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financial accounting information

Questions and Answers of Financial Accounting Information

=+(ii) TWO alternative gearing ratios.
=+(i) The current ratio and the acid test ratio; and
=+Calculate for HOTPOT plc for 1994 and 1995:
=+The company made a rights issue of 1 for 20 at €1.50 per share payable in full on the 1 January 1995. On 1 April 1995, a bonus issue of 1 for 7 was made.On 1 January 1995, the company issued a
=+(3)35. ANALYSIS AND INTERPRETATION OF FINANCIAL INFORMATION 727 Current liabilities 1995 1994€°000 €’000 Bank overdraft 2,000 1,300 Payables 1,214 oo2 Taxation 320 Lal 50 PAYE & PRSI/NIC 4]
=+(2) Tangible non-current assets Land and buildings at cost 4,840 3,070 Less: Accumulated depreciation 660 510 4,180 2,560 Plant, machinery and equipment at cost 15,140 14,510 Less: Accumulated
=+(1) Cost of sales includes wages and salaries of €480,000. Administrative expenses include wages and salaries of €348,000 and bad debts of €62,000.1995 1994€'000 €000 €000 €000
=+Question I (Based on ICAI, P3 Summer 1996, Question 3)The statement of comprehensive income of HOTPOT plc for the year ended 31 December 1995, and statement of financial position as at that date,
=+Net assets per share 9470) 90 2c. 8 S626 86.3¢" -81.8c Requirement You are required to prepare a report for Mr Montague on the company’s financial state and progress over the period based on the
=+Earnings per share: Pretax «# 1BiA4 cals Seid 2s FRIAS SONG. 67e Net L9Ge 2 10 08a elle 8.4lc 10.79c Ordinary dividend per share Dice aie. 8c 4.5¢ 4.2c 4.0c
=+Current assets less inventory 68.6% 68.2% 72.5% 109.4% 90.2%Current liabilities Current ratio:Current assets 141.8% 141.5% 147.2% 189.1% 180.6%Current liabilities Asset turnover:Revenue 22 jis) 2.4
=+35. ANALYSIS AND INTERPRETATION OF FINANCIAL INFORMATION 725 Debt 56.3% 54.0% 41.9% 11.1% 32.4%Equity + minority interests Quick ratio:
=+Question 6 Egg Limited Accountant, Mr Montague, has assembled the following data from the com-> . . pany’s last five sets of historical cost accounts.19X5 Net profit margin:Profit before tax and
=+(b) What do you consider to be the major limitations of ratio analysis as a means of interpreting accounting information?
=+(a) State which of the above activities relate to which set of statement of financial position details giving a brief summary of your reasoning in each case. (No marks will be awarded for matching
=+6. Contractor in the civil engineering industry.Note No Company employs off-balance sheet finance such as leasing.Requirement
=+5 . Commercial bank with a network of branches; and
=+4. A vertically integrated company in the food industry, silat owns farms, flour nmiills, bakeries and retail outlets;
=+3. Property investor and house builder. Apart from supplying managers, including site management, for the house building side of its operations this company completely subcontracts all building
=+2. Sea ferry operator;
=+1. Operator of a chain of retail supermarkets;
=+724 INTERNATIONAL FINANCIAL ACCOUNTING AND REPORTING The activities of each company are as follows:
=+Question 5 The details given below are a summary of the statements of financial position of six public companies engaged in different industries.> w O oe) es! es)Assets Land and other buildings 10
=+Total Equity and Liabilities 15,900 193872 22,686 22,368 During the years ended 31 December 1992, 1993, 1994 and 1995, €3,600m, €3,900m,€2,400m and €1,500m was debited to equity in respect
=+Total Assets 15,900 19,872 22,686 22,368 35. ANALYSIS AND INTERPRETATION OF FINANCIAL INFORMATION 723 Equity and Liabilities Equity Ordinary share capital 6,900 6,900 6,900 6,900 General reserve
=+Question 4 You are given the following summarised financial statements of Holly plc which is a competitor of your company.Summarised Statements of Comprehensive Income for the Years Ended 31
=+(ii) Outline the points you would make to the bank manager in support of the com- pany’s financial performance and position.
