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Questions and Answers of Accounting

Delta NV has share capital of Alm in shares of €0.25 each. At 31 May 20X9 shares had a market value of €1.1 each. On 1 June 20X9 the company makes a rights issue of 1 share for every 4 held at
The following information is available for X Ltd for the year ended 31 May 20X1:Net profit after tax and minority interest ... £18,160,000Ordinary shares of £1 (fully paid) .....
(a) The issued share capital of Manfred, a quoted company, on 1 November 2004 consisted of 36,000,000 ordinary shares of 75 cents each. On 1 May 2005 the company made a rights issue of 1 for 6 at
The capital structure of Chavboro, a quoted company, during the years ended 31 October 2005 and 2006 was as follows:
Direct plc provided the following information from its records for the year ended 30 September 20X9:Required:Using the direct method of presentation, prepare the cash flows from the operating
Almost Ready Ltd had extracted the following information from the statement of comprehensive income and statement of financial position (000s) for the year ended 30 September 20X9:Proceeds from issue
The following are the financial statements of Riddle plc for the last two years:Statement of comprehensive income for the year ended 31 March 20X9Required:(a) Prepare the statement of cash flows for
The statements of financial position of Flow Ltd for the years ended 31 December 20X5 and 20X6 were as follows:Note that during the year ended 31 December 20X6:1 Equipment that had cost 25,500 and
The statements of financial position of Radar plc at 30 September were as follows:The following information is available:(i) An impairment review of the investments disclosed that there had been an
Shown below are the summarized final accounts of Martel plc for the last two financial years:Summarised statement of comprehensive income for the year ending 31 DecemberAdditional information:1 The
The statements of financial position of Maytix as at 31 October 2005 and 31 October 2004 are as follows:The statement of comprehensive income of Maytix for the year ended 31 October 2005 is as
Helvatia GmbH is a Swiss company which is a wholly owned subsidiary of Corolli, a UK company. Helvatia GmbH was formed on 1 November 2005 to purchase and manage a property in ZÃ¼rich in
Belt plc and Braces plc were in the same industry. The following information appeared in their 20X9 accounts:(a) Calculate the following ratios for each company and show the numerical relationship
Saddam Ltd is considering the possibility of diversifying its operations and has identified three firms in the same industrial sector as potential takeover targets. The following information in
(a) The following ratios have been extracted from an analysis of the consolidated accounts of three companies €“ North, South and East:Required:Comment on the respective performance of each
The following are the accounts of Bouncy plc, a company that manufactures playground equipment, for the year ended 30 November 20X6.The directors are considering two schemes to raise £6,000,000
You are informed that the non-current assets totaled €350,000, current liabilities €156,000, the opening retained earnings totaled €103,000, the administration expenses totaled €92,680 and
Liz Collier runs a small delicatessen. Her profits in recent years have remained steady at around £21,000 per annum. This type of business generally ear ns a uniform rate of net profit on sales of
Sally Gorden seeks your assistance to decide whether she should invest in Ruby plc or Sapphire plc. Both companies are quoted on the London Stock Exchange. Their shares were listed on 20 June 20X4 as
The statements of financial position, cash flows, income and movements of non-current assets of Dragon plc for the year ended 30 September 20X6 are set out below:(i) Statement of financial
Amalgamated Engineering plc makes specialized machinery for several industries. In recent years, the company has faced severe competition from overseas businesses, and its sales volume has hardly
The Housing Department of Chaldon District Council has invited tenders for re-roofing 80 houses on an estate. Chaldon Direct Services (CDS) is one of the Council€™s direct services
Chelsea plc has embarked on a programme of growth through acquisitions and has identified Kensington Ltd and Wimbledon Ltd as companies in the same industrial sector, as potential targets. Using
The following five-year summary relates to Wandafood Products plc and is based on financial statements prepared under the historical cost convention:Liquidity ratiosPer shareNet operating assets
You work for Euroc, a limited liability company, which seeks growth through acquisitions. You are a member of a team that is investigating the possible purchase of Choggerell, a limited liability
Growth plc made a cash offer for all of the ordinary shares of Beta Ltd on 30 October 20X9 at £2.75 per share. Beta€™s accounts for the year ended 31 March 20X9 showed:Additional
Quickserve plc is a food wholesale company. Its financial statements for the years ended 31 December 20X8 and 20X9 are as follows:Statements of financial positionRequired:(a) Describe the concerns
R. Johnson inherited 810,000 £1 ordinary shares in Johnson Products Ltd on the death of his uncle in 20X5. His uncle had been the founder of the company and managing director until his death.
