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introduction to financial accounting

Questions and Answers of Introduction To Financial Accounting

Periodic versus Perpetual Inventory Systems The Zen Bootist manufactures sheepskin slippers, mittens, gloves, jackets, and leather sandals to sell at craft fairs and similar events. The majority of
Purchasing Operations and LIFO versus FIFO Suppose a company bases its evaluation of the purchasing officer for a refinery on the gross margin on the oil products produced and sold during the year.
Effect of Overstating Inventories Phar Mor was a large, rapidly growing pharmacy chain that proved to have overstated assets by more than $400 million. Top executives accomplished the overstatement
Deciding on a Discount Policy You are debating with your boss about whether to give customers a 2% discount for quantity pur- chases. You favor the idea, but your boss says, "Why give money away? If
"Gross profit percentages help in the prepa- ration of interim financial statements." Explain. 7:26 The branch manager of a national retail grocery chain has stated, "My managers are judged more
Express the cost of goods sold section of the income statement as an equation.
What does market mean in inventory accounting?
"Accountants have traditionally favored taking some losses but no gains before an asset is exchanged." What is this tradition or convention called?
"Conservatism always results in lower reported profits." Do you agree? Explain.
LIFO produces absurd inventory valua- tions. Why?
"There is a single dominant reason why more and more U.S. companies have adopted LIFO." What is the reason?
What is consistency, and why is it an important accounting principle?
Will LIFO or FIFO produce higher cost of goods sold during a period of falling prices? Explain.
Assume that the physical level of inven- tory is constant at the beginning and end of the year and that the cost of inventory items is rising. Which will produce a higher ending inventory value, LIFO
"Gamma Company has five units of inven- tory, two purchased for $4 each and three pur- chased for $5 each. Thus, the weighted-average cost of the inventory is ($4+ $5)+2 $4.50 per unit." Do you
"Purchases of inventory at the end of a fis- cal period can have a direct effect on income under LIFO." Do you agree? Explain.
Why is LIFO a good news/bad news inventory method?
If a company uses a FIFO cost flow assump- tion, will it report the same cost of goods sold using the periodic inventory method that it reports using the perpetual method? Why or why not? -
For which of the following items would a company be likely to use the specific identifica- tion inventory method?a. Corporate jet aircraftb. Large sailboatsc. Pencilsd. Diamond ringse. Timex
Name the four inventory cost flow assump- tions or valuation methods that are generally accepted in the United States. Give a brief phrase describing each.
Distinguish between F.O.B. destination and F.O.B. shipping point.
Distinguish between the perpetual and peri- odic inventory systems.
"There are two steps in conducting a physical count of inventories." What are they?
When a company records a sales transac- tion, it also records another related transaction. Explain the related transaction.
Determine inventory costs for a manufacturing company (Appendix 7).
Evaluate the gross profit percentage and inventory turnover.
Show the effects of inventory errors on financial statements.
Use the lower-of-cost-or-market method to value inventories.
Calculate the impact on net income of LIFO liquidations.
Compute income and inventory values using the four principal inventory valuation methods.
Calculate the cost of merchandise acquired.
Use both perpetual and periodic inventory systems.
Link inventory valuation to gross profit.
Understand the role of adjustments in accrual accounting.
Onora Limited prepares its financial statements to 31 December each year. On 1 January 2017, Onora Limited entered into a contract with a construction company to build a new distribution depot for
Yellow Limited (Yellow), a company that prepares its financial statements to 31 December each year, is involved in the manufacture of made-to-order customised sports cars. The company commenced
On 1 January 2017, Robinson plc (Robinson) entered into a contract with a building company to build a new administrative and visitors’ facility for the company at a cost of€10 million. In order
4, What are the key differences between IAS 23 and FRS 102, Section 25 Borrowing Costs?
