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financial accounting information

Questions and Answers of Financial Accounting Information

Show that you understand the effect on the balance sheet of the issuance of bonds.AppendixLO1
Find the amortization of premium or discount using the effective interest method.AppendixLO1
Find the gain or loss on retirement of bonds.AppendixLO1
Determine whether a lease agreement must be reported as a liability on the balance sheet.AppendixLO1
Explain how investors use ratios to evaluate long-term liabilities.AppendixLO1
Explain the effects that transactions involving long-term liabilities have on the statement of cash fl ows.AppendixLO1
Explain deferred taxes and calculate the deferred tax liability. (Appendix)AppendixLO1
Which interest rate, the face rate or the market rate, should be used when calculating the issue price of a bond? Why?AppendixLO1
What is the tax advantage that companies experience when bonds are issued instead of stock?AppendixLO1
Does the issuance of bonds at a premium indicate that the face rate is higher or lower than the market rate of interest?AppendixLO1
How does the effective interest method of amortization result in a constant rate of interest?AppendixLO1
Does amortization of a premium increase or decrease the bond carrying value? Does amortization of a discount increase or decrease the bond carrying value?AppendixLO1
Is there always a gain or loss when bonds are redeemed?How is the gain or loss calculated?AppendixLO1
What is the meaning of the term off-balance-sheet fi nancing? Why do some fi rms want to engage in offbalance-sheet transactions?AppendixLO1
What are the effects on the fi nancial statements when a lease is considered an operating lease rather than a capital lease?AppendixLO1
Should depreciation be reported on leased assets? If so, over what period of time should depreciation occur?AppendixLO1
Why do fi rms have a Deferred Tax account? Where should that account be shown on the fi nancial statements? (Appendix)AppendixLO1
How can you determine whether an item should refl ect a permanent or a temporary difference when calculating the deferred tax amount? (Appendix)AppendixLO1
Does the amount of income tax expense presented on the income statement represent the amount of tax actually paid? Why or why not? (Appendix)AppendixLO1
Do you agree with this statement? All liabilities could be legally enforced in a court of law.AppendixLO1
Classifi cation of Long-Term Liabilities Which of the following would normally be included in the Long-Term Liability category of the balance sheet?Accounts Payable Bonds Payable Accrued Expenses
Bond Features Defi ne the following terms related to bonds payable.Debenture bonds Secured bonds Convertible bonds Callable bonds Face value of the bonds Face rate of interest Issue price.AppendixLO1
Bond Issue Price A bond payable is dated January 1, 2010, and is issued on that date. The face value of the bond is $100,000, and the face rate of interest is 8%. The bond pays interest
Effect of Bond Issuance A bond with a face value of $10,000 is issued at a discount of $800 on January 1, 2010.The face rate of interest on the bond is 7%.Required 1. Was the market rate at the time
Gain or Loss on Bonds Refer to Brief Exercise 10-5. Assume that the bonds are redeemed on December 31, 2010, at 102.Required 1. Calculate the gain or loss on bond redemption.2. Identify and analyze
Debt-to-Equity Ratio Will Able Corporation’s balance sheet showed the following amounts: Current Liabilities,$10,000; Bonds Payable, $3,000; Lease Obligations, $4,000; and Notes Payable,$600. Total
