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financial accounting for decision makers

Questions and Answers of Financial Accounting For Decision Makers

Translation of Subsidiary Financial Statements Assume that Potter Corporation created Northland Company as a wholly owned subsidiary on January 1, 2000, and that its Operating results for 2000 and
International Accounting Standards One of the international standards-setting organizations is the International Accounting Standards Committee (IASC).a. Who are the members of the IASC? How are they
Analysis of Global Business You have gathered the following information about the revenues and operating income of JOL Company over the last 2 years:Compute the percent of sales revenue, the percent
Why was the Securities and Exchange Commission established? What are the primary responsibilities of the SEC?
What approach has the SEC taken with regard to establishing generally accepted accounting principles and reing practices?
What powers does the SEC have if it believes a company’s financial statements or other filings are misleading?
When must a company file a registration statement with the SEC? What is the purpose of a registration statement filing?
When must a company file a Form 10-K report with the SEC? What is the purpose of a 10-K filing?
What type of information is included in an 8-K filing with the SEC? Why are 8-K filings required?
What information typically must be included in an annual report if it is to conform with information filed with the SEC?
What type of information is included in the management’s discussion and analysis section of an annual report?
Why is management’s discussion and analysis considered important for financial statement users?
What is meant by “incorporated by reference” in SEC filings? Is it legal?
When is a company considered to be a parent company? What means typically are used to become a parent company?
What is the purpose of consolidated financial statements? When must consolidated statements be prepared?
What is meant by a minority or noncontrolling interest? In what company is such an interest held?
Are consolidated financial statements prepared primarily for the benefit of the parent company shareholders, the noncontrolling shareholders, or for other parties? Explain.
Although the consolidated balance sheet for Heather Corporation shows a large cash balance, Heather is finding it difficult to pay its bills on time. Explain how this might occur.
How are the balances in the consolidated financial statements determined?
Why is a parent’s investment in a subsidiary not reported in the consolidated financial statements?
How is the stockholders’ equity of a subsidiary reported in the consolidated financial statements?
Why must all intercompany receivables/payables, sales, and profits be eliminated in preparing consolidated financial statements?
What types of segment information must companies disclose in the notes to their financial statements? Why might investors find segment information useful?
In what way might disclosures of information related to significant customers provide information useful in making credit and investment decisions?
What are interim financial statements? Why are interim statements needed? What characteristic of useful information implies a need for interim statements?
What information typically is included in interim financial statements?
The reported net income of Suntan Corporation for the second quarter of 2001 was 20 percent higher than for the first quarter. How would you determine if this was good news or bad news?
What basic accounting concepts are most important in assigning revenues and expenses to specific interim periods?
Distinguish between liquidity ratios and solvency ratios by identifying the type of decision that would be aided by each.
In what way do the financial statements prepared for an individual typically differ from those of a corporation or other business enterprise?
Why is a statement of changes in net worth rather than an income statement prepared for an individual? How does the statement of changes in net wozth differ from an income statement?
How does a statement of financial condition prepared for an individual differ from a statement of financial position prepared for a business enterprise?
The Securities and Exchange Commission The company you work for is growing rapidly and the owner is considering issuing stock to raise more equity capital. The owner is willing to hire professionals
Level of Financial Statement Disclosure Which of the following sections of the financial statements of Star Company are likely to contain the information needed to answer the questions provided
Interim Financial Reporting Your roommate just read that a local manufacturer of winter sporting goods reported income of $150,000 for the quarter ended March 31, 2001. This is a 25 percent reduction
Notes and Other Financial Statement Information A classmate laments, “Why all the notes, significant accounting policies, and supplemental information? Why don’t companies just tell us what the
Financial Analysis Ratios computed from information provided in the financial statements of Histrionic Company for 2000 and 2001 and comparable industry ratios are as follows:Briefly discuss whether
Multiple Choice: Consolidated Financial Statements Select the correct answer for each of the following:1. Consolidated financial statements must be prepared when:a. One company owns common stock of
Multiple Choice: Financial Reporting Select the correct answer for each of the following:1. Which of the following are not reported in consolidated financial statements?a. Intercompany receivables
Multiple Choice: Special Reporting Issues Select the correct answer for each of the following:1. Which of the following reports typically are not audited by external auditors?a. Interim financial
Multiple Choice: Supplemental Information and Analysis Select the correct answer for each of the following:1. Which of the following types of information about a company would you expect to find in