Harry is about to star t negotiations to purchase a controlling interest in NX, an unquoted limited liability company. The following is the statement of financial position of NX as at 30 June 2006,
The major shareholder/director of Esrever Ltd has obtained average data for the industry as a whole. He wishes to see what the forecast results and position of Esrever Ltd would be if in the ensuing
The directors of Chekani plc, a large listed company, are engaged in a policy of expansion. Accordingly, they have approached the directors of Meela Ltd, an unlisted company of substantial size, in
Discuss the following issues with regard to financial reporting for risk:(a) How can a company identify and priorities its key risks?(b) What actions can a company take to manage the risks identified
Flash Fashions plc has had a difficult nine months and the management team is discussing strategy for the final quarter.In the last nine months the company has survived by cutting production,
Briefly state:(i) The case for segmental reporting;(ii) The case against segmental reporting.
Conglomerate plc was a family company which was so successful that the founding Alexander family could not fully finance its expansion. So the company was floated on the stock exchange with the
The board of White plc is discussing the filling of a vacant position arising from the death of Lord White. A list of possible candidates is as follows:(a) Lord Sperring who is a well known company
(a) Describe the value to the audit client of the audit firm providing consultancy services.(b) Why is it undesirable for audit firms to provide consultancy services to audit clients?(c) Why do audit
How is the relationship between the audit firm and the audit client different for:(a) The provision of statutory audit when the auditor reports to the shareholders;(b) The provision of consultancy
Why is there a prohibition of auditors owning shares in client companies? Is this prohibition reasonable? Discuss.
The financial statements of Rolls-Royce plc (aero engine manufacturer) for the year ended 31 December 1999 disclose the following matters in relation to the directors:(a) Remuneration committeeThe
The following information relates to the Plus Factors Group plc for the years to 30 September 20X8 and 20X9:Ordinary dividends were declared as follows:Interim
David Mark is a sole trader who owns and operates supermarkets in each of three villages near Ousby. He has drafted his own accounts for the year ended 31 May 20X4 for each of the branches. They are
(a) You are required to prepare a value added statement to be included in the corporate report of Hythe plc for the year ended 31 December 20X6, including the comparatives for 20X5, using the
Gettry Doffit plc is an international company with worldwide turnover of £26 million. The activities of the company include the breaking down and disposal of noxious chemicals at a specialized plant
Examine the EPA’s website (www.epa.gov/epahome/aboutepa.htm) and prepare one of the cases as a presentation to the group showing clearly how environmental accounting was used and the results of the
The following items have been extracted from the accounts:Required:(a) Prepare a Value Added Statement showing % for each year and % change(b) Draft a note for inclusion in the Annual Report
A business can be valued by capitalizing its earnings stream. How might you use the same idea to value securities, especially the stock of large publicly held companies? Is there a way to calculate a
The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate isa. 9%?b. 12% compounded monthly?c.
What will a deposit of $4,500 left in the bank be worth under the following conditions?a. Left for nine years at 7% interestb. Left for six years at 10% compounded semiannuallyc. Left for five years
What interest rates are implied by the following lending arrangements?a. You borrow $500 and repay $555 in one year.b. You lend $1,850 and are repaid $2,078.66 in two years.c. You lend $750 and are
How long does it take for the following to happen?a. $856 grows into $1,122 at 7%b. $450 grows into $725.50 at 12% compounded monthlyc. $5,000 grows into $6,724.44 at 10% compounded quarterly
Sally Guthrie is looking for investment vehicles that will double her money in five years.a. What interest rate, to the nearest whole percentage, does she have to receive?b. At that rate, how long
Branson Inc. has sold product to the Brandywine Company, a major customer, for $20,000. As a courtesy to Brandywine, Branson has agreed to take a note due in two years for half of the amount due.a.
John Cleaver’s grandfather died recently and left him a trunk that had been locked in his attic for years. At the bottom of the trunk John found a packet of 50 World War I “liberty bonds” that
Paladin Enterprises manufactures printing presses for small-town newspapers that are often short of cash. To accommodate these customers, Paladin offers the following payment terms.1/3 on delivery1/3
Charlie owes Joe $8,000 on a note that is due in five years with accumulated interest at 6%. Joe has an investment opportunity now that he thinks will earn 18%. There’s a chance, however, that it
Ralph Renner just borrowed $30,000 to pay for a new sports car. He took out a 60-month loan and his car payments are $761.80 per month. What is the effective annual interest rate (EAR) on Ralph’s
How much will $650 per year be worth in eight years at interest rates of?a. 12%?b. 8%?c. 6%?
The Wintergreens are planning ahead for their son’s education. He’s eight now and will start college in 10 years. How much will they have to set aside each year to have $65,000 when he starts if
What interest rate would you need to get to have an annuity of $7,500 per year accumulate to $279,600 in 15 years?
How many years will it take for $850 per year to amount to $20,000 if the interest rate is 8%?
What would you pay for an annuity of $2,000 paid every six months for 12 years if you could invest your money elsewhere at 10% compounded semiannually?
Construct an amortization schedule for a four-year, $10,000 loan at 6% interest compounded annually.
A $10,000 car loan has payments of $361.52 per month for three years. What is the interest rate? Assume monthly compounding and give the answer in terms of an annual rate.
