Questions and Answers of Principles Of Financial Accounting

Laskova A/S had accounts receivable of €100,000 on January 1, 2025. The only transactions that affected accounts receivable during 2025 were net credit sales of €1,000,000, cash collections of
Under GAAP, receivables are reported on the balance sheet (statement of financial position) at:a. gross amount.b. gross amount less allowance for doubtful accounts.c. historical cost.d. replacement
Under IFRS:a. the entry to record estimated uncollectible accounts is the same as GAAP.b. all impairments should be debited to Accounts Receivable.c. it is always acceptable to use the direct
Chang Industries purchased a piece of equipment on January 1, 2025. The equipment cost HK$$600,000$ and has an estimated life of 8 years and a residual value of HK$$80,000.$ What was the
Able Towing purchased a tow truck for £60,000 on January 1, 2023. It was originally depreciated on a straight-line basis over 10 years with an assumed residual value of £12,000. On December 31,
Wales Remodeling applies revaluation accounting to equipment that is recorded on its books at €800,000, with €100,000 of accumulated depreciation after depreciation for the year recorded. It has
Which of the following statements is false?a. If an intangible asset has a finite life, it should be amortized.b. The amortization period of an intangible asset can exceed 20 years.c. Goodwill is
Tianzi Coffee reported net sales of HK$$1,800,000,$ net income of HK$$540,000,$ beginning total assets of HK$$2,000,000,$ and ending total assets of HK$$3,000,000.$ What was the company’s
On January 1, 2025, the Vasquez SA ledger shows Equipment €32,000 and Accumulated Depreciation—Equipment €9,000. The depreciation resulted from using the straight-line method with a useful life
Arma Ltd. sells equipment on September 30, 2025, for £20,000 cash. The equipment originally cost £72,000 and as of January 1, 2025, had accumulated depreciation of £42,000. Depreciation for the
Felipe Engineering purchases a patent for R$120,000 on January 2, 2025. Its estimated useful life is 8 years.a. Prepare the journal entry to record amortization expense for the first year.b. Show how
Information related to plant assets, extractable natural resources, and intangibles at the end of 2025 for Loomis Energy is as follows: buildings £1,300,000, accumulated depreciation—buildings
The following expenditures (in thousands) relating to plant assets were made by Lee Jung Ltd. during the first 2 months of 2025.1. Paid ₩5,000 of accrued taxes at time plant site was acquired.2.
Bliesmer Electronics incurred the following costs.Instructions Indicate to which account Bliesmer would debit each of the costs. 1. Sales tax on factory machinery purchased 5,000 2. Painting of and
On March 1, 2025, Rollinger Group acquired real estate on which it planned to construct a small office building. The company paid €86,000 in cash. An old warehouse on the property was razed at a
Xanadu A/S purchased a new machine on October 1, 2025, at a cost of €96,000. The company estimated that the machine will have a residual value of €12,000. The machine is expected to be used for
Tanger Interiors purchased a delivery truck for R$$38,000$ on January 1, 2025. The truck has an expected residual value of R$$6,000,$ and is expected to be driven 100,000 miles over its estimated
Mooney Ltd. completed construction of an office building for £2,400,000 on December 31, 2024. The company estimated that the building would have a residual value of £0 and a useful life of 40
Steve Grant, the new controller of Greenbriar Ltd., has reviewed the expected useful lives and residual values of selected depreciable assets at the beginning of 2025. His findings are as follows.All
Barton Enterprises purchased equipment on January 1, 2025, at a cost of €350,000. Barton uses the straight-line depreciation method, a 5-year estimated useful life, and no residual value. At the
At December 31, 2025, the end of its first year of operations, Franklin SA chose to use the revaluation framework allowed under IFRS. Franklin’s ledger shows Equipment €750,000 and Accumulated
Presented below are selected transactions at Ingles Company for 2025.Jan. 1 Retired a piece of machinery that was purchased on January 1, 2015. The machine cost£58,000 on that date. It had a useful
Francis Manufacturing owns equipment that cost €50,000 when purchased on January 1, 2022. It has been depreciated using the straight-line method based on an estimated residual value of €8,000 and
On July 1, 2025, Ticino AG invested CHF736,000 in a mine estimated to have 800,000 tons of ore of uniform grade. During the last 6 months of 2025, 124,000 tons of ore were mined.Instructionsa.
