Questions and Answers of Fundamentals Of Financial Accounting 7th Edition

For many years, Carefree Company has estimated Bad Debt Expense using the aging of accounts receivable method. Assuming Carefree has no write-offs or recoveries, its estimate of uncollectible
When an account receivable is “recovered”a. Total assets increase.b. Total assets decrease.c. Stockholders’ equity increases.d. None of the above.
A local phone company had a customer who rang up $300 in charges during September 2018 but did not pay. Despite reminding the customer of this balance, the company was unable to collect in October,
If a 5 percent note receivable for $100,000 is created on January 1, 2018, and it has a maturity date of December 31, 2021,a. No interest revenue will be recorded in 2018.b. The note receivable will
If the receivables turnover ratio decreased during the year,a. The days to collect also decreased.b. Receivables collections slowed down.c. Sales Revenues increased at a faster rate than Accounts
In 2016, Coca-Cola Bottling had a receivables turnover ratio of 11.5. Which of the following actions could Coca- Cola take to cause the ratio to increase?a. Pursue collections more aggressively.b.
Fraud Investigators Inc. operates a fraud detection service.Required:1. Prepare journal entries for each transaction below.a. On March 31, 10 customers were billed for detection services totaling
All else equal, if VFC incurs a 3 percent fee to factor $10,000 of its Accounts Receivable, its Net Income willa. Increase by $10,000.b. Increase by $9,700.c. Increase by $300.d. Decrease by $300.
Define long-lived assets. What are the two common categories of long-lived assets? Describe each.
Which of the following should be capitalized when a piece of production equipment is acquired for a factory?a. Sales taxb. Transportation costsc. Installation costsd. All of the above
Refer to the financial statements of The Home Depot in Appendix A at the end of this book.Required:1. What is the amount of Accumulated Depreciation and Amortization at January 29, 2017? What
When recording depreciation, which of the following statements is true?a. Total assets increase and stockholders’ equity increases.b. Total assets decrease and total liabilities increase.c. Total
Under what depreciation method(s) is an asset’s book value used to calculate depreciation each year?a. Straight-line methodb. Units-of-production methodc. Declining-balance methodd.
Palmer Cook Music Productions manages and operates two bands. The company entered into the following transactions during a recent year.Required:1. Analyze the accounting equation effects and record
Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the company showed the following balances:During the first week of January 2018, the following
The following transactions and adjusting entries were completed by a paper-packaging company called Gravure Graphics International during 2018 and 2019. The company uses straight-line depreciation
This case is based on a cost capitalization fraud at WorldCom. The case is available online in the Connect eBook. To complete this case, you will identify information that suggests certain costs are
Barber, Inc., depreciates its building on a straight-line basis. A building was purchased on January 1 that had an estimated useful life of 20 years and a residual value of $20,000. The company’s
Refer to the information in E9-4.Data From E9-4Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the company showed the following balances:During the
Thornton Industries purchased a machine part-way through the year on July 1 for $45,000 and is depreciating it with the straight-line method over a life of 10 years, using a residual value of $3,000.
ACME, Inc., uses straight-line depreciation for all of its depreciable assets. ACME sold a used piece of machinery on December 31 that it had purchased two years earlier on January 1 for $10,000.
