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financial accounting 11th edition

Questions and Answers of Financial Accounting 11th Edition

Long-term assets that have no physical properties; for example, patents, copyrights, and goodwill. True/False
A method by which depreciation is recorded at twice the straight-line rate but the depreciable balance is reduced in each period. True/False
The amount indicating that the purchase price of a business exceeded the total fair market value of the identifiable net assets at the time the business was acquired. True/False
Expenditures incurred in the discovery of new knowledge and the translation of research into a design or plan for a new product. True/False
The accountant for Becker Company wants to develop a balance sheet as of December 31, 2008.A review of the asset records has revealed the following information:a. Asset A was purchased on July 1,
Why do you think most companies use the straight-line method of depreciation?
Why do many companies use one method to calculate depreciation for the income statement developed for stockholders and another method for income tax purposes? LO1
What should a company do if it finds that the original estimate of the life of an asset or the residual value of the asset must be changed? LO1
What are the meanings of the terms capital expenditures and revenue expenditures? What determines whether an item is a capital or revenue expenditure? LO1
How is the gain or loss on the sale of an operating asset calculated?Where would the Gain on Sale of Asset account appear on the financial statements? LO1
What are several examples of items that constitute intangible assets? In what category of the balance sheet should intangible assets appear? LO1
What is the meaning of the term goodwill? Give an example of a transaction that would result in the recording of goodwill on the balance sheet. LO1
Do you agree with the FASB’s ruling that all research and development costs should be treated as an expense on the income statement? Explain. LO1
Do you agree with some accountants who argue that intangible assets have an indefinite life and therefore should not be subject to amortization? Explain. LO1
When an intangible asset is amortized, should the asset’s amortization occur over its legal life or over its useful life?Give an example in which the legal life exceeds the useful life. LO1
Accounting for Bad Debts Badger recorded $500,000 of net sales for the year of which 2% is estimated to be uncollectible.Prepare the journal entry at the end of the year to record bad debts.
Accounting for Notes Receivable On November 1, 2008, Gopher borrowed $50,000 on a 6%, 90-day promissory note.Prepare any necessary journal entry on December 31, the end of the company’s fiscal year.
Accounting for Credit Card Sales On July 20, Wolverine presents credit card drafts to its bank in the amount of $10,000; the collection charge is 4%.Prepare the journal entry on Wolverine’s books
Accounting for Sale of Stock On March 5, Spartan sold stock in another company for $12,300. Spartan bought the stock on February 14 for $10,100.Prepare the journal entry on Spartan’s books on March
Comparison of the Direct Write-Off and Allowance Methods of Accounting for Bad Debts In its first year of business, Rideaway Bikes has net income of $145,000, exclusive of any adjustment for bad debt
Allowance Method of Accounting for Bad Debts—Comparison of the Two Approaches Kandel Company had the following data available for 2008 (before making any adjustments):Required 1. Prepare the
Accounts Receivable Turnover for General Mills The 2006 annual report of General Mills (the maker of Cheerios® and Wheaties®) reported the following amounts (in millions of dollars):Required 1.
