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accounting

Questions and Answers of Accounting

Revenue recognition at and after tine of sale. Hilton Garden Inn, a division of Hilton Hotels, offers its customers two choices when reserving rooms. The customer may purchase a nonrefundable
Revenue recognition at and after time of sale. Stone Pest Control offers extermination services to customers in various arrangements and packages. For example, a customer could call Stone as needed
Analyzing changes in accounts receivable. Selected data from the financial statements of Kajima Corporation appear next for the years ended March 31, 2004, through March 31, 2007, Kajima applies
Analyzing changes in accounts receivable. The financial statements and notes for Polaris Corporation reveal the following for the four years ending in March 2005-2008 (amounts in millions of
Analyzing disclosures of accounts receivable. Aracruz Celulose, a Brazilian pulp manufacturer, applies U.S. GAAP and reports its results in thousands of U.S. dollars. For the years ended December 31,
Analyzing disclosures of accounts receivable. Metso Corporation is a Finish engineering firm specializing in design and development for the paper and pulp industry. Metso applies IFRS and reports its
Reconstructing transactions affecting accounts receivable and uncollectible accounts. The sales, all on account, of Pins Company in 2008, its first year of operations, were $700,000. Collections
Effect of errors involving accounts receivable o financial statement ratios. Indicate— using O/S (overstated). U/S (understated), or NO (no effect)-the pretax effect of each of the following
Income recognition for a nuclear generator manufacturer. The French energy company, Areva Group, rent1y won a $2 billion contract to build a uranium enrichment plant in Idaho Falls, Idaho, U.S. Areva
Income recognition for a contractor. On October 15, 2005, Flanikin Construction Company contracted to build a shopping center at a contract price of $180 million. The schedule of expected and actual
Income recognition when collection from the customer is uncertain. Furniture Retailers sells furniture to customers who have relatively poor credit quality, offering extended payment terms. In
Revenue recognition when collection is uncertain. Appliance Sales and Service sells major household appliances to customers, offering extended payment terms. Its fiscal year ends on June 30. In July
Point-of-sale versus installment method of income recognition. The J. C. Spangle catalog division began business on January 1, 2007. Activity of the company for the first tow year are as follows:a.
Revenue recognition for a franchise. Pickin Chicken Inc. and Country Delight Inc. both sell franchises for their chicken restaurants. The franchisee receives the right to use the franchisor’s
Income recognition for various types of business. Most business firms recognize revenues at the time of sale or delivery of goods and services and, following the principles of the accrual basis of
Understanding the purpose of the Allowance for uncollectible Accounts account. A member of the Audit Committee of a firm asks the Chief Financial Officer the following question: “How do you know
What are the characteristics of prepayments that qualify as assets? What is the accounting for prepayments?
Identify the underlying principle that guides the measurement of the acquisition cost of inventories. What is the rationale for this accounting principle?
Firms may treat depreciation on equipment either as a product cost or as a period expense, depending on the type of equipment.” Explain.
Compare and contrast the Merchandise Inventory account of a merchandising firm and the Finished Goods Inventory account of a manufacturing firm.
Inventory computations require cost-flow assumptions only because specific identification of items sold is costly. Specific identification is theoretically superior to any cost-flow assumption and
Assume no changes in physical quantities during the period. During a period of rising purchase prices, will a FIFO or a LIFO cost-flow assumption result in the higher ending inventory balance sheet
Firms should obtain as much financing as possible from suppliers through accounts payable because it is a free source of funds.” Do you agree? Why or why not?
The Francis W. Parker School, a private lower school, has a reporting year ending June30. It hires teachers for a 10-month period: September of one year through June of the following year. It
A noted accountant once remarked that the optimal number of faulty TV sets for Sony to sell is “not zero.” even if Sony promises to repair all faulty Sony sets that break down, for whatever
Describe the similarities and differences between the allowance method for uncollectible (see Chapter 7) and the allowance method for warranties.