What assets should be amortized using the straight-line method?a. Landb. Intangible assets with limited livesc. Intangible assets with unlimited livesd. All of the above
How many of the following statements regarding goodwill are true?• Goodwill is not reported unless purchased in an exchange.• Private companies can elect to amortize goodwill over 10 years or
The Simon Company and the Allen Company each bought a new delivery truck on January 1. Both companies paid exactly the same cost, $30,000, for their respective vehicles. Two years later, on December
Refer to E9-4.Data From E9-4Wiater Company operates a small manufacturing facility. On January 1, 2018, an asset account for the company showed the following balances:During the first week of January
Using data from CP10-1, complete the following requirements.Data From CP10-1EZ Curb Company completed the following transactions. The annual accounting period ends December 31.Required:1. Prepare
As of February 29, 2016, American Greetings Corp. had 7,000 full-time and 20,500 part-time employees. Assume in the last pay period of the year, the company paid $8,000,000 to employees after
Using data from PA10-1, complete the following requirements.Data From PA10-1Jack Hammer Company completed the following transactions. The annual accounting period ends December 31.Required:1. Prepare
A bond is issued at a price of 103 and retired early at a price of 97. Which of the following is true?a. A gain will be reported on the income statement when the bond is issued.b. A loss will be
Using data from PB10-1, complete the following requirements.Required:1. Prepare journal entries for each of the transactions through August 1.2. Prepare any adjusting entries required on December
Which of the following does not impact the calculation of the cash interest payments to be made to bondholders?a. Face value of the bond.b. Stated interest rate.c. Market interest rate.d. The length
Which of the following is false when a bond is issued at a premium?a. The bond will issue for an amount above its face value.b. Interest expense will exceed the cash interest payments.c. The market
To determine if a bond will be issued at a premium, discount, or face value, one must know which of the following pairs of information?a. The face value and the stated interest rate on the date the
Assume the same facts as PA10-7, except that Surreal uses the simplified effective-interest bond amortization method, as shown in Chapter Supplement 10C.Data From PA10-7On January 1, 2018, Surreal
Which feature is not applicable to common stock ownership?a. Right to receive dividends before preferred stock shareholders.b. Right to vote on appointment of external auditor.c. Right to receive
Which of the following statements about the relative advantages of equity and debt financing is false?a. An advantage of equity financing is that it does not have to be repaid.b. An advantage of
Refer to the financial statements of The Home Depot in Appendix A at the end of this book.Required:1. Calculate and express as a percentage the company’s debt-to-assets ratio using amounts reported
Grandpa Clocks, Inc. (GCI), is a retailer of wall, mantle, and grandfather clocks. Assume GCI sells a grandfather clock for $10,000 cash plus 4 percent sales tax. The clock had originally cost GCI
Assume PVH, the makers of Calvin Klein underwear, borrowed $100,000 from the bank to be repaid over the next five years, with principal payments beginning next month. Which of the following best
Define accrued liability. Give an example of a typical accrued liability.
Assume Speedo International received $400,000 for long-term promissory notes that were issued on November 1. The notes pay interest on April 30 and October 31 at the annual rate of 6 percent, which
Assume the same facts as PB10-6, but now assume that Methodical uses the simplified effective interest bond amortization method, as shown in Chapter Supplement 10C.Data From PB10-6On January 1, 2018,
The Peg Corporation (TPC) issued bonds and received cash in full for the issue price. The bonds were dated and issued on January 1, 2018. The stated interest rate was payable at the end of each year.