Notes Receivable On September 1, 2008, Dougherty Corp. accepted a six-month, 7%, $45,000 interestbearing note from Rozelle Company in payment of an accounts receivable. Dougherty’s year-end is
Credit Card Sales Darlene’s Diner accepts American Express® credit cards from its customers. Darlene’s is closed on Sundays and on that day records the weekly sales and remits the credit card
Certificate of Deposit On May 31, 2008, Elmer Corp. purchased a 120-day, 9% certificate of deposit for $50,000. The CD was redeemed on September 28, 2008. Prepare the journal entries on Elmer’s
Purchase and Sale of Bonds Starship Enterprises enters into the following transactions during 2008 and 2009:2008 Jan. 1: Purchased $100,000 face value of Northern Lights Inc. bonds at face value. The
Investment in Stock On October 1, 2008, Chicago Corp. purchases 1,000 shares of the preferred stock of Denver Corp.for $40 per share. Chicago pays another $1,000 in commissions. On October 20, 2008,
Investment in Stock On August 15, 2008, Cubs Corp. purchases 5,000 shares of common stock in Sox Inc. at a market price of $15 per share. In addition, Cubs pays brokerage fees of $1,000. On October
Cash Collections—Direct Method Emily Enterprises’ comparative balance sheets included accounts receivable of $224,600 at December 31, 2007, and $205,700 at December 31, 2008. Sales reported on
Allowance Method for Accounting for Bad Debts At the beginning of 2008, EZ Tech Company’s accounts receivable balance was $140,000 and the balance in Allowance for Doubtful Accounts was $2,350
Aging Schedule to Account for Bad Debts Sparkle Jewels distributes fine stones. It sells on credit to retail jewelry stores and extends terms that require the stores to pay in 60 days. For accounts
Accounts Receivable Turnover for Coca-Cola and PepsiCo The following information was summarized from the 2006 annual report of The Coca-Cola Company:Required 1. Calculate the accounts receivable
Investments in Bonds and Stock Swartz Inc. enters into the following transactions during 2008:July 1: Paid $10,000 to acquire on the open market $10,000 face value of Gallatin bonds. The bonds have a
Investments in Stock Atlas Superstores occasionally finds itself with excess cash to invest and consequently entered into the following transactions during 2008:Jan. 15: Purchased 200 shares of Sears
Effects of Changes in Receivable Balances on Statement of Cash Flows Stegner Inc. reported net income of $130,000 for the year ended December 31, 2008. The following items were included on
Accounts and Notes Receivable Linus Corp. sold merchandise for $5,000 to C. Brown on May 15, 2008, with payment due in 30 days. Subsequent to this, Brown experienced cash flow problems and was unable
Show that you understand how to account for accounts receivable, including bad debts.
Explain how information about sales and receivables can be combined to evaluate how efficient a company is in collecting its receivables.
Show that you understand how to account for interest-bearing notes receivable.
Explain various techniques that companies use to accelerate the inflow of cash from sales.
Show that you understand the accounting for and disclosure of various types of investments that companies make.
Explain the effects of transactions involving liquid assets on the statement of cash flows.
Refer to Apple’s partial balance sheet as presented in the chapter opener. By what amount did accounts receivable increase or decrease during 2006? How significant are accounts receivable to the
Refer to the excerpt from Apple’s balance sheet in the chapter opener. Compute for each of the two yearends the amount of accounts receivable before deducting the balance in the allowance account.
Why is the allowance method of recognizing bad debts used?a. It results in recognizing the expense of granting credit in the period in which the account is written off.b. It results in matching
What accounts are debited and credited at the end of the period to recognize bad debts under the allowance method?a. Bad Debts expense is debited, and Accounts Receivable is credited.b. Allowance for
The amounts needed to compute the accounts receivable turnover ratio can be found ona. the balance sheet only.b. the income statement only.c. both the balance sheet and the income statement.d. the
Oak Corp. had sales during the year of$10,000,000 and an average accounts receivable of $2,000,000. Its accounts receivable turnover ratio isa. 5 times.b. 0.2 times.c. 10 times.d. none of the above.
Maple Corp. borrows $10,000 at a local bank.Maple will recognize the following accounts:a. notes payable and interest revenueb. notes receivable and interest revenuec. notes payable and interest
Elm Inc. borrows $50,000 on a 120-day, 12% promissory note. The total interest that Elm will repay at maturity isa. $500.b. $2,000.c. $6,000.d. none of the above.
Boston makes $20,000 of credit card sales during the week and is charged 5% by the credit card company. Boston will record sales revenue ofa. $10,000.b. $19,000.c. $20,000.d. none of the above.
When a company discounts a promissory note at the banka. it receives cash later than it would if it held the note to maturity.b. it receives cash sooner than it would if it held the note to
A company invests excess cash in a certificate of deposit. At the end of an accounting period before the CD matures, the company will recognizea. interest expense.b. interest revenue.c. the receipt
Baxter pays $15,000 to buy stock in another company and an additional $400 in commissions.Three months later Baxter sells the stock for $16,000. At the time of sale, Baxter will recognize aa. gain of
How should an increase in accounts receivable be reported on the statement of cash flows using the indirect method?a. as an additionb. as a deductionc. It depends on the amount of the increase.d.