What does it mean for a firm to reverse a portion of a previously accrued charge, such as the expense creating a warranty liability or a restricting liability? What is the effect of a reversal on the
Accounting for prepayments. Delhaize Group (Delhaize), a Belgian food distributor, reported ending balances in Prepayments of €30.7 million, €25.8 million, and €42.1 million for the year ended
Accounting for prepayments. LG Corporation, a Korean multinational firm, reported an ending balance for Prepayments of KRW 345,609 million for the year ending December 31, 2007. For the year ended
Identifying inventory cost inclusions. Harnet Winery is a large U.S.-based winery. In 2008 Harnet spent $2.2 million to acquire grapes (including transportation costs of $200,000). Harnet incurred
Identifying inventory cost inclusions. Trembly Department Store commenced operations on January 1, 2008. It engaged in the following transactions during January. Identify the amount that the firm
Effect of inventory valuation on the balance sheet and net income. ResellFast purchases residential and commercial real estate for resale. ResellFast has a December 31 year-end and prepares
Inventory and accounts payable journal entries. Target Corporation, a U.S.-based retailer, follows U.S. GAAP and reports its results in million of U.S. Dollars ($). Its balance sheet for the year
Inventory and accounts payable journal entries. Tesco Plc. is the U.K.'S largest grocery store chain. It applies IFRS and reports its results in millions of pounds sterling (£). For the years ended
Income computation for a manufacturing firm. Fun-in-the-Sun Tanning Lotion Company manufactures suntan lotion made from organic materials. During its first year of operations, it purchased raw
Income computation for a manufacturing firm. The following data relate to GenMet, a U.S.-based consumer goods manufacturing firm, for the fiscal year ending October 31, 2008. Reported amounts are in
Income computation for a manufacturing firm. The following data relate to Crystal Chemical corporation for the year ended December 31, 2008 (amounts in million of euros):The company incurred
Effect of inventory errors. Warren Company uses a FIFO cost-flow assumption and calculate Cost of Goods Sold as Beginning Inventory + Purchases — Ending Inventory. It uses a physical count of
Lower of cost or market for inventory. Cemex S.A., a Mexican cement and construction firm, reported ending inventory, net for the year ended December 31, 2007, of $19,631 million (all amounts
Lower of cost or market for inventory. Ericsson, a Swedish networks and communications firm, reported a gross value of inventory of SEK25,227 on December 31, 2007. It also reported an ending balance
Computations involving different cost-flow assumptions. Sun Health Food€™s purchases of vitamins during 2008, its first year of operations, were as follows:The inventory on December 231,
Computation involving different cost flow assumptions. Arnold Company€™s raw material Purchases during January, its first month of operations, were as follows:The inventory at January 31
Effect of LIFO on financial statements over several periods. Harmon Corporation commenced operations on January 1, 2008. It uses a LIFO cost-flow assumption. Its purchases and sales for the first
LIFO provides opportunity for income manipulation. EKG Company, a manufacturer of medical supplies, began the year with 10,000 units of product that cost $8 each. During the year, it produced another
Conversion from LIFO to FIFO. Caterpillar Incorporated is a U.S. firm that manufactures machinery and engines for the construction, agriculture, and forestry industries. It follows U.S. GAAP and
Analysis of LIFO and FIFO disclosures. Ford Motor Company, a U.S. automotive manufacturer, reports that it uses the LIFO cost-flow assumption for inventory. For the year ended December 31, 2007,
Journal entries for payroll. During the year ended June 30, 2008, McGee Associates’ office employees earned wages of $700,000. McGee withheld 30% of this amount for payments for various income and
Accounting for uncollectible accounts and warranties. Hurley Corporation sells household appliances (for example, refrigerators, and dishwashers) to customers on account. The firm also provides
Journal entries for warranty liabilities and subsequent expenditures. Miele Company is a German family-owned appliance business. Assume that Miele provides a two-year warranty on its products and
Journal entries for arrant liabilities and subsequent expenditures. Kingspeed Bikes offers three-year warranties against defects on the sales of its high-end racing bikes. The firm estimates that the
Journal entries for restructuring liabilities and subsequent expenditures. For the fiscal year ended September 30, 2007, Sappi Paper Limited, a South African paper company, reported an ending balance
Journal entries for restructuring liabilities and subsequent expenditures. On December 31, 2007, Delhaize Group reported a balance in Restructuring Provisions of €50.9 million, of which €12.5 was
Preparation of Journal entries and income statement for a manufacturing firm. Katherine's Outdoor Furniture, a manufacture specializing in lawn, deck, and poolside furniture, showed the following
Flow of manufacturing cost through the accents. The following data relate to the manufacturing activities of the Lord Crompton Plc. During June 2008:It also experienced expirations of previous
Flow of manufacturing costs. Toyota Corporation, a Japanese automobile manufacturer, follows U.S. GAAP and reports its results in millions of yen (Ұ). On March 31, 2008 and 2007, Toyota reported the
Flow of manufacturing costs. The Sandvik Group is a Swedish-based, high-technology engineering firm. It follows IFRS and reports its results in millions of Swedish kronor (SEK). For the years ended
Lower-of-cost-or-market valuation for inventory; U.S. GAAP versus IFRS. Fortune Brands reported a carrying value of its total inventory as of December 31, 2007, of $2,047.6 million; the corresponding
Detailed comparison of various choices for inventory accounting. Burton corporation commenced retailing operations on January 1, 2007. Purchases of merchandise inventory during 2007 and 2008 appear
Effect of FIFO and LIFO on income statement and balance sheet. Hanover Oil Products (HOP) operates a gasoline outlet. It commenced operations on January 1, 2008. It prices its gasoline at 10% above
Reconstructing underlying events from ending inventory amounts. (Adapted from CPA examination.) Burch Corporation began a merchandising business on January 1, 2006. It acquired merchandise costing
LIFO layers influence purchasing behavior and provide opportunity for income manipulation. Wilson Company sells chemical compounds made from expensium. The company has used a LIFO inventory flow
Interpreting inventory disclosures. Refer to the information in Problem 40 concerning Toyota Corporation’s inventory for the years ended March 31, 2008 and 2007. The notes to Toyota’s financial
Allowance method for warranties; reconstructing transactions. Assume that Central Appliance sells appliances, all for cash. It debits all acquisitions of appliances during a year to the Merchandise
Interpreting restructuring disclosures. The notes to the financial statements of Bayer Groups, a German pharmaceutical company, report a balance of €154 million for Restructuring Provisions on
What is a capital investment? How does it differ from an investment in stocks or bonds?