Long-Term Liabilities and Cash Flow In what category of the statement of cash fl ows should the following items be shown?Should they appear as a positive or negative amount on the statement of cash
Deferred Tax (Appendix)On January 1, 2010, Deng Company purchased an asset for $100,000. For fi nancial accounting purposes, the asset will be depreciated on a straight-line basis over fi ve years
Relationships The following components are computed annually when a bond is issued for other than its face value:• Cash interest payment• Interest expense• Amortization of discount/premium•
Issue Price Youngblood Inc. plans to issue $500,000 face value bonds with a stated interest rate of 8%. They will mature in ten years. Interest will be paid semiannually. At the date of issuance,
Issue Price The following terms relate to independent bond issues:a. 500 bonds; $1,000 face value; 8% stated rate; 5 years; annual interest paymentsb. 500 bonds; $1,000 face value; 8% stated rate; 5
Impact of Two Bond Alternatives Yung Chong Company wants to issue 100 bonds, $1,000 face value, in January. The bonds will have a ten-year life and pay interest annually. The market rate of interest
Redemption of Bonds Reynolds Corporation issued $75,000 face value bonds at a discount of $2,500. The bonds contain a call price of 103. Reynolds decides to redeem the bonds early when the
Redemption of a Bond at Maturity On March 31, 2010, Sammonds Inc. issued $250,000 face value bonds at a discount of$7,000. The bonds were retired at their maturity date, March 31, 2020.Required
Leased Asset Hopper Corporation signed a ten-year capital lease on January 1, 2010. The lease requires annual payments of $8,000 every December 31.Required 1. Assuming an interest rate of 9%,
Financial Statement Impact of a Lease Benjamin’s Warehouse signed a six-year capital lease on January 1, 2010, with payments due every December 31. Interest is calculated annually at 10%, and the
Impact of Transactions Involving Bonds on Statement of Cash Flows In the following list, identify each item as operating (O), investing (I), fi nancing (F), or not separately reported on the
Impact of Transactions Involving Tax Liabilities on Statement of Cash Flows In the following list, identify each item as operating (O), investing (I), fi nancing (F), or not separately reported on
Deferred Tax (Appendix)On January 1, 2010, Kunkel Corporation purchased an asset for $32,000. Assume that this is the only asset owned by the corporation. Kunkel has decided to use the straightline
Issuance of a Bond at Face Value On January 1, 2010, Whitefeather Industries issued 300, $1,000 face value bonds. The bonds have a fi ve-year life and pay interest at the rate of 10%. Interest is
Impact of a Premium Assume the same set of facts for Berol Corporation as in Exercise 10-16 except that it received $109,862 in return for the issuance of the bonds when the market rate was
Amortization of Premium Assume the same set of facts for Stacy Company as in Problem 10-2 except that the market rate of interest of January 1, 2010, is 8% and the proceeds from the bond issuance
Redemption of Bonds McGee Company issued $200,000 face value bonds at a premium of $4,500. The bonds contain a call provision of 101. McGee decides to redeem the bonds due to a signifi -cant decline
Deferred Tax (Appendix)Erinn Corporation has compiled its 2010 fi nancial statements. Included in the Long-Term Liabilities category of the balance sheet are the following amounts:2010 2009 Deferred
Bond Transactions Brand Company issued $1,000,000 face value, eight-year, 12% bonds on April 1, 2010, when the market rate of interest was 12%. Interest payments are due every October 1 and April 1.
