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financial accounting information

Questions and Answers of Financial Accounting Information

Victoria Company has bothf'curren^a^^fioncurreiTjjequity securities portfo¬ lios. All of the equity securitiesTTave readily determinable fair values. Those equit^securities in the current portfolio
On July 1, 2008, Dynamic Company purchased for cash 40 percent of the outstanding capital stock of Cart Company. Both Dynamic and Cart have a December 31 year-end. Cart, whose common stock is
On January 1, 2008, Plywood Homes, Inc., issued twenty-year, 4 percent bonds having a face value of $1 million. The interest on the bonds is payable semiannually on June 30 and December 31. The
Whiley Company issued a $100,000, five-year, 10 percent note to Security Company on January 2, 2007. Interest was to be paid annually each December 31. The stated rate of interest reflected the
Baker Company needs $1 million to expand its existing plant. Baker management is considering the following two alternative forms of financing.1. At the beginning of 2008, issue $1 million of
On April 1, 2009, Janine Corporation sold some of its five-year, $1,000 face value, 12 percent term bonds dated March 1, 2009, at an effective annual interest rate (yield) of 10 percent. Interest is
The following three independent sets of facts relate to (1) the possible accrual or (2) the possible disclosure by other means of a loss contingency.Situation 1 A company offers a one-way warranty
SFAS No. 109, "Accounting for Income Taxes," requires interperiod income tax allocation for temporary differences.Required:a. Define the term temporary difference.b. List the examples of temporary
Mark or Make is a bourbon distillery. Sales have been steady for the past three years and operating costs have remained unchanged. On January 1, 20x7, Mark or Make took advantage of a special deal to
On January 2, 2008, two identical companies, Daggar Corp. and Bayshore Company, lease similar assets with the following characteristics:1. The economic life is eight years.2. The term of the lease is
On January 2, 2009, Grant Corporation leases an asset to Pippin Corporation under the following conditions:1. Annual lease payments of $10,000 for twenty years.2. At the end of the lease term the
Doherty Company leased equipment from Lambert Company. The classifica¬ tion of the lease makes a difference in the amounts reflected on the balance sheet and income statement of both Doherty and
Postretirement benefits other than pensions (OPEBs) are similar to defined benefit pension plans in some respects and different in others.Required:a. Discuss the characteristics of OPEBs that make
Penny Pincher Company has a defined benefit pension plan for its employees.The following pension data are available at year end (in millions):There is no balance in prepaid/accrued pension
Drake Company reported the following for 2008:Common stockholders received a $2 dividend during the year. The preferred stock is noncumulative and nonparticipating.Required:a. Ignoring income taxes,
Carrol, Inc., accomplished a quasi-reorganization effective December 31, 2008. Immediately prior to the quasi-reorganization, the stockholders' equity was as follows:Under the terms of the
Stock options are widely used as a form of compensation for corporate executives.Required:a. Identify five methods that have been proposed for determining the value of executive stock options.b.
The directors of Lenox Corporation are considering issuing a stock dividend. Required:The directors have asked you to discuss the proposed action by answering the following questions:a. What is a
Growth Corporation offered the following stock option plan to its employees:Each employee will receive 1,000 options to purchase shares of stock at an option price equal to the market price of the
Because of irreconcilable differences of opinion, a dissenting group within the management and board of directors of the Algo Company resigned and formed the Bevo Corporation to purchase a
The proponents of neoclassical, marginal economics (see Chapter 4) main¬ tain that mandatory accounting and auditing standards inhibit contracting arrangements and the ability to report on company
Lancaster Electronics produces electronic components for sale to manufac¬ turers of radios, television sets, and phonographic systems. In connection with his examination of Lancaster's financial
The unaudited quarterly statements of income issued by many corporations to their stockholders are usually prepared on the same basis as annual statements, the statement for each quarter reflecting
Certified public accountants have imposed on themselves a rigorous code of professional conduct.Required:a. Discuss the reasons for the accounting profession's adopting a code of professional
The International Accounting Standards Committee (IASB) was formed in 1973.Required:a. What is the purpose of the IASB?b. How does the IASB attempt to achieve its objectives?