What are three reasons that cash is worth more today than cash to be received in the future?
A dollar today is worth more than a dollar in the future. “The present value of a future dollar is worth less than one dollar.” Are these two statements synonymous? Explain.
Define the term return on investment. How is the return normally expressed? Give an example of a capital investment return.
How does a company establish its minimum acceptable rate of return on investments?
If you wanted to have $500,000 one year from today and desired to earn a 10 percent return, what amount would you need to invest today? Which amount has more value, the amount today or the $500,000 a
Why are present value tables frequently used to convert future values to present values?
Define the term annuity. What is one example of an annuity receipt?
How can present value “what-if” analysis be enhanced by using software programs?
Receiving $100,000 per year for five years is equivalent to investing what amount today at 14 percent? Provide a mathematical formula to solve this problem, assuming use of a present value annuity
Maria Espinosa borrowed $15,000 from the bank and agreed to repay the loan at 8 percent annual interest over four years, making payments of $4,529 per year. Because part of the bank’s payment from
Two investment opportunities have positive net present values. Investment A’s net present value amounts to $40,000 while B’s is only $30,000. Does this mean that A is the better investment
What criteria determine whether a project is acceptable under the net present value method?
Does the net present value method provide a measure of the rate of return on capital investments?
Which is the best capital investment evaluation technique for ranking investment opportunities?
Paul Henderson is a manager for Spark Company. He tells you that his company always maximizes profitability by accepting the investment opportunity with the highest internal rate of return. Explain
What is the relationship between desired rate of return and internal rate of return?
What typical cash inflow and outflow items are associated with capital investments?
I always go for the investment with the shortest payback period. Is this a sound strategy? Why or why not?
The payback method cannot be used if the cash inflows occur in unequal patterns. Do you agree or disagree? Explain.
What are the advantages and disadvantages associated with the unadjusted rate of return method for evaluating capital investments?
How do capital investments affect profitability?
What is a postaudit? How is it useful in capital budgeting?
Identifying cash inflows and outflowsRequiredIndicate which of the following items will result in cash inflows and which will result in cash outflows. The first one is shown as an example.
Determining the present value of a lump-sum future cash receipt Stan Sweeney turned 20 years old today. His grandfather had established a trust fund that will pay him $80,000 on his next birthday.
Determining the present value of a lump-sum future cash receipt Marsha Bittner expects to receive a $600,000 cash benefit when she retires five years from today. Ms. Bittner’s employer has offered
The dean of the School of Natural Science is trying to decide whether to purchase a copy machine to place in the lobby of the building. The machine would add to student convenience, but the dean
Metro Shuttle Company is considering investing in two new vans that are expected to generate combined cash inflows of $28,000 per year. The vans’ combined purchase price is $91,000. The expected
Dimitry Chernitsky is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will
Using the present value index Alonso Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $90,000 and $84,000,
Determining the internal rate of return Irving Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for
Using the internal rate of return to compare investment opportunities Hulsey and Wright (H&W) is a partnership that owns a small company. It is considering two alternative investment
Determining the cash flow annuity with income tax considerations To open a new store, Alpha Tire Company plans to invest $240,000 in equipment expected to have a four-year useful life and no salvage
Evaluating discounted cash flow techniques Rita Hendrix is angry with Bill Shaw. He is behind schedule developing supporting material for tomorrow’s capital budget committee meeting. When she
Sky Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $18,000,000; it
Determining the payback period with uneven cash flows Melton Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an

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