The following are selected 2025 transactions of Yosuke Ltd.Jan. 1 Purchased a small company and recorded goodwill of €150,000. Its useful life is indefinite.May 1 Purchased for €84,000 a patent
Nelson Company, organized in 2025, has the following transactions related to intangible assets.Instructions Prepare the necessary entries to record these intangibles. All costs incurred were for
During 2025, Otaki Cellular reported net sales of €5,200,000 and net income of €1,500,000.Its statement of financial position reported average total assets of €1,600,000.Instructions Calculate
Jay’s Delivery Company and Astro’s Express Delivery exchanged delivery trucks on January 1, 2025. Jay’s truck cost €22,000. It has accumulated depreciation of €16,000 and a fair value of
Rando Company has land that cost $$450,000$ but now has a fair value of $$600,000.$ Rando Company follows GAAP to account for the land. Which of the following statements is correct?a. Rando
Ong Imports borrows ₩88,500 (amounts in thousands) on September 1, 2025, from Seoul City Bank by signing an ₩88,500, 12%, one-year note. What is the accrued interest at December 31, 2025?a.
RS Company borrowed €70,000 on December 1 on a 6-month, 6% note. At December 31:a. neither the note payable nor the interest payable is a current liability.b. the note payable is a current
Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales Revenue is:a. $4,000.b. $4,300.c. $4,289.25.d. None of
Employers’ payroll taxes include:a. salaries and wages expense.b. union dues payable.c. income taxes payable.d. Social Security taxes payable.
A provision should be recorded in the accounts when:a. it is probable the cash outflow will happen, but the amount cannot be reliably estimated.b. it is possible the cash outflow will happen, and the
At December 31, Beijing Supply prepares an adjusting entry for a product warranty contract. Which of the following accounts is/are included in the entry?a. Miscellaneous Expense.b. Warranty
Working capital is calculated as:a. current assets minus current liabilities.b. total assets minus total liabilities.c. non-current liabilities minus current liabilities.d. either total assets minus
The current ratio is computed as:a. total assets divided by total liabilities.b. total assets divided by current liabilities.c. current assets divided by total liabilities.d. current assets divided
South Ulsan University sold 15,000 season football tickets at NT$80 (in thousands) each for its six-game home schedule. What entries should be made (a) when the tickets were sold, and (b) after each
What is a provision? Give an example of a provision.
Are the income taxes withheld from employee paychecks a payroll tax expense for the employer?Explain your answer.
Dillons AS made credit sales of €30,000 which are subject to 6% VAT. The company also made cash sales which totaled €20,670 including the 6% VAT. (a) Prepare the entry to record Dillons’ credit
Sport Pro Magazine sold 12,000 annual subscriptions of its monthly magazine on August 1, 2025, for €18 each. Prepare Sport Pro’s August 1, 2025, journal entry and the December 31, 2025, annual
Mayaguez Ltd. provides its officers with bonuses based on net income. For 2025, the bonuses total £350,000 and are paid on February 15, 2026. Prepare Mayaguez’s December 31, 2025, adjusting entry
Data for Rachel Shinnar are presented in BE10.9. Prepare the journal entries to record (a) Rachel’s pay for the period and (b) the payment of Rachel’s wages. Use January 15 for the end of the pay
On December 1, New Belgium Appliances introduces a new product that includes a one-year warranty on parts. In December, 1,000 units are sold. Management believes that 5% of the units will be
Scorcese A.Ş. is involved in a lawsuit at December 31, 2025. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for ₺900,000 as a result of this suit. (b)
How are contingent liabilities accounted for under GAAP?a. Disclosed in the notes if it is probable that the company will incur a loss but the amount cannot be reasonably estimated.b. Reported on the
Under GAAP, obligations related to warranties are considered:a. contingent liabilities.b. provisions.c. possible obligations.d. None of the answer choices is correct.
