Questions and Answers of Financial And Managerial Accounting The Basis For Business Decisions

What relationship exists between the position of an account on the balance sheet and the rules for recording increases in that account? LO5
State briefly the rules of debit and credit as applied to asset accounts. As applied to liability and owner’s equity accounts. LO5
Is it true that favorable events are recorded by credits and unfavorable events by debits? Explain. LO5
What relationship exists between journals and ledgers on the one hand and fi¬nancial statements on the other? LO5
Does the term debit mean increase and the term credit mean decrease? Explain. LO5
What requirement is imposed by the double-entry system in the recording of any business transaction? LO5
Explain precisely what is meant by each of the phrases listed below. Whenever appropriate, indicate whether the left or right side of an account is affected and whether an increase or decrease is
For each of the following transactions, indicate whether the account in parenthe¬ses should be debited or credited, and give the reason for your answer, LO5 a Purchased a typewriter on credit,
How does a T account differ from a three-column running balance form of ledger account? ” f&A-tnsV J i SL*-
For each of the following accounts, state whether it is an asset, a liability, or owner’s equity; also state whether it would normally have a debit or a credit balance: (a) Office Equipment, (b)
List the following five items in a logical sequence to illustrate the flow of account¬ing information through the accounting system: LO5 a Information entered in journal b Preparation of a business
Compare and contrast a journal and a ledger. LO5
Which step in the recording of transactions requires greater understanding of accounting principles: (a) the entering of transactions in the journal, or(b) the posting of entries to ledger
When entering a transaction in a journal, which should be written first, the title of the account to be debited or the title of the account to be credited?Which is indented, the debit or the credit?
What is a compound journal entry? LO5
State two facts about the sequence of accounts in a journal entry and the use of indentation which make it easy to distinguish between a debit and a credit. LO5
What purposes are served by a trial balance? LO5
In preparing a trial balance, an accounting student listed the balance of the Office Equipment account in the credit column. This account had a balance of $2,450. What would be the amount of the
Are dollar signs used in journal entries? In ledger accounts? In trial bal¬ances? In financial statements? LO5
A student beginning the study of accounting prepared a trial balance in which two unusual features appeared. The Buildings account showed a credit balance of $20,000, and the Accounts Payable account
During the first week of an accounting course, Student A expressed the opin¬ion that a great deal of time could be saved if a business would record trans¬actions directly in ledger accounts rather
Explain the relative priority of the claims of owners and of creditors to the assets of a business.
Do all creditors have equal priority? Explain.
Define current liabilities and long-term liabilities. Under what circumstances might a 10-year bond issue be classified as a current liability? Under what circumstances might a note payable maturing
Jonas Company issues a 90-day, 12 percent note payable to replace an account payable to
Smith Supply Company in the amount of $8,000. Draft the journal entries (in general journal form) to record the issuance of the note payable and the payment of the note at the maturity date. ;
What are workers’ compensation premiums? Who pays thtm? Who pays Social Security and Medicare taxes?
Tampa Boat Company pays federal income taxes at a rate of 30 percent on taxable income.
Compute the company’s annual after-tax cost of borrowing on 10 percent, $5 million bond issue. Express this after-tax cost as a percentage of the borrowed $5 million.
Why is the present value of a future amount always Jess than the future amount?
The Wall Street Journal recently quoted a market price of /02 for an issue of
percent Nabisco bonds. What would be the market price for $25,000 face value of these bonds (ignoring accrued interest)? Is the market rate of interest for bonds of this quality higher or lower than
The 6 percent bonds of Central Gas & Electric are selling at a market price of 72, whereas the 6 percent bonds of Interstate Power are selling at a price of 97. Does this mean that Interstate
Power has a better credit rating than Central Gas & Electric? Explain. (Assume current longterm interest rates are in the 11 percent to 13 percent range.)
Define estimated liabilities and provide two examples. Are estimated liabilities recorded in accounting records?
What is the meaning of the term commitment? Give several examples. How are commitments usually presented in financial statements? Explain.
How is book value per share of common stock computed when a company has both preferred and common stock outstanding?
Both the cumulative effect of a change in accounting principle and a prior period adjustment relate to the income of past accounting periods. Distinguish between these two items and explain how each
In the current year, King, Inc., decided to switch from an accelerated method of depreciation to the straight-line method. Will the cumulative effect of this change in accounting principle increase
What are prior period adjustments? How are they presented in financial statements?
Define cash equivalents and list three examples.
Are cash payments of accounts payable viewed as operating activities or financing activities?
Referring to the statement of cash flows illustrated in Exhibit 13-1, state the caption that includes amounts paid on accounts payable.
During the current year, the following credit entries were posted to the paid-in capital accounts of Crawford Shipyards:Explain the type of cash transaction that probably caused these credit changes,
Assume that Fowler Corporation is engaged in the manufacture and distribution of a variety of chemicals. In analyzing the financial statements of this corporation, why would you want to refer to the
In comparing the financial results of Fowler with another chemical company, why would you be interested in the accounting principles used by the two companies?
Explain how the following accounting practices tend to raise or lower the quality of a company’s earnings. (Assume the continuance of inflation.)a. Adoption of an accelerated depreciation method
Identify three liquidity measures. Explain briefly how each is computed.
What is the International Accounting Standards Board? Why has the board been unable to obtain global application of its standards?
Assume that a U.S. company makes a purchase from a British company and agrees to pay a price of £2 million.a. How will the U.S. company determine the cost of this purchase for the purpose of
Arecent newspaper shows the exchange rate for the British pound at $1.63 and for the yen at $0.0106. Does this indicate that the pound is a stronger currency than the yen? Explain.
