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financial accounting tools for business

Questions and Answers of Financial Accounting Tools For Business

What was the total cost of Tootsie Roll's treasury stock in 2001? What was the total value of the 2001 cash dividend? What was the total charge to retained earnings of the 2001 stock dividend? The
What is a retained earnings restriction?AppendixLO1
Identify the classifications within the paid-in capital section and the totals that are stated in the stockholders' equity section of a balance sheet.AppendixLO1
Contrast the effects of a small stock dividend and a 2-for-1 stock split on (a) stockholders' equity and (b) outstanding shares.AppendixLO1
Distinguish between a small and a large stock dividend and indicate the basis for valuing each kind of dividend.AppendixLO1
Why do companies issue stock dividends? Why do companies declare stock splits?AppendixLO1
What factors affect the size of a company's cash dividend?AppendixLO1
Where is treasury stock reported in the financial statements?AppendixLO1
How is treasury stock recorded?AppendixLO1
What is treasury stock, and why do companies acquire it?AppendixLO1
Explain the accounting for par and no-par common stock issued for cash.AppendixLO1
Distinguish between par value and market value.AppendixLO1
What alternative approaches may a corporation use to sell new shares to investors?AppendixLO1
Of what significance to a corporation is the amount of authorized stock?AppendixLO1
What rights are inherent in owning a share of stock in a corporation?AppendixLO1
Identify the principal steps in forming a corporation.AppendixLO1
What are the advantages and disadvantages of a corporation compared to a proprietorship and a partnership?AppendixLO1
Evaluate a corporation's dividend and earnings performance from a stockholder's perspective.AppendixLO1
Prepare a comprehensive stockholders' equity section.AppendixLO1
Identify the items that affect retained earnings.AppendixLO1
Prepare the entries for cash dividends and understand the effect of stock dividends and stock splits.AppendixLO1
Differentiate preferred stock from common stock.AppendixLO1
Explain the accounting for the purchase of treasury stock.AppendixLO1
Record the issuance of common stock.AppendixLO1
Identify and discuss the major characteristics of a corporation.AppendixLO1
You are comparing two companies in the same industry. You have determined that Tiffany Corp. depreciates its plant assets over a 40-year life, whereas Zales Corp. depreciates its plant assets over a
Helga Corporation uses straight-line de- preciation for financial reporting purposes but an ac- celerated method for tax purposes. Is it acceptable to use different methods for the two purposes? What
Mimi Corporation and Magda Corpora- tion both operate in the same industry. Mimi uses the straight-line method to account for depreciation, whereas Magda uses an accelerated method. Explain what
Give an example of an industry that would be characterized by (a) a high asset turnover ratio and a low profit margin ratio, and (b) a low as- set turnover ratio and a high profit margin
In 2001 Campbell Soup Company re- ported average total assets of $5,561 million, net sales of $6,664 million, and net income of $649 million. What was Campbell Soup's return on assets
Georgia Lazenby, a business major, is working on a case problem for one of her classes. In this case prob- lem, the company needs to raise cash to market a new product it developed. Timothy Holt, an
Trevelyan Company hires an accounting intern who says that intangible assets should always be amor- tized over their legal lives. Is the intern correct? Explain.AppendixLO1
Ruby Corporation owns a machine that is fully de- preciated but is still being used. How should Ruby account for this asset and report it in the financial statements?AppendixLO1
Kant Enterprises purchased a truck for $11,000 on January 1, 2003. The truck will have an es- timated salvage value of $1,000 at the end of 5 years. If you use the units-of-activity method, the
If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty? (a) The company is a valuable company worth investing in. (b) The company has a
Indicate which one of these statements is true. (a) Since intangible assets lack physical sub- stance, they need to be disclosed only in the notes to the financial statements. (b) Goodwill should be
Pierce Company incurred $150,000 of research and development costs in its laboratory to de- velop a new product. It spent $20,000 in legal fees for a patent granted on January 2, 2004. On July 31,
A company would minimize its de- preciation expense in the first year of owning an asset if it used: (a) a high estimated life, a high salvage value, and declining-balance depreciation. (b) a low
Cuso Company purchased equipment on January 1, 2003, at a total invoice cost of $400,000. The equipment has an estimated sal- vage value of $10,000 and an estimated useful life of 5 years. What is
Harrington Corporation recently leased a number of trucks from Andre Corpo- ration. In inspecting the books of Harrington Corporation, you notice that the trucks have not been recorded as assets on
Corrieten Company purchased equipment and these costs were incurred: Cash price Sales taxes $24,000 1,200 Insurance during transit Installation and testing 200 400 $25,800 Total costs What amount
How are intangible assets presented on the balance sheet?AppendixLO1
Explain the accounting for research and development costs.AppendixLO1
Identify the major types of intangible assets and the proper accounting for them.AppendixLO1
What are the two key components that explain the return on assets ratio?AppendixLO1
What is the purpose of the asset turnover ratio? How is it computed?AppendixLO1
What is the purpose of the return on assets ratio? How is it calculated?AppendixLO1
What is the proper accounting for sales and retirements of plant assets?AppendixLO1
What is an impairment? In what way do critics suggest that companies man- age their earnings through the write-downs associated with impairments?AppendixLO1
What is the difference between an ordinary repair and an addition or im- provement? Why is this distinction important to financial reporting?AppendixLO1
Are revisions of periodic depreciation made to prior periods? Explain.AppendixLO1
How do the depreciation methods differ in their effects on annual depreci- ation over the useful life of an asset?AppendixLO1
What is the formula for computing annual depreciation under the straight- line method?AppendixLO1
Why is depreciation an allocation concept rather than a valuation con- cept?AppendixLO1
