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financial accounting for decision makers

Questions and Answers of Financial Accounting For Decision Makers

Research and Development Health Resources is involved in a large number of research projects in the health care industry. It has just completed a major breakthrough in developing a cure for
Return on Assets On January 1, 1997, Johnson Corporation invested $800,000 in equipment with an expected useful life of twenty years and an anticipated residual value of $50,000. In 2000, Johnson
Flint Company Ratios Flint Company reported the following account balances in its financial statements at December 31, 2001:Compute the following:a. Gross margin.b. Gross margin percentage.c. Return
Change of Depreciation Methods Rustic Corporation purchased operating assets with an expected useful life of five years. The company paid $310,000 for the assets.At the end of the second year of
Operating Lease Boulder Dash Corporation leases automobiles from Zippo Leasing for use by its sales personnel. The leased vehicles are used for two years and then returned to Zippo Leasing. All
Operating Lease On January 1, 2000, Timber Corporation agreed to lease a new logging truck for three years at a cost of $30,000 per year, with payment to be made at the end of each year. Timber
Capital Lease On January 1, 2000, Whitter Corporation leased a small warehouse and agreed to pay $18,878 at the end of each of 20 years. The lease is considered to be a capital lease. The lease
Financing Noncurrent Assets Bates Corporation is interested in adding to its production facilities and has identified two major routes to follow. Under the first alternative. Bates would acquire the
Capital Lease Speedy Bus Service experienced a major increase in ridership in the last three months of 1999.On January 1, 2000, Speedy entered into an agreement to lease four new buses from Transport
Operating versus Capital Lease On January 1, 2001, Phillips Company signed an agreement to lease new machinery. The lease requires a payment of $50,000 on January 1, 2001, and on January 1 of each of
Accounting Systems Neither Dowl Manufacturing nor Ed’s Plumbing and Heating mention in their financial statements that they have an accounting procedures manual.Dowl sells fabricated steel products
The Accounting Equation: The Basis for Useful Information Tang Industries reported a 100 percent increase in Owners’ equity and a 70 percent increase in total assets during the year. The balance
Using Ledger Accounts for Accumulation and Analysis The owner of Dozee Corporation sometimes fails to record an account payable or a reduction in cash when purchases are made. At the start of each
Using Ledger Accounts to Classify Information The owners’ equity of Blowen Company at January 1 consisted of $300,000 of common stock outstanding and $520,000 of retained earnings. Assuming no
Overview of the Accounting Cycle Fargus Corporation has established a seven-step sequence in the accounting cycle for its payroll department; however, the steps were scrambled the last time they were
Adjustments: The Matching Concept at Work Faulty Corporation reported net income of $350,000 for the year, but failed to take into consideration four adjustments the assistant bookkeeper thought
Multiple Choice: Accounting Systems Select the correct answer for each of the following:1, Which of the following events would not be considered an accounting transaction to be entered into the
Multiple Choice: Information Accumulation and Analysis Select the correct answer for each of the following:1. The year-end balance sheet of Orange Company reported assets of $10,000, liabilities of
Multiple Choice: Classifying Information Select the correct answer for each of the following:1, The three primary functions of debits and credits in an accounting system are:a. To serve as labels for
Multiple Choice: Adjustments Select the correct answer for each of the following:1, Paying insurance bills in advance gives rise to:a. Unearned income.b. Accrued income.c. Accrued expense.d. Prepaid
Review of the Accounting Cycle Screen Corporation reported the following adjusted trial balance amounts at December 31:a. Where are the adjusted trial balance totals found?b. Which of the accounts
Realization The realization concept requires that income be recorded when it is realized, not when cash is received. Assume you invest $8,000 in a 5 percent, twelvemonth certificate of deposit on
Accounting Cycle For each of the following steps in the accounting cycle, (1) describe the step and its purpose;(2) indicate the step in the cycle that precedes it (or the activity, if it is the
Accounting Cycle Place the steps of the accounting cycle in the correct sequence:. Adjust balances reported in trial balance.. Analyze transaction to see which accounts are affected.. Post amounts to
Account Classifications For each of the following, indicate whether the account is classified as an (A) asset, (L)liability, or (SE) stockholders’ equity item and whether the account balance has
Permanent versus Temporary Accounts For each of the following, indicate whether the account is classified as a permanent or temporary account:. Capital Stock.. Prepaid Insurance.. Wage Expense..
Changes in Account Balances The balances in two accounts are affected by each of the following transactions. For each transaction, indicate (1) the accounts in which the transactions are recorded,
Impact of Debits and Credits Indicate whether the account balance for each of the following accounts will be increased or decreased by the action taken:. Sales Revenue is credited.. Depreciation
Net Income Determination For each of the following, indicate whether net income will be (I) increased, (D)decreased, or (U) unaffected:. Debit salary expense.. Credit sales revenue.. Debit land..
