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business
fundamental accounting principles

Questions and Answers of Fundamental Accounting Principles

Review the consolidated statement of changes in financial position for Grupo Bimbo for the year ended December 31, 2002, at GrupoBimbo.com Required 1. What item caused the largest change (excluding
In recording credit card sales, when do you debit Accounts Receivable and when do you debit Cash?
A company accumulates sales receipts and remits them to the credit card company for payment. When are the credit card expenses recorded? When are these expenses incurred?
Why must bad debts expense be estimated if such an estimate is possible?
What term describes the balance sheet valuation of Accounts Receivable less the Allowance for Doubtful Accounts?
Why is estimated bad debts expense credited to a contra account (Allowance for Doubtful Accounts) rather than to the Accounts Receivable account?
Record entries for these transactions assuming the allowance method is used: Jan. 10 The $300 account of customer Cool Jam is determined uncollectible. April 12 Cool Jam unexpectedly pays in full the
Irwin purchases $7,000 of merchandise from Stamford on December 16, 2005. Stamford accepts Irwin’s $7,000, 90-day, 12% note as payment. Stamford’s accounting period ends on December 31, and it
Using the information in Quick Check 8, prepare Stamford’s March 16, 2006, entry if Irwin dishonors the note.
Explain the accounting principle of materiality.
Refer to Krispy Kreme’s balance sheet in Appen- dix A. What percent of accounts receivable at February 2, 2003, has been set aside as an allowance for doubt¬ ful accounts? How does this percent
Refer to the balance sheet of Tastykake in Appendix A. Does it use the direct write-off method or allowance method to account for doubtful accounts? What is the realizable value of its accounts
Refer to the balance sheet of Harley-Davidson in Appendix A. What two types of receivables Davidson does Harley show in its current asset section of the balance sheet?
Dekon Company’s December 31 year-end unadjusted trial balance shows an $8,000 balance in Notes Receivable. This balance is from one 6% note dated December 1, with a period of 45 days. Prepare
The following data are taken from the comparative balance sheets of Fulton Company. Compute and interpret its accounts receivable turnover for year 2005 (competitors average a turnover of 7.5). 2005
Petri Company allows customers to use two credit cards in charging purchases. With the Omni Card, Petri receives an immediate credit to its account when it deposits sales receipts. Omni Card assesses
Sami Company recorded the following selected transactions during November 2005:1. Open a general ledger having T-accounts for Accounts Receivable, Sales, and Sales Returns and Allowances. Also open
At each calendar year-end, Cabool Supply Co. uses the percent of accounts receivable method to es- timate bad debts. On December 31, 2005, it has outstanding accounts receivable of $53,000, and it
n une 30, Pena Co. has $125,900 of accounts receivable. Prepare journal entries to record the fl¬ owing selected July transactions. Also prepare any footnotes to the July 31 financial statements
Prepare journal entries to record these selected transactions for Eduardo Company: Nov. 1 Accepted a $5,000, 180-day, 6% note dated November 1 from Melosa Allen in granting a time extension on her
Prepare journal entries to record the following selected transactions of Paloma Company: Mar. 21 Accepted a $3,100, 180-day, 10% note dated March 21 from Salma Hernandez in grant- ing a time
Prepare journal entries for the following selected transactions of Deshawn Company: 2004 Dec. 13 Accepted a $10,000, 60-day, 8% note dated December 13 in granting Latisha Clark a time extension on
The following information is from the annual financial statements of Waseem Company. Compute its accounts receivable turnover for 2004 and 2005. Compare the two years results and give a possible
Atlas Co. allows select customers to make purchases on credit. Its other customers can use either of two credit cards: Zisa or Access. Zisa deducts a 3% service charge for sales on its credit card
Lopez Company began operations on January 1, 2004. During its first two years, the company com¬ pleted a number of transactions involving sales on credit, accounts receivable collections, and bad
