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financial accounting 11th edition

Questions and Answers of Financial Accounting 11th Edition

What is the purpose of the statement of cash flows? As a flows statement, explain how it differs from the income statement. (LO-1)
What is a cash equivalent? Why is it included with cash for purposes of preparing a statement of cash flows? (LO-1)
Preston Corp. acquires a piece of land by signing a $60,000 promissory note and making a down payment of $20,000.How should this transaction be reported on the statement of cash flows? (LO-1)
Why is it necessary to analyze both inventory and accounts payable in trying to determine cash payments to suppliers when the direct method is used? (LO-1)
A company has a very profitable year. What explanations might there be for a decrease in cash? (LO-1)
A company reports a net loss for the year. Is it possible that cash could increase during the year? Explain your answer. (LO-1)
Why do accounting standards require a company to separately disclose income taxes paid and interest paid if it uses the indirect method? (LO-1)
Baxter Inc. buys as treasury stock 2,000 shares of its own common stock at $20 per share. How is this transaction reported on the statement of cash flows? (LO-1)
Ace Inc. declared and distributed a 10% stock dividend during the year. Explain how, if at all, you think this transaction should be reported on a statement of cash flows. (LO-1)
Explain where to find the information needed to determine a company’s cash flow adequacy. (LO-1)
Purpose of the Statement of Cash Flows You have been studying accounting for nearly a semester now and have become convinced of the value of determining a company’s net income on an accrual basis.
Cash Equivalents Afriend in your class is confused and asks for your help in understanding cash equivalents: “Say a company invests $50,000 in a 60-day certificate of deposit. Since the company
Three Types of Activities For each of the following transactions on the statement of cash flows, indicate whether it would appear in the Operating Activities section (O), in the Investing Activities
Direct versus Indirect Method For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the direct method (D) or the indirect method (I).1. Net
Indirect Method For each of the following items, indicate whether it would be added to (A) or deducted from (D)net income to arrive at net cash flow provided by operating activities under the
Cash Flow Adequacy A company generated $1,500,000 from its operating activities and spent $900,000 on additions to its plant and equipment during the year. The total amount of debt that matures in
Worksheet Assume that a company uses a worksheet as illustrated in Exhibit 12-19 to prepare its statement of cash flows and that it uses the indirect method in the Operating Activities section of the
Cash Equivalents Metropolis Industries invested its excess cash in the following instruments during December 2008:Required Determine the amount of cash equivalents that should be combined with cash
Classification of Activities For each of the following transactions reported on a statement of cash flows, indicate whether it would appear in the Operating Activities section (O), in the Investing
Retirement of Bonds Payable on the Statement of Cash Flows—Indirect Method Redstone Inc. has the following debt outstanding on December 31, 2008:On this date, Redstone retired the entire bond issue
Cash Collections—Direct Method Stanley Company’s comparative balance sheets included accounts receivable of $80,800 at December 31, 2007, and $101,100 at December 31, 2008. Sales reported by
Cash Payments—Direct Method Lester Enterprises’ comparative balance sheets included inventory of $90,200 at December 31, 2007, and $70,600 at December 31, 2008. Lester’s comparative balance
Operating Activities Section—Direct Method The following account balances for the noncash current assets and current liabilities of Labrador Company are available:Required 1. Prepare the Operating
Determination of Missing Amounts—Cash Flow from Operating Activities The computation of cash provided by operating activities requires analysis of the noncash current asset and current liability
Dividends on the Statement of Cash Flows The following selected account balances are available from the records of Lewistown Company:Other information available for 2008 is as follows:a. Lewistown
Adjustments to Net Income with the Indirect Method Assume that a company uses the indirect method to prepare the Operating Activities section of the statement of cash flows. For each of the following
Operating Activities Section—Indirect Method The following account balances for the noncash current assets and current liabilities of Suffolk Company are available:Net income for 2008 is $40,000.
Cash Flow Adequacy On its most recent statement of cash flows, a company reported net cash provided by operating activities of $12,000,000. Its capital expenditures for the same year were $2,000,000.
