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financial accounting tools for business

Questions and Answers of Financial Accounting Tools For Business

Citibank charges 4% for its credit card use. The entry to record this transaction by New Millenium Retailers will include a credit to Sales of $50,000 and a debit(s) to: (a) Cash $48,000 and Service
New Millenium Retailers accepted $50,000 of Citibank Visa credit card charges for mer- chandise sold on July AppendixLO1
Which of these statements about Visa credit card sales is incorrect? (a) The credit card issuer conducts the credit investigation of the customer. (b) The retailer is not involved in the collection
Which of these statements about promissory notes is incorrect? (a) The party making the promise to pay is called the maker. (b) The party to whom payment is to be made is called the payee.AppendixLO1
In 2004 F. S. Fitzgerald Company had net credit sales of $750,000. On January 1, 2004, Al- lowance for Doubtful Accounts had a credit balance of $18,000. During 2004, $30,000 of uncollectible
Net credit sales for the month are $800,000. The accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the re- ceivables balance using the percentage of re- ceivables basis.
Jason Company on June 15 sells merchandise on account to Melody Co. for $1,000, terms 2/10, n/30. On June 20 Melody Co. returns mer- chandise worth $300 to Jason Company. On June 24 payment is
For whom is the service charge on a credit card sale an expense?AppendixLO1
Why do companies sell their receivables?AppendixLO1
What is the interpretation of the receivables turnover ratio and the average collection period?AppendixLO1
Where are bad debts expense and interest revenue reported on the income statement?AppendixLO1
Explain where receivables are reported on the balance sheet and in what order.AppendixLO1
Explain the difference between honoring and dishonoring a note receivable.AppendixLO1
At what value are notes receivable reported on the balance sheet?AppendixLO1
What is the basic formula for computing interest?AppendixLO1
What is the primary criticism of the direct write-off method?AppendixLO1
What are the essential features of the allowance method?AppendixLO1
To maintain adequate internal controls over receivables, who should autho- rize receivables write-offs?AppendixLO1
What types of receivables does Tootsie Roll report on its balance sheet? Does it use the allowance method or the direct write-off method to account for uncollectibles? The answer to these questions
Identify the different types of receivables.AppendixLO1
Janet Jones asks your help concerning an NSF check. Explain to Janet (a) what an NSF check is, (b) how it is treated in a bank reconciliation, and (c) whether it will require an adjusting entry on
Describe the basic principles of cash management.AppendixLO1
Michael Murphy is confused about the lack of agree- ment between the cash balance per books and the balance per bank. Explain the causes for the lack of agreement to Michael, and give an example of
Raja Company's internal controls over cash dis- bursements provide for the treasurer to sign checks imprinted by a checkwriter after comparing the check with the approved invoice. Identify the inter-
At Patterson Wholesale Company two mail clerks open all mail receipts. How does this strengthen in- ternal control?AppendixLO1
Assume that May Department Stores installed new electronic cash registers in its stores. How do cash registers improve internal control over cash receipts?AppendixLO1
Global Inc. owns the following assets at the balance sheet date. Cash in bank-savings account Cash on hand Cash refund due from the IRS Checking account balance Postdated checks $ 5,000 1,100 1,000
As the company accountant, explain the following ideas to the management of Kersee Company. (a) The concept of reasonable assurance in internal control. (b) The importance of the human factor in
Soo Eng is reviewing the principle of segregation of duties. What are the two common applications of this principle?AppendixLO1
Which of the following is not one a of the sections of a cash budget? (a) Cash receipts section. (b) Cash disbursements section. (c) Financing section. (d) Cash from operations section.AppendixLO1
Which of the following items in a cash drawer. at November 30 is not cash? (a) Money orders. (b) Coins and currency. (c) A customer check dated December 1. (d) A customer check dated November
In a bank reconciliation, deposits in transit. are: (a) deducted from the book balance. (b) added to the book balance (c) added to the bank balance. (d) deducted from the bank balance.AppendixLO1
The control features of a bank account do not include: (a) having bank auditors verify the correctness of the bank balance per books. (b) minimizing the amount of cash that must be kept on hand. (c)