On December 31, 2005, Ethan Co. records show the following results for the calendar-year:Required 1. Prepare the adjusting entry for Ethan Co. to recognize bad debts under each of the following in¬
Carmack Company has credit sales of $2.6 million for year 2005. On December 31, 2005, the com¬ pany s Allowance tor Doubtful Accounts has an unadjusted credit balance of $13,400. Carmack prepares a
The following selected transactions are from Ohlde Company:Required 1. Prepare journal entries to record these transactions and events.Analysis Component 2. What reporting is necessary when a
Able Co. allows select customers to make purchases on credit. Its other customers can use either of two credit cards: Commerce Bank or Aztec. Commerce Bank deducts a 3% service charge for sales on
Crist Co. began operations on January 1, 2004, and completed several transactions during 2004 and 2005 that involved sales on credit, accounts receivable collections, and bad debts. These
On December 31, 2005, Klimek Co.’s records show the following results for the year:Required Cash sales... Credit sales $1,015,000 1,241,000 In addition, its unadjusted trial balance includes the
Quisp Company has credit sales of $3.5 million for year 2005. On December 31, 2005, the company’s Allowance for Doubtful Accounts has an unadjusted debit balance of $4,100. Quisp prepares a
The following selected transactions are from Seeker Company:Required 1. Prepare journal entries to record these transactions and events.Analysis Component 2. What reporting is necessary when a
Refer to Krispy Kreme’s financial statements in Appendix A to answer the following:1. What is the amount of its accounts receivable (net) on February 2, 2003?2. Knspy Kreme s most liquid assets
Key comparative figures ($ thousands) for both Krispy Kreme and Tastykake follow:Required 1. Compute the accounts receivable turnover for both Krispy Kreme and Tastykake for each of the two most
Kelly Steinman is the manager of a medium-size company. A few years ago, Steinman persuaded the owner to base a part of her compensation on the net income the company earns each year. Each December
Access Surg II, Inc.’s, February 7, 2003, filing of its 10-KSB (small business 10-K) for the fiscal year-end of December 31, 2002 at www.SEC.gov, Cl mhhe.com/larson Required 1. How does its
Each member of a team is to participate in estimating uncollectibles using the ag¬ ing schedule and percents shown in Problem 9-4A. The division of labor is up to the team. Your goal is to
Read the article, “How Plastic Put Sears in a Pickle” in the October 30, 2002, issue of Business Week. (The book’s Website provides a free link.)Required 1. What two types of credit cards does
The chapter’s opening feature introduces Barbara Manzi and her business, Manzi Metals, a distributor of aluminum, steel, titanium, brass, and other alloys. Manzi Metals generates $3 million in
Many commercials include comments similar to the following: “Bring your VISA” or e do not accept American Express.” Conduct your own research by contacting at least 5 compa¬ nies via
Grupo Bimbo, Krispy Kreme, and Tastykake are all competitors in the global mar¬ ketplace. Review the Consolidated Balance Sheet for Grupo Bimbo for the year ended December 31 2002, at GrupoBimbo.com
Identify the asset class for each of the following: (a) supplies, (b) office equipment,(c) inventory, (d) land for future expansion, and (e) trucks used in operations.
Identify the account charged for each of the following: (a) purchase price of a vacant lot to be used in operations and (b) cost of paving that same vacant lot.
On January 1,2005, a company pays $77,000 to purchase office furniture with a zero salvage value. The furniture’s useful .life is somewhere between 7 and 10 years. What is the year 2005
What does the term depreciation mean in accounting?
Early in the fifth year of a machine’s six-year useful life, it is overhauled, and its useful life is extended to nine years. This machine originally cost $108,000 and the overhaul cost is$ 12,000.
Explain the difference between revenue expenditures and capital expenditures and how both are recorded.10.What is a betterment? How is a betterment recorded?
Give an example of a natural resource and of an intangible asset.