Classification of Activities Use the following legend to indicate how each transaction would be reported on the statement of cash flows. (Assume that the stocks and bonds of other companies are
Classification of Activities Use the following legend to indicate how each transaction would be reported on the statement of cash flows. (Assume that the company uses the direct method in the
Long-Term Assets on the Statement of Cash Flows—Indirect Method The following account balances are taken from the records of Martin Corp. for the past two years.(Credit balances are shown in
Income Statement, Statement of Cash Flows (Direct Method), and Balance Sheet The following events occurred at Handsome Hounds Grooming Company during its first year of business:a. To establish the
Statement of Cash Flows—Indirect Method The following balances are available for Chrisman Company:Bonds were retired during 2008 at face value, plant and equipment were acquired for cash, and
Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)Refer to all of the facts in Problem 12-1.Required 1. Using the format in the chapter’s appendix, prepare a statement of cash
Statement of Cash Flows—Direct Method Peoria Corp. just completed another successful year, as indicated by the following income statement:Other information is as follows:a. Dividends of $60,000
Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-3.Required 1. Prepare a statement of cash flows for 2008 using the indirect method in the Operating Activities
Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)Refer to all of the facts in Problem 12-3.Required 1. Using the format in the chapter’s appendix, prepare a statement of cash
Statement of Cash Flows—Direct Method The income statement for Astro Inc. for 2008 is as follows:Other information is as follows:a. Dividends of $35,000 were declared and paid during the year.b.
Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-6.Required 1. Prepare a statement of cash flows for 2008 using the indirect method in the Operating Activities
Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)Refer to all of the facts in Problem 12-6.Required 1. Using the format in the chapter’s appendix, prepare a statement of cash
Year-End Balance Sheet and Statement of Cash Flows—Indirect Method The balance sheet of Terrier Company at the end of 2007 is presented here, along with certain other information for 2008:Other
Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)Refer to all of the facts in Problem 12-9.Required 1. Prepare a balance sheet at December 31, 2008.2. Using the format in the
Statement of Cash Flows—Direct Method Glendive Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2008. An income statement for the year and comparative
Statement of Cash Flows—Direct Method Lang Company has not yet prepared a formal statement of cash flows for 2008. Following are comparative balance sheets as of December 31, 2008 and 2007, and a
Statement of Cash Flows—Indirect Method The following balances are available for Madison Company:Bonds were issued during 2008 at face value, and plant and equipment were acquired for
Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)Refer to all of the facts in Problem 12-1A.Required 1. Using the format in the chapter’s appendix, prepare a statement of cash
Statement of Cash Flows—Direct Method Wabash Corp. just completed another successful year, as indicated by the following income statement:Other information is as follows:a. Dividends of $350,000
Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-3A.Required 1. Prepare a statement of cash flows for 2008 using the indirect method in the Operating Activities
Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)Refer to all of the facts in Problem 12-3A.Required 1. Using the format in the chapter’s appendix, prepare a statement of cash
Statement of Cash Flows—Direct Method The income statement for Pluto Inc. for 2008 is as follows:Other information is as follows:a. Dividends of $84,000 were declared and paid during the year.b.
Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-6A.Required 1. Prepare a statement of cash flows for 2008 using the indirect method in the Operating Activities
Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)Refer to all of the facts in Problem 12-6A.Required 1. Using the format in the chapter’s appendix, prepare a statement of cash
Year-End Balance Sheet and Statement of Cash Flows—Indirect Method The balance sheet of Poodle Company at the end of 2007 is presented here, along with certain other information for 2008:Other
Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)Refer to all of the facts in Problem 12-9A.Required 1. Prepare a balance sheet at December 31, 2008.2. Using the format in the
Statement of Cash Flows—Direct Method Bannack Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2008. An income statement for the year and comparative
Statement of Cash Flows—Direct Method Shepard Company has not yet prepared a formal statement of cash flows for 2008. Following are comparative balance sheets as of December 31, 2008 and 2007, and
Comparing Two Companies in the Same Industry: Kellogg’s and General Mills Refer to the statement of cash flows for both Kellogg’s and General Mills for the most recent year and any other
Comparing Two Companies in the Same Industry: Kellogg’s and General Mills Cash Flow Adequacy Refer to the statement of cash flows for both Kellogg’s and General Mills for the most recent year and
Reading and Interpreting Best Buy’s Statement of Cash Flows Refer to Best Buy’s statement of cash flows shown in the chapter opener and answer the following questions for the most recent
Dividend Decision and the Statement of Cash Flows—Direct Method Bailey Corp. just completed the most profitable year in its 25-year history. Reported earnings of$1,020,000 on sales of $8,000,000
Equipment Replacement Decision and Cash Flows from Operations Conrad Company has been in operation for four years. The company is pleased with the continued improvement in net income but is concerned
Loan Decision and the Statement of Cash Flows—Indirect Method Mega Enterprises is in the process of negotiating an extension of its existing loan agreements with a major bank. The bank is
Cash Equivalents and the Statement of Cash Flows In December 2008, Rangers Inc. invested $100,000 of idle cash in U.S. Treasury notes. The notes mature on October 1, 2009, at which time Rangers
Explain the various limitations and considerations in financial statement analysis.