How should a decrease in notes receivable be reported on the statement of cash flows using the indirect method?a. as an additionb. as a deductionc. It depends on the amount of the increase.d. Changes
Securities issued by corporations as a form of ownership in the business. True/False
Securities issued by corporations and governmental bodies as a form of borrowing. True/False
A method of estimating bad debts on the basis of either the net credit sales of the period or the accounts receivable at the end of the period. True/False
The party that will receive the money from a promissory note at some future date. True/False
Awritten promise to repay a definite sum of money on demand or at a fixed or determinable date in the future. True/False
A liability resulting from the signing of a promissory note. True/False
A multiple-copy document used by a company that accepts a credit card for a sale. True/False
An asset resulting from the acceptance of a promissory note from another company. True/False
The process of selling a promissory note. True/False
The party that agrees to repay the money for a promissory note at some future date. True/False
A form used to categorize the various individual accounts receivable according to the length of time each has been outstanding. True/False
The detail for a number of individual items that collectively make up a single general ledger account. True/False
The recognition of bad debts expense at the point an account is written off as uncollectible. True/False
The general ledger account that is supported by a subsidiary ledger. True/False
The difference between the principal amount of the note and its maturity value. True/False
The amount of cash received, or the fair value of the products or services received, by the maker when a promissory note is issued. True/False
The amount of cash the maker is to pay the payee on the maturity date of the note. True/False
The length of time a note is outstanding, that is, the period of time between the date it is issued and the date it matures. True/False
The date the promissory note is due. True/False
A contra-asset account used to reduce accounts receivable to its net realizable value. True/False
A receivable arising from the sale of goods or services with a verbal promise to pay. True/False
Brown Corp. ended the year with balances in Accounts Receivable of $60,000 and in Allowance for Doubtful Accounts of $800 (credit balance before adjustment). Net sales for the year amounted to
Indicate whether each of the following events will result in an increase (I), will result in a decrease(D), or will have no effect (NE) on net income for the period.a. Stock hold as an investment is
The following items pertain to the current assets section of the balance sheet for Jackson Corp. at the end of its accounting year, December 31, 2008. Each item must be considered and any necessary
Internal Control Procedures The loan department in a bank is subject to regulation. Internal auditors work for the bank to ensure that the loan department complies with requirements. The internal
The Design of Internal Control Documents Tiger’s Group is a newly formed company that produces and sells children’s movies about an imaginary character. The movies are in such great demand that
Cash and Liquid Assets on the Balance Sheet The following accounts are listed in a company’s general ledger:Required 1. Which items are cash equivalents?2. Explain where items that are not cash
Internal Control Abbott Inc. is expanding and needs to hire more personnel in the accounting office. Barbara Barker, the chief accounting clerk, knew that her cousin Cheryl was looking for a job.
Comparing Two Companies in the Same Industry: Kellogg’s and General Mills Refer to the financial information for Kellogg’s and General Mills reproduced at the end of this book.Required:1. What is
Reading and Interpreting IBM’s Report of Management IBM’s 2006 annual report includes the following selected paragraphs from its Report of Management found on page 54:IBM maintains an effective
Liquidity R Montague and J Capulet distribute films to movie theaters. Following are the current assets for each distributor at the end of the year. (All amounts are in millions of dollars.)Required
Cash Receipts in a Bookstore You were recently hired by a large retail bookstore chain. Your training involved spending a week at the largest and most profitable store in the district. The store
Identify and describe the various forms of cash reported on a balance sheet.
Show that you understand various techniques that companies use to control cash.
Explain the importance of internal control to a business and the significance of the Sarbanes-Oxley Act of 2002.
Describe the basic internal control procedures.
Describe the various documents used in recording purchases and their role in controlling cash disbursements.
What are some of the techniques that companies use to control cash? (See pp. 299–306.)
Why is it essential for a company to maintain an effective internal control system? What are some of the basic procedures that help make a system effective?(See pp. 307–313.)
How can the use of business documents add to the effectiveness of an internal control system? (See pp.314–321.)
Which of the following items should not be included in cash on the balance sheet?a. coin and currency on handb. customer’s undeposited checkc. money market accountd. All of the above should be
A cash equivalent isa. an investment in the stock of another company that can be sold on demand.b. an investment that is readily convertible to a known amount of cash and has an original maturity to
Which of the following is not an addition to the balance per the books on a bank reconciliation that adjusts both the bank statement and balance per the books to the adjusted balance?a. interest
Which of the following is the correct entry when a petty cash fund is established?a. Cash is debited, and Petty Cash Fund is credited.b. Petty Cash Fund is debited, and Cash is credited.c. Expense

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