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business
introduction to financial accounting

Questions and Answers of Introduction To Financial Accounting

Company A purchases a machine for €120,000. It received a grant towards 20% of the cost of the machine. The machine has an expected life of three years, with an expected nil residual value. Profit
In 2017 a company incurred training expenses of €500,000 and received a grant towards 10%of this cost.Requirement How should the grant be accounted for under the two methods allowed in IAS 20?
explain the principal accounting and disclosure differences between IAS 20 and Section 24 Government Grants of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
distinguish between grants related to income and grants related to assets
Tobacco Limited (“Tobacco”) manufactures cigars. The following information is available for the company for the year ended 31 December 2017. The financial statements are due to be signed by the
Toffee plc (“Toffee”) is a manufacturer and distributor of confectionery goods. The company's year-end is 31 December. The directors of Toffee are due to sign the company’s financial statements
Highgrove plc is a manufacturing and distribution company. You are acting as auditor to Highgrove plc and you have been asked by the Board of Directors of the company to explain how the following
Sword Limited had inventory amounting to €120,000 in its statement of financial position at 31 December 2017. On 3 January 2018, a fire in the company’s warehouse severely damaged this inventory.
Blade Limited is a furniture manufacturing company. The company was informed on 1 February 2018 that one of its major customers, Greenwood Limited, had gone into liquidation. The liquidator indicated
Fabricators Limited, an engineering company, makes up its financial statements to 31 March in each year. The financial statements for the year ended 31 March 2018 showed a turnover of €3 million
The following events, which are considered to be material, occurred after the date of the statement of financial position of Bellamy Limited but before the authorisation of its financial
5. In what circumstances will a non-adjusting event require changes in the amounts to be disclosed in the financial statements?
4, Give three examples of a non-adjusting event.
3. Give three examples of an adjusting event.
2. What is an adjusting event?
1. What is an event after the end of the reporting period?
Seasons Limited is a wholly-owned subsidiary of Vivaldi Limited, with both companies preparing their financial statements to 31 December each year. On 23 January 2018, after reviewing the draft
(a) The shareholders of MLC Limited, a company that prepares its financial statements to 31 December each year, approved a dividend of 6 cent per share on 28 December 2017, but this was not paid
Pinewood Limited is a furniture manufacturing company. The company was informed on 1 February 2018 that one of its major customers, Cushion Limited, had gone into liquidation.The liquidator indicated
Punjab ple (Punjab) is a producer and distributor of tea. The company’s year-end is 31 December.The directors of Punjab are due to sign the company’s financial statements for the year ended 31
explain the principal accounting and disclosure differences between IAS 10 and Section 32 Events after the End of the Reporting Period of FRS 102 The Financial Reporting Standard applicable in the UK
4. explain the IAS 10 Events afier the Reporting Period requirements regarding proposed dividends;
2. distinguish between an adjusting and a non-adjusting event
1. define events after the end of the reporting period;
Analyzing Financial Statements Using the Internet: May Department Stores Go to www.mayco.com to find May Department Stores' financial information. Select About May, and click on Investor relations
Analyzing Starbucks' Financial Statements Refer to Starbucks' financial statements in Appendix A. Focus on the liabilities section of the balance sheet and footnote 10. 1. Compute the following three
Financial Statement Research Select any two companies from the airline industry, and find each company's footnote describing its leases. (Possible companies include Alaska Airlines, American
Accounting for Pensions Form groups of two or more students. Divide each group into two debate teams. Each team should be assigned one of the two following positions: 1. Pensions and other
Characteristics of Bonds Form groups of three to six persons each. Each person should select a company that has long-term debt in the form of bonds (or debentures). Pick one of the company's bonds,
Present Value and Sports Salaries Study Appendix 9. "Rangers break the bank, sign Alex Rodriguez for 10 years, $252 million" read the headline in the December 12, 2000 Dallas newspaper. The contract
Liabilities for Frequent Flier Miles and Ethics Most airlines in the United States have frequent flier programs that grant free flights if a customer accumulates enough flight miles on the airline.