=+(i) Identify matters that may be of concern to the bank manager, giving reasons for your answer;
=+(b) Using the results of your answer at (a), and from a review of the information available in Appendix I:
=+(a) Calculate in respect of Limetree the same indicators as are set out above for the industry for the years to 30 June 1992 and 1993.
=+You are given the following financial indicators for companies operating in the same industry as Limetree:e Operating gearing 7.5¢ Debt/Equity 65% %e Returnon Equity 14% \e Dividend Cover Z e
=+The company prepares its accounts to 30 June each year. Operating results and statements of financial position to 30 June 1992 and 1993 are shown in Appendix 1. The year to 30 June 1993 was the
=+Question 3 Limetree Limited was founded by Cindy and Eugene Lemmon in 1985. The company manufactures and distributes luxury soft furnishings to the retail trade in Ireland. In 720 INTERNATIONAL
=+You may assume that the index of retail prices has remained constant between 19X0 and 19X2.Requirement Write a report to the Finance Director of Fry plc which analyses the performance of Laurie plc
=+35. ANALYSIS AND INTERPRETATION OF FINANCIAL INFORMATION 719 Interest (6) 15) (19) Profit on ordinary activities before taxation D4 107 Obi Income tax expense (45) (52) (45) Profit on ordinary
=+Summarised Statements of Comprehensive Income for the Years Ended 31 December 19X0 19X1 19X2€M €M €M Revenue 840 981 913 Cost of sales (554) (645) (590)Gross profit 286 336 323 Selling,
=+Question 2 You are the Management Accountant of Fry plc. Laurie plc is a competitor in the same industry and it has been operating for two years. Summaries of Laurie plc’s statements of
=+; , ; , ‘ Requirement You are required, on the basis of the information supplied, to prepare a report to the Managing Director of DUL Limited, commenting upon the performance and financial
=+718 INTERNATIONAL FINANCIAL ACCOUNTING AND REPORTING Summarised Statements of Financial Position as at 30 June 2000 2001 2002€°000 €°000 €°000 Assets Non-current assets 40 : 56 =78 Current
=+The following information is made available to you:Summarised Statements of Comprehensive Income for the Years Ended 30 June 2000 2001 2002€’000 €000 €’000 Revenue 100 140 196 Profit
=+Management Consultant, to report upon the company’s performance.
=+DUL Limited is a small manufacturing company which commenced trading in 1976.The Managing Director, Mr Evans, is of the opinion that the company is performing extremely well in a period of high
=+WBS Qo Nr . Who are the primary users of rétio analysis?
=+vv. How do you treat one-time charges in ratio analysis?
=+v. What are the limitations of ratio analysis?
