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Accounting
The 2007 statement of cash flows for the Andell Company, as developed by its bookkeeper, is shown here:You determine that the amounts of the items listed on the statement are correct, but in certain
The Hanks Company has prepared the following changes in account balances for the worksheet to support its 2007 statement of cash flows:Additional information: The net income was $1,300. Depreciation
The following 2007 information is available for the Payne Company:Partial additional information: The net income for 2007 totaled $1,600. During 2007 the company sold for $390, equipment that cost
The following 2007 information is available for the Stewart Company:Partial additional information:1. The equipment that was sold for cash had cost $400 and had a book value of $300.2. Land that was
Moore Company is preparing its statement of cash flows for the current year. During the year, the company retired two issuances of debt and properly recorded the transactions. These transactions were
The Staggs Company has prepared its 2007 statement of cash flows. In conjunction with this statement, it plans to disclose the interest and income taxes it paid during 2007. The following information
On October 4, 2007, Collins Company purchased 100 shares of Steph Company common stock for $64 per share as a temporary investment in securities available for sale. On December 31, 2007, the stock
Use the information in E22-13.RequiredBased only on the information presented and using the direct method, prepare the cash flows from operating activities section of the 2007 statement of cash flows
The following is accounting information taken from the adjusted trial balance of the Woodrail Company for 2007:In addition, the following changes occurred in selected accounts during 2007:Accounts
The following is a list of items to be included in the 2007 statement of cash flows of the Estes Company:1. Payments to suppliers, $31,500 2. Other operating receipts, $1,200 3. Payments of
The following changes in account balances were taken from the adjusted trial balance of the Walson Company at the end of 2007:In addition, the following information was obtained from the
A company’s statement of cash flows and the accompanying schedule of investing and financing activities not affecting cash may contain the following major sections:A. Net Cash Flow From Operating
The following is accounting information taken from the Verna Company’s records for 2007:1. Decrease in accounts payable, $4,6002. Loss on sale of land, $1,9003. Increase in inventory, $7,8004.
The following is a list of the items to be included in the preparation of the 2007 statement of cash flows for the Warrick Company:1. Net income, $59,2002. Payment for purchase of building, $98,0003.
The following is a list of the items to be included in the preparation of the 2007 statement of cash flows for the Trone Company:1. Extraordinary gain (net), $9,2002. Proceeds from issuance of note,
The following transactions were recorded on the books of the Baxter Company during the current year. The company:1. Issued a “small” common stock dividend of 400 shares. The par value is $10 per
The following partially completed worksheet has been prepared for the 2007 statement of cash flows of the Perrin Company:Other relevant information (a)(b) Accumulated depreciation is a contra account
The following information was taken from the accounting records of the Lamberson Company:Additional information for the year:(a) Sales ............$ 39,930Cost of goods sold
The following information is available for the Bott Company:Additional information for the year:(a)(b) Last year depreciation expense was inadvertently understated in the amount of $1,800. The
The post-closing trial balance as of December 31, 2006 and the adjusted trial balance as of December 31, 2007 are shown here for the Heinz Company:A review of the accounting records reveals the
On December 31, 2007 a fire destroyed a significant portion of the Richey Company accounting records. Only the January 1, 2007 balance sheet, the statement of cash flows for 2007, and several
The bookkeeper of the Ryan Company prepared the following 2007 statement of cash flows:After a thorough investigation, you have determined that the amounts of the items listed on the statement are
Angel Company has prepared its financial statements for the year ended December 31, 2007 and for the three months ended March 31, 2008. You have been asked to prepare a statement of cash flows for
The following are the balance sheets of Farrell Corporation as of December 31, 2007 and 2006, and the statement of income and retained earnings for the year ended December 31, 2007:Additional
Use the information presented in P22-7.Required1. Using the direct method, prepare the cash flows from operating activities section of the 2007 statement of cash flows for the Lamberson Company.2.
The following is a list of the items to be included in the preparation of the 2007 statement of cash flows for the Yellow Company:1. Proceeds from sale of land, $2,100 2. Payments of interest, $5,000
Use the information presented in P22-13 for the Farrell Corporation.Required1. Using the direct method for operating cash flows, prepare a worksheet (spreadsheet) to support a 2007 statement of cash
The following are the December 31, 2006 post-closing trial balance and the December 31, 2007 adjusted trial balance of the Adair Company:A review of the accounting records reveals the following
Use the information presented in P22-9 for the Heinz Company.RequiredUsing the direct method for operating cash flows, prepare a worksheet (spreadsheet) to support a 2007 statement of cash flows.