Review of Chapters 8 and 9 Albertson's Inc., based in Boise, Idaho, operates nearly 2,500 food and drugstores in 37 states. The company's annual report for fiscal 2003 contained the following ($ in
Debt-to-Equity Ratios The total debt and stockholders' equity for three companies follows. The companies are described as follows:AT&T provides long-distance phone service and is a large,
The Income Tax Footnote Yum! Brands Inc. operates many franchised food outlets, including Pizza Hut, Taco Bell, A&W, and KFC. The company had 2002 operating revenues of nearly $8 billion and income
Deferral of Taxes and Reversal of Temporary Differences Castillo Company bought an asset for $200,000 on January 1, 20X0. The asset has a 10-year life and zero salvage value. Castillo uses
Deferred Taxes Cadbury Schweppes is a major global company in beverages and confectionery based in London. It is the third largest soft drink company in the world, after Coca-Cola and PepsiCo. More
Pension Liabilities General Motors had pension obligations of approximately $92 billion and obligations for postre- tirement benefits other than pensions of $57 billion at the beginning of 2003. The
Capital Leases The Home Depot is the leading retailer in the home improvement industry and one of the 10 largest retailers in the United States. The company included the following on its February 1,
Leases Consider footnote 7 from the 2003 annual report of FedEx: Footnote 7: We utilize certain aircraft, land, facilities, and equipment under capital and operat- ing leases that expire at various
Leases The following information appeared in a footnote to the 2002 annual report of Delta Air Lines, Incorporated: The following table summarizes, as of December 31, 2002, our minimum rental
Capital or Operating Lease ? ??? ??? ??? ??? 222 ??? ??? 222 ? ? ? On December 31, 20X8, Posada Wood Products Company has been offered an electronically con- trolled automatic lathe (a) outright for
Comparison of Operating and Capital Lease Refer to the preceding problem. Compare income statement and balance sheet effects of treating the lease as a capital lease rather than an operating lease.
Capital Lease The Kansas City Meat Packing Company acquired packaging equipment on a capital lease for annual lease payments of $40,000 at the end of each of 3 years. The implicit interest rate was
Zero Coupon Bonds The state of Illinois issues zero coupon bonds as part of its Illinois College Savings Bonds series. In late 2002, the state issued 9 million such bonds with a total $45 million
Zero Coupon Bonds The U.S. Treasury requires issuers of "deep-discount" or "zero coupon" debt securities to use an effective interest approach to amortization of discount. Similarly, buyers of such
Noninterest-Bearing Notes On January 2 a local bookstore borrowed from a bank on a 1-year note. The face value of the note was $40,000. However, the bank deducted its interest "in advance" at 10% of
Early Extinguishment of Debt On December 31, 2005, a Geneva real estate holding company issued SFR 10 million of 10-year, 8% debentures. The market interest rate at issuance was 8%. Suppose that on
Early Extinguishment of Debt On December 31, 2003, Sunnyside Cruises issued $20 million of 10-year, 12% debentures. The mar- ket interest rate at issuance was 14%. On December 31, 2004 (after all
Bond Premium Transactions (Alternate is 9-56.) Assume that on December 31, 20X4, Green Bay Woolens issued $10 million of 10-year, 10% debentures. Proceeds were $11,359,000; therefore, the market rate
Bonds issued at a Premium (Alternate is 9-57.) On January 1, 2004, New South Wales Travel issued $4 million of 5-year, 10% debentures. The market interest rate at issuance was 8%. 1. Compute the
Bond Discount Transactions (Alternates are 9-52 and 9-53.) Assume that on December 31, 2004, Trondheim Tool and Die issued NKR 10 million of 10-year, 10% debentures. Proceeds were NKR 7,881,000;
Bond Amortization Schedule Consider the bond in Problem 9-53.A $10 million issue of 5-year, 6% debentures when the market interest rate was 8%. It was issued on January 1, 2004. 1. Prepare a table
Bonds Issued at a Discount (Alternates are 9-52 and 9-55.) On January 1, 2004, Metro Transit issued $10 million of 5-year, 6% debentures. The market interest rate at issuance was 8%. 1. Compute the
