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financial accounting information

Questions and Answers of Financial Accounting Information

Work Sheet (Appendix)Assume that a company uses a work sheet as illustrated in Exhibit 12-16 to prepare its statement of cash fl ows and that it uses the indirect method in the Operating Activities
Cash Flow Adequacy A company generated $1,500,000 from its operating activities and spent $900,000 on additions to its plant and equipment during the year. The total amount of debt that matures in
Indirect Method For each of the following items, indicate whether it would be added to (A) or deducted from (D) net income to arrive at net cash fl ow provided by operating activities under the
Direct Method Fill in the blank for each of the following situations.Balance Sheet Beginning Ending Income Statement Cash Infl ow (Outfl ow)1. Accounts receivable $2,000 $5,000 Sales on account,
Direct versus Indirect Method For each of the following items, indicate whether it would appear on a statement of cash fl ows prepared using the direct method (D) or the indirect method (I).______ 1.
Three Types of Activities For each of the following transactions on the statement of cash fl ows, indicate whether it would appear in the Operating Activities section (O), in the Investing Activities
Cash Equivalents A friend in your class is confused and asks for your help in understanding cash equivalents:“Say a company invests $50,000 in a 60-day certifi cate of deposit. Since the company
Purpose of the Statement of Cash Flows You have been studying accounting for nearly a semester now and have become convinced of the value of determining a company’s net income on an accrual basis.
Explain where to fi nd the information needed to determine a company’s cash fl ow adequacy.AppendixLO1
Ace Inc. declared and distributed a 10% stock dividend during the year. Explain how, if at all, you think this transaction should be reported on a statement of cash fl ows.AppendixLO1
Billings Company has a patent on its books with a balance at the beginning of the year of $24,000. The ending balance for the asset was $20,000. The company did not buy or sell any patents during the
Duke Corp. sold a delivery truck for $9,000. Its original cost was $25,000, and the book value at the time of the sale was $11,000. How does the transaction to record the sale appear on a statement
Baxter Inc. buys as treasury stock 2,000 shares of its own common stock at $20 per share. How is this transaction reported on the statement of cash fl ows?AppendixLO1
Jackson Company prepays the rent on various offi ce facilities. The beginning balance in Prepaid Rent was$9,600, and the ending balance was $7,300. The income statement reports Rent Expense of
Is it logical that interest paid is classifi ed as a cash outfl ow in the Operating Activities section of the statement of cash fl ows but that dividends paid are included in the Financing Activities
Why do accounting standards require a company to separately disclose income taxes paid and interest paid if it uses the indirect method?AppendixLO1
What effect does a decrease in income taxes payable for the period have on cash generated from operating activities? Does it matter whether the direct or the indirect method is used?AppendixLO1
A company reports a net loss for the year. Is it possible that cash could increase during the year? Explain your answer.AppendixLO1
A company has a very profi table year. What explanations might there be for a decrease in cash?AppendixLO1
Why is it necessary to analyze both inventory and accounts payable in trying to determine cash payments to suppliers when the direct method is used?AppendixLO1
Assume that a company uses the indirect method to prepare the Operating Activities section of the statement of cash fl ows. Why would a decrease in accounts receivable during the period be added back
Which method for preparing the Operating Activities section of the statement of cash fl ows, the direct or the indirect method, do you believe provides more information to users of the statement?
What is your evaluation of the following statements?Depreciation is responsible for providing some of the highest amounts of cash for capital-intensive businesses.This is obvious by examining the
A fellow student says to you: “The statement of cash fl ows is the easiest of the basic fi nancial statements to prepare because you know the answer before you start.You compare the beginning and
Companies are required to classify cash fl ows as operating, investing, or fi nancing. Which of these three categories do you think will most likely have a net cash outfl ow over a number of years?
