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financial accounting tools for business

Questions and Answers of Financial Accounting Tools For Business

In horizontal analysis, each item is expressed as a percentage of the: (a) net income amount. (b) stockholders' equity amount. (c) total assets amount. (d) base-year amount.AppendixLO1
Which of the following would be considered an "Other comprehensive income" item? (a) gain on disposal of discontinued opera- tions. (b) unrealized loss on available-for-sale secu- rities. (c)
Cool Stools Corporation has income before taxes of $400,000 and an extraordinary loss of $100,000. If the income tax rate is 25% on all items, the income statement should show in- come before
In reporting discontinued operations, the in- come statement should show in a special sec- tion: (a) gains and losses on the disposal of the dis- continued segment. (b) gains and losses from
Give an example of improper recognition.AppendixLO1
Describe factors that reduce the quality of earnings.AppendixLO1
Explain what is meant by pro forma income.AppendixLO1
Describe ratios that measure liquidity, solvency, and prof- itability.AppendixLO1
What is vertical analysis?AppendixLO1
What is horizontal analysis?AppendixLO1
What different bases can be used to compare financial information?AppendixLO1
What amount did Tootsie Roll Industries report as "Other comprehensive earnings" in 2001? What was the percentage in- crease of Tootsie Roll's "Comprehensive earnings" over its "Net earnings"? The
What are irregular items, and what effect might they have on the estimation of future earnings and future cash flows?AppendixLO1
What is sustainable income?AppendixLO1
Understand the concept of quality of earnings.AppendixLO1
Identify and compute ratios used in analyzing a company's liquidity, solvency, and profitability.AppendixLO1
Describe and apply vertical analysis.AppendixLO1
Explain the concept of comprehensive income.AppendixLO1
Indicate how irregular items are presented.AppendixLO1
Understand the concept of sustainable income.AppendixLO1
On January 9 a company pays $5,000 for salaries, of which $1,700 was reported as Salaries Payable on December 31. Give the entry to record the payment.AppendixLO1
A company makes an accrued revenue adjusting entry for $900 and an accrued expense ad- justing entry for $600. How much was net income understated prior to these entries? Explain.AppendixLO1
Alvarez Company purchased equipment for $12,000. By the current balance sheet date, $7,000 had been depreciated. Indicate the balance sheet presentation of the data.AppendixLO1
What accounts are debited and credited in a prepaid expense adjusting entry?AppendixLO1
"Adjusting entries are required by the cost principle of accounting." Do you agree? Explain.AppendixLO1
In completing the engagement in ques- tion 3, Thon incurs $2,000 of expenses in March, $2,500 in April, and none in May. How much expense should be deducted from revenues in the month the revenue is
Charles Thon, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Thon's law firm prepares monthly financial statements, when should it recog- nize
All of the following are required steps in the accounting cycle except: (a) journalizing and posting closing entries. (b) preparing an adjusted trial balance. (c) preparing a post-closing trial
Which account will have a zero balance after closing entries have been journalized and posted? (a) Service Revenue. (b) Advertising Supplies. (c) Prepaid Insurance. (d) Accumulated
Which one of these statements about the accrual basis of accounting is false? (a) Events that change a company's financial statements are recorded in the periods in which the events occur. (b)
Which statement is incorrect concerning the adjusted trial balance? (a) An adjusted trial balance proves the equal- ity of the total debit balances and the total credit balances in the ledger after
The adjusting entry for Emily's em- ployer at September 30 is: (a) No entry is required. (b) Salaries Expense Salaries Payable (c) Salaries Expense Cash (d) Salaries Payable Cash 400 400 400 400 400
Emily Keshen earned a salary of $400 for the last week of September. She will be paid on Oc- tober AppendixLO1
The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is: (a) Supplies 600 Supplies Expense 600 (b) Supplies
What is the time period assumption? (a) Revenue should be recognized in the ac- counting period in which it is earned. (b) Expenses should be matched with revenues. (c) The economic life of a
What are the required steps in the accounting cycle?AppendixLO1
What are the content and purpose of a post-closing trial balance?AppendixLO1
What four different types of entries are required in closing the books?AppendixLO1
How do permanent accounts differ from temporary accounts?AppendixLO1
What was the amount of Tootsie Roll's 2001 depreciation expense? (Hint: The amount is reported in the notes to the financial statements.) The answer to this question is provided on page
What is the effect on liabilities, stockholders' equity, expenses, and net in- come if an accrued expense adjusting entry is not made?AppendixLO1
What is the effect on assets, stockholders' equity, revenues, and net income if an accrued revenue adjusting entry is not made?AppendixLO1
What is the effect on liabilities, stockholders' equity, revenues, and net in- come if an unearned revenue adjusting entry is not made?AppendixLO1
What is the effect on assets, stockholders' equity, expenses, and net income if a prepaid expense adjusting entry is not made?AppendixLO1
What are the four types of adjusting entries?AppendixLO1
What are the differences between the cash and accrual bases of accounting?AppendixLO1
What are the revenue recognition and matching principles?AppendixLO1
Describe the nature and purpose of the adjusted trial balance.AppendixLO1
Prepare adjusting entries for accruals.AppendixLO1
Prepare adjusting entries for prepayments.AppendixLO1
Give examples of accrual-based and cash- based ratios to measure each of these characteristics of a company: (a) Liquidity. (b) Solvency.AppendixLO1
In the direct method, why is depreciation expense not reported in the cash flows from operating activ- ities section?AppendixLO1
Armani Inc. reported sales of $2 million for 2004. Accounts receivable decreased $100,000 and ac- counts payable increased $300,000. Compute cash receipts from customers, assuming that the receiv-
Give the formulas under the direct method for com- puting (a) cash receipts from customers and (b) cash payments to suppliers.AppendixLO1
