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financial accounting tools for business

Questions and Answers of Financial Accounting Tools For Business

What is the primary purpose of a statement of cash flows?AppendixLO1
Prepare a statement of cash flows using one of two approaches: (a) the indirect method or (b) the direct method.AppendixLO1
Indicate the primary purpose of the state- ment of cash flows.AppendixLO1
What is the primary difference between the nature of an operating lease and a capital lease? What is the difference in how they are recorded?AppendixLO1
What criteria must be met before a con- tingency must be recorded as a liability? How should the contingency be disclosed if the criteria are not met?AppendixLO1
Apex Corporation issues $400,000 of 9%, 5-year bonds on January 1, 2004, at 104. If Apex uses the effective-interest method in amortizing the premium, will the annual interest expense increase or
Mary Blaska is discussing the advantages of the ef- fective-interest method of bond amortization with her accounting staff. What do you think Mary is say ing?AppendixLO1
Ewing Corporation issues $200,000 of 8%, 5-year bonds on January 1, 2004, at 104. Assuming that the straight-line method is used to amortize the pre- mium, what is the total amount of interest
Explain the straight-line method of amortizing dis- count and premium on bonds payable.AppendixLO1
What are the implications for analysis if a company has significant operating leases?AppendixLO1
C Heflin Corporation has a current ratio of 1.1. Tom has always been told that a corporation's current ratio should exceed 2.0. Heflin argues that its ratio is low because it has a minimal amount of
Gerald Ford needs a few new trucks for his business. He is considering buying the trucks but is concerned that the additional debt he will need to borrow will make his liquidity and solvency ratios.
Bob Leno says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?AppendixLO1
(a) In general, what are the requirements for the financial statement presentation of long-term liabilities? (b) What ratios may be computed to evaluate a com- pany's liquidity and
Which accounts are debited and which are credited if a bond issue originally sold at a premium is re- deemed before maturity at 97 immediately following the payment of interest?AppendixLO1
If the Bonds Payable account has a balance of $900,000 and the Discount on Bonds Payable ac- count has a balance of $40,000, what is the carrying value of the bonds?AppendixLO1
If a 10%, 10-year, $600,000 bond is issued at face and interest is paid annually, what is the amount of the interest payment at the end of the first period?AppendixLO1
Caitlin and Samantha are discussing how the mar- ket price of a bond is determined. Caitlin believes that the market price of a bond is solely a function of the amount of the principal payment at the
Assume that Rocky Inc. sold bonds with a face value of $100,000 for $104,000. Was the market interest rate equal to, less than, or greater than the bonds' contractual interest rate?
Describe the two major obligations incurred by a company when bonds are issued.AppendixLO1
(a) What is a convertible bond? (b) Discuss the advantages of a convertible bond from the standpoint of the bondholders and of the issuing corporation.AppendixLO1
Explain each of these important terms in issuing bonds: (a) Face value. (b) Contractual interest rate. (c) Bond certificate.AppendixLO1
Contrast these types of bonds: (a) Secured and unsecured. (b) Convertible and callable.AppendixLO1
(a) What are long-term liabilities? Give two examples. (b) What is a bond?AppendixLO1
(a) Identify three taxes commonly paid by employ- ers on employees' salaries and wages. (b) Where in the financial statements does the em- ployer report taxes withheld from employees' pay?AppendixLO1
Identify three taxes commonly withheld by the em- ployer from an employee's gross pay.AppendixLO1
Omega University sold 10,000 season football tickets at $90 each for its five-game home schedule. What entries should be made (a) when the tickets are sold and (b) after each game?AppendixLO1
(a) Your roommate says, "Sales taxes are reported as an expense in the income statement." Do you agree? Explain. (b) Hard Wok Cafe has cash proceeds from sales of $10,400. This amount includes $400
LaBelle Company obtains $25,000 in cash by signing a 9%, 6-month, $25,000 note payable to First Bank on July 1. LaBelle's fiscal year ends on September 30. What information should be reported for the
Susan Day believes a current liability is a debt that can be expected to be paid in one year. Is Susan cor- rect? Explain.AppendixLO1
On January 1, Anthony Corporation issued $1,000,000, 14%, 5-year bonds with interest. payable on December 31. The bonds sold for $1,072,096. The market rate of interest for these bonds was 12%. On
On January 1, Daisey Duke Inc. issued $1,000,000, 9% bonds for $939,000. The mar- ket rate of interest for these bonds is 10%. In- terest is payable annually on December 31.1 Daisey Duke uses the
For the bonds issued in question 11, what is the carrying value of the bonds at the end of the third interest period? (a) $492,000. (b) $488,000. (c) $472,000. (d) $464,000.AppendixLO1
On January 1 Pierce Corporation issues $500,000, 5-year, 12% bonds at 96 with inter- est payable on January 1. The entry on De- cember 31 to record accrued bond interest and the amortization of bond
In a recent year Day Corporation had net income of $150,000, interest expense of $30,000, and tax expense of $20,000. What was Day Corporation's times interest earned ra- tio for the year? (a) 5.00.