Information Filed with the SEC At the time Coldware Company decided to distribute its products nationally, it became clear the company would need to issue additional debt and become a publicly held
Using SEC Information An investor has recently obtained Martel Corporation’s annual report for the year ended December 31, 2000, a registration statement filed with the SEC on January 1, 2000,
Critical Parties in the Financial Reporting Process The FASB, SEC, external auditor, and individual companies with securities traded in our securities markets all play important roles in providing
Gateway’s Accounting Policies The notes to the Gateway financial statements provide information on accounting choices and procedures used in preparing the financial statements. By looking at the
Aggregated Financial Data Rodisco Company purchased 90 percent of the stock of Mutual Company 4 years ago. When it prepares financial statements, Rodisco Corporation reports the amount it paid to
Consolidated Statements Hammel Corporation recently issued consolidated financial statements. The corporation has two major operating subsidiaries. Ima Pain holds Hammel stock in his retirement
Transfers between Companies Long Corporation produces and sells a broad line of recreational equipment. Each of the major equipment lines is produced by a separate wholly-owned subsidiary, and there
Consolidated Balance Sheet Down Corporation purchased 100 percent ownership of Topp Company for$80,000 and 100 percent ownership of Steady Company for$240,000 on January 1, 2000. Immediately after
Consolidated Amounts Large Company owns all of the common stock of Small Company. Income statements for the companies for 2001 contained the following amounts:During 2001, Small Company purchased
Segment Information Broadline Company has 4 major product lines. In the United States, it produces refrigeration equipment and disk drives for computers. It also produces stereo equipment in Korea
Segment Reporting Recycle Corporation has provided you with the following information about its operations for the past year:1. The paper recycling division of Recycle Corporation reported operating
Segment Information Global Company reported net income for the current year of $850,000. Additional disclosures by Global Company indicated that it had substantial losses on its operations in Europe
Evaluating Interim Net Income Despite the fact that Pipper Company was able to reduce the per-unit cost of producing and selling its products, the company’s second quarter net income was
Examining Gateway’s Segment Data The notes to Gateway’s 1998 financial statements contain disclosures of sales and operating income reported by customer type and geographic region. Using the
Quarterly Statements Net income for Standard Snowblower Corporation increased substantially in 2000 to$950,000 from only $278,000 a year earlier. Standard’s income for each quarter in 2000 was
SEC Registration Thompson Tire and Crane recently provided the Securities and Exchange Commission with financial statements and other information in anticipation of issuing an additional 3,000,000
Financial Information Financial reports prepared in compliance with generally accepted accounting principles and SEC reporting requirements include full financial statements, notes, and
Selection of Ratios The controller of Oldtime Enterprises is concerned that the company has operated for too long using old production equipment and techniques and needs to modernize. Unfortunately,
Selecting Appropriate Ratios Knight Owl Janitorial Services Company provides short-term cleaning and janitorial help for commercial buildings in downtown Lake Wobehere, Minnesota. Knight Owl
Using Ratios to Analyze Liquidity You have received the following financial information of Morrow Company and Valley Enterprises:Before investing in either company, you have decided to use ratio
Using Ratios to Analyze Profitability You have received the following information on Tabor Company and Hill Corporation for the year 2000:Before investing in either company, you have decided to use
Recognizing Income: A Key to Decision Making In reviewing the financial statements of Global Corporation you discover that a number of special items were included in its income statements for the
Special Income Recognition Issues The Broken Rock Mining Company is headquartered in Phoenix, Arizona, and has a series of gold and silver mines in the western United States and South America. It has
Special Sales Considerations Roadway Motor Homes manufactures an exclusive line of motor homes purchased primarily by corporate executives and country and western stars. Roadway sells its motor homes
Special Income Events Booth Company’s income statement for the current period included (1) a gain of$800,000 (net of tax) on the sale of one of its three major operating divisions, (2) an
Earnings Per Share While Simple Corporation has only common stock outstanding, Complex Company has both preferred stock and common stock outstanding.Complex Company’s preferred stock is convertible
Multiple Choice: Revenue Recognition Select the correct answer for each of the following:When the percentage-of-completion method is used in accounting for a long-term contract:a. Income is reported
Multiple Choice: Special Items and Earnings Per Share Select the correct answer for each of the following:b. Amounts that would have been reported if a different procedure or assumption had been
Construction Contracts Thompson Construction Company is involved in the construction of an electrical generating station for Whopper Electric Corp. The total project is expected to take 5 years to
Percentage-of-Completion Method Farnsworth Construction Company completed a 5-year construction project with total billings of $254 million and costs of $237 million in November 2000. Farnsworth uses
Recognizing Percentage-of-Completion Income The chief accountant of Hammer Construction Company developed the following spreadsheet format as a means of quickly determining the amount of income to be
Commodities Inventory Barley Feed & Grain holds 450,000 bushels of #2 yellow corn. Barley purchased the corn from farmers at an average price of $2.20 per bushel during November and December 2000.a.