Hansen Inc. made two purchases during December.One was a $10,000 Treasury bill that matures in 60 days from the date of purchase. The other was a $20,000 investment in Motorola common stock that will
Preston Corp. acquires a piece of land by signing a$60,000 promissory note and making a down payment of $20,000. How should this transaction be reported on the statement of cash fl ows?AppendixLO1
What is a cash equivalent? Why is it included with cash for purposes of preparing a statement of cash fl ows?AppendixLO1
What is the purpose of the statement of cash fl ows? As a fl ows statement, explain how it differs from the income statement.AppendixLO1
Use a work sheet to prepare a statement of cash fl ows using the indirect method to determine cash fl ow from operating activities(Appendix).AppendixLO1
Use cash fl ow information to help analyze a company.AppendixLO1
Prepare a statement of cash fl ows using the indirect method to determine cash fl ow from operating activities.AppendixLO1
Prepare a statement of cash fl ows using the direct method to determine cash fl ow from operating activities.AppendixLO1
Describe the difference between the direct and indirect methods of computing cash fl ow from operating activities.AppendixLO1
Describe operating, investing, and fi nancing activities and give examples of each.AppendixLO1
Explain what cash equivalents are and how they are treated on the statement of cash fl ows.AppendixLO1
Understand the concept of cash fl ows and accrual accounting, and explain the purpose of a statement of cash fl ows.AppendixLO1
Dividend Policy Hancock Inc. is owned by nearly 100 shareholders. Judith Stitch owns 48% of the stock.She needs cash to fulfi ll her commitment to donate the funds to construct a new art gallery.Some
Inside Information Jim Brock was an accountant with Hubbard Inc., a large corporation with stock that was publicly traded on the New York Stock Exchange. One of Jim’s duties was to manage the
Preferred versus Common Stock Rohnan Inc. needs to raise $500,000. It is considering two options:a. Issue preferred stock, $100 par, 8%, cumulative, nonparticipating, callable at $110.The stock could
Debt versus Preferred Stock Assume that you are an analyst attempting to compare the fi nancial structures of two companies. In particular, you must analyze the debt and equity categories of the two
Reading General Mills’s Statement of Cash Flows Refer to General Mills’s statement of cash fl ows for the year ending May 31, 2009.Required:1. What sources of cash are revealed in the Financing
Comparing Two Companies in the Same Industry:Kellogg’s and General Mills Refer to the Stockholders’ Equity section of the balance sheets of Kellogg’s as of December 31, 2008, and General Mills
Stockholders’ Equity Section of the Balance Sheet The newly hired accountant at Grainfi eld Inc. is considering the following list of accounts as he prepares the balance sheet. All of the accounts
Effects of Stockholders’ Equity Transactions on Balance Sheet The following transactions occurred at Hilton Inc. during its fi rst year of operation:a. Issued 10,000 shares of common stock at $10
Analysis of Stockholders’ Equity The Stockholders’ Equity section of the December 31, 2010, balance sheet of Carter Company appeared as follows:Preferred stock, $50 par value, 10,000 shares
Partnerships (Appendix)Karen Locke and Gina Keyes agreed to form a partnership to operate a sandwich shop.Karen contributed $35,000 cash and will manage the store. Gina contributed computer equipment
Sole Proprietorships (Appendix)On May 1, Chen Chien Lao deposited $150,000 of her own savings in a separate bank account to start a printing business. She purchased copy machines for $52,500.