Use comparative financial statements to analyze a company over time (horizontal analysis).
Use common-size financial statements to compare various financial statement items(vertical analysis).
Compute and use various ratios to assess liquidity.
Compute and use various ratios to assess solvency.
Compute and use various ratios to assess profitability.
Explain how to report on and analyze other income statement items (Appendix).
Explain the various limitations and considerations in financial statement analysis.
Which of the following should be taken into account when a company’s performance is analyzed?a. the effects of inflationb. trends over timec. industry normsd. all of the above should be considered
Two companies in the same industry use different methods to value inventory; one uses FIFO and the other uses LIFO. Using different methods to value inventorya. makes comparisons easier.b. makes it
Use comparative financial statements to analyze a company over time (horizontal analysis).
A comparison of financial statement items for a single company over a period of time is calleda. horizontal analysis.b. vertical analysis.c. operational analysis.d. none of the above.
What is the minimum number of years for which publicly traded companies must include the following statements in their annual report filed with the SEC?a. two years for income statements and
Refer to Wrigley’s financial highlights in Exhibit 13-3. Compute the company’s gross profit ratio for each of the 11 years. Is there a noticeable upward or downward trend in the ratio over this
Refer to Kellogg’s three-year comparative income statements reprinted in the back of this book.For each of the three years presented, compute the gross profit and profit margin ratios. Also compute
Use common-size financial statements to compare various financial statement items (vertical analysis).
Assume that you were concerned about whether selling and administrative expenses were reasonable this past year given the level of sales. Which type of analysis would you perform to help address your
On common-size comparative income statements, all line items are stated as a percentage ofa. net sales.b. net income.c. total assets.d. none of the above.
Which of the following current assets are excluded from the numerator used to compute the acid-test or quick ratio?a. inventoriesb. accounts receivablec. prepaid assetsd. Both inventories and prepaid
Explain how to report on and analyze other income statement items. (LO-8)
Compute and use various ratios to assess liquidity. (LO-8)
Compute and use various ratios to assess solvency. (LO-8)
Compute and use various ratios to assess profitability. (LO-8)
Which of the following measures of solvency focuses specifically on the extent to which a company relies on outsiders for funds?a. debt-to-equity ratiob. times interest earned ratioc. debt service
Solvency is concerned with the ability of a company toa. pay next year’s debts as they come due.b. remain in business over the long term.c. provide a reasonable return to stockholders.d. none of
The multiplication of which two ratios yields the return on assets ratio?a. return on sales and asset turnoverb. profit margin and return on salesc. profit margin and asset turnoverd. return on
Which of the following is an indication that a company has successfully employed leverage?a. The return on assets exceeds the return on common stockholders’ equity.b. The return on common
Which of the following items are reported on the income statement net of their tax effects?a. discontinued operationsb. extraordinary itemsc. Neither of the above are reported net of their tax
What conditions are necessary for a gain or loss to qualify for extraordinary treatment on the income statement?a. It must be unusual in nature and never have occurred before.b. It must be unusual in
A measure of a company’s success in earning a return for the common stockholders. True/False
The relationship between a company’s performance according to the income statement and its performance in the stock market. True/False
The ability of a company to remain in business over the long term. True/False
A variation of the profit margin ratio; measures earnings before payments to creditors. True/False
A company’s bottom line stated on a per-share basis. True/False
The percentage of earnings paid out as dividends. True/False
The ratio of total liabilities to total stockholders’ equity. True/False
A measure of the ability of a company to finance long-term asset acquisitions with cash from operations. True/False

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