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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

4. Do you think the curriculum for business students should be revised to enhance the ethics component? How is the CSR related to the case?
5. Download a sustainability report from one of the Big Four banks in Australia, and compare it with what the Royal Commission found. What is your conclusion?
6. Do you agree the scandal is caused only by some unethical employees in the industry and does not reflect on the industry itself?
7. What measures should be taken to avoid this kind of misconduct happening again?
Select a company for which you can obtain a recent annual report, then find the five-year summary position which is typically provided.Questions 1. Calculate as many useful ratios as you can, and
The budgeted profit is not satisfactory and there are various proposals for how the position could be improved.1. The managing director would like to know the position if selling prices were
Additional costs will be incurred relating to supervision and maintenance, variable overheads, administration and distribution.Further investigation of costs reveals the following:1. Toymakers has
Review the terms and concepts listed above in Key Terms and Concepts.(Appendix)
Reconcile the following two positions: (1) "Standard-setting bodies need a conceptual framework to guide their selection of alternative accounting principles if the principles are to have a sound
A critic of accounting stated: "The financial statements are virtually useless because firms have too much latitude in selecting from among generally accepted accounting methods." Another critic of
"The controversy over alternative generally accepted accounting principles disap- pears if we require all firms to use the same methods of accounting in both their financial statements and their tax
If net income over sufficiently long time periods equals cash inflows minus cash out- flows other than transactions with owners, why not allow the timing of cash flows to dictate the timing of
"The total reported net income over sufficiently long time periods is the same re- gardless of whether a firm follows a conservative strategy or a profit-maximizing strategy in selecting its
"The direction of the cumulative effect of two alternative accounting principles on earnings may differ from the direction of the current year's effect." Explain.(Appendix)
"Alternative accounting principles have less of an effect on the statement of cash flows than on the balance sheet and income statement." Explain.(Appendix)
If capital markets react quickly and in an unbiased manner to the release of informa- tion, including information contained in the financial statements, what is the benefit of analyzing a set of
Identifying generally accepted accounting principles. Indicate the generally accepted accounting principle or method described in each of the following statements.Explain your reasoning.a. This
Identifying generally accepted accounting principles. Indicate the accounting principle or procedure apparently being used to record each of the following independent transactions. Also describe the
Identifying effects of generally accepted accounting principles on reported income.Indicate the accounting principle that provides the smallest amount of ciimitlative earnings in each of the
Impact of capitalizing and amortizing versus expensing when incurred. West Company, a U.S. company, and East Company, a Japanese company, incur $100 million of research and development (R&D) costs
Impact of two sets of alternative accounting principles on net income and cash flows. Brown Corporation commences operations on January 2, Year 1, with the issuance at par of 1 00,000 shares of $ 1
Comprehensive review problem. Exhibits 14.7 and 14.8 present a partial set of financial statements of Chicago Corporation for Year 2, including a consolidated statement of income and retained
Comprehensive review problem. Exhibit 14.9 presents a consolidated statement of income and retained earnings for Year 22, and Exhibit 14.10 presents a consolidated balance sheet for Tuck Corporation
Review the terms and concepts listed above in Key Terms and Concepts.(Appendix)
What is interest?(Appendix)
Distinguish between simple and compound interest.(Appendix)
Distinguish between the discounted present value of a stream of future payments and their net present value. If there is no distinction, then so state.(Appendix)
Distinguish between an annuity due and an ordinary annuity.(Appendix)
Describe the implicit interest rate for a series of cash flows and a procedure for find- ing it.(Appendix)
Does the present value of a given amount to be paid in 10 years increase or decrease if the interest rate increases? What if the amount is due in 5 years? 20 years? Does the present value of an
Rather than pay you $1.000 a month for the next 20 years, the person who injured you in an automobile accident is willing to pay a single amount now to settle your claim for injuries. Would you
Effective interest rate. State the rate per period and the number of periods in the following:a. 12 percent per year, for 5 years, compounded annuallyb. 12 percent per year. for 5 years, compounded
Compute the future value of the following;a. $100 invested for 5 years at 4 percent compounded annuallyb. $500 invested for 15 periods at 2 percent compounded once per periodc. $200 invested for 8
Compute the present value of the following:a. $100 due in 30 years at 4 percent compounded annuallyb. $250 due in 8 years at 8 percent compounded quarterlyc. $1,000 due in 2 years at 12 percent
Compute the amount (future value) of an ordinary annuity (an annuity in anears) of the following:a. 13 rental payments of $100 at 1 Vi percent per periodb. 8 rental payments of $850 at 6 percent per
Mr. Altgeidt has DM5,000 to invest. He wants to know how much it will amount to if he invests it at the following rates:a. 6 percent per year for 21 yearsb. 8 percent per year for 33 years(Appendix)
Mme. Barefield wants to have Fr 150,000 at the end of 8 years. How much must she invest today to accomplish this purpose if the interest rate isa. 6 percent per year?b. 8 percent per year?(Appendix)
Mr. Case plans to set aside $4,000 each year, the first payment to be made on January 1, 1999, and the last on January 1. 2004. How much will he have accumulated by January 1 , 2004, if the interest
Ms. Namura wants to have ¥45 million on her 65th birthday. She asks you to tell her how much she must deposit on each birthday from her 58th to 65th, inclusive, in order to receive this amount.
