the most likely explanation?a. Inventory is increasing.b. Inventory is declining.c.
In financial statement analysis, the most difficult of the following items to predict is whether:a. The company will be liquid in six months.b. The company's market share is increasing or
The statement of cash flows is designed to assist users in assessing each of the following, except:a. The ability of a company to remain liquid.b. The major sources of cash receipts during the
Which of the following is not included in the statement of cash flows, or in a supplementary schedule accompanying the statement of cash flows?a. Disclosure of investing or financing activities that
Cash flows are grouped in the statement of cash flows into the following major categories:a. Operating activities, investing activities, and financing activities.b. Cash receipts, cash disbursements,
The following is a list of various cash payments and cash receipts:Based only on the above items, net cash flows from operating activities are:a. \(\$ 138,000\)b. \(\$ 91,000\)c. \(\$ 120,000\)d.
During the current year, two transactions were recorded in the Land account of Duke Industries. One involved a debit of \(\$ 320,000\) to the Land account; the second was a \(\$ 210,000\) credit to
Which of the following business strategies is most likely to increase the net cash flows of a software developer in the short run but reduce them over a longer term?a. Develop software that is more
The primary purpose of showing special types of events separately in the income statement is to:a. Increase earnings per share.b. Assist users of the income statement in evaluating the profitability
Which of the following situations would not be presented in a separate section of the current year's income statement of Hamilton Corporation? During the current year:a. Hamilton's Los Angeles
When a corporation has outstanding both common and preferred stock:a. Basic and diluted earnings per share are reported only if the preferred stock is cumulative.b. Earnings per share is reported for
Which of the following is (are) not true about a stock dividend?a. Total stockholders' equity does not change when a stock dividend is declared but does change when it is distributed.b. Between the
The statement of retained earnings:a. Includes prior period adjustments, cash dividends, and stock dividends.b. Indicates the amount of cash available for the payment of dividends.c. Need not be
When a business is organized as a corporation, which of the following statements is true?a. Stockholders are liable for the debts of the business in proportion to their percentage ownership of
Western Moving Corporation was organized with authorization to issue 100,000 shares of \(\$ 1\) par value common stock. Forty thousand shares were issued to Tom Morgan, the company's founder, at a
Which of the following is not a characteristic of the common stock of a large, publicly owned corporation?a. The shares may be transferred from one investor to another without disrupting the
Tri-State Electric is a profitable utility company that has increased its dividend to common stockholders every year for 42 consecutive years. Which of the following is least likely to affect the
The following information is taken from the balance sheet and related disclosures of Maxwell, Inc.:Which of the following statements is (are) true? (For this question, more than one answer may be
On December 10, 2010, Smitty Corporation reacquired 2,000 shares of its own \(\$ 5\) par value common stock at a price of \(\$ 60\) per share. In 2011,500 of the treasury shares are reissued at a
In which of the following situations should the named company not record any depreciation expense on the asset described?a. Commuter Airline is required by law to maintain its aircraft in "as good as
Which of the following statements is (are) correct?a. Accumulated depreciation represents a cash fund being accumulated for the replacement of plant assets.b. The cost of a machine includes the cost
On April 1, 2010, Sanders Construction paid \(\$ 10,000\) for equipment with an estimated useful life of 10 years and a residual value of \(\$ 2,000\). The company uses the doubledeclining-balance
Evergreen Mfg. is a rapidly growing company that acquires equipment every year. Evergreen uses straight-line depreciation in its financial statements and an accelerated method in its tax returns.
Ladd Company sold a plant asset that originally cost \(\$ 50,000\) for \(\$ 22,000\) cash. If Ladd correctly reports a \(\$ 5,000\) gain on this sale, the accumulated depreciation on the asset at the
In which of the following situations would Martinez Industries include goodwill in its balance sheet?a. The fair market value of Martinez's net identifiable assets amounts to \(\$ 2,000,000\). Normal
The primary purpose for using an inventory cost flow assumption is to:a. Parallel the physical flow of units of merchandise.b. Offset against revenue an appropriate cost of goods sold.c. Minimize
Ace Auto Supply uses a perpetual inventory system. On March 10, the company sells two Shelby four-barrel carburetors. Immediately prior to this sale, the perpetual inventory records indicate three of
T-Shirt City uses a periodic inventory system. During the first year of operations, the company made four purchases of a particular product. Each purchase was for 500 units and the prices paid were
Trent Department Store uses a perpetual inventory system but adjusts its inventory records at year-end to reflect the results of a complete physical inventory. In the physical inventory taken at the
In July 2011, the accountant for LBJ Imports is in the process of preparing financial statements for the quarter ended June 30, 2011. The physical inventory, however, was last taken on June 5, and
Allied Products maintains a large inventory. The company has used the LIFO inventory method for many years, during which the purchase costs of its products have risen substantially. (More than one of
In general terms, financial assets appear in the balance sheet at:a. Face value.b. Current value.c. Costd. Estimated future sales value.
Which of the following practices contributes to efficient cash management?a. Never borrow money-maintain a cash balance sufficient to make all necessary payments.b. Record all cash receipts and cash
Each of the following measures strengthens internal control over cash receipts except:a. Factoring accounts receivable.b. Preparation of a daily listing of all checks received through the mail.c. The
Which of the following best describes the application of generally accepted accounting principles to the valuation of accounts receivable?a. Realization principle Accounts receivable are shown at
On January 1, Dillon Company had a \(\$ 3,100\) credit balance in the Allowance for Doubtful Accounts. During the year, sales totaled \(\$ 780,000\), and \(\$ 6,900\) of accounts receivable were
Under the direct write-off method of accounting for uncollectible accounts:a. The current year uncollectible accounts expense is less than the expense would be under the allowance approach.b. The
Which of the following actions is least likely to increase a company's accounts receivable turnover?a. Encouraging customers to use bank credit cards, such as Visa and MasterCard, rather than other
On October 1,2011, Coast Financial loaned Barr Corporation \(\$ 300,000\), receiving in exchange a nine-month, 12 percent note receivable. Coast ends its fiscal year on December 31 and makes
Puget Sound Co. sold marketable securities costing \(\$ 80,000\) for \(\$ 92,000\) cash. In the company's income statement and statement of cash flows, respectively, this will appear as:a. A \(\$
Mark and Amanda Carter own an appliance store and a restaurant. The appliance store sells merchandise on a 12-month installment plan; the restaurant sells only for cash. Which of the following
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