A company pays $650,000 for an ore deposit. The deposit is estimated to have 325,000 tons of ore that will be mined over the next 10 years. During the first year, it mined, processed, and sold 91,000
On January 6, 2005, a company pays $120,000 for a patent with a remaining 17-year legal life to produce a toy expected to be marketable for three years. Prepare entries to record its acquisition and
What is the general rule for costs included in a plant asset?
What is the balance sheet classification for land that is held for future expansion? Why is such land not classified as a plant asset?
What accounting principle justifies charging low-cost plant asset purchases immediately to an expense account?
How does accounting for long-term assets impact the state¬ ment of cash flows?
Refer to Krispy Kreme’s balance sheet in Appendix A. What title does Krispy Kreme use for its plant assets? What is its book value of plant assets as of February 2, 2003, and February 3, 2002?
Refer to Tastykake’s balance sheet in Appen¬ dix A. How are Tastykake’s plant assets reported (with amounts) on its 2002 balance sheet?
Refer to the December 31, 2002, balance sheet Harley- of Harley-Davidson in Appendix A. What Davidson long-term assets discussed in this chapter are reported?
Identify the main difference between (1) plant assets and current assets, (2) plant assets and inven- tory, and (3) plant assets and long-term investments.
On January 2, 2005, the Crossover Band acquires sound equipment for concert performances at a cost of $55,900. The band estimates it will use this equipment for four years, during which time it
Refer to the facts in QS 10-3. Assume that Crossover Band chose straight-line depreciation but real- izes early in the second year that due to concert bookings beyond expectations, this equipment
1. Classify the following as either a revenue or a capital expenditure:a. Completed an addition to an office building for $250,000 cash.b. Paid $160 for the monthly cost of replacement filters on an
Which of the following assets are reported on the balance sheet as intangible assets? Which are re¬ ported as natural resources? (a) Oil well, (b) Trademark, (c) Leasehold, (d) Gold mine, (e)
On January 4 of this year, Best Boutique incurs a $95,000 cost to modernize its store. Improvements include new floors, ceilings, wiring, and wall coverings. These improvements are estimated to yield
Mulan Enterprises pays $235,200 for equipment that will last five years and have a $52,500 sal¬ vage value. By using the machine in its operations for five years, the company expects to earn $85,500
Busch Gallery purchases the copyright on an oil painting for $236,700 on January 1, 2005. The copy¬ right legally protects its owner for 19 more years. However, the company plans to market and sell
Refer to the statement of cash flows for Harley-Davidson in Appendix A for the fiscal year ended December 31, 2002, to answer the following:1. What amount of cash is used to purchase property and
Lakia Corporation reported the following current-year purchases and sales data for its only product:Lakia uses a perpetual inventory system. Ending inventory consists of 500 units, 400 from the July
Use the data in Exercise 6-1 to prepare comparative income statements for Lakia Corporation (calendar year-end 2005) similar to those shown in Exhibit 6.8 for the four inventory methods. Assume
Henin Co. reported the following current-year purchases and sales data for its only product:Henin uses a perpetual inventory system. Determine the costs assigned to ending inventory and to cost of
Refer to the data in Exercise 6-3. Assume that ending inventory is made up of 200 units from the March 14 purchase, 20 units from the July 30 purchase, and all the units of the October 26 purchase.
Tanzy Company’s ending inventory includes the following items. Compute the lower of cost or mar¬ ket for ending inventory (a) as a whole and (b) applied separately to each product. Per Unit
Use the following information for Ryder Co. to compute inventory turnover for 2005 and 2004, and its days’ sales in inventory at December 31, 2005 and 2004. (Round answers to the tenths place.)
