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financial accounting information for decisions

Questions and Answers of Financial Accounting Information For Decisions

Use Best Buy’s financial statements in Appendix A to compute its return on total assets for the years ended February 26, 2005, and February 28, 2004. Total assets at March, 2003, were $7,694 (in
Where on the income statement does a company report an unusual gain not expected to occur more often than once every two years or so?AppendixLO1
Why would a company’s return on total assets be different from its return on common stockholders’ equity?AppendixLO1
Why must the ratio of pledged assets to secured liabilities be interpreted with caution?AppendixLO1
What ratios would you compute to evaluate management performance?AppendixLO1
How does inventory turnover provide information about a company’s short-term liquidity?AppendixLO1
Why is a company’s capital structure, as measured by debt and equity ratios, important to financial statement analysts?AppendixLO1
What does a relatively high accounts receivable turnover indicate about a company’s short-term liquidity?AppendixLO1
What does the number of days’ sales uncollected indicate?AppendixLO1
Why is working capital given special attention in the process of analyzing balance sheets?AppendixLO1
Suggest several reasons why a 2:1 current ratio may not be adequate for a particular company.AppendixLO1
What three factors would influence your evaluation as to whether a company’s current ratio is good or bad?AppendixLO1
Explain the difference between financial reporting and financial statements.AppendixLO1
Which items are usually assigned a 100% value on (a) a common-size balance sheet and (b) a common-size income statement?AppendixLO1
What is the difference between comparative financial statements and common-size comparative statements?AppendixLO1
What is Galloway Company’s equity ratio?a. 25.78%b. 100.00%c. 34.74%d. 74.22%e. 137.78%GALLOWAY COMPANY Balance Sheet December 31, 2008 Assets Cash . . . . . . . . . . . . . . . . . . . . . . $
What is Galloway Company’s debt ratio?a. 25.78%b. 100.00%c. 74.22%d. 137.78%e. 34.74%GALLOWAY COMPANY Balance Sheet December 31, 2008 Assets Cash . . . . . . . . . . . . . . . . . . . . . . $
What is Galloway Company’s acid-test ratio?a. 2.39b. 0.69c. 1.31d. 6.69e. 3.88 GALLOWAY COMPANY Balance Sheet December 31, 2008 Assets Cash . . . . . . . . . . . . . . . . . . . . . . $ 86,000
What is Galloway Company’s current ratio?a. 0.69b. 1.31c. 3.88d. 6.69e. 2.39 GALLOWAY COMPANY Balance Sheet December 31, 2008 Assets Cash . . . . . . . . . . . . . . . . . . . . . . $ 86,000
A company’s sales in 2007 were $300,000 and in 2008 were$351,000. Using 2007 as the base year, the sales trend percent for 2008 is:a. 17%b. 85%c. 100%d. 117%e. 48%AppendixLO1
A company using FIFO for the past 15 years decides to switch to LIFO. The effect of this event on prior years’ net income is (a) reported as if the new method had always been used; (b)ignored
Identify the four major sections of an income statement that are potentially reportable.AppendixLO1
Which of the following is an extraordinary item? (a) a settlement paid to a customer injured while using the company’s product, (b) a loss to a plant from damages caused by a meteorite, or(c) a
If a company has net sales of $8,500,000, net income of $945,000, and total asset turnover of 1.8 times, what is its return on total assets?AppendixLO1
Which ratio best measures a company’s success in earning net income for its owner(s)? (a) Profit margin. (b) Return on common stockholders’ equity. (c) Price-earnings ratio. (d) Dividend
Which ratio best reflects a company’s ability to meet immediate interest payments? (a) Debt ratio.(b) Equity ratio. (c) Times interest earned.AppendixLO1
On Dec. 31, 2008, Paff Company (see question 8) had accounts receivable of $290,000 and inventories of $530,000. During 2008, net sales amounted to $2,500,000 and cost of goods sold was $750,000.