General Motors and Ford use the last-in, first-out (LIFO) method to value their inventories. Honda (of Japan) and Daimler-Benz (manufacturer of Mercedes-Benz of Germany) use the first-in, first-out
The efficient market hypothesis is an extension of the supply and demand model.Required:a. Discuss the assumptions of the supply and demand model inherent in the EMH.b. Why is the securities market
Agency theory provides an explanation for the development of accounting theory.23. Richard C. Breeden, chairman of the SEC, in testimony before the U.S. Senate Committee on Banking, Housing, and
The study of the ability of individuals to interpret information is classified as human information processing research.Required:Discuss human information processing research. What is the general
The FASB has issued SFAS No. 106, “Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." These
One reason accounting earnings may not be a realistic measure of economic income is the incentive and ability of business managers to manipulate reported profits for their own benefit. This may be
Bonanza Trading Stamps, Inc., was formed early this year to sell trading stamps throughout the Southwest to retailers, who distribute the stamps gratuitously to their customers. Books for
The motion picture industry has undergone significant changes during the past four decades. Originally, companies such as Paramount Pictures had to rely solely on domestic and foreign screenings of
Goods Company is a major manufacturer of foodstuffs. The company's products are sold in grocery and convenience stores throughout the United States. Goods' name is well known and respected because
APB Opinion No. 20 was concerned with accounting changes. Recently SFAS No. 154 changed the accounting treatment for some accounting changes.Required:a. Define, discuss, and illustrate each of the
The financial statement was prepared by employees of your client, Linus Construction Company.The statement is not accompanied by footnotes, but you have discovered the following:a. The average
The argument among accountants and financial statement users over the proper valuation procedures for assets and liabilities resulted in the release of SFAS No. 115. The statement requires current
Obtain a copy of a large corporation's annual report and refer to the statement of cash flows.Required:a. Did the company use the direct method or the indirect method of disclos¬ ing cash flows?b.
SFAS No. 95 requires companies to prepare a Statement of Cash Flows.Required:Describe how the Conceptual Framework eventually led to the requirement that companies issue statements of cash flows.
The Statement of Cash Flows requirements dictated by SFAS No. 95 were amended by SFAS No. 115 and SFAS No. 159.Required:Explain how each of these pronouncements amended SFAS No. 95.
Credit and Investment Policies The Rivera Company, a small retail store, has been in business for a few years. The company's current policy is that all sales are made for cash, and cash from all
SFAS No. 115 requires companies to assign their portfolio of investment securities into (1) trading securities, (2) securities available for sale, and (3) held-to-maturity securities.Required:a.
Accountants generally follow the lower-of-cost or market basis of inventory valuations.Required:a. Define cost as applied to the valuation of inventories.b. Define market as applied to the valuation
On October 10, 2005, Mason Engineering Company completed negotiations on a contract for the purchase of new equipment. Under the terms of the agreement, the equipment may be purchased now or Mason
Depreciation continues to be one of the most controversial, difficult, and important problem areas in accounting.Required:a. Explain the conventional accounting concept of depreciation accounting.b.
Jay Manufacturing, Inc. began operations five years ago producing probos, a new type of instrument it hoped to sell to doctors, dentists, and hospitals. The demand for probos far exceeded initial
George Company purchased land for use as its corporate headquarters. A small factory that was on the land when it was purchased was torn down before construction of the office building began.
When the FASB issues new standards, the implementation date is usually twelve months from date of issuance, with early implementation encouraged. Becky Hoger, controller, discusses with her financial
Some accountants have said that politicalization in the development and acceptance of generally accepted accounting principles (i.e., standard set¬ ting) is taking place. Some use the term
At the completion of the Darby Department Store audit, the president asks about the meaning of the phrase "in conformity with generally accepted accounting principles," which appears in your audit
The FASB has been working on a conceptual framework for financial account¬ ing and reporting and has issued seven Statements of Financial Accounting Concepts. These SFACs are intended to set forth
The FASB is the official body charged with issuing accounting standards. Required:a. Discuss the structure of the FASB.b. How are the Financial Accounting Foundation members nominated?c. Discuss the
Sprouse and Moonitz proposed that quantification is an element of the economic environment that is relevant for accounting.a. Explain why Sprouse and Moonitz say that quantification is relevant.b.
Your company owns a building that is fully paid for. Explain how the building meets the definition of an asset under each of the following scenarios:a. Your company is using the building as a plant
To what companies does EPS apply?
Define basic and diluted EPS.
Following a rights issue what is the fraction by which the EPS for the corresponding previous period should be multiplied?
Summarise the disclosure requirements of IAS 33.
The draft financial statements of Plum Ple for year ended 31 December 20X4 include the following: On 1 January 20X4 the issued share capital of Plum Plc was 4,600,000 6% preference shares of €1
The following are the results of Earno Limited, a public company, for the year ended 31 December. The 14% Preference Dividend paid in 20X0 is in respect of previous years. The proposed dividend in
CLASSICAL plc (CLASSICAL) had one million ordinary €1 shares in issue on 1 January 2004. On 1 July 2004, CLASSICAL made a rights issue of one ordinary share for every two previously held, at a
The issued ordinary share capital of WELLER plc (WELLER) at 1 January 2002 was 6,000,000 ordinary shares of €0.50 each. On 30 June 2003, WELLER made a fully subscribed one for three rights issue at
On 1 January 2005, BELLS plc (BELLS) had 1,000,000 €1 ordinary shares and 500,000 6% €1 convertible preference shares in issue. Preference dividends are paid half yearly on 31 March and 30
Explain the objectives of segment reporting and why the users of financial statements may find segmental reporting useful.