Bond Discount Transactions (Alternates are 9-53 and 9-55.) On March 1, 2003, Midwest Gas issued $100 million of 20-year, 9% debentures. Proceeds were $91.191 million, implying a market interest rate
Bonds Issued at Par On December 31, 2003, BC Fisheries, Inc. issued $15 million of 10-year, 6% debentures at par. 1. Compute the proceeds from issuing the debentures. 2. By using the balance sheet
Bonds Issued at Par On December 31, 2003, Clay Computers issued $30 million of 5-year, 10% debentures at par. 1. Compute the proceeds from issuing the debentures. 2. Using the balance sheet equation
Convertible Bonds Sometimes companies find it desirable to include a convertibility option to sell bonds at a reasonable interest rate. In 2003, Siemens AG, the huge German electronics company,
Accounting for Payroll For the week ended January 27, the Sierra Manufacturing Company had a total payroll of $200,000. The company withheld three items from employees' paychecks: (1) Social Security
Discounted Present Value and Leases Study Appendix 9. Suppose Wal-Mart signed a 10-year lease for a new store location. The lease calls for an immediate payment of $25,000 and annual payments of
Basic Relationships in Interest Tables Study Appendix 9. Then answer the following questions: 1. Suppose you borrow $20,000 now at 16% interest compounded annually. The borrowed amount plus interest
Exercises in Compound Interest Study Appendix 9. Then answer the following questions: 1. At age 60, you find that your employer is moving to another location. You receive termination pay of $100,000.
Exercises in Compound Interest Study Appendix 9. Then answer the following questions: 1. It is your sixtieth birthday. You plan to work 5 more years before retiring. Then you want to spend $20,000
Compound Interest and Journal Entries Study Appendix 9. A Munich company has bought some equipment on a contract entailing a 200,000 cash down payment and an e800,000 lump sum to be paid at the end
Exercises in Compound Interest Study Appendix 9. A reliable friend has asked you for a loan. You are pondering various proposals for repayment. 1. Repayment of a $20,000 lump sum 4 years hence. How
Exercises in Compound Interest Study Appendix 9. Then answer the following questions: 1. You deposit $6,000. How much will you have in 4 years at 8%, compounded annually? At 12%? 2. A savings and
Various Liabilities 1. Maytag Corporation sells electric appliances, including automatic washing machines. Experience in recent years has indicated that warranty costs average 3.0% of sales. Sales of
Deferred Taxes Procter & Gamble (P&G) Company's net sales in 2003 exceeded $43 billion. On its income state- ment, P&G reported the following (S in millions):Earnings before income taxes Income taxes
Accounting for Pensions Hrbeck Company's current pension expense is $800,000, of which it pays $250,000 in cash to a trustee. By using the balance sheet equation format, show which accounts are
Criteria for Capital Leases Indicate which of the following leases would be a capital lease and which would be operating leases.a. Rental of an automobile on a 3-month lease for $500 per month. The
Discounted Present Value and Bonds On December 31, 20X1, Tan Company issued a 3-year $1,000 bond that promises an interest rate of 12%, payable 6% semiannually. Compute the discounted present value
Priorities of Claims Sterling Real Estate Corporation is being liquidated. It has one major asset, an office building, which was converted into $18 million cash. The stockholders' equity has been
Unearned Revenues The Reader's Digest Association, Inc., one of the largest publishers of magazines in the world, had unearned revenues of $415 million on its June 30, 2003 balance sheet. Suppose
Product Warranties During 20X4, the Cedeno Appliance Company had cash sales of $800,000. The company estimates that the cost of servicing products under warranty will average 3% of sales. 1. Prepare
Sales Taxes Most of the food sold in retail stores in California is not subject to sales taxes (e.g., candy), but some items are (e.g., soft drinks). Apparently, the candy lobbyists were more
Accrued Employee Compensation Welton Company had total compensation expense for March of $24,000. The company paid $20,000 to employees during March, and it will pay the remainder in April. 1.