Permitting only designated personnel such as cashiers to handle cash receipts is an applica- tion of the principle of: (a) segregation of duties. (b) establishment of responsibility. (c) independent
The principles of internal control do not include: (a) establishment of responsibility. (b) documentation procedures. (c) management responsibility. (d) independent internal verification.AppendixLO1
What was Tootsie Roll's balance in cash and cash equivalents at December 31, 2001? Did it report any restricted cash? How did Tootsie Roll define cash equivalents? The answer to these questions is
What are the three sections of the cash budget?AppendixLO1
What are the five principal elements of sound cash management?AppendixLO1
What information is included in a bank reconciliation?AppendixLO1
What steps are involved in the reconciliation procedure?AppendixLO1
Why is it necessary to reconcile a bank account?AppendixLO1
What is the purpose of a petty cash fund?AppendixLO1
How do the principles of internal control apply to cash disbursements?AppendixLO1
How do the principles of internal control apply to cash receipts?AppendixLO1
What are the limitations of internal control?AppendixLO1
Identify and describe the principles of internal control.AppendixLO1
What are the two primary objectives of internal control?AppendixLO1
Identify the primary ele- ments of a cash budget.AppendixLO1
Discuss the basic princi- ples of cash management.AppendixLO1
Prepare a bank reconciliation.AppendixLO1
Petra Company discovers in 2004 that its ending in- ventory at December 31, 2003, was $5,000 under- stated. What effect will this error have on (a) 2003 net income, (b) 2004 net income, and (c) the
Ed & Trish Company's balance sheet shows Inven- tories $162,800. What additional disclosures should be made?AppendixLO1
Today's Music Center has five CD players on hand at the balance sheet date that cost $400 each. The cur- rent replacement cost is $320 per unit. Under the lower of cost or market basis of accounting
Alyssa Jacobsen is studying for the next accounting midterm examination. What should Alyssa know about (a) departing from the cost basis of account- ing for inventories and (b) the meaning of
Donna Corporation has been using the FIFO cost flow method during a prolonged period of inflation. During the same time period, Donna has been pay- ing out all of its net income as dividends. What
In a period of rising prices, the inventory reported in Plato Company's balance sheet is close to the current cost of the inventory, whereas York Company's in- ventory is considerably below its
Mark Erikson believes that the allocation of cost of goods available for sale should be based on the ac- tual physical flow of the goods. Explain to Mark why this may be both impractical and
Rosena's Hat Shop received a shipment of hats for which it paid the wholesaler $2,940. The price of the hats was $3,000, but Rosena's was given a $60 cash discount and required to pay freight charges
(a) Lynn Company ships merchandise to Sheri Cor- poration on December 30. The merchandise reaches the buyer on January 5. Indicate the terms of sale that will result in the goods being included in
Your friend Nick Bickler has been hired to help take the physical inventory in Casey's Hardware Store. Ex- plain to Nick Bickler what this job will entail.AppendixLO1
An item must possess two characteristics to be classi- fied as inventory. What are these two characteristics?AppendixLO1
Fran Company's ending inventory is under- stated by $4,000. The effects of this error on the current year's cost of goods sold and net in- come, respectively, are: (a) understated and overstated. (b)
In a perpetual inventory system, (a) LIFO cost of goods sold will be the same as in a periodic inventory system. (b) average costs are based entirely on unit- cost simple averages. (c) a new average
The LIFO reserve is: (a) the difference between the value of the in- ventory under LIFO and the value under FIFO. (b) an amount used to adjust inventory to the lower of cost or market. (c) the
Which of these would cause the in- ventory turnover ratio to increase the most? (a) Increasing the amount of inventory on hand. (b) Keeping the amount of inventory on hand. constant but increasing
The lower of cost or market rule for inventory is an example of the application of: (a) the conservatism constraint. (b) the historical cost principle. (c) the materiality constraint. (d) the
Considerations that affect the selection of an inventory costing method do not include: (a) tax effects. (b) balance sheet effects. (c) income statement effects. (d) perpetual versus periodic
In periods of rising prices, LIFO will (a) higher net income than FIFO. (b) the same net income as FIFO. (c) lower net income than FIFO. (d) higher net income than average costing.AppendixLO1