3. When may capitalisation of borrowing costs begin and when must it end under IAS 23?
On 1 January 2017, X began to construct a supermarket. It purchased a leasehold interest in the site for €25 million. The construction of the building cost €9 million and the fixtures and
1. What are the arguments for and against the capitalisation of borrowing costs?
Compass Limited prepares its financial statements to 31 December each year, and at 31 December 2017 the company owned four properties: North, East, South and West.On 1 January 2016, Compass Limited
Kelly Limited, a company that prepares its financial statements to 31 December each year, commenced the construction of a property for its own use on 1 March 2017. However, construction was halted in
2. What is the accounting treatment for qualifying borrowing costs in accordance with IAS 23?
5. Recognize revenue when (or as) the company fulfils performance obligations.This can happen at a specific point in time (typically for goods) or over a period of time (typically for services). If a
4. Allocate the transaction price to the performance obligation in the contract.Typically, this is done on a stand-alone basis. If a stand-alone selling price is not given, the company needs to
3. Determine the transaction price. The consideration the company expects to receive in exchange for the promised goods or services is the transaction price. It may be fixed or variable, cash or
2. Identify the performance obligations in the contract. A contract includes a promise to transfer goods or services to the customer. If those goods or services are clearly distinct, performance
1. Identify the contract(s) with a customer. A contract is a mutual agreement that defines enforceable rights and obligations. In some cases, contracts must be aggregated and accounted for as one.
3. Presentation When recognition and measurement are clarified, the final question arises: How do we need to present this information? Do we have to provide details? Where are the details given, in
2. Measurement If a transaction must be recognized, i.e. if it must be included in the financial statements, the next question that arises is: What is the correct value? Or: How do we measure this
Three questions must be answered to decide upon the accounting for a specific transaction:1. Recognition Does this transaction have to be included in the financial statements or in the balance sheet,
Analyzing Financial Statements Using the Internet Go to http://www.columbiasportswear.com to find Columbia Sportswear's home page. Select Who We Are then Investor Info from the menu. Then select
Analyzing Starbucks' Financial Statements This problem develops skills in preparing adjusting journal entries. Refer to the financial statements of Starbucks (Appendix A at the end of the book). Note
Financial Statement Research Select any two companies. 1. For each company, determine the amount of working capital and the current ratio. 2. Compare the current ratios. Which company has the larger
Implicit Transactions Form groups of from three to six "players." Each group should have a die and a paper (or board) with four columns labeled: 1. Expiration of unexpired costs. 2. Recognition of
Adjusting Entries and Ethics By definition, adjusting entries are not triggered by an explicit event. Therefore, accountants must ini- tiate adjusting entries. For each of the following adjusting
Preparation of Financial Statements from Trial Balance Procter & Gamble is one of the largest consumer products companies in America. The (slightly mod- ified) trial balance as of June 30, 2003
Retail Company Financial Statements The Home Depot, Incorporated is one of the world's largest retailers. The annual report for the year ended February 2, 2003 included the data (slightly modified)
Single-Step Income Statement Harley-Davidson is the parent company of Harley-Davidson Metor, Buell Motorcycle, and Harley-Davidson Financial Services. It is most well known for producing heavyweight,
Multiple-Step Income Statement (Alternates are 4-36 and 4-40.)Intel Corporation is one of the largest companies in the United States. Its annual report for the year ended December 27, 2003 contained
Classified Balance Sheet, Current Ratio and Quick Ratio Gateway is a producer of personal computers. The company's balance sheet for December 31, 2002 (slightly modified) contained the following
Journal Entries and Adjustments NW Natural is a public utility in Oregon. An annual report included the following footnote: "Utility revenue from gas sale and transportation is recognized when the
Mirror Side of Adjustments Problem 4-39 described some adjustments made by Alaska Airlines. The adjustments are lettered (a) through (f). Repeat the requirements for each adjustment as it would be
Mirror Side of Adjustments Problem 4-38 described some adjustments made by Goodyear Tire & Rubber Company. Prepare the necessary adjustment as it would be made by (a) landlords, (b) U-Haul, (c)
Mirror Side of Adjustments Problem 4-35 described some adjustments made by Amber Marshall, CPA. Prepare the necessary adjustment as it would be made by the client in transactions (b) and (c) and by
Financial Statements and Adjustments Rockwell Wholesalers, Inc., has just completed its fourth year of business, 20X3. A set of finan- cial statements was prepared by the principal stockholder's
Accounting for Subscriptions (Alternate is 4-41.) A French magazine company collects subscriptions in advance of delivery of its magazines. However, many magazines are delivered to magazine