Income Distribution of a Partnership (Appendix)Kay Katz and Doris Kan are partners in a dry-cleaning business. The partnership agreement specifi es the manner in which income of the business is to be
Effects of Stockholders’ Equity Transactions on the Statement of Cash Flows Refer to all of the facts in Problem 11-1A.Required Indicate how each transaction affects the cash fl ow of Kebler
Costco’s Comprehensive Income Following is the consolidated statement of stockholders’ equity of Costco Wholesale Corporation for the year ended August 31, 2008:Costco Wholesale Corporation
Statement of Stockholders’ Equity Refer to all of the facts in Problem 11-1A.Required Develop a statement of Stockholders’ Equity for Kebler Company for 2010. The statement should start with the
Dividends and Stock Splits On January 1, 2010, Svenberg Inc.’s Stockholders’ Equity category appeared as follows:Preferred stock, $80 par value, 8%, 1,000 shares issued and outstanding $ 80,000
Effect of Stock Dividend Travanti Company has a history of paying cash dividends on its common stock. Although the fi rm has been profi table this year, the board of directors is planning
Dividends for Preferred and Common Stock The Stockholders’ Equity category of Rausch Company’s balance sheet as of December 31, 2010, appeared as follows:Preferred stock, $100 par, 8%, 2,000
Evaluating Alternative Investments Rob Lowe would like to invest $100,000 in Franklin Inc., which is offering common stock, preferred stock, and bonds on the open market. The common stock has paid $1
Stockholders’ Equity Category Kebler Company was incorporated as a new business on January 1, 2010. The corporate charter approved on that date authorized the issuance of 2,000 shares of $100 par,
Stockholders’ Equity Section of the Balance Sheet The newly hired accountant at Ives Inc. prepared the following balance sheet:Assets Cash $ 3,500 Accounts receivable 5,000 Treasury stock 500
Effects of Stockholders’ Equity Transactions on the Balance Sheet The following transactions occurred at Horton Inc. during its fi rst year of operation:a. Issued 100,000 shares of common stock at
Analysis of Stockholders’ Equity The Stockholders’ Equity section of the December 31, 2010, balance sheet of Eldon Company appeared as follows:Preferred stock, $30 par value, 5,000 shares
Partnerships (Appendix)Kirin Nerise and Milt O’Brien agreed to form a partnership to operate a sandwich shop.Kirin contributed $25,000 cash and will manage the store. Milt contributed computer
Sole Proprietorships (Appendix)On May 1, Chong Yu deposited $120,000 of his own savings in a separate bank account to start a printing business. He purchased copy machines for $42,000. Expenses for
Income Distribution of a Partnership (Appendix)Louise Abbott and Buddie Costello are partners in a comedy club business. The partnership agreement specifi es the manner in which income of the
Effects of Stockholders’ Equity Transactions on Statement of Cash Flows Refer to all of the facts in Problem 11-1.Required Indicate how each transaction affects the cash fl ow of Peeler Company by
Wal-Mart’s Comprehensive Income Following is the consolidated statement of shareholders’ equity of Wal-Mart Stores, Inc., for the year ended January 31, 2009:Wal-Mart Stores, Inc.Consolidated
Statement of Stockholders’ Equity Refer to all of the facts in Problem 11-1.Required Develop a statement of stockholders’ equity for Peeler Company for 2010. The statement should start with the
Dividends and Stock Splits On January 1, 2010, Frederiksen Inc.’s Stockholders’ Equity category appeared as follows:Preferred stock, $80 par value, 7%, 3,000 shares issued and outstanding $
Effect of Stock Dividend Favre Company has a history of paying cash dividends on its common stock. However, the fi rm did not have a particularly profi table year in 2010. At the end of the year,
Dividends for Preferred and Common Stock The Stockholders’ Equity category of Greenbaum Company’s balance sheet as of December 31, 2010, appeared as follows:Preferred stock, $100 par, 8%, 1,000
Evaluating Alternative Investments Ellen Hays received a windfall from one of her investments. She would like to invest$100,000 of the money in Linwood Inc., which is offering common stock, preferred
Stockholders’ Equity Category Peeler Company was incorporated as a new business on January 1, 2010. The corporate charter approved on that date authorized the issuance of 1,000 shares of $100 par,
Partnerships (Appendix)Sports Central is a sporting goods store owned by Lewis, Jamal, and Lapin in partnership.On January 1, 2010, their capital balances were as follows:Lewis, Capital $20,000
Sole Proprietorships (Appendix)Terry Woods opened Par Golf as a sole proprietor by investing $50,000 cash on January 1, 2010. Because the business was new, it operated at a net loss of $10,000 for
Determining Dividends Paid on Statement of Cash Flows Clifford Company’s comparative balance sheet included dividends payable of $80,000 at December 31, 2009, and $100,000 at December 31, 2010.