Information from Paff Co. at Dec. 31, 2007, follows: cash, $820,000; accounts receivable, $240,000;inventories, $470,000; plant assets, $910,000; accounts payable, $350,000; and income taxes payable,
Trend percents are (a) shown on comparative income statements and balance sheets, (b) shown on common-size comparative statements, or (c) also called index numbers.AppendixLO1
What is the difference between the percents shown on a comparative income statement and those shown on a common-size comparative income statement?AppendixLO1
Which of the following is true for common-size comparative statements? (a) Each item is expressed as a percent of a base amount. (b) Total assets often are assigned a value of 100%.(c) Amounts from
What is the preferred basis of comparison for ratio analysis?AppendixLO1
Which of the following is least useful as a basis for comparison when analyzing ratios?(a) Company results from a different economic setting. (b) Standards from past experience.(c) Rule-of-thumb
General-purpose financial statements consist of what information?AppendixLO1
Who are the intended users of general-purpose financial statements?AppendixLO1
Define and apply ratio analysis.AppendixLO1
Describe and apply methods of vertical analysis. (p. 545)AppendixLO1
Explain and apply methods of horizontal analysis. (p. 540)AppendixLO1
Appendix 13A—Explain the form and assess the content of a complete income statement.AppendixLO1
Summarize and report results of analysis. (p. 558)AppendixLO1
Identify the tools of analysis.AppendixLO1
Describe standards for comparisons in analysis. (p. 540)AppendixLO1
Identify the building blocks of analysis. (p. 539)AppendixLO1
Explain the purpose of analysis. (p. 538)AppendixLO1
Describe how each of the following characteristics of organizations applies to corporations. 1. Owner authority and control 5. Duration of life 2. Ease of formation 6. Owner liability 3.
The stockholders’ equity section of Montaigne Company’s balance sheet follows. The preferred stock’s call price is $40. Determine the book value per share of the common stock.Preferred
Foxboro Company expects to pay a $2.30 per share cash dividend this year on its common stock. The current market value of Foxboro stock is $32.50 per share. Compute the expected dividend yield on the
Compute Topp Company’s price-earnings ratio if its common stock has a market value of $32.60 per share and its EPS is $3.95. Would an analyst likely consider this stock potentially over- or
Epic Company earned net income of $900,000 this year. The number of common shares outstanding during the entire year was 400,000, and preferred shareholders received a $20,000 cash dividend. Compute
Murray Company reports net income of $770,000 for the year. It has no preferred stock, and its weightedaverage common shares outstanding is 280,000 shares. Compute its basic earnings per
Answer the following questions related to a company’s activities for the current year:1 A review of the notes payable files discovers that three years ago the company reported the entire amount of
On May 3, Zirbal Corporation purchased 4,000 shares of its own stock for $36,000 cash. On November 4, Zirbal reissued 850 shares of this treasury stock for $8,500. Prepare the May 3 and November 4
Stockholders’ equity of Ernst Company consists of 80,000 shares of $5 par value, 8% cumulative preferred stock and 250,000 shares of $1 par value common stock. Both classes of stock have been
The stockholders’ equity section of Jun Company’s balance sheet as of April 1 follows. On April 2, Jun declares and distributes a 10% stock dividend. The stock’s per share market value on April
Prepare journal entries to record the following transactions for Fletcher Corporation.May 15 Declared a $54,000 cash dividend payable to common stockholders.June 31 Paid the dividend declared on May
a. Prepare the journal entry to record Tamasine Company’s issuance of 5,000 shares of $100 par value 7% cumulative preferred stock for $102 cash per share.b. Assuming the facts in part 1, if
Prepare the issuer’s journal entry for each separate transaction. (a) On March 1, Atlantic Co. issues 42,500 shares of $4 par value common stock for $297,500 cash. (b) On April 1, OP Co. issues
Prepare the journal entry to record Autumn Company’s issuance of 63,000 shares of no-par value common stock assuming the shares:a. Sell for $29 cash per share.b. Are exchanged for land valued at
Prepare the journal entry to record Jevonte Company’s issuance of 36,000 shares of its common stock assuming the shares have a:a. $2 par value and sell for $18 cash per share.b. $2 stated value and
Prepare the journal entry to record Zende Company’s issuance of 75,000 shares of $5 par value common stock assuming the shares sell for:a. $5 cash per share.b. $6 cash per share.AppendixLO1