Prepare an outline of the general format of the statement of cash flows (indirect method). Include examples of cash inflows and outflows that would be reported under each major section. Finally,
A friend of yours is taking an elementary accounting course. He says, “I understand the income statement and balance sheet, but I am confused by the statement of cash flows (and accompanying
A company’s statement of cash flows shows its cash inflows, cash outflows, and net change in cash from the operating, investing, and financing activities during an accounting period.RequiredPrepare
The worksheet method is commonly used to analyze the information for preparing a company’s statement of cash flows. This method involves the completion of several steps.RequiredExplain the
There are two methods to calculate and report a company’s net cash provided by (or used in) operating activities.RequiredPrepare a short memo that identifies the two methods and explains the
The statement of cash flows is normally a required basic financial statement for each period for which an earnings statement is presented. The statement should include a separate schedule listing the
Alfred Engineering Company is a young and growing producer of electronic measuring instruments and technical equipment. You have been retained by Alfred to advise it in the preparation of a statement
Refer to the financial statements and related notes of The Coca-Cola Company in Appendix A of this book.Required1. What was the net cash provided by operating activities for 2004? What method was
You are the accountant for Nello Company, which manufactures specialty equipment. Nello has been in financial difficulty, so its suppliers require purchases to be paid in cash. Furthermore, Nello has
Situation You are the new accountant for 12th National Bank and are preparing its 2007 statement of cash flows. The bank reports net income of $75,800 on its 2007 income statement.Included in this
Describe the three types of accounting changes.
Describe the two possible methods that a company could use to report the effect of accounting changes. Give one reason in favor of, and one against, each alternative.
Describe two situations in which a company could justify a change in an accounting principle.
What distinguishes a change in an accounting principle from a change in an estimate? How should a company account for each?
Give three examples of a change in an estimate. How does a company account for such changes?
In which situations may it be impracticable for a company to apply the retrospective adjustment method? What is the correct accounting in such cases?
How is a change in depreciation method accounted for? Why?
How does a company account for any indirect effects of a change in accounting principle?
How does a company account for the adoption of a new accounting principle for future events?
How does a company report a change in an accounting principle in its interim financial statements?
Describe a change in a reporting entity. How does a company account for such changes?
How does a company report an error of a prior period that it discovers in the current period?
Describe two errors that affect only a company’s balance sheet.
Describe two errors that affect only a company’s income statement.
Describe two errors that are counterbalanced in the following period.
Describe two errors that are not counterbalanced in the following period.
Why does a company correct errors even after they have counterbalanced?
Multiple Choice1. During 2007 White Company determined that machinery previously depreciated over a seven-year life had a total estimated useful life of only five years. An accounting change was made
The following are several independent events:1. Change from the LIFO to the FIFO inventory cost flow assumption.2. Reduction in remaining service life of machinery from 10 to 8 years.3. A change from
The following are several independent events:1. Change from the FIFO to the LIFO inventory cost flow assumption.2. Write-off of patent due to the introduction of a competing product.3. Payment to the
The following are several independent events:1. A partnership is preparing to become a corporation and sell stock to the public. At this time, it is decided to switch from accelerated to
At the beginning of 2008 the Brett Company decided to change from the FIFO to the average cost inventory cost flow assumption for financial reporting purposes. The following data are available in
The Berg Company began operations on January 1, 2007 and uses the FIFO method in costing its raw material inventory. During 2008 management is contemplating a change to the LIFO method and is
The Fava Company began operations in 2006 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2007 the anticipated cost trends in the industry had
The Delta Company uses the completed-contract method of accounting for long-term construction contracts. The company started business in 2005 and prepared the following income statements:The company
On January 1, 2002, the Klinefelter Company purchased a building for $520,000. The building had an estimated life of 20 years and an estimated residual value of $20,000. The company has been
The following are several independent errors made by a company that uses the periodic inventory system:1. Goods in transit, purchased on credit and shipped FOB destination, $10,000, were included in
Use the information in E23-9.RequiredPrepare the correcting journal entries if the company discovers each error two years after it is made and it has closed the books for the second year. (Ignore