(Learning Objectives 4, 5: Reporting liabilities on the balance sheet; calculating the times-interest-earned ratio) The accounting records of Brilliant Foods, Inc., include the following items at
(Learning Objective 4: Financing operations with debt or with shares) Fitzpatrick Sporting Goods is embarking on a massive expansion. Assume plans call for opening 30 new stores during the next four
(Learning Objective 3: Determining appropriate lease category, journalizing lease transactions) On December 31, 20X0, Rugaboo Corp. entered into the following lease for an asset with 6 years useful
(Learning Objectives 2, 5: Analyzing a company’s long-term debt; reporting the long-term debt on the balance sheet (effective-interest method)) The notes to the Helpful Charities fi nancial
(Learning Objectives 2: Accounting for bonds payable at a discount; amortizing by the effective interest method)❙ Requirements 1. Journalize the following transactions of Lamore Communications,
(Learning Objectives 2, 5: Issuing bonds at a discount; amortizing by the effective interest method; reporting notes payable on the balance sheet) On February 28, 20X0, Mackerel Corp. issues 6%,
(Learning Objectives 2: Recording bond transactions (at par); reporting bonds payable on the balance sheet) The board of directors of Pictures Plus authorizes the issue of €6,000,000 of 8%, 15-year
(Learning Objective 1: Recording liability-related transactions) The following transactions of Soft Sounds Music Company occurred during 20X0 and 20X1:❙ Requirement 1. Record the transactions in
(Learning Objective 1: Measuring current liabilities) Sea Breeze Marine experienced these events during the current year.a. December revenue totaled €110,000, and in addition, Sea Breeze collected
(Learning Objectives 4, 5: Reporting liabilities on the balance sheet; calculating the times-interest-earned ratio) The accounting records of Barnstable Foods, Inc., include the following items at
(Learning Objective 4: Financing operations with debt or with shares) Paulus Sporting Goods is embarking on a massive expansion. Assume plans call for opening 25 new stores during the next three
(Learning Objective 3: Determining appropriate lease category, journalizing lease transactions) On December 31, 20X0, Mugaboo Corp. entered into the following lease for an asset with six years’
(Learning Objectives 2, 5: Analyzing a company’s long-term debt; reporting longterm debt on the balance sheet (effective-interest method)) The notes to the Helping Charities’fi nancial statements
(Learning Objectives 2: Accounting for bonds payable at a discount; amortizing by the effective interest method)❙ Requirements 1. Journalize the following transactions of Laporte Communications,
(Learning Objectives 2, 5: Issuing bonds at a discount; amortizing by the effective interest method; reporting bonds payable on the balance sheet) On February 28, 20X0, Marlin Corp. issues 8%,
(Learning Objectives 2: Recording bond transactions (at par); reporting bonds payable on the balance sheet) The board of directors of Monitors Plus authorizes the issue of $9,000,000 of 10%, fi
(Learning Objective 1: Recording liability-related transactions) The following transactions of Harmony Music Company occurred during 20X0 and 20X1:❙ Requirement 1. Record the transactions in
(Learning Objective 1: Measuring current liabilities) Big Wave Marine experienced these events during the current year.a. Its December revenue totaled $120,000, and in addition, Big Wave collected
Is the payment of the face amount of a bond on its maturity date regarded as an operating activity, an investing activity, or a fi nancing activity?a. Financing activityc. Operating activityb.
The journal entry on the maturity date to record the payment of $500,000 of bonds payable that were issued at a $50,000 discount includesa. a debit to Bonds Payable for $500,000.b. a credit to Cash
Amortizing the discount on bonds payablea. reduces the semi-annual cash payment for interest.b. is necessary only if the bonds were issued at more than face value.c. reduces the carrying value of the
Using the facts in the preceding question, McPartlin’s journal entry to record the interest expense on July 1, 20X0 will include aa. debit to Bonds Payable.c. credit to Interest Expense.b. credit
McPartlin Corporation issued $300,000 of 10%, 10-year bonds payable on January 1, 20X0, for $236,370. The market interest rate when the bonds were issued was 14%. Interest is paid semi-annually on
Write the journal entry requirements at April 1, 20X1.
Write the adjusting entry required at December 31, 20X0.
Spring Company uses the effective interest amortization method. The amount of interest expense on April 1 of each year will bea. $24,000.d. $32,000.b. $25,000.e. none of these.c. $24,800.
The entry to record the sale of the bonds on April 1 would be
What type of account is Discount on Bonds Payable and what is its normal balance?a. Adjusting amount; Creditc. Contra liability; Creditb. Reversing account; Debitd. Contra liability; Debit
Bond carrying value equals Bonds Payablea. minus Premium on Bonds Payable.d. plus Premium on Bonds Payable.b. plus Discount on Bonds Payable.e. Both a and bc. minus Discount on Bonds Payable.f. Both
A bond with a face amount of $10,000 has a current price quote of 104.885. What is the bond’s price?a. $10,488.50c. $1,048.85b. $1,048,850d. $10,104.89
Yesterday’s Fashions has a debt that has been properly reported as a long-term liability up to the present year (20X0). Some of this debt comes due in 20X0. If Yesterday’s Fashions continues to
Alexander, Inc., manufactures and sells computer monitors with a three-year warranty.When calculated using the expected value approach, Alexander found that expected warranty costs are roughly equal
An end-of-period adjusting entry that debits Unearned Revenue most likely will credita. an asset.c. a revenue.b. a liability.d. an expense.
