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accounting

Questions and Answers of Accounting

You are a financial manager with a medium-sized company, Kangaroo Express. The company is owned and managed by the Marsupial family. Currently, 60% of the company’s financing is composed of
Given below are summary financial statements for two companies.RequiredA. Compute the debt-to-equity ratios for, and compare the capital structures of, the two companies.B. Compute and compare the
Aitken Company needs cash. The company has several hot new products and sales are growing rapidly. The controller has just presented CEO Jim Aitken the following balance sheet updated through today,
1. The way a company finances its assets and operating activities is itsa. capital structure.b. financial leverage.c. return on equity.d. present value.2. Honey Farms Company reported the following
What do we need to know to start a business?
What is the purpose of accounting? How does accounting accomplish that purpose?
How can accounting information help investors understand risk?
How does the purpose of merchandising, manufacturing, and service companies differ? How do they each create value?
List an example of each of the following types of organization. Describe how each type of organization differs from each of the others.a. Merchandisingb. Manufacturingc. Serviced. Governmentale.
Sandy Dune overheard some friends from your accounting class discussing the “transformation of resources.” She is curious about what this term means and how it applies to organizations and
Accounting is an information system that measures and reports the value created when a company transforms resources. Does an accounting system create value? If so, how? If not, why do companies have
Phillip invested $3,000 in a business at the beginning of the year. By the end of the year, the value of this investment had risen to $4,100. Near year-end, the business sent Phillip a check for
How are effectiveness, efficiency, return on investment, and accounting interrelated? Be specific.
What is a contract, and why are contracts important for business organizations?
What is meant by risk, and why is it an important concept for decision makers to understand? What is the relationship between risk and accounting?
Your friend is puzzled that the topic of contracts has come up in your accounting class. Says he, Contracts are the business of lawyers, not accountants. Why are we studying contracts in an
Your uncle tells you that risk is to be avoided when considering potential investments. In fact, he believes the government should ban risky investments to protect the public. Do you agree with your
It is often said that there exists a risk-return tradeoff. That is, to obtain a higher return, one must be willing to accept higher risk. If one wishes to incur little risk, one must be willing to
Why do owners invest in businesses even though such an investment is more risky than investing in U.S. Savings Bonds? If you had $3,000 to invest, how would you decide whether to invest it in
What is the interrelationship among the concepts of risk, moral hazard (when setting executive compensation), and generally accepted accounting principles?
How does an audit increase the credibility of financial statements?
An accounting classmate notes that adherence to GAAP is not required for managerial accounting reports. She observes, “If it’s so important for financial accounting, it seems reasonable that it
Assume you have a friend, Edwina Polinder, who has no knowledge of accounting. Draft a short memo to Edwina that will help her understand the purpose of accounting.DATE: (today’s date)TO:
Wilma Borrelli is a stockholder of Essex International, a major supplier of building materials. Wilma received information that Essex sustained a large loss during the most recent quarter and is
Match the type of organization with the characteristics and examples provided below:Type of organization:1. Merchandising (or retail) companies2. Manufacturing companies3. Service companies4.
Leonardo has started a small business making sundials. The following transactions occurred for the business during a recent period. How much profit did the company earn for this period?Sales to
Soft Light Company produces specialty lamps and sells them to retail stores. During the latest year, the company sold 40,000 lamps at an average price of $70 per lamp. The production and distribution
Fashion Threads Company uses the following four steps to make a particular pair of cotton slacks:a. Cotton is planted, grown, harvested, and shipped to a textile manufacturer. The cost to produce the
Alexander makes professional baseball gloves by hand. He buys leather for $80 a yard. Padding costs $6 a pound; thread and other materials cost $16 for a month’s supply. He pays $500 a month rent
Mario’s Restaurant specializes in Italian food. During February, Mario’s recorded the following sales to customers and costs of doing business:Sales to customers ............$19,500Cost of food
The Quick Stop is a fast-food restaurant. During March, Quick Stop recorded the following sales to customers and costs of doing business:Sales to customers ...........$4,400Cost of food products used
Pam Lucas is a high school student who delivers papers to earn spending money. During May, she received $450 from customers in payment for their subscriptions for the month. She paid $300 for the
On January 1, 2004, Alicia invested $4,000 in a savings account. At the end of January, the account balance had increased to $4,020. The balance at the end of February was $4,040.10. The balance at
Davy Crockett invested $15,000 in Mike Fink Rafting Company. At the end of the year, Crockett’s investment was worth $17,250 because of earnings during the year. Fink paid Crockett $3,000 at the
Flick and Flack are two companies that sell identical products. They are located in different parts of the same city. During September, Flick sold $24,000 of goods, while Flack sold $18,000.