Of the following statements, which are true for the corporate form of organization?1 Ownership rights cannot be easily transferred.2 Owners have unlimited liability for corporate debts.3 Capital is
Refer to the financial statements for Apple in Appendix A. Did it issue or repurchase any common stock for the year ended September 25, 2004? Explain.AppendixLO1
Refer to the balance sheet for Circuit City in Appendix A. What is the par value per share of its common stock? Suggest a rationale for the amount of par value it assigned.AppendixLO1
Review the balance sheet for Best Buy in Appendix A and list the classes of stock that it has issued.AppendixLO1
How is book value per share computed for a corporation with no preferred stock? What is the main limitation of using book value per share to value a corporation?AppendixLO1
What is a stock option?AppendixLO1
How are EPS results computed for a corporation with a simple capital structure?AppendixLO1
Why do laws place limits on treasury stock purchases?AppendixLO1
How does the purchase of treasury stock affect the purchaser’s assets and total equity?AppendixLO1
Courts have ruled that a stock dividend is not taxable income to stockholders. What justifies this decision?AppendixLO1
What is the difference between a stock dividend and a stock split?AppendixLO1
How does declaring a stock dividend affect the corporation’s assets, liabilities, and total equity? What are the effects of the eventual distribution of that stock?AppendixLO1
Why is the term liquidating dividend used to describe cash dividends debited against paid-in capital accounts?AppendixLO1
Identify and explain the importance of the three dates relevant to corporate dividends.AppendixLO1
What is the difference between the par value and the call price of a share of preferred stock?AppendixLO1
What is the difference between the market value per share and the par value per share?AppendixLO1
Why would an investor find convertible preferred stock attractive?AppendixLO1
What is the difference between authorized shares and outstanding shares?AppendixLO1
List the general rights of common stockholders.AppendixLO1
What is the preemptive right of common stockholders?AppendixLO1
Who is responsible for directing a corporation’s affairs?AppendixLO1
How are organization expenses reported?AppendixLO1
What are organization expenses? Provide examples.AppendixLO1
A company’s shares have a market value of $85 per share. Its net income is $3,500,000, and its weighted-average common shares outstanding is 700,000. Its price-earnings ratio is:a. 5.9b. 425.0c.
A company paid cash dividends of $0.81 per share. Its earnings per share is $6.95 and its market price per share is $45.00.Its dividend yield is:a. 1.8%b. 11.7%c. 15.4%d. 55.6%e. 8.6%AppendixLO1
A company has 5,000 shares of $100 par preferred stock and 50,000 shares of $10 par common stock outstanding. Its total stockholders’ equity is $2,000,000. Its book value per common share is:a.
A company reports net income of $75,000. Its weightedaverage common shares outstanding is 19,000. It has no other stock outstanding. Its earnings per share is:a. $4.69b. $3.95c. $3.75d. $2.08e. $4.41
A corporation issues 6,000 shares of $5 par value common stock for $8 cash per share. The entry to record this transaction includes:a. A debit to Paid-In Capital in Excess of Par Value for $18,000.b.
When a company purchases treasury stock, (a) retained earnings are restricted by the amount paid; (b) Retained Earnings is credited; or (c) it is retired.AppendixLO1
How does treasury stock affect the authorized, issued, and outstanding shares?AppendixLO1
Southern Co. purchases shares of Northern Corp. Should either company classify these shares as treasury stock?AppendixLO1
Purchase of treasury stock (a) has no effect on assets; (b) reduces total assets and total equity by equal amounts; or (c) is recorded with a debit to Retained Earnings.AppendixLO1
A corporation has issued and outstanding (i) 9,000 shares of $50 par value, 10% cumulative, nonparticipating preferred stock and (ii) 27,000 shares of $10 par value common stock.No dividends have
Increasing the return to common stockholders by issuing preferred stock is an example of(a) Financial leverage. (b) Cumulative earnings. (c) Dividend in arrears.AppendixLO1
In what ways does preferred stock often have priority over common stock?AppendixLO1
What amount of retained earnings is capitalized for a small stock dividend?AppendixLO1
What distinguishes a large stock dividend from a small stock dividend?AppendixLO1
How does a stock dividend impact assets and retained earnings?AppendixLO1
When does a dividend become a company’s legal obligation?AppendixLO1
What three crucial dates are involved in the process of paying a cash dividend?AppendixLO1

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