Accrual Accounting Branwit Company uses accrual accounting and recorded a number of journal entries in 2000. For each transaction shown below (a) give the other account that was debited or credited
Use of Trial Balance Amounts The account balances of Sound Corporation at March 31 were as follows:a. Prepare an income statement for the month of March for Sound Corporation.b. Prepare a balance
Using the Trial Balance A printout of the account balances of Miller Wholesale Furniture at December 31, 2001, appeared as follows:Required:a. Prepare an income statement for Miller Wholesale
Debits and Credits You have learned that debits increase assets and credits increase liabilities. Why does a bank debit your account when it reduces your account balance (your cash asset) and issue a
Double Entry Use of the double-entry system can assist decision makers in a number of ways. Explain how the double-entry system can help provide the following:a. Assurance that all assets acquired by
Articulated Financial Statements When recording the sale of inventory, the asset account Inventory is reduced and an expense account, Cost of Goods Sold, is increased. Is it always true that when an
Documentation During the past week, you have probably made a number of purchases. Each of these purchases was an exchange transaction, with revenue to the seller and either an asset received or an
Using Accounting Information The following accounts are taken from the income statement of a small manufacturing company. Using the principles of realization and matching, for each account give an
Recording Transactions Prepare entries in general journal form to record each of the following transactions for Soullard Company:a. The company issues capital stock for $100,000.b. A three-year lease
Using T-Accounts Brandy Company reported the following account balances at January 1:During the month of January, Brandy Company had the following transactions:1. Inventory costing $160,000 was
Adjusting Entries Stall Personnel Services had the following transactions during the month of March:1. Insurance premiums in the amount of $28,800 were paid on March 1. The policies provide coverage
Adjusting Entries Bali Company reports on a calendar-year basis. During 2000, the company engaged in the following transactions:1. A two-year insurance policy was purchased on May 1, and the full
The Accounting Cycle Bonart Service Corporation prepares financial statements monthly. The company started business in May with the issuance for cash of$250,000 of common stock. Also in May, the
Computing Revenues and Expenses For each of the following, determine which income statement account would be used to report the revenue or expense for September and the amount that would be
Determining Income The Alto Company prepared an income statement for its bank in support of its re- quest to renew a loan that comes due January 3, 2002. The reported net income for 2001 was $54,500.
Recording Salary Expense Grover Company reported wages payable of $45,000 at November |. During the month of November, additional wages of $290,000 were earned by employees and a total of $275,000
Recording Insurance Expense Eld Company reported prepaid insurance of $40,000 on January | on a flood insurance policy that provides coverage until August 31. Because of increased claims due to
Understanding the Trial Balance Recently a banker proposed a loan-review policy that included examining the company’s account balances. The banker making the proposal argued that accountants hide
Recognition of Income Gentlemen’s Computer Quarterly magazine expects to put out its first regular issue in January of next year. It is now soliciting subscriptions by mailing out a sample
Classifying Information When a _ company makes a sale on account, the accounts receivable account is increased with a debit and the sales revenue account is in creased with a credit. Most companies
Classifying Information The accounting process is similar for all companies; however, the individual accounts a company selects to classify transactions reflect the kind of information needed to make
Matching A local pizza delivery truck driver has been offered the opportunity to buy her own delivery truck and deliver pizza at a higher commission than the one received when using the company
Chart of Accounts Your uncle is planning to set up a small, part-time business developing landscape plans for new homes. He expects to get customers from referrals by two local nurseries. He wants to
Accounting Transactions For each of the following transactions:a. Identify a decision by a manager, investor, or creditor that could be influenced by information about the transaction.b. Analyze the
Recording and Reporting Transactions Brown Company reported the following account balances at January |:The following transactions or adjustments to account balances were recorded during January:1.
Comprehensive Problem Pamper Lawn Service is started on March 1, 2000. It established the following chart of accounts for its accounting system:a. Record in general journal form entries for each of
Team Project; Classifying Information Each morning you stop and talk to the owner of a convenience store that is on your way to campus (and has good coffee and donuts). This morning the topic of the
Ethics or Measurement? The Charger Company distributes automobile replacement parts to repair shops. Paul Charger, the owner and a close friend, wants to expand the business and is applying for a
What are the characteristics of an asset classified as a financial asset? What assets typically are classified as financial assets?
Why is knowledge of the anticipated holding period important in judging the value of a financial asset?
How does the concept of liquidity relate to financial assets? Which types of financial assets are regarded as highly liquid? Which financial assets are regarded as illiquid?
What assets are included in the cash balance reported in the balance sheet? Why might it be argued that a company does not know its exact cash balance at any given point in time?
What is a compensating balance? Why do they arise?Why should financial statement users be aware of them?
How is the amount reported as accounts receivable determined? Why is the net amount reported as accounts receivable often less than the total of all amounts owed to the company by customers?
Why is establishing an allowance for uncollectible accounts important? Why does a company not simply write off accounts not expected to be collected, rather than establishing an allowance?