Joe Ferro’s uncle is going to give him $250 a month for the next two years starting today. If Joe banks every payment in an account paying 6% compounded monthly, how much will he have at the end of
How long will it take a payment of $500 per quarter to amortize a loan of $8,000 at 16% compounded quarterly? Approximate your answer in terms of years and months. How much less time will it take if
Ryan and Laurie Middleton just purchased their first home with a traditional (monthly compounding and payments) 6% 30-year mortgage loan of $178,000.a. How much is their monthly payment?b. How much
What are the monthly mortgage payments on a 30-year loan for $150,000 at 12%? Construct an amortization table for the first six months of the loan.
Construct an amortization schedule for the last six months of the loan in Problem 21.
How soon would the loan in Problem 21 pay off if the borrower made a single additional payment of $17,936.29 to reduce principal at the end of the fifth year?
What are the payments to interest and principal during the 25th year of the loan in Problem 21?
Adam Wilson just purchased a home and took out a $250,000 mortgage for 30 years at 8%, compounded monthly.a. How much is Adam’s monthly mortgage payment?b. How much sooner would Adam pay off his
Amy’s uncle died recently and left her some money in a trust that will pay her $500 per month for five years starting on her 25th birthday. Amy is getting married soon, and she would like to use
Lee Childs is negotiating a contract to do some work for Haas Corp. over the next five years. Haas proposes to pay Lee $10,000 at the end of each of the third, fourth, and fifth years. No payments
Referring to the previous problem, Lee wants to receive the payments for his work sooner than Haas proposes to make them. He has counter proposed that the payments be made at the beginning of the
The Orion Corp. is evaluating a proposal for a new project. It will cost $50,000 to get the undertaking started. The project will then generate cash inflows of $20,000 in its first year and $16,000
The Tower family wants to make a home improvement that is expected to cost $60,000. They want to fund as much of the cost as possible with a home equity loan but can afford payments of only $600 per
The Stein family wants to buy a small vacation house in a year and a half. They expect it to cost $75,000 at that time. They have the following sources of money.1. They have $10,000 currently in a
Clyde Atherton wants to buy a car when he graduates from college in two years. He has the following sources of money.1. He has $5,000 now in the bank in an account paying 8% compounded quarterly.2.
Joe Trenton expects to retire in 15 years and has suddenly realized that he hasn’t saved anything toward that goal. After giving the matter some thought, he has decided that he would like to retire
Janet Elliott just turned 20 and received a gift of $20,000 from her rich uncle. Janet plans ahead and would like to retire on her 55th birthday. She thinks she’ll need to have about $2 million
Merritt Manufacturing needs to accumulate $20 million to retire a bond issue that matures in 13 years. The firm’s manufacturing division can contribute $100,000 per quarter to an account that will
Carol Pasca just had her fifth birthday. As a birthday present, her uncle promised to contribute $300 per month to her education fund until she turns 18 and Starts College. Carol’s parents estimate
Joan Colby is approaching retirement and plans to purchase a condominium in Florida in three years. She now has $40,000 saved toward the purchase in a bank account that pays 8% compounded quarterly.
At any particular time, home mortgage rates are determined by market forces, and individual borrowers canâ€™t do much about them. The length of time required to pay off a mortgage loan, however,
Amitron Inc. is considering an engineering project that requires an investment of $250,000 and is expected to generate the following stream of payments (income) in the future. Use the TIMEVAL program
The Centurion Corp. is putting together a financial plan for the company covering the next three years, and it needs to forecast its interest expense and the related tax savings. The firm’s most
Why are time value concepts important in ordinary business dealings, especially those involving contracts?
Why are time value concepts crucial in determining what a bond or a share of stock should be worth?
Calculate the present value of one dollar 30 years in the future at 10% interest. What does the result tell you about very long-term contracts?
Write a brief verbal description of the logic behind the development of the time value formulas for annuities.
Deferred payment terms are equivalent to a cash discount. Discuss and explain this idea.
What’s an opportunity cost interest rate?
Discuss the idea of a sinking fund. How is it related to time value?
The amount formulas share a closer relationship than the annuity formulas. Explain and interpret this statement.
Describe the underlying meaning of compounding and compounding periods. How does it relate to time value? Include the idea of an effective annual rate (EAR). What is the annual percentage rate (APR)?
Discuss mortgage loans in terms of the time value of money and loan amortization. What important points should every homeowner know about how mortgages work?
Discuss the idea of capitalizing a stream of earnings in perpetuity. Where is this idea useful? Is there a financial asset that makes use of this idea?
When an annuity begins several time periods into the future, how do we calculate its present value today? Describe the procedure in a few words.
You’ve just joined SeaCraft Inc., a manufacturer of fiberglass boats, as its CFO. When you took the job, you knew that the company was not in the best financial condition. Profits are adequate, but

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