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introductory financial accounting for business

Questions and Answers of Introductory Financial Accounting for Business

60 Internal Control Weaknesses Identify the internal control weaknesses in each of the following situations, and indicate what change or changes you would recommend to eliminate the weaknesses: 1.
59 Compensating Balances Morneau Company borrowed $200,000 from Citibank at 8% interest. The loan agreement stated that a compensating balance of $25,000 must be kept in the Morneau checking account
58 Accounts Receivable Ratios Bayer Group, the German chemical and pharmaceutical company, is the third largest pharmaceutical company in the world. It had the following results in 2009–2011 (in
57 Accounts Receivable Turnover and Average Collection Period Vulcan Materials Company, the nation’s largest producer of construction aggregates, is headquartered in Birmingham, Alabama. The
56 Subsidiary Ledger A custom furniture company made credit sales of $840,000 in 20X1 to 100 customers: Ferrara, $5,000; Cerruti, $7,000; others, $828,000. Total collections during 20X1 were $760,000
55 Bad Debt Recoveries Southcenter Variety Store has many accounts receivable. The Southcenter balance sheet, December 31, 20X1, showed Accounts Receivable, $950,000, and Allowance for Uncollectible
54 Bad Debt Allowance Kansas Furniture Mart had sales of $1,150,000 during 20X1, including $600,000 of sales on credit. Balances on December 31, 20X0, were Accounts Receivable, $120,000, and
53 Bad Debts Prepare all journal entries for 20X2 concerning the following data for a medical clinic that performs elective laser surgery that corrects vision. Such procedures are not covered by
52 Allowance Method and Correcting Entries The Good Samaritan Hospital uses the allowance method in accounting for bad debts. A journal entry was made for writing off the accounts of Jane Peterson,
51 Specific Write-off Versus Allowance Methods The Empire District Electric Company serves customers in the region where the states of Kansas, Missouri, Arkansas, and Oklahoma come together. Empire
50 Uncollectible Accounts During 20X1, the Downtown Department Store had credit sales of $900,000. The store manager expects that 2% of the credit sales will never be collected, although no accounts
49 Trade-ins Versus Discounts Many states base their sales tax on gross sales less any discount. Trade-in allowances are not discounts, so companies cannot deduct them from the sales price for sales
48 Accounting for Credit Cards Michelle’s Classic Clothing Store has extended credit to customers on open account. Its average experience for each of the past 3 years has been as follows: Cash
47 Credit Terms, Discounts, and Annual Interest Rates As the struggling owner of a new restaurant, you suffer from a habitual shortage of cash. Yesterday the following invoices arrived: Vender Face
46 Entries for Cash Discounts and Returns on Sales The Walla Walla Wine Company, a wholesaler of Washington state wines, sells on credit terms of 2/10, n/30. It uses the gross method for cash
45 Cash Discounts Transactions Grodahl Electronics is a wholesaler that sells on terms of 2/10, n/30. Suppose it sold video equipment to Costco for $600,000 on open account on January 10. Payment
44 Gross and Net Methods for Cash Discounts Midvale Manufacturing, Incorporated, reported the following in 20X0 ($ in thousands): Sales $680 Cash discounts on sales 20 1. Assume that Midvale uses the
43 Sales Returns and Discounts Fresno Fruit Wholesalers had gross sales of $850,000 on credit during the month of March. Sales returns and allowances were $50,000. Cash discounts granted were $35,000
42 Revenue Recognition, Cash Discounts, and Returns Royalton Bookstore ordered 1,000 copies of an introductory physics textbook from Prentice Hall on July 17, 20X0. The books were delivered on August
41 Net Revenue and Noncash Sales—Auto Dealership Northend Motors sold a new BMW to Salvador Frezatti. The list price of the new car was $40,000. Mr. Frezatti traded in a 5-year old Audi that has a
40 Noncash Sales Suppose Accenture sold software with a retail value of $240,000 to Atlanta Pictures, Inc. Instead of receiving cash, Accenture received 22,000 shares of Atlanta Pictures stock, which
39 Revenue Recognition Sierra Logging Company hired Reid Construction Company to build a new bridge across the Brown Trout River. The bridge would extend a logging road into a new stand of timber.