Amortization of Discount Ortega Company issued fi ve-year, 5% bonds with a face value of $50,000 on January 1, 2010. Interest is paid annually on December 31. The market rate of interest on this date
Amortization of Premium Assume the same set of facts for Ortega Company as in Problem 10-2A except that the market rate of interest of January 1, 2010, is 4% and the proceeds from the bond issuance
Redemption of Bonds Elliot Company issued $100,000 face value bonds at a premium of $5,500. The bonds contain a call provision of 101. Elliot decides to redeem the bonds due to a signifi cant decline
Deferred Tax (Appendix)Thad Corporation has compiled its 2010 fi nancial statements. Included in the Long-Term Liabilities category of the balance sheet are the following amounts:2010 2009 Deferred
Deferred Tax Calculations (Appendix)Clemente Inc. has reported income for book purposes as follows for the past three years:(In thousands) Year 1 Year 2 Year 3 Income before taxes $120 $120 $120
Financial Statement Impact of a Bond Worthington Company issued $1,000,000 face value, six-year, 10% bonds on July 1, 2010, when the market rate of interest was 12%. Interest payments are due every
Evaluating the Liabilities of General Mills Refer to the General Mills fi nancial statements at the end of the text and answer the following questions:1. What are the items listed as long-term
Making a Loan Decision Assume that you are a loan offi cer in charge of reviewing loan applications from potential new clients at a major bank. You are considering an application from Molitor
Bond Redemption Decision Armstrong Areo Ace, a fl ight training school, issued $100,000 of 20-year bonds at face value when the market rate was 10%. The bonds have been outstanding for ten years.The
Explain the purpose of a trial balance [Appendix].AppendixLO1
Explain the purposes of a journal and the posting process [Appendix].AppendixLO1
Explain the rules of debits and credits.AppendixLO1
Describe the use of the account and the general ledger to accumulate amounts of fi nancial statement items.AppendixLO1
Analyze the effects of transactions on the accounting equation and understand how these transactions affect the balance sheet and the income statement.AppendixLO1
Explain the role of source documents in an accounting system.AppendixLO1
Explain the difference between external and internal events.AppendixLO1
Susan Applies for a Loan Susan Spiffy, owner of Spiffy Cleaners, a drive-through dry cleaners, would like to expand her business from its current location to a chain of cleaners. Revenues at the one
The Expenditure Approval Process Roberto is the plant superintendent of a small manufacturing company that is owned by a large corporation. The corporation has a policy that any expenditure over
Factors Involved in an Investment Decision As an investor, you are considering purchasing stock in a chain of theaters. The annual reports of several companies are available for comparison.Required
Analysis of Cash Flow for a Small Business Charles, a fi nancial consultant, has been self-employed for two years. His list of clients has grown, and he is earning a reputation as a shrewd investor.
Reading General Mills’s Balance Sheet Refer to General Mills’s balance sheet reproduced at the back of the book to answer the following questions.Required 1. Which is the largest of General
Comparing Two Companies in the Same Industry: General Mills and Kellogg’s Refer to the fi nancial information for General Mills and Kellogg’s reproduced at the back of the book for the
Cash Flow Roosevelt Inc., a consulting service, has a history of paying annual dividends of $1 per share. Management is trying to determine whether the company will have adequate cash on December 31,
Comparability and Consistency in Income Statements The following income statements were provided by Chisholm Company, a wholesale food distributor:2010 2009 Sales $1,700,000 $1,500,000 Cost of sales
Comparing Starwood Hotels & Resorts and Marriott International, Inc.The following current items, listed in alphabetical order, are taken from the consolidated balance sheets of Starwood Hotels &
Basic Elements of Financial Reports Comparative income statements for Thesaurus Inc. are as follows:2010 2009 Operating revenues $500,000 $200,000 Operating expenses 120,000 100,000 Operating income
Statement of Cash Flows Wisconsin Corporation was organized on January 1, 2010, with the investment of$400,000 in cash by its stockholders. The company immediately purchased a manufacturing facility
Multiple-Step Income Statement and Profi t Margin Refer to the list of income statement items in Problem 2-6A. Assume that Corbin Enterprises classifi es all operating expenses into two categories:
Single-Step Income Statement The following income statement items, arranged in alphabetical order, are taken from the records of Corbin Enterprises for the year ended December 31, 2010:Advertising