Rogers and Hornsby are two companies that compete in the same market with the same product, a brand of steak sauce. The companies are the same size and sell to the same grocery retailers. Both
You have a choice of investing in either of two companies, Lewis or Clark. Both companies make the same products and compete in the same markets. Over the last five years, the operating results for
Identify each of the following as describing corporations, proprietorships, and/or partnerships.Some items have more than one answer.a. Distinct legal entity separate from its owners.b. More than one
Yashiko Takawsa is a loan officer at a major bank. Hendrick Swindler recently applied for a small business loan for his dry cleaning company, Take ‘Em to the Cleaners. As part of the application,
Wendy Hu is considering two new products for her office products manufacturing business. One is a laser printer. Wendy has had numerous calls for the product, which will compete with existing
To encourage its managers to earn a profit for its stockholders, Primrose Mining Company pays a bonus to top managers if the company earns at least a 15% return on investment each year. Management
Andy attends college on a full-time basis and works part-time for Meredith’s Garden Center. The owner, Jim Meredith, asked Andy to work late into the night to move merchandise from one warehouse to
Betsy wants to start a business making flags. She has calculated that she will need $62,500 to start the business. The money will be used to rent a building, purchase equipment, hire workers, and
Provided below are four types of organizations and a list of organizations with which you are probably familiar. Associate each organization with a type of organization.Types of
Through hard work and careful saving, Hans and his family have $152,000 to start a small specialty foods business. The family estimates sales to customers will be about $4,500 per month during the
You are considering opening a shop in a nearby mall that will sell specialty T-shirts. T-shirts, containing designs and words selected by customers, will be produced for customers on order. You will
T. Edison owns her own business and had the following activity during September. She earned $2,600 from royalties on inventions. She consumed resources as follows: $525 for rent, $300 for clerical
Betsy started Betsy’s Flag Co. on September 1. During September, Betsy consumed the following resources:Rent ............$ 625Utilities ........... 250Supplies ..........3,000Repairs
The chief financial officer (CFO) of Flash Bulb and Seed Company has prepared the following projections for the month of August.Although Flash Bulb and Seed Company predicts a loss for August, the
John invested $250,000 into a business that earned a profit of $2,250 during the past month as shown below. John believes the business will earn an annual profit equal to twelve times the monthly
Below are three independent situations.A. Larry, Ulysses, and Irene are three college student friends planning to set up a summer business at a nearby resort to sell T-shirts, souvenirs, and
Mary Jackson is graduating with a degree in business administration. She has scheduled interviews with a variety of companies. Mary found the following diagram in the packet of information provided
Sonny Beam established Solar Supply Corporation earlier in the current year. To obtain resources, he contributed $5,000 of his savings to the company, had the company borrow $8,000 from his mother,
Nancy and Mauro are reviewing the information given below for different reasons. Nancy is a bank loan officer who has received a 2-year, $50,000 loan application from both firms. Mauro is an
Assume you are the credit manager for a manufacturing company that sells its products to retail businesses. One of your company€™s sales representatives has been working hard to establish
Taylor Grey is the sales manager of an electronics manufacturing company. His annual bonus is based on profits earned by the company. On December 30, Taylor is inquiring about the status of a very
Assume you have inherited a sum of money from a distant relative and are looking for good investment opportunities. You are considering investing in one of two companies, Wonderworks or
In its 2001 annual report, Qwest Communications International Inc. (“Qwest”) stated that because of an SEC investigation, it couldn’t guarantee that it would not have to restate its earnings
You are the manager of a retail electronics store. Recently, you purchased 200 What-A-Sound portable CD players from a wholesaler in a going-out-of-business sale. These units cost you $80 each, about
You manage an auto service store. One of your major services is brake replacement. You purchase replacement parts at an average cost of $30 per set. Each set contains parts for four wheels and will
Millie and Milo Wermz are the owners and managers of a small bookstore, The Book Wermz, near a college campus. The store specializes in rare and out-of-print books. During September 2004, the company
Multiple-Choice Questions1. The basic purpose of accounting is to:a. Minimize the amount of taxes a company has to pay.b. Permit an organization to keep track of its economic activities.c. Report the
Environmental Housing Company designs and builds log homes. It purchases logs and other building materials from other companies. The logs are cut to the dimensions called for in a design and shipped
How do we know how well our business is doing?