38 Revenue Recognition and Evaluation of Sales Staff Revenue on an accrual-accounting basis is usually recognized as it is earned. Revenue in cash-basis accounting must be received in cash. Is
37 Criteria for Revenue Recognition We generally treat revenue as earned when the company delivers merchandise to the customer. At that moment, what additional uncertainty remains about the proper
36 Bank Credit Cards If a company accepts bank credit cards, why might it accept specific cards instead of all of them? For example, some retailers accept VISA and MasterCard, but not American
35 Revenue Recognition A newly created weekly free newspaper has approached your bank seeking a loan. Although the newspaper is free, it gets significant revenue from advertising. In the first 2
34 Study the appendix. When a company makes a bank deposit, it debits its cash account. Why might a bank say the company’s account was “credited”?
33 What is the essential idea of separation of duties?
32 “The most important element of successful control is personnel.” Explain.
31 Prepare a checklist of important factors to consider in judging an internal control system.
30 What is the primary responsibility of the audit committee?
29 “The primary responsibility for internal controls rests with the outside auditors.” Do you agree? Explain.
28 Distinguish between internal accounting control and internal administrative control.
27 “If everyone were honest, there would be no need for internal controls to safeguard cash.” Do you agree? Explain.
26 List five internal control procedures used to safeguard cash.
25 “The cash balance on a company’s books should always equal the cash balance shown by its bank.” Do you agree? Explain.
24 It is common in sub shops and pizza parlors around the Baruch College campus to find signs that say “Your purchase is free if the clerk does not give you a receipt” or “Two free lunches if
23 “Cash is only 3% of our total assets. Therefore, we should not waste time designing systems to manage cash. We should use our time on matters that have a better chance of affecting our
22 “A compensating balance essentially increases the interest rate on money borrowed.” Explain.
21 Describe and give two examples of cash equivalents.
20 What is the relationship between the average collection period and the accounts receivable turnover?
19 Granting credit has two major impacts on a company, one good and one bad. Describe both.
18 Explain why a write-off of a bad debt should be reversed if collection occurs at a later date.
17 Distinguish between the percentage of sales approach to applying the allowance method and the aging of accounts receivable approach.
15 “Under the allowance method, there are three popular ways to estimate the bad debt expense for a particular year.” Name the three. 16 What is meant by “aging of accounts”?
14 “The Allowance for Uncollectible Accounts account has no subsidiary ledger, but the Accounts Receivable account does.” Explain.
13 Distinguish between the allowance method and the specific write-off method for bad debts.
12 What is the cost-benefit relationship in deciding whether to offer credit to customers, and whether to accept bank credit cards?
11 Describe the difference between the gross and net methods of accounting for cash discounts.
10 “Retailers who accept VISA or MasterCard are foolish because they do not receive the full price for merchandise they sell.” Comment.
9 “Trade discounts should not be recorded by the accountant.” Do you agree? Explain.
8 Distinguish between a trade discount and a cash discount.
7 Distinguish between a sales return and a sales allowance.
6 Why is the realizable value of a credit sale often less than that of a cash sale?
5 Why is measuring revenue for a noncash sale more complex than it is for a cash sale?
4 What will be the major effects on revenue recognition if the proposed joint FASB/IASB standard is adopted?
3 The proposed joint FASB/IASB standard on revenue recognition has a five-step process for revenue recognition. What are the five steps?
2 Describe the timing of revenue recognition under current U.S. GAAP for a defense contractor in the United States on a $50 million long-term government contract with work spread evenly over 5 years.