If Mr. Enmetti invests 90,000 lira on June 1 of each year from 1991 to 2001 inclusive, how much will he have accumulated on June 1. 2002 (note that one year elapses after the last payment), if the
Ms. Fleming has £145,000 with which she purchases an annuity on February 1, 2()()().The annuity consists of six annual payments, the first to be made on February 1. 2001.How much will she receive in
In Exerci.scs 10 through 18, you computed a number. To do so, first you must decide on the appropriate factor from the tables, and then you use that factor in the appropriate calculation. Notice that
Mr. Grady agrees to lease a certain property for 10 years, at the following annual rental, payable in advance:What single immediate sum will pay all of these rents, discounted ata. 6 percent per
To establish a fund that will provide a scholarship of $3,000 per year indefinitely, with the first award to occur now, how much must a donor deposit if the fund earnsa. 6 percent per period?b. 8
Consider the scholarship fund in the preceding question. Suppose that the first scholarship award occurs one year from now and the donor wants the scholarship to grow by 2 percent per year. How much
An old agreement obliges the state to help a rural county maintain a bridge by paying$60,000 now and every two years thereafter forever toward the expenses. The state wants to discharge its
Find the interest rate implicit in a loan of $100,000 that the borrower discharges with two annual installments of $55,307 each, paid at the ends of Years 1 and 2.(Appendix)
A single-payment note promises to pay $140,493 in three years. The issuer exchanges the note for equipment having a fair market value of $100,000. The exchange occurs three years before the maturity
A single-payment note promises $67,280 at maturity. The issuer of the note exchanges it for land with a fair market value of $50,000. The exchange occurs two years before the maturity date on the
Finding implicit interest rates; constructing amortization schedules. Berman Company purchased a plot of land for possible future development. The land had fair market value of $86,000. Berman
The terms of sale "2/10, net/30" mean that the buyer can take a discount of 2 percent from gross invoice price by paying the invoice within 10 days; otherwise, the buyer must pay the full amount
An oil-drilling company ligures that it must spend $30,000 for an initial supply of drill bits and that it must spend $10,000 every month to replace the worn-out bits.What is the present value of the
If you promise to leave $35,000 on deposit at the Dime Savings Bank for four years, the bank will give you a new car. a GM Geo. today and your $35,000 back at the end of four years. How much are you
When Mr. Shafer died, his estate after taxes amounted to $300,000. His will provided that Mrs. Shafer would receive $24,000 per year starting immediately from the principal of the estate and that the
Mrs. Heileman occasionally drinks beer. (Guess which brand.) She consumes one case in 20 weeks. She can buy beer in disposable cans for $25.20 per case or for$24.00 per case of returnable bottles if
When General Electric Company first introduced the Lucalox ceramic, screw-in light bulb, the bulb cost three and one-half times as much as an ordinary bulb but lasted five times as long. An ordinary
Dean Foods Dairy switched from delivery trucks with regular gasoline engines to ones with diesel engines. The diesel trucks cost $2,000 more than the ordinary gasoline trucks but $600 per year less
On January 1, Year 1, assume that Levi Strauss opened a new textile plant to produce synthetic fabrics. The plant is on leased land; 20 years remain on the nonrenewable lease.The cost of the plant
Finding implicit interest rates (truth-in-lending laws reduce the type of deception suggested by this problem). Friendly Loan Company advertises that it is willing to lend money for five years at the
Deriving net present value of cash flows for a decision to dispose of an asset. Suppose that yesterday Black & Decker Company purchased and installed a made-toorder machine tool for fabricating parts
Computation of present value of cash flows; untaxed acquisition, no change in tax basis of assets. The balance sheet of Lynch Company shows net assets of$100,000 and owners" equity of $100,000. The
Computation of the present value of cash flows; taxable acquisition, changing tax basis of assets. Refer to the data in the preceding problem. Assume now that the acquisition is taxable, so that the
Analysis of benetits of acquisition of long-term assets. (Adapted Ironi a problem by S. Zeff.) Lexie T. Colleton is the chic! financial officer of Ragazze, and one of her duties is to give advice on
Valuation of intangibles with perpetuity formulas. When the American Basketball Association (ABA) merged with the National Basketball Association (NBA), the owners of the ABA St. Louis Spirits agreed
Choosing between investment alternatives. (Adapted from a problem by S. Zeff.)William Marsh, CEO of Gulf Coast Manufacturing, wants to know which of two strategies he has chosen for acquiring an
Horrigan Corporation; perpetuity growth model derivation of results in Chapter 5. Refer to the discussion on page 274 in Chapter 5. There, in estimating the value of a share of common stock of