Land O’ Lakes, Inc., reported (in millions) Income from Operations of $206, Net Income of $160, Interest Expense of $63, and Income Tax Expense of $15. What was this dairy company’s times
Big Hitter Corp. is facing a class-action lawsuit in the upcoming year. It is possible, but not probable, that the company will have to pay a settlement of approximately $2,000,000 in the upcoming
Hondor Corporation issued bonds and received cash in full for the issue price. The bonds were dated and issued on January 1, 2018. The stated interest rate was payable at the end of each year. The
BSO, Inc., has assets of $600,000 and liabilities of $450,000, resulting in a debt-to-assets ratio of 0.75. For each of the following transactions, determine whether the debt-to-assets ratio will
Simko Company issued $600,000, 10-year, 5 percent bonds on January 1, 2018. The bonds were issued for $580,000. Interest is payable annually on December 31. Using straight-line amortization, prepare
Refer to the financial statements of The Home Depot in Appendix A at the end of this book.Required:1. As of January 29, 2017, how many shares of common stock were authorized? How many shares were
Which statement regarding treasury stock is false?a. Treasury stock is considered to be issued but not outstanding.b. Treasury stock has no voting, dividend, or liquidation rights.c. Treasury stock
Which of the following statements about stock dividends is true?a. Stock dividends are reported on the income statement.b. Stock dividends increase total stockholders’ equity.c. Stock dividends
Which of the following is ordered from the largest number of shares to the smallest number of shares?a. Shares authorized, shares issued, shares outstanding.b. Shares issued, shares outstanding,
Delta Air Lines, Inc., and Southwest Airlines Co. are two publicly traded airline companies. They reported the following in their financial statements (in millions of dollars, except per-share
Two online magazine companies reported the following in their financial statements:Required:1. Compute the 2018 ROE for each company (express ROE as a percentage rounded to one decimal place). Which
Two music companies reported the following in their financial statements:Required:1. Compute the 2018 ROE for each company (express ROE as a percentage rounded to one decimal place). Which company
A journal entry is not recorded on what date?a. Date of declaration.b. Date of record.c. Date of payment.d. A journal entry is recorded on all of the above dates.
Which of the following transactions will increase the return on equity?a. Declare and issue a stock dividend.b. Split the stock 2-for-1.c. Repurchase the company’s stock.d. None of the above.
Which statement regarding dividends is false?a. Dividends represent a sharing of corporate profits with owners.b. Both stock and cash dividends reduce retained earnings.c. Cash dividends paid to
When stock is purchased with cash and held in treasury, what is the impact on the balance sheet equation?a. No change—the reduction of the asset Cash is offset with the addition of the asset
In what situation does total stockholders’ equity decrease?a. When a cash dividend is declared.b. When a stock dividend is declared.c. When a stock split is announced.d. When a previously declared
Swimtech Pools Inc. (SPI) reported the following in its financial statements for the quarter ended March 31, 2018.During the quarter ended March 31, SPI reported Net Income of $5,000 and declared and
Refer to the financial statements of The Home Depot in Appendix A at the end of this book.Required:1. Which of the two basic reporting approaches for the cash flows from operating activities did The
Where is the overall change in cash shown in the statement of cash flows?a. In the top part, before the operating activities section.b. In one of the operating, investing, or financing activities
Hamburger Heaven’s income statement for the current year and selected balance sheet data for the current and prior years ended December 31 are presented below.Required:Prepare the cash flows from
In what order do the three sections of the statement of cash flows appear when reading from top to bottom?a. Financing, investing, operating.b. Investing, operating, financing.c. Operating,
Total cash inflow in the operating section of the statement of cash flows should include which of the following?a. Cash received from customers at the point of sale.b. Cash collections from customer
If the balance in Prepaid Expenses increased during the year, what action should be taken on the statement of cash flows when following the indirect method, and why?a. The change in the account
Which of the following would not appear in the investing section of the statement of cash flows?a. Purchase of inventory.b. Sale of investments.c. Purchase of land.d. All of the above would appear in
Refer to the information in CP12-2.Required:Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.Data From CP12-2Hamburger Heaven’s income
Refer to the information in PA12-2.Required:Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.Data From PA12-2The income statement and
Refer to the information in PB12-2.Required:Prepare the cash flows from operating activities section of the statement of cash flows using the direct method.Data From PB12-2The income statement and
This case is available online in the Connect eBook. To complete this case, you will evaluate two alternatives for increasing a sports club’s reported operating cash flows.
If a company engages in a material noncash transaction, which of the following is required?a. The company must include an explanatory narrative or schedule accompanying the statement of cash flows.b.
The total change in cash shown on the statement of cash flows for the year should agree with which of the following?a. The difference in Retained Earnings when reviewing the comparative balance
If a company’s current assets (such as accounts receivable and inventories) are allowed to grow out of control, which of the following would occur?a. Cash flows from investing activities would be
Pizza International, Inc., reported the following information (in thousands):Required:1. Based on this information, compute cash flow from operating activities using the indirect method.2. What was
Mountain Gear, Inc., buys bikes, tents, and climbing supplies from Rugged Rock Corporation for sale to consumers. What type of company is Mountain Gear, Inc.?a. Service b. Retail merchandiserc.