Joan Hoyt is considering opening a small retail store to sell knives and other kitchen utensils. She has a small amount of money to invest and wants to maintain as much control over the business as
Hardly Moving and Storage Corporation needs an additional $1,000,000 in financing to build new facilities. How might Hardly get the money? What issues should company management consider in deciding
Jerrilyn has invested $5,000 in shares of the stock of Ambitious Enterprises, Inc. From the corporation’s perspective, was this a financing activity, an investing activity, or an operating
Discuss the effect on the accounting equation if a company accurately reports its assets, yet understates its liabilities.
Explain why the accounting equation must balance after each transaction.
Is purchasing merchandise inventory considered an investing or operating activity? Explain.
If owners contribute resources to a company, Owners’ Equity increases. If a company records Sales Revenue, Owner’s Equity also increases. How are Contributed Capital and Sales Revenue dissimilar?
While reviewing a company’s balance sheet, John observed the Retained Earnings account with a balance of $850,000. “Wow,” he thought. “That’s a lot of cash!” Has John correctly
Assume you are reviewing a balance sheet that has assets listed on the left side and liabilities and owners’ equity on the right side. What question or questions can you answer by looking at the
What types of information are reported, respectively, on the balance sheet, income statement, and the statement of cash flows? Be specific.
A balance sheet identifies assets and claims to assets. Typically, who has claims on a company’s assets?
Both the income statement and the statement of cash flows provide information about operating activities during a fiscal period. Why are both statements included in a company’s financial report?
Why are account balances summarized into financial statements? Why don’t companies simply distribute a list of year-end account balances?
Leonetta Garcetti owns and manages a large construction company. This morning she is faced with the following issues.1. The office manager just submitted his resignation and the search for a
For each of the following items, identify which part of the transformation process is involved. Use F to indicate a financing activity, I to indicate an investing activity, or O to indicate an
Identify each transaction in E2-4 as financing, investing, or operating.
Perez Company had the following selected transactions during the month of May. Show how the financial effects of each transaction would be recorded using the following format. The first transaction
Identify each transaction in E2-6 as financing, investing, or operating.
Rosy Cheeks Company distributes perfumes and cosmetics. The following account changes were made in the company’s accounting records during March. For each item, describe the transaction that caused
Amelio has operated a one-person law firm for many years. During the first week of February, the following events occurred in his business.Feb. 2 Collected $1,800 from a client for legal work
Identify each transaction in E2-9 as financing, investing, or operating.
Balance sheet accounts for Dale’s Delightful Florist Shoppe at the end of a recent fiscal year are listed below. Prepare a schedule demonstrating that assets = liabilities + owner’s equity for
Harmony Cabot opened a music store in a local mall, selling CDs and tapes. She invested $80,000 in the business and borrowed $140,000 from a local bank. The following additional events occurred
Chang Pottery Works began November with a Retained Earnings balance of $95,000. During November the company earned $15,000 and returned $4,000 to the owners. Prepare a schedule that reports the
The following events occurred during December for Christmas Cookie Company:a. Purchased and consumed $60,000 of flour, sugar, and other ingredients for cookies sold.b. Paid $97,500 for December
Wheatgerm Healthfoods reported the following information:Proceeds from issuance of notes payable ........$13,057Additions to plant and equipment .......... 5,379Proceeds from owners .................
Darden Bottling Company has the following information available for the first six months of 2004:Cash collected from customers .............$268,000Cash paid merchandise inventory ............
Listed below are typical accounts or titles that appear on financial statements. For each item, identify the financial statement(s) on which it appears.Wages expenseCost of goods soldSales
After six months of operation, Brother’s Lawn Service had the following revenue and expense account balances:Supplies expense .............$ 4,000Wages expense ............... 6,000Service revenue
On June 30, 2004, Brothers’ Lawn Service had the following account balances:Cash ................$3,000Notes payable ............. 1,000Contributed capital ........... 6,700Retained earnings
Surf-The-Net.com had the following events occur during October:1. Paid $5,800 for utilities.2. Made cash sales to customers that totaled $89,460. The merchandise had cost Surf-The-Net.com $60,0003.
Refer to the information provided in P2-1.Required Identify each transaction in P2-1 as a financing, investing, or operating activity.
Apollo Corporation reported the following accounts and balances in its financial statements:Cash .................$10,000Merchandise Inventory ......... 30,000Equipment .............. 45,000Notes
Refer to the information provided in P2-4.Required Identify each transaction in P2-4 as financing, investing, or operating.
Jill Jones has just established a security alarm maintenance service. She charges $20 per hour per person and is paid by check upon completion of the job. Her expenses are rather lowâ€”usually
Jacqueline owns and operates a specialty cosmetics manufacturing firm. Distribution is primarily through boutique shops in regional shopping centers, although some items are sold directly through a

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