Kant Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $103,745. The entry to record
On January 1, 2004, Scissors Corp. issues $200,000, 5-year, 7% bonds at face value. The entry to record the issuance of the bonds would include a: (a) debit to cash for $14,000. (b) debit to bonds
Cuso Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that: (a) the contractual interest rate exceeds the market interest rate. (b)
What term is used for bonds that have specific assets pledged as collateral? (a) Callable bonds. (b) Convertible bonds. (c) Secured bonds. (d) Discount bonds.AppendixLO1
Which of the following is not a mea- sure of liquidity? (a) Debt to total assets ratio. (b) Working capital. (c) Current ratio. (d) Current cash debt coverage.AppendixLO1
Corricten Company borrows $88,500 on Sep- tember 1, 2004, from Harrington State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2004? (a) $2,655. (c)
The time period for classifying a liability as current is one year or the operating cycle, whichever is: (a) longer. (b) shorter. (c) probable. (d) possible.AppendixLO1
What are contingent liabilities?AppendixLO1
What is meant by "off-balance-sheet financing"? What is a com- mon example of off-balance-sheet financing?AppendixLO1
What information does the times interest earned ratio provide, and how is the ratio calculated?AppendixLO1
What is meant by solvency?AppendixLO1
Explain the accounting for redemption of bonds at maturity and before ma- turity by payment in cash.AppendixLO1
Why do bonds sell at a discount? At a premium? At face value?AppendixLO1
What entry is made to record the issuance of bonds payable of $1 million at 100? At 96? At 102?AppendixLO1
Explain why you would prefer to receive $1 million today rather than 5 years from now.AppendixLO1
Explain the terms face value and contractual interest rate.AppendixLO1
What are secured versus unsecured bonds and callable versus convertible bonds?AppendixLO1
What are bonds?AppendixLO1
Identify the liabilities classified as current by Tootsie Roll. The answer to this question is provided on page 530.AppendixLO1
Identify three examples of unearned revenues.AppendixLO1
What are three items generally withheld from employees' wages or salaries?AppendixLO1
What are some examples of current liabilities?AppendixLO1
What are the two criteria for classifying a debt as a current liability?AppendixLO1
Identify the requirements for the financial statement presentation and analysis of liabilities.AppendixLO1
Describe the entries when bonds are redeemed.AppendixLO1
Prepare the entries for the issuance of bonds and interest expense.AppendixLO1
Identify the types of bonds.AppendixLO1
Sherry Corp has a return on assets ratio of 12%. It plans to issue bonds at 8% and use the cash to retire debt. What effect will this have on its debt to total assets ratio and on its return on
Under what circumstances will the return on assets ratio and the return on common stockholders' equity ratio be equal?AppendixLO1
Explain the circumstances under which debt financing will increase the return on stock- holders' equity ratio.AppendixLO1
What is the formula for the payout ratio? What does it indicate?AppendixLO1
WAT Inc.'s common stock has a par value of $1 and a current market value of $15. Explain why these amounts are different.AppendixLO1
(a) What is the purpose of a retained earnings re- striction? (b) Identify the possible causes of retained earnings restrictions.AppendixLO1
The board of directors is considering a stock split or a stock dividend. They understand that total stock- holders' equity will remain the same under either action. However, they are not sure of the
Marge Corporation has 10,000 shares of $15 par value common stock outstanding when it an- nounces a 2-for-1 split. Before the split, the stock had a market price of $140 per share. After the split,
Jane Apple asks, "Since stock dividends don't change anything, why declare them?" What is your answer to Jane?AppendixLO1
Contrast the effects of a cash dividend and a stock dividend on a corporation's balance sheet.AppendixLO1
Three dates associated with Galena Company's cash dividend are May 1, May 15, and May 31. Discuss the significance of each date and give the entry at each date.AppendixLO1