Working Capital and Current Ratio The balance sheet of Kapinski Inc. includes the following items:Cash $23,000 Accounts receivable 43,000 Inventory 75,000 Prepaid insurance 2,800 Land 80,000 Accounts
Financial Statement Ratios The following items, in alphabetical order, are available from the records of Quinn Corporation as of December 31, 2010 and 2009:December 31, 2010 December 31, 2009
Classifi ed Balance Sheet The following balance sheet items, listed in alphabetical order, are available from the records of Singer Company at December 31, 2010:Accounts payable $ 34,280 Interest
Costs and Expenses The following costs are incurred by a retailer:1. Point of sale systems in a retail store 2. An ad in the yellow pages 3. An inventory-control computer software system 4. Shipping
Materiality Jane Erving, a newly hired accountant wanting to impress her boss, stayed late one night to analyze the long-distance calls by area code and time of day placed. She determined the monthly
Cash Flow Franklin Co., a specialty retailer, has a history of paying quarterly dividends of $0.50 per share. Management is trying to determine whether the company will have adequate cash on December
Comparability and Consistency in Income Statements The following income statements were provided by Gleeson Company, a retailer:2010 Income Statement 2009 Income Statement Sales $1,700,000 Sales
Comparing Coca-Cola and PepsiCo The current items, listed in alphabetical order, are taken from the consolidated balance sheets of Coca-Cola as of December 31, 2008, and PepsiCo as of December 27,
Basic Elements of Financial Reports Comparative income statements for Grammar Inc. are as follows:2010 2009 Sales $1,000,000 $500,000 Cost of sales 500,000 300,000 Gross profi t $ 500,000 $200,000
Statement of Cash Flows Colorado Corporation was organized on January 1, 2010, with the investment of$250,000 in cash by its stockholders. The company immediately purchased an offi ce building for
Multiple-Step Income Statement and Profi t Margin Refer to the list of income statement items in Problem 2-6. Assume that Shaw Corporation classifi es all operating expenses into two categories: (1)
Single-Step Income Statement The following income statement items, arranged in alphabetical order, are taken from the records of Shaw Corporation for the year ended December 31, 2010:Advertising
Working Capital and Current Ratio The balance sheet of Stevenson Inc. includes the following items:Cash $ 23,000 Accounts receivable 13,000 Inventory 45,000 Prepaid insurance 800 Land 80,000 Accounts
Financial Statement Ratios The following items, in alphabetical order, are available from the records of Walker Corporation as of December 31, 2010 and 2009:December 31, 2010 December 31, 2009
Classifi ed Balance Sheet The following balance sheet items, listed in alphabetical order, are available from the records of Ruth Corporation at December 31, 2010:Accounts payable $ 18,255 Accounts
Costs and Expenses The following costs are incurred by a retailer:1. Display fi xtures in a retail store 2. Advertising 3. Merchandise for sale 4. Incorporation (i.e., legal costs, stock issue
Materiality Joseph Knapp, a newly hired accountant wanting to impress his boss, stayed late one night to analyze the offi ce supplies expense. He determined the cost by month for the previous 12
Multiple-Step Income Statement Gaynor Corporation’s partial income statement is as follows:Sales $1,200,000 Cost of sales 450,000 Selling expenses 60,800 General and administrative expenses 75,000
Single- and Multiple-Step Income Statement Some headings and/or items are used on either the single- or multiple-step income statement.Some are used on both. Identify each of the following items as
Financial Statement Classifi cation Potential stockholders and lenders are interested in a company’s fi nancial statements.Identify the statement—balance sheet (BS), income statement (IS), or
Basic Elements of Financial Reports Most fi nancial reports contain the following list of basic elements. For each element, identify the person(s) who prepared the element and describe the
Components of the Statement of Cash Flows Identify each of the following items as operating (O), investing (I), fi nancing (F), or not on the statement of cash fl ows (N).________ 1. Paid for
Statement of Retained Earnings Landon Corporation was organized on January 2, 2008, with the investment of $100,000 by each of its two stockholders. Net income for its fi rst year of business was
Income Statement Ratio The 2010 income statement of Holly Enterprises shows operating revenues of $134,800, selling expenses of $38,310, general and administrative expenses of $36,990, interest
Missing Income Statement Amounts For each of the following cases, fi ll in the blank with the appropriate dollar amount.Sara’s Amy’s Jane’s Coffee Shop Deli Bagels Net sales $35,000 $ $78,000
Selling Expenses and General and Administrative Expenses Operating expenses are subdivided between selling expenses and general and administrative expenses when a multiple-step income statement is

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