1 What is the two-pronged test for revenue recognition under current U.S. GAAP?
78 Analyzing Financial Statements Using the Internet: Nike Go to www.nikebiz.com and select Investors to locate Nike’s most current financial information. 1. Take a look at Nike’s Condensed
77 Analyzing Starbucks’ Financial Statements Find Starbucks’ 2011 statement of cash flows either on Starbucks’ Web site or using the SEC’s EDGAR database. 1. Did Starbucks’ net cash
76 Financial Statement Research Identify an industry and select two companies within that industry. 1. Determine whether net cash flow from operations is stable through time. 2. Relate net cash flow
75 Items in the Statement of Cash Flows Form groups of four to six students each. Each member of the group should select a different company, find its statement of cash flows for a recent year, and
74 Interpretation of the Statement of Cash Flows and Ethics Victoria, Inc., produces athletic wear. The company’s peak year was 2008. Since then, both sales and profits have fallen. The following
73 Miscellaneous Cash Flow Questions McDonald’s Corporation is a well-known provider of food services around the world. McDonald’s statements of cash flows for 2011 and 2010 are reproduced with a
72 Free Cash Flow 8 A condensed version of the Kellogg Company statement of cash flows appears in Exhibit 16. millions) 2011 2010 2009 Operating Activities Net earnings $1,229 $ 1,240 $1,208 Items in
71 Statement of Cash Flows, Direct and Indirect Methods Nordstrom, Inc., the Seattle-based fashion retailer, had the following income statement for the year ended January 28, 2012 ($ in millions):
70 Comprehensive Statement of Cash Flows During the past 30 years, Only Toys, Inc., has grown from a single-location specialty toy store into a chain of stores selling a wide range of children’s
69 Balance Sheet Equation (Alternate is 68.) Examine the data for Cascade Tiles, Inc., in Problem 54. Support the operating section of your cash flow statement by using a form of the balance sheet
68 Balance Sheet Equation (Alternate is 69.) Refer to Problem 66, Feinstein Company, requirement 1. Support the operating section of your cash flow statement by using a form of the balance sheet
67 Depreciation and Cash Flows (Alternate is 45.) The following condensed income statement and reconciliation schedule are from the annual report of Tran Company ($ in millions): Sales $425 Expenses
66 Prepare Statement of Cash Flows The Feinstein Company has assembled the accompanying balance sheets and statement of income and retained earnings for 20X4. Feinstein Company Balance Sheets as of
65 Cash Flows, Indirect Method The Jawarski Company has the following balance sheet data ($ in millions): 8OBJECTIVE 6 8OBJECTIVE 6 8OBJECTIVE 6 8OBJECTIVE 6 December 31 December 31 20X1 20X0 Change
64 Indirect Method: Reconciliation Schedule in Body of Statement Refer to Problem 56. Prepare a statement of cash flows that includes a reconciliation of net income to net cash provided by operating
63 Reconcile Net Income and Net Cash Provided by Operating Activities (Alternate is 60.) Refer to Problem 55. Prepare a supporting schedule to the statement of cash flows that reconciles net income
62 Cash Flows from Operating Activities, Indirect Method Sumitomo Metal Industries, Ltd., is a leading diversified manufacturer of steel products. During the year ended March 31, 2011, Sumitomo had a
61 Cash Provided by Operations Clorox Company is a leading producer of laundry additives, including Clorox liquid bleach. In the 6 months ended December 31, 2011, net sales of $2,526 million produced
60 Reconcile Net Income and Net Cash Provided by Operating Activities (Alternate is 63.) Refer to Problem 54 regarding Cascade Tile. Prepare a supporting schedule that reconciles net income to net
59 Statement of Cash Flows, Direct Method, Interest Expense, Australia CSR Limited is a leading supplier of building and construction materials headquartered in Sydney, Australia. The company’s