What three conditions must be met before a cash div- idend is paid?AppendixLO1
Indicate how each of these accounts should be clas- sified in the stockholders' equity section of the bal- ance sheet. (a) Common stock.(b) Paid-in capital in excess of par value. (c) Retained
Identify the events that result in credits and debits to retained earnings.AppendixLO1
(a) What are the principal differences between com- mon stock and preferred stock? (b) Preferred stock may be cumulative. Discuss this feature. (c) How are dividends in arrears presented in the fi-
Ogden, Inc. purchases 1,000 shares of its own previ- ously issued $5 par common stock for $11,000. As- suming the shares are held in the treasury, what ef- fect does this transaction have on (a) net
For what reasons might a company like IBM repur- chase some of its stock (treasury stock)?AppendixLO1
Which is the better investment-common stock with a par value of $5 per share or common stock with a par value of $20 per share?AppendixLO1
The corporate charter of Shelby Corporation allows the issuance of a maximum of 100,000 shares of com- mon stock. During its first 2 years of operation, Shelby sold 60,000 shares to shareholders and
What are the two principal components of stock- holders' equity?AppendixLO1
A corporation has been defined as an entity separate and distinct from its owners. In what ways is a cor- poration a separate legal entity?AppendixLO1
What are the basic ownership rights of common stockholders in the absence of restrictive provi- sions?AppendixLO1
Maggie Jones believes a corporation must be incor- porated in the state in which its headquarters office is located. Is Maggie correct? Explain.AppendixLO1
(a) Your friend T. R. Cedras cannot understand how the characteristic of corporate management is both an advantage and a disadvantage. Clarify this problem for T. R. (b) Identify and explain two
Ralph, a student, asks your help in understanding some characteristics of a corporation. Explain each of these to Ralph. (a) Separate legal existence. (b) Limited liability of stockholders. (c)
Willie is nearing retirement and would like to invest in a stock that will provide a good steady income supply. Willie should choose a stock with a: 1 (a) high current ratio. (b) high dividend
The return on stockholders' equity is increased by all of the following, except: (a) an increase in the return on assets ratio. (b) an increase in the use of debt financing. (c) an increase in the
In the stockholders' equity section, the cost of treasury stock is deducted from: (a) total paid-in capital and retained earnings. (b) retained earnings. (c) total stockholders' equity. (d) common
Which of these statements about stock divi- dends is true? (a) Stock dividends reduce a company's cash balance. (b) A stock dividend has no effect on total stockholders' equity. (c) A stock dividend
Entries for cash dividends are required on the: (a) declaration date and the record date. (b) record date and the payment date. (c) declaration date, record date, and payment date. (d) declaration
Preferred stock may have priority over com- mon stock except in: (a) dividends. (b) assets in the event of liquidation. (c) conversion. (d) voting.AppendixLO1
ABC Corp. issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, credits are made to: (a) Common Stock $10,000 and Paid-in Capi- tal in Excess of Stated
Which of these statements is false? (a) Ownership of common stock gives the owner a voting right.. (b) The stockholders' equity section begins with paid-in capital. (c) The authorization of capital
A major disadvantage of a corporation is: (a) limited liability of stockholders. (b) additional taxes. (c) transferable ownership rights. (d) None of the above.AppendixLO1
Which of these is not a major advantage of a corporation? (a) Separate legal existence. (b) Continuous life.. (c) Government regulations. (d) Transferable ownership rights.AppendixLO1
What are the advantages and disadvantages of debt and equity financing?AppendixLO1
What factors affect the return on common stockholders' eq- uity ratio?AppendixLO1
What measure can be used to evaluate a company's dividend record, and how is it calculated?AppendixLO1

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