Accounting for Dues (Alternate is 4-42.) The Stone Beach Golf Club provided the following data from its comparative balance sheets: Dues receivable Unearned dues revenue December 31 20X8 20X7 $90,000
Coldwater Creek Financial Statements (Alternates are 4-36 and 4-51.) Coldwater Creek is a retailer of women's apparel, jewelry, footwear, gift items, and home merchandise headquartered in Sandpoint,
Four Major Adjustments (Alternates are 4-35, 4-37, and 4-38.) Alaska Airlines showed the following items in its balance sheet as of December 31, 2002, the end of the fiscal year (S in millions):
Four Major Adjustments (Alternates are 4-35, 4-37, and 4-39). The Goodyear Tire & Rubber Company included the follow- ing items in its December 31, 2002 balance sheet ($ in millions): Prepaid
Four Major Adjustments (Alternates are 4-35, 4-38, and 4-39) Leslie Baker, an attorney, had the following transactions (among others) during 20X8, her initial year in law practice:a. On August 1,
Multiple-Step Income Statement (Alternates are 4-40 & 4-51.) From the following data, prepare a multiple-step income statement fo the Curran Company for the fiscal year ended May 31, 20X6 (S in
Adjusting Entries (Alternates are 4-37 through 4-39.) Amber Marshall, certified public accountant, had the following transactions (among others) during 20X8:
Impact of Adjusting Entries on Ratios Exercise 4-31 asked you to write adjusting/correcting entries for transactions (a) through (i). In this problem, consider the effect on the current ratio and
Profitability Ratios The Nestl Group, the Swiss chocolate company, sells many other food items in addition to various types of chocolates. Sales in 2001 were SF 89,160 million (where SF means Swiss
Working Capital and Current Ratio Using the Columbia Sportswear balance sheet in Exhibit 4-6 on page 158, compute Columbia's working capital, current ratio, and quick ratio for 2003. Compute the
Effects of Adjustments and Corrections Listed here are a series of accounts that are numbered for identification. All accounts needed to answer this question are included. The same account may be
Effects of Errors in Adjustments What will be the effect-understated (u), overstated (o), or no effect (n)-on the income of the pre- sent and future periods if the following errors were made. In all
Effects on Balance Sheet Equation Following is a list of effects of accounting transactions on the balance sheet equation: Assets Liabilities + Stockholders' equity.a. Increase in assets, decrease in
Identification of Transactions Valenzuela Corporation's financial position is represented by the nine balances shown on the first line of the following schedule ($ in thousands). Assume that a single
Effects of Interest on Lenders and Borrowers Prudential lent Rodda Paint Company $1,500,000 on April 1, 20X5. The loan plus interest of 10 percent is payable on April 1, 20X6. 1. By using the balance
Placement of Interest in Income Statement Two companies have the following balance sheets as of December 31, 20X8: Jupiter Company Cash $50,000 Note payable* $100,000 Other assets 150,000
Accrued Vacation Pay Delta Airlines had the following as a current liability on its balance sheet, December 31, 2002: Accrued salaries and related benefits $1,365,000,000 The "related benefits"
Accrual of Wages Consider the following calendar: September SMTWTFS 12 345 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 The Golden Rule Department Store commenced business
Customer and Airline Kimberly Clark (KC), maker of Scott paper products, decided to hold a managers' meeting in Hawaii in February. To take advantage of special fares, KC purchased airline tickets in
Tenant and Landlord The Trucano Company, a retail hardware store, pays quarterly rent on its store at the beginning of each quarter. The rent per quarter is $18,000. The owner of the building in
True or False Use T or F to indicate whether each of the following statements is true or false: 1. Retained earnings should be accounted for as a current liability item. 2. Deferred revenue will
Accounting for Supplies A company began business on July 1 and purchased $1,000 in supplies including paper, pens, paper clips, and so on. On December 31, as financial statements were being prepared,
Operating versus Nonoperating Expenses You have recently begun a new job as an internal auditor for a large retail clothing chain. The company prepares a multiple-step income statement. You discover
What Constitutes Revenue? You have just started a program of selling gift certificates at your store. In the first month, you sold $5,000 worth and customers redeemed $1,250 of these certificates for
Accounting Errors You have discovered an error in which the tenant has "incorrectly" recorded as rent expense a $3,000 payment made on December 1 for rent for the months of December and January. As a
The term "costs and expenses" is some- times found instead of just "expenses" on the income statement. Would expenses be an ade- quate description? Why?
Why does interest expense appear below operating income on a multiple-step income statement?
"Microsoft is much more profitable than IBM because its current ratio is three times larger than IBM's." Do you agree? Explain.
What types of adjusting entries are made before the related cash flows? After the related cash flows?
Give a synonym for income tax expense.
Give two synonyms for unearned revenue.
Give two examples of implicit transactions.

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