PCM, Inc., is a direct marketer of computer hardware, software, peripherals, and electronics. In a recent annual report, the company reported that its revenue is “recognized upon receipt of the
This year your company has purchased less expensive merchandise inventory but has not changed its selling prices. What effect will this change have on the company’s gross profit percentage this
Complete the following table, indicating the amount and direction of effect (+ for increase, − for decrease, and NE for no effect) of each transaction on each item in Rockland Shoe Company’s
What is gross profit? How is the gross profit percentage computed? Illustrate its calculation and interpretation assuming Net Sales is $100,000 and Cost of Goods Sold is $60,000.
Wolverine World Wide, Inc., prides itself as being the “world’s leading marketer of U.S. branded non-athletic footwear.” The following data (in millions) were reported for the third quarter of
Using the information in E6-10, prepare journal entries to record the transactions, assuming Solitare records discounts using the gross method in a perpetual inventory system.Data From E6-10During
Nicole’s Getaway Spa (NGS) has been so successful that Nicole has decided to expand her spa by selling merchandise. She sells things such as nail polish, at-home spa kits, cosmetics, and
Each period, the Cost of Goods Available for Sale is allocated betweena. Assets and Liabilities.b. Assets and Expenses.c. Assets and Revenues.d. Expenses and Liabilities.
The Gap, Inc., is a specialty retailer that operates stores selling clothes under the trade names Gap, Banana Republic, Athleta, and Old Navy. Assume that you are employed as a stock analyst and your
Define goods available for sale. How does it differ from cost of goods sold?
A company that purchases inventory costing $10,000 onterms 2/30, n/60, but first returns one-half of those goods,will receive a discount of what amount if it pays on the last day of the discount
Campus Stop, Inc., is a student co-op. Campus Stop uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis:Required:1. Compute Net Sales and Gross
Hair supplies. Hair World uses a Hair World Inc. is a wholesaler of perpetual inventory system. The following transactions (summarized) have been selected for analysis:Required:1. Compute Net Sales
If beginning inventory is $200 and purchases are $800, which of the following could be true?a. Ending inventory is $400 and Cost of Goods Sold is $600.b. Ending inventory is $800 and Cost of Goods
Which of the following is false regarding a perpetual inventory system?a. Physical counts are never needed because records are maintained on a transaction-by-transaction basis.b. The Inventory
Big Tommy Corporation is a local grocery store organized seven years ago as a corporation. The bookkeeper prepared the following statement at year-end (assume that all amounts are correct, but note
Which of the following does not affect Net Sales?a. Sales Returns and Allowancesb. Sales Discountsc. Cost of Goods Soldd. Sales Revenue
A $1,000 sale is made on May 1 with terms 2/30, n/60. Items with a $100 selling price are returned on May 3. What amount, if received on May 9, will be considered payment in full?a. $700 b.
A company bundles a product and service that separately sell for $40 and $60, respectively. If the bundled price is $80, how much revenue is recognized for delivering the product?a. $32 b. $40c.
Use the information in M5-10 to identify outstanding deposits that should be included in the May 31 bank reconciliation.Data From M5-10Use the following bank statement and T-account to identify
Which of the following correctly describes how to report cash?a. Restricted cash is always reported as a current asset.b. Cash can be combined with cash equivalents.c. Cash can be combined with
Upon review of the most recent bank statement, you discover that a check was made out to your supplier for $76 but was recorded in your Cash and Accounts Payable accounts as $67. Which of the
Upon review of your company’s bank statement, you discover that you recently deposited a check from a customer that was rejected by your bank as NSF. Which of the following describes the actions to

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