Define the terms ‘business segment and ‘geographical segment’ as used in IAS 14.
Distinguish between primary and secondary segment reports in the context of IAS 14.
Identify an organization's reportable and operating segments in accordance with IFRS 8.
Outline the main disclosure requirements of IAS 14 and IFRS 8
Operating segment information should:(i) increase the number of reported segments and provide more information;(ii) enable users to see an undertaking through the eyes of management;(iii) enable an
Segments based on the structure of an undertaking’s internal organisation have other significant advantages:RW(i) An ability to see an undertaking ‘through the eyes of management’ enhances a
An operating segment isa component of an undertaking:(i) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to
IFRS 8 requires an undertaking to report information about:(i) the revenues derived from its products or services (or groups of similar products and services);(ii) about the countries in which it
IFRS 8 requires an undertaking to give descriptive information about:(i) the way the operating segments were determined;(ii) the products and services provided by the segments;(iii) differences
INTERNATIONAL FINANCIAL ACCOUNTING AND REPORTING A component of an undertaking that sells primarily or exclusively to other operating segments of the undertaking:(i) must be classed as an operating
IFRS 8 requires the following information:(i) Factors used to identify the undertaking’s operating segments, including the basis of organisation (for example, whether management organises the
With respect to ‘interest’:(i) Net interest revenue must be shown.(ii) Neither interest revenue nor interest expense is required to be shown.(iii) Both interest revenue and interest expense are
decision-maker relies primarily on net interest revenue to assess the performance of the segment.IFRS 8 shall apply to:(i) listed companies;(ii) any company reporting under IFRS that wishes to
If information is not presented to the directors in sectors:(i) look to the next lower level of internal segmentation that reports information along product and service lines or geographical
Ifa financial report contains both the consolidated financial statements of a parent, as well as the parent's separate financial statements, segment information is required:(i) only in the
An operating segment may engage in business activities for which it has yet to earn revenues, for example, start-up operations:(i) will be operating segments before earning revenues.(ii) may be
An undertaking’s pension plans:(i) will be operating segments.(ii) may be operating segments.(iii) will not be operating segments.
Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of IFRS 8, the segments have similar economic characteristics and
Asa percentage of sales, profits or assets, a segment should be at least:(i) 5%(ii) 7.5%(iii) 10%(iv) 15%(v) 20%
The total amount of revenue that should be covered by reportable segments is at least:(i) 50%(ii) 60%(iii) 70%(iv) 75%(v) 80%(vi) 100%
Operating segments that do not meet any of the quantitative thresholds:(i) may be considered reportable, and separately disclosed.(ii) must be combined and disclosed in ‘all other segments’.(iii)
If an operating segment is identified as a reportable segment in the current period, segment data for a prior period:(i) is not required.(ii) is optional.(iii) is required unless the necessary
IFRS 8 requires reconciliations of segment totals to total undertaking amounts:(i) of segment revenues;(ii) reported segment profit or loss;(il) segment assets;(iv) segment liabilities;(v) other
Information about the segments should include:(i) revenues from external clients;(ii) revenues from transactions with other Operating segments of the same undertaking;(iil) interest revenue;(iv)
An undertaking shall report the following geographical information:al?ie ALak oll(i) Revenues from external clients attributed to the undertaking’s country of domicile and attributed to all foreign
BEN LIMITED Statement of Comprehensive Income for the Year Ended 31 December 200X Additional Information (a) The proceeds of the sale of non-current asset investments amounted to €30,000.(b)
The statement of comprehensive income of HANSOL for the year ended 31 December 2003, and the statement of financial position as at that date, are shown below.HANSOL Statement of Comprehensive Income
The following information is provided for SAPIENT Limited in respect of the year ended 31 December 2003:SAPIENT Limited Statement of Comprehensive Income for the Year Ended 31 December 2003 SAPIENT
The statement of comprehensive income for the year ended 31 December 2005 of CLINIC Limited (CLINIC) and a statement of financial position as at that date, together with comparative figures, are as
What is a discontinued operation?What information must be disclosed in the financial statements for discontinued operations?
APF Limited is a divisionalized Irish company which trades from a number of retail outlets throughout Ireland. The company, which commenced trading approximately five years ago, prepares its
IT Global Limited (GLOBAL), a divisional company that prepares its financial statements to 31 December each year, is involved in the assembly of bespoke PC systems for home use (Assembly division),
On what basis should accounting policies be selected?
In what circumstances may an entity change one of its accounting policies?
How are changes in accounting estimates accounted for?
How are prior period errors accounted for?

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