58 Prepare Statement of Cash Flows from Income Statement and Balance Sheet (Alternate is 56.) Cape Town Manufacturing had the following income statement and balance sheet items (in millions of rands,
57 Statement of Cash Flows, Direct Method The J.M. Smucker Company had net sales of $4,826 million from selling products such as jam (Smucker’s), peanut butter (Jif), and vegetable oils (Crisco)
56 Prepare Statement of Cash Flows from Income Statement and Balance Sheet (Alternate is 58.) During 20X1, Jacinta Manufacturing Company (JMC) declared and paid cash dividends of $10,000. Late in the
55 Prepare a Statement of Cash Flows, Direct Method (Alternates are 53 and 54.) Hiramatsu Exports, Inc., is a wholesaler of Japanese goods. By the end of 20X0, the company’s cash balance had
54 Prepare a Statement of Cash Flows, Direct Method (Alternates are 53 and 55.) Cascade Tile is a wholesale distributor of ceramic tiles. Its cash balance on December 31, 20X0, was $226,000, and net
53 Statement of Cash Flows, Direct Method (Alternates are 54 and 55.) Charleston Aerospace Company had cash and cash equivalents of $200 million on December 31, 2011. The following items are on the
52 Noncash Investing and Financing Activities The Arcadia Company operates a chain of video game arcades. Among Arcadia’s activities in 20X0 were the following: 1. The firm traded four old video
51 Cash Flows from Investing Activities—IFRS Vodafone Group Plc is a large UK-based telecommunications company that reports using IFRS. Its revenues in fiscal 2011 were more than £45 billion
50 Cash Flows from Investing Activities Johnson & Johnson is a health-care company with headquarters in New Brunswick, New Jersey. Its revenues in the fiscal year ended January 1, 2012, were more
49 Cash Flows from Financing Activities ConAgra Foods, Inc. is one of North America’s leading food companies with brands such as Banquet and Healthy Choice. Its 2011 sales exceeded $12 billion.
48 Statement of Cash Flows, Effect of Exchange Rates, Japan Kansai Electric supplies power to an area of Japan that includes Osaka and Kyoto. Its operating revenues are nearly ¥2.8 trillion (about
47 Free Cash Flow GlaxoSmithKline, the global maker of medicines, vaccines, and consumer health-care products and headquartered in the United Kingdom, reported net cash inflow from operating
46 Balance Sheet Equation of Statement of Cash Flows When you hear the name Rolls-Royce Holdings plc you probably think of luxury automobiles. However, today the company is mainly in aerospace,
45 Depreciation and Cash Flows (Alternate is 67.) Sawadi Thai Restaurant had sales of $880,000, all received in cash. Total operating expenses were $580,000. All except depreciation were paid in
44 Nature of Depreciation This continues the previous Problem, 43. The president looked at the indirect-method cash flow statement and suggested a way to help the cash flow problem. He suggested
43 Simple Direct- and Indirect-Method Statements Wayzata Company saw its cash plummet by $110,000 in 20X0. The company’s president wants an explanation of what caused the decrease in cash despite
42 Identify Operating, Investing, and Financing Activities The following listed items were found on a recent statement of cash flows for Verizon Communications, Inc. For each item, indicate which
41 Net Income and Cash Flow Refer to Problem 40. Prepare a schedule that reconciles net income to net cash flow from operating activities.
40 Simple Cash Flows from Operating Activities Neptune Strategy, Inc., provides consulting services. In 20X1, net income was $185,000 on revenues of $460,000 and expenses of $275,000. The only
39 Cash Paid to Employees Northgate Publishers, Inc., reported Wage and Salary Expense of $220,000 on its 20X1 income statement. It reported cash paid to employees of $185,000 on its statement of
38 Cash Paid to Suppliers Cost of Goods Sold for Northgate Publishers, Inc., during 20X1 was $600,000. Beginning inventory was $100,000, and ending inventory was $150,000. Beginning trade accounts

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