A U.S. company purchased a shipment of fabrics from Bahrain for 3,500,000 dinars. At current exchange rates, what is the value of this contract in U.S. dollars?. . . . . . NS . . . . What is the
How might the required financial reports differ between countries that are individualistic and collectivist?
Explain the distinction between product costs and period costs. Why is this distinction important? 4
During the current year, Coronado Boat Yard has incurred manufacturing costs of $420,000 in building three large sailboats. At year-end, each boat is about 70 percent complete. How much of these
During the current year the net cost of direct materials purchased by a manufacturing firm was$340,000, and the direct material inventory increased by $20,000. What was the cost of direct materials
Includes six ledger accounts. Which of these six accounts often have balances at year-end that appear in the company’s formal financial statements? Briefly explain how these balances will be
Argo Mfg. Co. uses approximately $1,200 in janitorial supplies to clean the work area and factory equipment each month. Should this $1,200 be included in the cost of direct materials used? Explain.a
Identify two possible overhead cost drivers for a company that:a. Manufactures handmade furniture using skilled craftspersons and small hand tools.b. Manufactures microchips for computers using an
What is meant by underapplied overhead? By overapplied overhead?11, Gerox Company applies manufacturing overhead on the basis of machine-hours, using a predetermined overhead rate. At the end of the
What is the objective of target costing?
What is the effect of an increase in activity on the following items?a. Total variable costsb. Variable costs per unit of activity
What is the effect of an increase in activity on the following items?a. Total fixed costsb. Fixed costs per unit of activity
Acompany regularly sells 100,000 washing machines at an average price of $250. The average cost of producing these machines is $180. Under what circumstances might the company accept an order for
The Wilson Corporation produces a large number of fishing products. The costs per unit of a particular fishing reel are as follows: Direct materials and direct labor Variable factory overhead Fixed
The company recently decided to buy 10,000 fishing reels from another manufacturer for$12.50 per unit because “it was cheaper than our cost of $13.00 per unit.” Evaluate the decision only on the
Marshall’s Grocery Store has a small bakery that sells coffee and baked goods at very low prices. (For example, coffee and one doughnut cost 25 cents.) The basic purpose of the bakery is to attract
The operation of a responsibility accounting system involves three basic steps. In this chapter, we emphasize the second step: measuring the performance of each responsibility center. List all three
How do the costs of operating service departments (organized as cost centers) appear in a responsibility income statement? MM art©A anere / Call Center
Assume that Department A has a higher contribution margin ratio, but a lower responsibility margin ratio, than Department B. If $10,000 in advertising is expected to increase the sales of either
Distinguish between variable costing and full costing. Which method is used in externally reported financial statements? Which method is used in income tax returns?
Explain why a variable costing income statement provides a better basis for cost-volumeprofit analysis than does a full costing income statement.
Rose Speakers, a division of Innovative Sound, temporarily increases production to exceed unit sales, thereby causing its inventory of finished goods to increase. Explain the effect of this action on
What is wrong with the following statement: “There are three basic kinds of cost accounting systems: job order, process, and standard’?
List the variances from standard cost that are generally computed fer direct materials, direct labor, and manufacturing overhead.
Explain the cause of an unfavorable and of a favorable overhead volume variance.
Why is an unfavorable overhead volume variance not usually considered in evaluating the performance of the production department manager?
Describe the main components of return on investment (ROJ).
Assume you are the manager of the finished goods warehouse of a computer manufacturer.
Which business measures might help the company achieve its balanced scorecard goals?
In designing a compensation plan for the manager of the international operations of Tootsie
Roll Industries, what trade-offs should the company board of directors consider?
How would you expect the components of return on investment to be different for a mostly Internet-based retailer compared to a more traditional bricks-and-mortar retailer (e.g.,
The code of conduct of the American Institute of Certified Public Accountants includes requirements in which of the following areas?a. The Public Interest.b. Objectivity.c. Independence.d. All of the
What is the primary distinction between financial accounting and other accounting?
Describe the relationship among the accounting process, accounting information, decision makers, and economic activities.
What is an accounting system and what is the primary objective of such a system?
What are the three primary ways enterprises use their internal accounting information?
Describe which professional organization(s) would most likely be of greatest value to you if your position involved each of the following independent roles:a. Accounting educator.b. Management
Four accounting majors, Maria Acosta, Kenzo Nakao, Helen Martin, and Anthony Mandella, recently graduated from Central University and began professional accounting careers. Acosta entered public
Assume that each of the four graduates was successful in his or her chosen career. Identify the types of accounting activities in which each of these graduates might find themselves specializing
Locate the Tootsie Roll Industries, Inc., annual report in Appendix A of this text. Briefly peruse the annual report and answer the following questions:a. Name the titles of the financial reports in
Assume you have recently completed your college degree with a major in accounting and have ac- cepted a position on the accounting staff of a large corporation. In preparing for your first day on the
At the beginning of the year, the Office Equipment account of Gulf Coast Airlines had a debit balance of $126,900. During the year, debit entries of $23,400 and credit entries of $38,200 were posted
What relationship exists between the position of an account on the balance sheet and the rules for recording increases in that account?
Explain precisely what is meant by each of the phrases listed below. Whenever appropriate, indicate whether the left or right side of an account is affected and whether an increase or de- crease is
Explain the effect of operating profitably on the balance sheet of a business entity.
Late in March, Classic Auto Painters purchased paint on account, with payment due in
days. The company used the paint to paint customers’ cars during the first three weeks of April. Late in May, the company paid the paint store from which the paint had been purchased.
In which month should Classic Auto Painters recognize the cost of this paint as expense? What generally accepted accounting principle determines the answer to this question?

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