Liabilities on the Balance Sheet Krispy Kreme Company, the rapidly expanding doughnut company, had the following items on its February 2, 2003 balance sheet (in thousands): Cash and cash equivalents
Cash Interest versus Interest Expense As a lender, you are contemplating a covenant that is based on the interest-coverage ratio. A young member of your organization with a new MBA degree has
Refinancing Bonds Your treasurer is new to the job and has just noticed that your bonds are trading below par (i.e., at a discount). This officer recommends that you retire the bonds by issuing new
Lottery Winnings The New York Lottery provides prizes that start at $3 million and rise each time someone fails to win the lottery. Participants in the lottery are permitted to choose to receive a
Lenders and Covenants Why would a lender want to add a covenant specifying a maximum debt-to-total-assets ratio to a loan contract?
Refer to Appendix 9. How are Table 9A-2 (p. 422) and Table 9A-3 (p. 423) related to each other?
"A contingent liability is a liability having an estimated amount." Do you agree? Explain.
Discuss which characteristics of a lease are evaluated in deciding whether it is a capital lease.
"A capital lease and operating lease are recorded differently on the balance sheet, but their effect on the income statement is the same." Do you agree? Explain.
"A capital lease results in both an asset and a liability on a company's balance sheet." Explain.
Certain leases are essentially equivalent to purchases. A company must account for such leases as if the asset had been purchased. Explain.
"A company that issues zero coupon bonds recognizes no interest expense until the bond matures." Do you agree? Explain.
A company plans to issue bonds with a nominal rate of 10%. At what market rates will the bonds be issued at a discount? At what mar- ket rates will they be issued at a premium?
Bond covenants usually restrict the bor- rower's rights in various ways. An example might be a restriction that no additional long-term debt could be issued unless the debt-to-total assets. ratio was
"Protective covenants protect the sharehold- ers' interests in cases of liquidation of assets." Do you agree? Explain.
"Withholding taxes really add to employer payroll costs." Do you agree? Explain. 9- "Product warranties expense should not be recognized until actual repair services are performed. Until then you
Analyzing Financial Statements Using the Internet Go to www.boeing.com to locate Boeing's home page. Select Investor. Click on Current Annual Reports. Click on Financials. Answer the following
Analyzing Starbucks' Annual Report Use the financial statements and notes of Starbucks in the appendix to respond to the questions that follow: 1. Calculate ROE for the year ended September 28, 2003.
Financial Statement Research Choose two companies in each of two industries. Calculate the ROA, ROE, and return on sales for each of the companies. Compare and contrast the two companies in each
Operating Return on Total Assets Form groups of four to six students. Each student should choose an industry (a different industry for each student in the group) and pick two companies in that
MD&A and Ethics If certain conditions are met, the SEC requires companies to disclose information about future events that are reasonably likely to materially affect the firms' operations. Many
EVA at Briggs & Stratton Briggs & Stratton Corporation is the world's largest maker of air-cooled gasoline engines for out- door power equipment. The company's engines are used by the lawn and garden
Choosing Potential Investments Among Retailers Exhibit 12-22 on pages 596-597 presents some financial information for Wal-Mart, Target, JCPenney, and Kohl's. Which do you believe is the preferred
Choosing Potential Investments Among Delivery Companies Exhibit 12-21 on page 595 presents some financial information for United Parcel Service (UPS) and FedEx. Which do you believe is the preferred
Industry Identification Exhibit 12-20 presents common-size financial statements and selected ratio values for eight compa- nies from the following industries: 1. Department store 2. Pharmaceutical 3.

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