The following are several independent errors made by a company:1. Failure to record a purchase of inventory on credit.2. Expensing the purchase of a machine.3. Failure to accrue wages.4. Failure to
The following are several independent errors:1. In January 2007 repair costs of $9,000 were debited to the Machinery account. At the beginning of 2007 the book value of the machinery was $100,000. No
The Dudley Company failed to recognize the following accruals. It also recorded the prepaid expenses and unearned revenues as expenses and revenues, respectively, in the year of payment or
On January 2, 2007, Quo, Inc. hired Reed as its controller. During the year, Reed, working closely with Quo’s president and outside accountants, made changes in accounting policies, corrected
At the beginning of 2008 the Flynne Company decided to change from the LIFO to the FIFO inventory cost flow assumption. The following data are available:The tax rate is 30%. The company has a simple
Koopman Company began operations on January 1, 2006 and uses the FIFO inventory method for financial reporting and the average-cost inventory method for income taxes. At the beginning of 2008 the
Schmidt Company began operations on January 1, 2006 and used the LIFO inventory method for both financial reporting and income taxes. However, at the beginning of 2008 the company decided to switch
Since the Goode Construction Company was formed in 2006, it has used the completed-contract method for financial reporting, but at the beginning of 2008 it changes to the percentage of- completion
At the beginning of 2008, the controller of Holden Company asked you to prepare correcting entries for the following three situations:1. Machine X was purchased for $100,000 on January 1, 2003.
The Kraft Manufacturing Company manufactures two products: Mult and Tran. At December 31, 2007 Kraft used the FIFO inventory method. Effective January 1, 2008, Kraft changed to the LIFO inventory
The Jackson Company has decided to issue common stock to the public in 2008. This will be the first public sale and therefore the company will issue its first publicly available financial statements
At the end of 2008 while auditing the books of the Sandlin Company, before the books have been closed, you find the following items:a. A building with a 30-year life (no residual value, straight-line
At the beginning of 2008 Tanham Company discovered the following errors made in the preceding two years:Reported net income was $27,000 in 2006 and $35,000 in 2007. The allowance for doubtful
A review of the books of the Anderson Corporation indicates that the errors and omissions pertaining to the balance sheet accounts shown as follows had not been corrected during the applicable
The bookkeeper of the Cask Company, who has maintained its accounting records since the companys formation in January 2005, has prepared the unaudited financial statements. In your
The financial statements of the Gray Company showed income before income taxes of $4,030,000 for the year ended December 31, 2008, and $3,330,000 for the year ended December 31, 2007.Additional
The Ingalls Corporation is in the process of negotiating a loan for expansion purposes. The books and records have never been audited, and the bank has requested that an audit be performed. Ingalls
There are three types of accounting changes: changes in accounting principles, changes in accounting estimates, and changes in reporting entities.RequiredExplain the differences and similarities
The various types of accounting changes may significantly affect the presentation of a company’s financial statements, and also affect the trends shown in its comparative financial statements and
Berkeley Company, a manufacturer of many different products, changed its inventory method from FIFO to LIFO. The LIFO method was determined to be preferable. In addition, Berkeley changed the
When the FASB issues a new Statement, it may require companies to apply the new principle prospectively, or to account for the change by the retrospective adjustment method. RequiredWhy do you think
Sometimes a business entity may change its method of accounting for certain items. It may classify the change as a change in accounting principle, a change in accounting estimate, or a change in
It is important in accounting theory to be able to distinguish the types of accounting changes.Required1. If a public company desires to change from the sum-of the- years’-digits depreciation
In 2001, Enron Corporation filed financial statements in which it did not consolidate variousSpecial Purpose Entities, thereby keeping large amounts of debt off its balance sheet. The company has
You are auditing the financial records of a company and reviewing the property, plant, and equipment records. Included in the assets are two buildings and numerous machines in each building. One of
Why do companies purchase securities of other corporations?
What are the three categories of investments in debt and equity securities when there is no significant influence?
Provide brief definitions for the following terms: (a) Debt security, (b) Equity security, and (c) Fair value.
Identify the accounting methods a company uses for investments of 20% or more in the voting common stock of the investee.
Briefly summarize the accounting for an investment in trading securities.
Briefly summarize the accounting for an investment in available-for-sale securities.
Briefly summarize the accounting for an investment in debt securities held to maturity.
Briefly describe how to determine and record any subsequent increases or decreases in the fair value of an investment in available-for-sale securities.
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