During 2004 Steinbrenner Company converted $1,700,000 of its total $2,000,000 of bonds payable into common stock. Indicate how the transaction would be reported on a statement of cash flows, if at
Why is the statement of cash flows useful?AppendixLO1
Why and how is depreciation expense reported in a statement prepared using the indirect method?AppendixLO1
Identify five items that are adjustments to convert net income to net cash provided by operating activ- ities under the indirect method.AppendixLO1
The president of Frogger Company is puzzled. During the last year, the company experi- enced a net loss of $800,000, yet its cash increased $300,000 during the same period of time. Explain to the
Why is it necessary to convert accrual-based net in- come to cash-basis income when preparing a state- ment of cash flows?AppendixLO1
Describe the indirect method for determining net cash provided (used) by operating activities.AppendixLO1
When the total cash inflows exceed the total cash outflows in the statement of cash flows, how and where is this excess identified?AppendixLO1
Contrast the advantages and disadvantages of the di- rect and indirect methods of preparing the statement of cash flows. Are both methods acceptable? Which method is preferred by the FASB? Which
(a) What are the phases of the corporate life cycle? (b) What effect does each phase have on the num- bers reported in a statement of cash flows?AppendixLO1
Why is it necessary to use comparative balance sheets, a current income statement, and certain trans- action data in preparing a statement of cash flows?AppendixLO1
Wilma Flintstone and Barny Rublestone were dis- cussing the format of the statement of cash flows of Rock Candy Co. At the bottom of Rock Candy's state- ment of cash flows was a separate section
Why is it important to disclose certain noncash trans actions? How should they be disclosed?AppendixLO1
(a) What are the major sources (inflows) of cash in a statement of cash flows? (b) What are the major uses (outflows) of cash?AppendixLO1
Distinguish among the three activities reported in the statement of cash flows.AppendixLO1
What questions about cash are answered by the state- ment of cash flows?AppendixLO1
(a) What is a statement of cash flows? (b) John Stiller maintains that the statement of cash flows is an optional financial statement. Do you agree? Explain.AppendixLO1
Free cash flow provides an indica- (SO 5) tion of a company's ability to: (c) pay dividends. (a) generate net income. (b) generate cash to pay divi- dends. (c) generate cash to invest in new capital
The statement of cash flows should (SO 5) not be used to evaluate an entity's ability to: (a) earn net income. (b) generate future cash flows. (d) meet obligations.AppendixLO1
Which of the following items is reported on a cash flow statement prepared by the direct method? (a) Loss on sale of building. (b) Increase in accounts receivable. (c) Depreciation expense. (d) Cash
The beginning balance in accounts receivable is $44,000, the ending balance is $42,000, and sales during the period are $129,000. What are cash receipts from customers? (a) $127,000. (b) $129,000.
Noncash charges that are added back to net in- come in determining cash provided by opera- tions under the indirect method do not include: (a) depreciation expense. (b) an increase in inventory.(c)
Net income is $132,000, accounts payable in- creased $10,000 during the year, inventory de- creased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the
(a) The direct method may be used to report cash provided by operations. (b) The statement shows the cash provided (used) for three categories of activity. (c) The operating section is the last
Which of the following is incorrect about the statement of cash flows?AppendixLO1
Which is an example of a cash flow from a fi- nancing activity? (a) Receipt of cash from sale of land. (b) Issuance of debt for cash. (c) Purchase of equipment for cash. (d) None of the above
Cash dividends paid to stockholders are classi- fied on the statement of cash flows as: (a) operating activities. (b) investing activities. (e) a combination of (a) and (b). (d) financing
Which is an example of a cash flow from an in- vesting activity? (a) Receipt of cash from the issuance of bonds payable. (b) Payment of cash to repurchase outstanding capital stock. (c) Receipt of
Which is an example of a cash flow from an operating activity? (a) Payment of cash to lenders for interest. (b) Receipt of cash from the sale of capital stock. (c) Payment of cash dividends to the
The statement of cash flows classifies cash re- ceipts and cash payments by these activities: (a) operating and nonoperating. (b) investing, financing, and operating. (c) financing, operating, and
Which of the following is incorrect about the statement of cash flows? (a) It is a fourth basic financial statement. (b) It provides information about cash receipts and cash payments of an entity
Why might an analyst want to supplement accrual-based ratios with cash-based ratios? What are some cash-based ratios?AppendixLO1
What does it mean if a company has negative free cash flow?AppendixLO1
What is the difference between cash from operations and free cash flow?AppendixLO1
Where are significant noncash investing and financing activities shown on a statement of cash flows? Give some examples.AppendixLO1
Where is depreciation expense shown on a statement of cash flows using the direct method?AppendixLO1
What is the format of the operating activities section of the statement of cash flows using the direct method?AppendixLO1
Where are significant noncash investing and financing activities shown in a statement of cash flows? Give some examples.AppendixLO1
Where is depreciation expense shown on a statement of cash flows using the indirect method?AppendixLO1
What is the format of the operating activities section of the statement of cash flows using the indirect method?AppendixLO1
What are the three major steps in the preparation of a statement of cash flows?AppendixLO1
Why is the statement of cash flows useful? What key information does it convey?AppendixLO1
Based on its statement of cash flows, in what stage of the product life cycle is Tootsie Roll Industries? The answer to this question is provided on page 655.AppendixLO1
What are the phases of the product life cycle, and how do they affect the statement of cash flows?AppendixLO1
What are some examples of significant noncash activities?AppendixLO1
What are the major classifications of cash flows on the state- ment of cash flows?AppendixLO1

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