Four-Nine Shops issued bonds that pay interest every January 1. The entry to accrue bond interest at December 31 includes a:a. debit to Interest Payable.b. credit to Cash.c. credit to Interest
For 2025, Kim Ltd. reported net income of ₩300,000. Interest expense was ₩40,000 and income taxes were ₩100,000. The times interest earned was:a. 3 times.b. 4.4 times.c. 7.5 times.d. 11 times.
Which of the following statements is not true.a. Capitalized leases should be reported on the statement of financial position.b. All leases must be capitalized.c. The lessor is the owner of the
On January 1, Dias SA issued R$1,000,000, 10%, 5-year bonds with interest payable annually on December 31. The bonds sold for R$1,072,096. The market rate of interest for these bonds was 12%. On the
On January 1, 2025, Hurley Ltd. issued NT$5,000,000, 5-year, 12% bonds at 96 with interest payable annually on December 31. The entry on December 31, 2026, to record payment of bond interest and the
What is a lease agreement?
Jhutti Company rents a warehouse for the storage of its excess inventory. In the months when its production greatly exceeds actual sales, the company rents the space. As a result, Jhutti does not
Redbone AG issues CHF500,000 of 8%, 5-year bonds on January 1, 2025, at 104. If Redbone uses the effective-interest method in amortizing the premium, will the annual interest expense increase or
Fleming Ltd. issues £400,000 of 7%, 5-year bonds on January 1, 2025, at 105. Assuming that the straight-line method is used to amortize the premium, what is the total amount of interest expense for
Meera Ltd. issued 4,000, 8%, 5-year, £1,000 bonds dated January 1, 2025, at 100.Interest is paid each January 1.a. Prepare the journal entry to record the sale of these bonds on January 1, 2025.b.
Nasreen Company issues €2 million, 10-year, 8% bonds at 97, with interest payable each January 1.a. Prepare the journal entry to record the sale of these bonds on January 1, 2025.b. Assuming
Frankum SpA has issued three different bonds during 2025. Interest is payable annually on each of these bonds.1. On January 1, 2025, 1,000, 8%, 5-year, €1,000 bonds dated January 1, 2025, were
The statement of financial position for Miley Consulting reports the following information on July 1, 2025.Miley decides to redeem these bonds at 101 (face value of bonds £1,000,000) after paying
Hanschu plc issues an £800,000, 10%, 10-year mortgage note on December 31, 2025, to obtain financing for a new building. The terms provide for annual installment payments of £130,196.Prepare the
Presented below are non-current liability items for Suarez AG at December 31, 2025.Prepare the non-current liabilities section of the statement of financial position for Suarez. Bonds payable, due
Zhu Ltd. issues HK$5 million, 10-year, 9% bonds at 96, with interest payable annually on January 1. The straight-line method is used to amortize bond discount.a. Prepare the journal entry to record
Golden plc issues £4 million, 5-year, 10% bonds at 102, with interest payable annually January 1. The straight-line method is used to amortize bond premium.a. Prepare the journal entry to record the
On January 1, 2025, Klosterman Ltd. issued £500,000, 10%, 10-year bonds at face value.Interest is payable annually on January 1.Instructions Prepare journal entries to record the following.a. The
On January 1, 2025, Forrester SA issued R$400,000, 8%, 5-year bonds at face value.Interest is payable annually on January 1.Instructions Prepare journal entries to record the following.a. The
Pueblo Company issued €500,000 of 5-year, 8% bonds at 97 on January 1, 2025. The bonds pay interest annually.Instructionsa. 1. Prepare the journal entry to record the issuance of the bonds.2.
The following section is taken from Ohlman Ltd.’s. statement of financial position at December 31, 2024.Bond interest is payable annually on January 1. The bonds are callable on any interest
Presented below are two independent situations.1. Longbine plc redeemed £130,000 face value, 12% bonds on June 30, 2025, at 102. The carrying value of the bonds at the redemption date was £117,500.