What does Tootsie Roll use as the estimated useful life on its buildings? On its machinery and equipment? The answer to this question is provided on page 466.AppendixLO1
Explain the factors that affect the computation of depreciation.AppendixLO1
What is the relationship, if any, of depreciation to (a) cost allocation, (b) as- set valuation, and (c) cash accumulation?AppendixLO1
What are revenue expenditures? What are capital expenditures?AppendixLO1
What are plant assets? What are the major classes of plant assets? At what value should plant assets be recorded?AppendixLO1
Explain the concept of depreciation.AppendixLO1
Goods costing $1,600 are purchased on account on July 15 with credit terms of 2/10, n/30. On July 18 a $100 credit memo is received from the supplier for damaged goods. Give the journal entry on July
In the following cases, use a periodic inventory sys- tem to identify the item(s) designated by the letters X and Y. (a) Purchases - X - Y = Net purchases. (b) Cost of goods purchased Net purchases =
Identify the distinguishing features of an income statement for a merchandising company.AppendixLO1
Mark Mader Company reports net sales of $800,000, gross profit of $580,000, and net income of $300,000. What are its operating expenses?AppendixLO1
Goods costing $1,600 are purchased on account on July 15 with credit terms of 2/10, n/30. On July 18 a $100 credit memo is received from the supplier for damaged goods. Give the journal entry on July
A credit sale is made on July 10 for $900, terms 2/10, n/30. On July 12, $100 of goods are returned for credit. Give the journal entry on July 19 to record the receipt of the balance due within the
Carol Brandon believes revenues from credit sales may be earned before they are collected in cash. Do you agree? Explain.AppendixLO1
Dan Mozena Co. has sales revenue of $ 100,000, cost of goods sold of $70,000, and operating expenses of $20,000. What is its gross profit?AppendixLO1
(a) "The steps in the accounting cycle for a mer- chandising company are different from the steps in the accounting cycle for a service enterprise." Do you agree or disagree? (b) Is the measurement
When goods are purchased for resale by a com- pany using a periodic inventory system: (a) purchases on account are debited to Mer- chandise Inventory. (b) purchases on account are debited to Pur-
Which factor would not affect the gross profit rate? (a) An increase in the cost of heating the store. (b) An increase in the sale of luxury items. (c) An increase in the use of "discount pricing" to
The gross profit rate is equal to: (a) net income divided by sales. (b) cost of goods sold divided by sales. (c) net sales minus cost of goods sold, divided by net sales. (d) sales minus cost of
Which of the following would affect the gross profit rate? (Assume sales remains constant.) (a) An increase in advertising expense. (b) A decrease in depreciation expense. (c) An increase in cost of
If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of goods sold under a pe- riodic system? (a) $390,000. (b) $370,000. (c)
The income statement for a merchandising company shows each of these features except: (a) gross profit. (b) cost of goods sold. (c) a sales revenue section. (d) All of these are present.AppendixLO1
If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, what is the gross profit? (a) $30,000. (c) $340,000. (d) $400,000. (b) $90,000.AppendixLO1
What amount is received as pay- ment in full on June 23? (a) $700. (b) $686. (c) $685. (d) $650.AppendixLO1
A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June AppendixLO1
Which of the following statements about a pe- riodic inventory system is true? (a) Cost of goods sold is determined only at the end of the accounting period. (b) Detailed records of the cost of each
What effect does improved efficiency of operations have on the profit margin ratio?AppendixLO1
How is the gross profit rate calculated? What might cause it to decline?AppendixLO1
In what ways is a perpetual inventory system different from a periodic inventory system?AppendixLO1
What accounts are used in determining the cost of goods purchased?AppendixLO1
Discuss the three steps in determining cost of goods sold in a periodic inventory system.AppendixLO1
What title does Tootsie Roll use for gross profit? By what per- centage did its gross profit change, and in what direction, in 2001? The answer to this question is provided on p. 265.AppendixLO1
What is the significance of gross profit?AppendixLO1
How are sales and contra revenue accounts reported in the income state- ment?AppendixLO1
Why is it important to use the Sales Returns and Allowances account, rather than simply reducing the Sales account, when goods are returned?AppendixLO1
Under a perpetual inventory system, what are the two entries that must be recorded at the time of each sale?AppendixLO1
Under the perpetual inventory system, what entries are made to record purchases, purchase returns and allowances, purchase discounts, and freight costs?AppendixLO1
In what ways is a perpetual inventory system different from a periodic system?AppendixLO1
How does the measurement of net income in a merchandising company differ from that in a service enterprise?AppendixLO1
Distinguish between a single-step and a multiple-step income statement.AppendixLO1
Midwest Textiles decides to sell $700,000 of its ac- counts receivable to First Central Factors Inc. First Central Factors assesses a service charge of 3% of the amount of receivables sold. Prepare
The Coca-Cola Company's receivables turnover ratio was 10.68 in 2001, and its average amount of gross receivables during the period was $1,880 million. What is the amount of its net credit sales for
The President of Ho Inc. proudly an- nounces her company's improved liquidity since its current ratio has increased substantially from one year to the next. Does an increase in the current ra- tio
What is meant by a concentration of Annual (a) 9% Time 120 days $30,000 8% $60,000 $50,000 (b) 11% 3 years 5 months (c) Total Interest $ 360 (d) $2,500 $1,375 18. 10. Dent Company dishonors a note at
Compute the missing amounts for each of the fol- lowing notes. Principal Interest Rate AppendixLO1
Cobo Company has a credit balance of $3,900 in Al- lowance for Doubtful Accounts before adjustment. The estimated uncollectibles under the percentage of receivables basis is $5,800. Prepare the
Jo Duma cannot understand why the cash realizable value does not decrease when an uncollectible ac- count is written off under the allowance method. Clarify this point for Jo Duma.AppendixLO1

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