What kind of account is Unearned Revenue?a. Asset accountc. Expense accountb. Liability accountd. Revenue account
Fastscars Warehouse operates in a state with a 5.5% sales tax. For convenience, Fastscars Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each
Failure to accrue interest expense results ina. an understatement of net income and an understatement of liabilities.b. an understatement of net income and an overstatement of liabilities.c. an
For the purpose of classifying liabilities as current or non-current, the term operating cycle refers toa. the average time period between business recessions.b. the time period between date of sale
(Learning Objectives 2, 3: Analyzing bond transactions) This (adapted) advertisement for a 20-year bond appeared in the Wall Street Chronicle.Requirements 1. Journalize Holiday’s issuance of these
(Learning Objectives 2, 5: Refi nancing old bonds payable with new bonds) Great Brands completed one of the most famous debt refi nancings in history. A debt refi nancing occurs when a company issues
(Learning Objectives 1, 5: Reporting current liabilities) The top management of Pratt Marketing Services examines the following company accounting records at August 29, immediately before the end of
(Learning Objective 4: Analyzing alternative plans for raising money) First Federal Financial Services is considering two plans for raising €600,000 to expand operations. Plan A is to borrow at 5%,
(Learning Objective 4: Measuring the times-interest-earned ratio) Companies that operate in different industries may have very different fi nancial ratio values. These differences may grow even wider
(Learning Objective 3: Recording operating and capital lease, preparing lease amortization schedule) Small Billy Guff entered into a lease agreement for an asset on the following terms:■ Lease
(Learning Objective 2: Creating a bond amortization schedule (discount)) Tewksbury Co. issued €720,000 of 11%, 10-year bonds payable on January 1, 20X0, when the market interest rate was 12%. The
(Learning Objectives 2: Issuing bonds payable (premium); recording interest accrual and payment and the related bond amortization) On June 30, 20X0, the market interest rate is 9%. Team Sports Ltd.
(Learning Objectives 2: Issuing bonds payable (discount); recording interest payments and the related bond amortization) First Place Sports Ltd. is authorized to issue €1,000,000 of 9%, 10-year
(Learning Objectives 2: Measuring cash amounts for a bond payable (premium);amortizing the bonds using the straight-line method) Commonwealth Bank has €400,000 of 9% debenture bonds outstanding.
(Learning Objectives 2: Issuing bonds payable (discount); paying and accruing interest; amortizing the bonds by the effective interest method) On January 31, Daughtry Logistics, Inc., issued fi
(Learning Objectives 1, 5: Reporting current and long-term liabilities) Assume Five Mile Electronics completed these selected transactions during September 20X0.a. Sales of €2,150,000 are subject
(Learning Objective 1: Reporting a contingent liability) Peterson Security Systems’revenues for 20X0 totaled €26.2 million. As with most companies, Peterson is a defendant in lawsuits related to
(Learning Objectives 1, 5: Analyzing liabilities) New Planet Structures, Inc., builds environmentally sensitive structures. The company’s 20X1 revenues totaled €2,815 million, and at December 31,
(Learning Objective 1: Accounting for income tax) At December 31, 20X0, Saglio Real Estate reported a current liability for income tax payable of €190,000. During 20X1, Saglio earned income of
(Learning Objective 1: Recording note payable transactions) Assume that Concilio Company completed the following note-payable transactions:❙ Requirements 1. How much interest expense must be
(Learning Objective 1: Reporting payroll expense and liabilities) Potvin Talent Search has an annual payroll of €160,000. In addition, the company incurs a payroll tax expense of 9%. At December
(Learning Objective 1: Recording and reporting current liabilities) Trevor Publishing completed the following transactions for one subscriber during 20X0:❙ Requirement 1. Journalize these

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