Jernigan Co. receives €240,000 when it issues a €240,000, 6%, mortgage note payable to finance the construction of a building at December 31, 2025. The terms provide for annual installment
The adjusted trial balance for Zhang Ltd. at the end of 2025 contained the following accounts.Instructions Prepare the non-current liabilities section of the statement of financial position. Interest
Suppose Lin Ltd.’s 2025 financial statements contain the following selected data (in millions).Instructions Compute the following ratios and provide a brief interpretation of each.a. Debt to assets
Presented below are two independent situations.1. Flinthills Car Rental leased a car to Jayhawk Company for 11 months. Terms of the lease agreement call for monthly payments of $500.2. On January 1,
Lorance SpA issued €400,000, 7%, 20-year bonds on January 1, 2025, for €360,727.This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1.
LRNA Ltd. issued £380,000, 7%, 10-year bonds on January 1, 2025, for £407,968. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. LRNA
Adcock A/S issued €600,000, 9%, 20-year bonds on January 1, 2025, at 103. Interest is payable annually on January 1. Adcock uses straight-line amortization for bond premium or discount.Instructions
Gridley Ltd. issued £800,000, 11%, 10-year bonds on December 31, 2024, for £730,000. Interest is payable annually on December 31. Gridley uses the straight-line method to amortize bond premium or
Which of the following is false?a. Under GAAP, current liabilities are presented before non-current liabilities.b. Under GAAP, an item is a current liability if it will be paid within the next 12
A company is involved in a lawsuit where it is probable that it will have to pay a fine. The company does not dispute the facts, only the amount it should be required to pay. At year-end, the
An analysis of transactions for Kang & Co. was presented in E1.8.Instructions Prepare an income statement and a retained earnings statement for August and a statement of financial position at August
Matt Stiner started a delivery service, Stiner Deliveries Ltd., on June 1, 2025. The following transactions occurred during the month of June.June 1 Shareholders invested £10,000 cash in the
On December 31, Kohl Company correctly made an adjusting entry to recognize $$2,000$ of accrued salaries payable. On January 8 of the next year, total salaries of $$3,800$ were paid. Assuming the
Patel Company has an inexperienced accountant. During the first 2 weeks on the job, the accountant made the following errors in journalizing transactions. All entries were posted as made.1. A payment
If beginning inventory is HK$$600,000,$ cost of goods purchased is HK$$3,800,000,$ and ending inventory is HK$$500,000,$ cost of goods sold is:a. HK$$3,900,000$.b. HK$$3,700,000$.c.
In its income statement for the year ended December 31, 2025, Mancini Films reported the following condensed data.Instructionsa. Prepare an income statement.b. Prepare a comprehensive income
Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of HK$$91$ each and a net realizable value of HK$$80$ each. The ending inventory under LCNRV is:a.
Nestlé’s financial statements are presented in Appendix B. Financial statements of Delfi Limited are presented in Appendix C.Instructions Refer to the financial statements and answer the following
Writing Financial statement information about four different companies is as follows.Instructionsa. Determine the missing amounts. (Hint: For example, to solve for (a), Assets − Liabilities =
The financial statements of TSMC are presented in Appendix A. The complete annual report, including the notes to the financial statements, is available at the company’s website.Instructions Refer
Identify the activities and users associated with accounting.
At the beginning of the year, Ortiz Eyewear had total assets of £900,000 and total liabilities of £440,000. Answer the following questions.a. If total assets decreased £100,000 during the year and
Ai Fang Co. opened as a new computer services business on August 1, 2025. During August, the following transactions occurred.1. Shareholders invested ¥20,000 cash in the business in exchange for
Explain the building blocks of accounting: ethics, principles, and assumptions.
On May 1, 2025, Park Flying School Ltd., a company that provides flying lessons, was started with an investment of ₩45,000 cash in the business. Following are the assets and liabilities of the
The historical cost basis results in:a. initially recording assets at cost and adjusting when the current value changes.b. keeping activities of an entity separate and distinct from its owner.c.
Follow the same format as in Practice Brief Exercise 2. Determine the effect on assets, liabilities, and equity for the following three transactions.a. Performed accounting services for clients for
Anya and Nick Ramon, local golf stars, opened the Chip-Shot Driving Range Ltd. on March 1, 2025, investing £25,000 of their cash savings in the business in exchange for ordinary shares. A caddy
Which of the following statements is false?a. GAAP is based on a conceptual framework that is similar to that used to develop IFRS.b. FASB and the IASB are working on a joint project related to the
Analyze the effects of business transactions on the accounting equation.

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