From the data in question 3, what is the cost of the ending inventory under LIFO? (a) $113,000. (b) $108,000. produce: (c) $99,000. (d) $100,000.AppendixLO1
Kam Company has the following units and costs. Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If 9,000 units are on hand at December 31, what is the
Which of the following should not be included in the physical inventory of a company? (a) Goods held on consignment from another company. (b) Goods shipped on consignment to another company. (c)
What is the LIFO reserve? What does it tell a financial statement user?AppendixLO1
What is the purpose of the inventory turnover ratio? What is the relation- ship between the inventory turnover ratio and average days in inventory?AppendixLO1
When should inventory be reported at a value other than cost?AppendixLO1
Which inventory cost flow method produces the highest net income in a pe- riod of rising prices? The lowest income taxes?AppendixLO1
What inventory cost flow method does Tootsie Roll Industries use for U.S. inventories? What method does it use for foreign inventories? (Hint: You will need to examine the notes for Tootsie Roll's
What factors should be considered by management in selecting an inventory cost flow method?AppendixLO1
Who has title to consigned goods?AppendixLO1
How is ownership determined for goods in transit?AppendixLO1
What steps are involved in determining inventory quantities?AppendixLO1
What are the three inventory categories a manufacturing company would be likely to use? Why should financial statement users be aware of these cate- gories?AppendixLO1
Which ratio or ratios from this chapter do you think should be of greatest interest to: (a) a pension fund considering investing in a corpo- ration's 20-year bonds? (b) a bank contemplating a
Holding all other factors constant, indi- cate whether each of the following signals generally good or bad news about a company. (a) Increase in earnings per share. (b) Increase in the current ratio.
What do these classes of ratios measure? (a) Liquidity ratios. (b) Profitability ratios. (c) Solvency ratios.AppendixLO1
David Rose is puzzled. His company had a price-earnings ratio of 25 in 2004. He feels that this is an indication that the company is doing well. Julie Bast, his accountant, says that more information
Name ratios useful in assessing (a) li- quidity, (b) solvency, and (c) profitability.AppendixLO1
(a) Ruth Weber believes that the analysis of finan- cial statements is directed at two characteristics of a company: liquidity and profitability. Is Ruth correct? Explain. (b) Are short-term
Sue Leonard, the president of Leon Company, is pleased. Leon substantially increased its net income in 2004 while keeping its unit inventory relatively the same. Dan Noonan, chief accountant,
(a) What is the basic objective of financial report- ing? (b) Identify the qualitative characteristics of ac- counting information.AppendixLO1
(a) What are generally accepted accounting princi- ples (GAAP)? (b) What body provides authoritative support for GAAP?AppendixLO1
Which of these measures is an eval- uation of a company's ability to pay current liabilities? (a) Price-earnings ratio. (b) Current ratio. (c) Both (a) and (b). (d) None of the above.AppendixLO1
The balance in retained earnings is not affected by: (a) net income. (b) net loss. (c) issuance of common stock. (d) dividends.AppendixLO1
For 2004 Stoneland Corporation re- ported net income $24,000; net sales $400,000; and average shares outstanding 6,000. There were no preferred stock dividends. What was the 2004 earnings per share?
Which is not an indicator of prof- (a) Current ratio. (b) Earnings per share. (c) Net income. (d) Price-earnings ratio.AppendixLO1
Current assets are listed: (a) by liquidity, (b) by importance. (c) by longevity. (d) alphabetically. itability?AppendixLO1
What accounting constraint refers to the ten- dency of accountants to resolve uncertainty in a way least likely to overstate assets and revenues? (a) Comparability. (b) Materiality. (c) Conservatism.
Verifiability is an ingredient of: Reliability Relevance (a) Yes Yes (b) No. No (c) Yes No (d) No Yes AppendixLO1
What is the primary criterion by which ac- counting information can be judged? (a) Consistency. (b) Predictive value. (c) Usefulness for decision making. (d) Comparability.AppendixLO1
What organization issues U.S. accounting stan- dards? (a) Financial Accounting Standards Board. (b) International Accounting Standards Com- mittee. (c) International Auditing Standards Commit- tee.
Generally accepted accounting principles are: (a) a set of standards and rules that are recog- nized as a general guide for financial reporting. (b) usually established by the Internal Revenue

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