Compare the direct write-off and allowance methods of accounting for bad debts. Which is the more appropriate method? Explain.
How is the amount of bad debt expense estimated for a period? Why might an aging of accounts analysis at the end of the period be important?
Why might a company sell its accounts receivables?
When is a trade (or customer) note receivable used?How does a trade note receivable differ from an account receivable?
What is meant by a noninterest-bearing note receiyable? How are such notes valued when received in payment for sales?
How is interest income on a noninterest-bearing note receivable determined? What inaccuracies in the financial statements will occur if no implicit interest is recognized?
How should loans to corporate officers or employees be reported?
What types of securities may be classified as heldto-maturity? How does this category differ from those classified as trading securities?
Distinguish between the procedures used in valuing securities classified as trading versus those classified as available-for-sale for purposes of (1) computing income for the period and (2) balance
How is the increase or decrease in the value of a stock investment treated for financial reporting purposes when the securities are classified as trading?
How is the increase or decrease in the value of a stock investment treated for financial reporting purposes when the securities are classified as available-for-sale?
When is an investment in common stock not included in any of the categories of trading, available-for-sale, or held-to-maturity?
What does it mean to have an impairment of value of an investment? How should an impairment of value be treated for financial reporting purposes?
Why would a company consider investing in the common stock of another company to control or significantly influence the other company? Do you know of any such examples today?
Cash, Receivables, and Investments: Characteristics and Valuation The financial statements of Stern Corporation appear to include some assets valued at the amounts paid to acquire them, some valued
Reporting Cash Worldcorp Manufacturing has production sites around the world. In its financial statements, the reported cash balance includes amounts on deposit in a variety of places with some
Reporting Accounts Receivable Turbo Manufacturing reported sales on account of $3,000,000 and bad debt expense of $40,000 for the current year. Adams Department Stores reported sales on account of
Notes and Other Receivables AB Company and RT Company both received notes of $10,000 from customers on the same date with the same maturity dates. However, the note receivable recorded by AB Company
Investments Tim Lane is confused when the financial statements of one of the companies he is attempting to analyze reports three different classes of investments (trading securities,
Cash Flow Implications What should be the effect of each of the following situations on the evaluation of Gray Company’s financial assets?a. A significant part of the current receivables is from a
Multiple Choice: Reporting Financial Assets Select the correct answer for each of the following:Which of the following would not be considered a financial asset?a. Certificate of deposit.b.
Multiple Choice: Reporting for Notes Receivable Select the best answer for each of the following:1, Interest-bearing notes receivable are likely to be received from:a. Customers who appear to be
Multiple Choice: Reporting for Investments Select the best answer for each of the following:1. Cash normally is used to purchase short-term investments as a means of:a. Earning a higher return than
Determining Cash Balances Murphy Corporation will be needing a substantial amount of cash to pay off a note receivable that is maturing early in 2001. On December 31, 2000, the controller of Murphy
Compensating Balances A note to the financial statements of Special Company indicates that $75,000 of the balance reported as Cash and Cash Equivalents in the December 31, 2001, balance sheet must
Cash Flows and Valuing Foreign Deposits Blankman Corporation has operations in a number of foreign countries. The corporate controller has included in the cash balance what she believes to be
Evaluation of Allowance for Uncollectibles Talvez Company started business on January 3, 2001. The cempany made credit sales of $800,000 during 2001 and received payments of $410,000 prior to the end
Reporting Accounts Receivable Nomad Corporation reported credit sales of $435,000 in 2001 and collected$350,000 prior to year-end. Bad debt expense equal to 2 percent of credit sales was recorded
Collection of Accounts Receivable Qeff Company reported the following amounts in its December 31, 2000, trial balance:Qeff Company uses the allowance method for reporting uncollectible accounts and
Accounting for Receivables Whipple Corporation reported accounts receivable and an allowance for uncollectible accounts of $179,000 and $7,500, respectively, at January 1. The following transactions
Matching Credit Sales and Bad Debts Gunderson Corporation was started on January 1, 2001, and reported the following year-end balances in accounts receivable, credit sales, and write-offs of accounts
Computing Bad Debt Expense AK Company reported an allowance for uncollectible accounts receivable of$16,200 at January 1 and $19,500 at December 31. If a total of $42,600 of accounts receivable was
Bad Debt Expense Crocket Corporation prepared the following aging schedule of its accounts receivable at December 31, 2000:Crocket reported sales on account of $2,600,000 during 2000 and wrote off
Balance in Allowance for Uncollectible Accounts Groth Company reported the following ledger account balances at December 31, 2000.Bad debt expense for 2000 has not been recorded. The management of
Aging Accounts Receivable Denver Company sells products primarily to small hardware supply companies.At December 31, 2001, the total accounts receivable balance for Denver Company was $750,000 and an
Aging Accounts Super Products Corporation had a balance in its accounts receivable account at December 31, 2000, of $120,000 and a $4,000 balance in its allowance for uncollectible accounts. During

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