Impact of Transactions Involving Dividends on Statement of Cash Flows From the following list, identify each item as operating (O), investing (I), fi nancing (F), or not separately reported on the
Impact of Transactions Involving Treasury Stock on Statement of Cash Flows From the following list, identify each item as operating (O), investing (I), fi nancing (F), or not separately reported on
Impact of Transactions Involving Issuance of Stock on Statement of Cash Flows From the following list, identify each item as operating (O), investing (I), fi nancing (F), or not separately reported
Payout Ratio and Book Value per Share Divac Company has developed a statement of stockholders’ equity for the year 2010 as follows:Paid-In Paid-In Preferred Capital— Common Capital— Retained
Comprehensive Income Assume that you are the accountant for Ellis Corporation, which has issued its 2010 annual report. You have received an inquiry from a stockholder who has questions about several
Reporting Changes in Stockholders’ Equity Items On May 1, 2009, Ryde Inc. had common stock of $345,000, additional paid-in capital of $1,298,000, and retained earnings of $3,013,000. Ryde did not
Stock Dividends and Stock Splits Whitacre Company’s Stockholders’ Equity section of the balance sheet on December 31, 2009, was as follows:Common stock, $10 par value, 60,000 shares issued and
Stock Dividends versus Stock Splits Campbell Company wants to increase the number of shares of its common stock outstanding and is considering a stock dividend versus a stock split. The
Stock Dividends The Stockholders’ Equity category of Worthy Company’s balance sheet as of January 1, 2010, appeared as follows:Common stock, $10 par, 40,000 shares issued and outstanding $400,000
Cash Dividends The Stockholders’ Equity category of Jackson Company’s balance sheet as of January 1, 2010, appeared as follows:Preferred stock, $100 par, 8%, 2,000 shares issued and outstanding
Cash Dividends Kerry Company has 1,000 shares of $100 par value, 9% preferred stock and 10,000 shares of $10 par value common stock outstanding. The preferred stock is cumulative and
Treasury Stock Transactions The Stockholders’ Equity category of Little Joe’s balance sheet on January 1, 2010, appeared as follows:Common stock, $5 par, 40,000 shares issued and outstanding
Treasury Stock The Stockholders’ Equity category of Bradford Company’s balance sheet on January 1, 2010, appeared as follows:Common stock, $10 par, 10,000 shares issued and outstanding $100,000
Stock Issuance The following transactions are for Weber Corporation in 2010:a. On March 1, the corporation was organized and received authorization to issue 5,000 shares of 8%, $100 par value
Stock Issuance Horace Company had the following transactions during 2010, its fi rst year of business.a. Issued 5,000 shares of $5 par common stock for cash at $15 per share.b. Issued 7,000 shares of
Solve for Unknowns The Stockholders’ Equity category of Zache Company’s balance sheet appears below.Common stock, $10 par, 10,000 shares issued, 9,200 outstanding $ ?Additional paid-in capital
Stockholders’ Equity Accounts MJ Company has identifi ed the following items. Indicate whether each item is included in an account in the Stockholders’ Equity category of the balance sheet and
Sole Proprietorship (Appendix)Furyk Company opened business as a sole proprietorship on January 1, 2010. The owner contributed $500,000 cash on that date. During the year, the company had a net
Cash Flow Effects For each of the following items, indicate (a) in what category of the statement of cash fl ows the item will be reported and (b) whether it will appear as a cash infl ow, cash outfl
Book Value per Share Deer Company has the following amounts in the Stockholders’ Equity category of the balance sheet at December 31, 2010:Preferred Stock, $100 par, 8%, noncumulative(liquidation
Develop Stockholders’ Equity Nash Company has the following accounts among the items on the balance sheet at January 1, 2010:Common Stock, $10 par, 10,000 shares authorized, 9,000 issued, 8,000
Stock Dividends and Stock Splits At December 31, 2010, Green Company and Blue Company have identical amounts of common stock and retained earnings as follows:Common Stock, $10 par, 50,000 shares
Cash and Stock Dividends At December 31, 2010, White Company has the following:Common Stock, $10 par, 10,000 shares authorized, 9,000 issued, 8,000 outstanding Required Indicate whether the following
Cash Dividends At December 31, 2010, Black Company has the following:Common Stock, $10 par, 10,000 shares authorized, 9,000 issued, 8,000 outstanding Preferred Stock, $100 par, 8%, cumulative, 1,000
Treasury Stock Indicate whether the following transactions increase, decrease, or have no effect on(a) total assets and on (b) total stockholders’ equity._____ Issue 1,000 shares of common stock at
Stock Issuance Morris had the following transactions during 2010:1. Issued 2,000 shares of $10 par common stock for cash at $17 per share.2. Issued 1,000 shares of preferred stock to acquire land.

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