Begin to master compound interest concepts of future value, present value, present discounted value of single sums and annuities, discount rates, interest rates, and internal rates of return on cash
Apply those concepts to problems of finding the single payment or. in the context of annuities, the amount for a series of payments required to meet a specified objective.(Appendix)
Begin using perpetuity growth models in valuation analysis.(Appendix)
Learn how to find the interest rate to satisfy a stated set of conditions, such as to make the present value of a stream of cash flows equal a specified amount.(Appendix)
Begin to learn how to construct problems, of the types described above, from a description of a business or accounting situation.(Appendix)
Effect of transactions on cash changes equation. Indicate the effect of each of the transactions in problem 1 on the cash change equation: AC = AL -I- ASE — AN$A.where AC = change in cash, AL =
Worliing backward from the statement of cash flows. Exhibit 13.5 presents a statement of cash flows for Alcoa for Year 9. Give the entry made on the T-account work sheet for each of the numbered line
Working backward from the statement of cash flows. Exhibit 13.6 presents a statement of cash flows from Ingersoll-Rand for Year 5. Give the entry made on the T-account work sheet for each of the
Work Problem 46 in Chapter 8.(Appendix)
Work Problem 45 in Chapter 9.(Appendix)
Work Problem 55 in Chapter 11.(Appendix)
Work Problem 42 in Chapter 12.(Appendix)
Preparing a statement of cash flows. (Adapted from CPA examination.) Roth Company has prepared its financial statements for the year ended December 3 1 , Year 6, and for the three months ended March
Preparing a statement of cash flows. (Adapted from CPA examination.) Exhibit 1 3. 1 presents a comparative statement of financial position for Biddle Corporationas of December 31, Year 1 and Year 2.
Preparing a statement of cash flows. (Adapted from CPA examination. ) Exhibit 13.12 presents the comparative balance sheets for Plainview Corporation for Year 4 and Year 5.The following additional
Preparing a statement of cash flows. (Adapted from a problem prepared by Stephen A. Zeff.) Selected information from the accounting records of Breda Enter- prises Inc. appears below. The firm uses a
Review the meaning of the terms listed in Key Terms and Concepts.(Appendix)
Why should GAAP exclude from earnings Other Comprehensive Income items such as holding gains and losses on securities available for sale?(Appendix)
The chapter states that the amount in various common shareholders' equity accounts represents the common shareholders' equity in the net assets of a firm. If a bankrupt firm sold its assets and used
A construction corporation is attempting to borrow money on a note secured by some of its property. A bank agrees to accept the note, provided the president personally guarantees its payment. What is
A security analyst states: "The classification of accounts in the right-hand side of the balance sheets as liabilities or shareholders" equity no longer makes sense." What did the security analyst
Under what circumstances would you expect a firm to issue par-value common stock at a price in excess of par?(Appendix)
"Par value of prefeixed stock is usually a significant figure, but par value of common stock pos.sesses little significance." Explain.(Appendix)
A firm contemplates issuing 10,000 shares of $100-par value preferred stock. The prefeired stock promises a $4-per-share annual dividend. The firm considers making this prefened stock callable,
"The option elements included in stock options and convertible bonds have economic value that accountants should recognize in the accounts." Do you agree? Why or why not?(Appendix)
Compare and contrast a stock option, a stock right, and a stock warrant. How does the accounting for these three differ?(Appendix)
A firm that sells inventory for more than its acquisition cost realizes an economic gain that accountants include in earnings, but a firm that sells treasury .stock for more than its acquisition cost
Accounting reports the acquisition cost of treasury stock as a subtraction from total shareholders' equity. This accounting has the same effect on total shareholders' equity as retiring the stock
Alexander Corporation retained almost all of its earnings, only rarely paying a cash dividend. When some of the shareholders objected, the president replied: "Why do you want cash dividends? You
At the annual shareholders" meeting, the president of the Lilly Coiporation made the following statement: "'The earnings for the year, after taxes, was $1,096,000. The directors have decided that the
Why is the amount in the Retained Earnings account for a profitable, growing company that has been in business for several decades unlikely to be of much value for predicting future dividend
Compare the position of a shareholder who receives a cash dividend with that of one who receives a stock dividend.(Appendix)
Distinguish between the nature of. and accounting for. a correction of an error in previously issued financial statements and the adjustment for a change in an accounting estimate made in preparing
What are prior-period adjustments? Why do some accountants think that GAAP should only rarely allow them?(Appendix)

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