Determining Point of Sale Florida Corporation has as a major customer, Portland Products, located in Portland, Oregon. Florida Corporation sells its products f.o.b.shipping point and mails a bill to
Consignment Sales Bellweather Industries was interested in gaining a foothold in a number of western states.Bellweather offered several companies an opportunity to carry their line of scuba and
Sale of Operating Division Fabric Corporation sold a major operating division in 2001 for $1,500,000. The book value of the division was $700,000 at the time of sale.Between the beginning of 2001 and
Change of Accounting Estimate Reliable Delivery Company purchased a fleet of delivery trucks with a newly developed fuel system that burns used textbooks. At the beginning of the third year of
Change in the Estimated Life of Goodwill Zalin Corporation purchased Amgren Company on January 1, 1998, and recorded goodwill of $5,600,000, which is amortized on a 10-year basis using straight-line
Change in Accounting Estimates Kinslow Company purchased a warehouse for $7,200,000 on January 1, 1989. The company uses straight-line depreciation and concluded it should depreciate the building
Change in Depreciation Method MTC Corporation paid $300,000 for equipment with an expected economic life of 10 years and scrap value of $25,000. For the first 2 years, MTC used
Recording Depletion Costs Smythe & Company developed an open-pit nickel mine containing an estimated 200,000 tons of ore. The total cost of purchasing the mine, opening it for operations, and the
Change of Accounting Principle Purple Corporation has used a first-in-first-out (FIFO) inventory system since it was created. On December 31, 2001, Purple elected to change from the FIFO inventory
Earnings Per Share Mega Corporation has 70,000 shares of $10-par common stock and 25,000 shares of$4-par preferred stock outstanding. The preferred stock pays a 10 percent annual dividend and is
Earnings Per Share with Treasury Stock Sly Corporation issued 400,000 shares of $1-par value common stock on January 1, 2000, and declared a 10 percent stock dividend on December 31, 2000. A total of
Earnings Per Share with Convertible Preferred Stock Outstanding Burr Company has 500,000 shares of$4-par value preferred stock outstanding with a 6 percent cumulative annual dividend. Each share of
Earnings Per Share with Convertible Bonds Outstanding Glowtec Corporation has 200,000 shares of $5-par value common stock outstanding. It also has $800,000 par value 8 percent bonds outstanding that
Earnings Per Share with Convertible Bonds Issued During the Year Timber Corporation has 200,000 shares of $5-par value common stock outstanding. On October 1, 2000, Timber issued $800,000 par value 8
Reporting Earnings Per Share In 2000, Tallen Company reported earnings per share of $3.00. In 2001, the company reports net income of $400,000. Tallen had 100,000 common shares outstanding during
Weighted-Average Shares Ander Corporation has 60,000 shares of $5-par common stock outstanding at December 31, 2000. Of these shares, 10,000 were issued on April 1, 2000. Ander reported net income of
Error in Recording Depreciation Expense _Beeline Bus Company purchased 3 buses at $300,000 each on January 1, 2000. On January 1, 2002, the company controller discovered that the estimated scrap
Error in Reported Inventory Levels Crown Company reported cost of goods sold of $495,000 and gross profit of $134,000 for 2000; however, the external auditor in performing the audit work discovered
Error in Recording Revenue under Long-Term Construction Contract Empire Builders uses the percentage-of-completion method of recording income under longterm construction contracts. On January 1,
Accounting Error In reviewing the account balances just before preparing financial statements for 2002, the financial vice president of Castaway Company discovered that $64,000 of equipment purchased
Accounting Changes The controller of Baldwin Corporation found an error in recording prepaid insurance in the previous year. A payment for a 5-year policy was charged to expense entirely in the year
Reporting Choices Indicate whether each of the following items should be reported as a part of income from continuing operations (IO), an extraordinary item (EI), a discontinued operation (DO), or
Using Percentage-of-Completion Evergreen Construction specializes in constructing golf courses. Currently, Evergreen has four golf courses under construction.Evergreen spends an average of 30 to 36
Change in Shipping Procedures Miracle Dust Corporation sells its super dust-free floor polish through wholesalers. Miracle Dust reported a $100,000 increase in sales in 2001. In reading the footnotes
Multiple Changes Stumpville Products Corporation recently issued a press release stating that its net income for 2001 was $465,000 and earnings per share was $3.10.These amounts reflect a significant
Depletion Changes HiTech Coal Mines has been operating a series of strip mines for nearly 60 years. At the time a coal mine is started, it is impossible to know exactly how much coal will be taken
Reporting Earnings Per Share Memphis Metal Products (MMP) was started in 1994 with the sale of 200,000 shares of $10-par common stock at $12 per share. MMP has grown at a rapid rate and has needed

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