Checkers Company uses LIFO for inventory costing and reports the following financial data. It also recomputed inventory and cost of goods sold using FIFO for comparison purposes.1. Compute its
Refer to Exercise 6-1 and assume the periodic inventory system is used. Determine the costs assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) weighted
Refer to Exercise 6-3 and assume the periodic inventory system is used. Determine the costs assigned to ending inventory and to cost of goods sold using (a) FIFO, and (b) LIFO. Compute the gross
Rod & Roy Co. reported the following current-year data for its only product. The company uses a periodic inventory system, and its ending inventory consists of 300 units, 100 from each of the
Nyhus Gifts reported the following current-year data for its only product. The company uses a periodic inventory system, and its ending inventory consists of 300 units, 100 from each of the last
In 2005, Wichita Company had retail sales (net) of $130,000. The following additional information is available from its records at the end of 2005. Use the retail inventory method to estimate
Parker Company uses a perpetual inventory system. It entered into the following calendar-year 2005 purchases and sales transactions:Required Date Activities Units Acquired at Cost Units Sold at
A physical inventory of Ireland Unlimited taken at December 31 reveals the following:Required Calculate the lower of cost or market for the inventory (a) as a whole, (b) by major category, and (c)
Viper Company began year 2005 with 20,000 units of product in its January 1 inventory costing $15 each. It made successive purchases of its product in year 2005 as follows:The company uses a periodic
The records of Nilson Company provide the following information for the year ended December 31:Required January I beginning inventory Cost of goods purchased... Sales Sales returns At Cost At Retail
Wayman Company wants to prepare interim financial statements for the first quarter. The company wishes to avoid making a physical count of inventory. Wayman's gross profit rate averages 35%. The
Venus Company uses a perpetual inventory system. It entered into the following calendar-year 2005 purchases and sales transactions:Required 1. Compute cost of goods available for sale and the number
A physical inventory of Office Deals taken at December 31 reveals the following:Required Calculate the lower of cost or market for the inventory (a) as a whole, (b) by major category, and (c) applied
Elfrink Co. began year 2005 with 6,300 units of product in its January 1 inventory costing $35 each. It made successive purchases of its product in year 2005 as follows:The company uses a periodic
The records of Alaina Co. provide the following information for the year ended December 31:Required 1. Use the retail inventory method to estimate the company’s year-end inventory.2. A year-end
Ernst Equipment Co. wants to prepare interim financial statements for the first quarter. The company wishes to avoid making a physical count of inventory. Ernst’s gross profit rate averages 30%.
Refer to Krispy Kreme’s financial statements in Appendix A to answer the following:Required 1. What amount of inventories did Krispy Kreme hold as a current asset on February 2, 2003^ On February
Key comparative figures ($ thousands) for both Krispy Kreme and Tastykake follow:Required Krispy Kreme Tastykake Current One Year Two Years Current Prior Prior Year One Year Prior $ 16,159 $ 12,031 $
Golf Away Corp. is a retail sports store carrying golf apparel and equipment. The store is at the end of its second year of operation and is struggling. A major problem is that its cost of in¬
You are a financial adviser with a client in the wholesale produce business that just completed its first year of operations. Due to weather conditions, the cost of acquiring produce to re¬ sell has
Access the 2002 annual 10-K report for Oakley, Inc. (Ticker OO), filed on March 31, 2003, from the EDGAR filings at www.SEC.gov.Required 1. What product does Oakley sell that is especially popular
Each team member has the responsibility to become an expert on an inventory method.This expertise will be used to facilitate teammates’ understanding of the concepts relevant to that method.1. Each
Read the article “iPod: A Seed for Growth?” from the August 27, 2002, issue of Business Week. Required 1. What percent of the U.S. market for digital music players does Apple have?2. What firms
Key figures (pesos millions) for Grupo Bimbo (GruDoBimho.com) follow:Required 1. Use these data and those from BTN 6-2 to compute (a) inventory turnover and (b) days’ sales in inventory for the
Identify the five primary components of an accounting information system.
What is the aim of information processors in an accounting system?
How are data in the information storage component of an accounting system used?

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