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introductory financial accounting for business

Questions and Answers of Introductory Financial Accounting for Business

37 Cash Received from Customers Northgate Publishers, Inc., had sales of $900,000 during 20X1, 80% of them on credit and 20% for cash. During the year, accounts receivable increased from $60,000 to
36 Noncash Investing and Financing Activities Wellstone Company had the following items in its statement of cash flows or its schedule of noncash investing and financing activities. Note payable
35 Investing Activities Tasman Trading Company issued common stock for $320,000 on the first day of 20X0. The company bought fixed assets for $175,000 cash and inventory for $75,000 cash. Late in the
34 Financing Activities, IFRS and U.S. GAAP During 20X0, the Southampton Shipping Company, a company reporting under IFRS, refinanced its long-term debt. It spent £165,000 to retire long-term debt
33 Simple Statement of Cash Flows from Financing Activities Gumbo, Inc., is a seafood restaurant in New Orleans. Gumbo began business in January 20X1 when investors bought common stock for $100,000
32 Failures to Generate Positive Net Cash Flow from Operations You are discussing your investment strategies with a colleague who says, “I would never invest in a company that is not generating
31 Amazon and Negative Cash Flow from Operations Between 2004 and 2010, Amazon.com, the industry leader in online sales of books and other consumer products, increased its free cash flow from $477
30 Google and Cash Generation On September 30, 2011, Google was generating increasing amounts of cash from operating activities each year and was unable to fully use it to grow the business. Hence,
29 Cash Flow Patterns and Growth You are considering an investment in a company that has negative cash flow from operations, negative cash flow from investing, and positive cash flow from financing.
28 A company operated at a loss for the year, but cash flow from operations was positive. Why might this occur? What industry or industries might find this a common occurrence?
27 A company operated at a profit for the year, but cash flow from operations was negative. Why might this occur? What industry or industries might find this a common occurrence?
26 Demonstrate how the fundamental balance sheet equation can be recast to focus on cash.
25 “The balance sheet equation helps explain the income statement and balance sheet, but it is not useful in interpreting the statement of cash flows.” Do you agree? Explain.
24 “Depreciation is an integral part of a statement of cash flows.” Do you agree? Explain.
23 An investor’s newsletter had the following item: “The company expects increased cash flow in 2013 because depreciation charges will be substantially greater than they were in 2012.” Comment.
22 The indirect method for reporting cash flows from operating activities can create an erroneous impression about noncash expenses (such as depreciation). What is the impression, and why is it
21 “Net losses mean drains on cash.” Do you agree? Explain.
20 What types of adjustments reconcile net income with net cash provided by operations?
19 What two balance sheet accounts explain the difference between the cost of goods sold and the cash payments to suppliers?
18 Why is there usually a difference between the cash collections from customers and sales revenue in a period’s financial statements?
17 Where does a company get the information included in the direct-method cash flow statement?
16 What are the two major ways of computing net cash provided by operating activities?
14 A company acquired a fixed asset in exchange for common stock. Explain how this transaction should be shown, if at all, in the statement of cash flows. Why is your suggested treatment
13 Why are noncash investing and financing activities listed on a separate schedule accompanying the statement of cash flows?
12 Explain why increases in liabilities increase cash and increases in noncash assets decrease cash.
11 Which of the following investing activities increase cash: purchase fixed assets by issuing debt, sell fixed assets for cash, collect a loan, or purchase equipment for cash? Which decrease cash?
10 Which of the following financing activities increase cash: increase long-term debt, repurchase common shares, or pay dividends? Which decrease cash?
9 Where does interest received or paid appear on the statement of cash flows under U.S. GAAP? Under IFRS?
8 There is one item on a cash flow statement that is not a cash flow but affects cash. What is it and why do companies include it on their statements of cash flow?
7 Name three major financing activities included in a statement of cash flows.
6 Name three major investing activities included in a statement of cash flows.
5 Name four major operating activities included in a statement of cash flows.
4 The statement of cash flows summarizes what three types of activities?
3 Define cash equivalents.
2 What are the purposes of a statement of cash flows?
1 “The statement of cash flows is an optional statement included by most companies in their annual reports.” Do you agree? Explain.
59 Analyzing Financial Statements Using the Internet Go to www.columbia.com to find Columbia Sportswear’s home page. Under the About Us menu near the bottom of the page, select Investor Relations.
58 Analyzing Starbucks’ Financial Statements This problem develops skills in preparing adjusting journal entries. The balance sheet of Starbucks for the year ended October 2, 2011, included the
57 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
56 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 as follows: 1. Expiration or consumption of
55 Adjusting Entries and Ethics By definition, adjusting entries are not triggered by an explicit event. Therefore, accountants must initiate adjusting entries. For each of the following adjusting
54 Preparation of Financial Statements from Trial Balance The Procter & Gamble Company is one of the largest consumer products companies in America. The (slightly modified) trial balance as of June
53 Pharmaceutical Company Financial Statements Merck & Co., Incorporated, is a global health-care company that offers prescription medicines, vaccines, biologic therapies, animal health, and
52 Single-Step Income Statement Harley-Davidson is the parent company of Harley-Davidson Motor, Buell Motorcycle, and Harley-Davidson Financial Services. It is most well-known for producing
51 Multiple-Step Income Statement (Alternates are 36 and 40.) Intel Corporation is one of the largest companies in the United States. Its annual report for the year ended December 31, 2011, contained
50 Classified Balance Sheet, Current Ratio, and Quick Ratio Amazon.com, Inc.’s balance sheet (slightly modified) for December 31, 2011, contained the following items ($ in millions): Property and
49 Journal Entries and Adjustments Northwest Natural is a public utility in Oregon. The 2011 annual report included the following footnote: Utility revenues, derived primarily from the sale and
48 Advance Service Contracts Diebold, Incorporated, a manufacturer of automated teller machines, showed the following current liability on the balance sheet on December 31, 2011 ($ amounts in
47 Journal Entries and Posting Nike is a worldwide leader in the design, marketing, and distribution of athletic and sportsinspired footwear, apparel, equipment, and accessories. The company’s May
46 Mirror Side of Adjustments Problem 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
45 Mirror Side of Adjustments Problem 38 described some adjustments made by Columbia Sportswear. The adjustments are lettered (a) through (d). Prepare the necessary adjustment as it would be made by
44 Mirror Side of Adjustments Problem 35 described some adjustments made by Susan Hatfield, CPA. Prepare the necessary adjustment as it would be made by the client in transactions (2) and (3), and by
43 Financial Statements and Adjustments Rockwell Wholesalers, Inc. has just completed its fourth year of business in 20X1. A set of financial statements was prepared by the principal stockholder’s
42 Accounting for Subscriptions (Alternate is 41.) A French magazine company collects subscriptions in advance of delivery of its magazines. However, many magazines are delivered to magazine
41 Accounting for Dues (Alternate is 42.) The Sunset Beach Golf Club provided the following data from its comparative balance sheets: December 31 20X1 20X0 Dues receivable $95,000 $75,000 Unearned
40 Gap Inc. Financial Statements (Alternates are 36 and 51.) Gap Inc. is a specialty retailer of clothing, accessories, and personal care products for men, women, children, and babies. Products are
39 Four Major Adjustments (Alternates are 35, 37, and 38.) Alaska Airlines showed the following items in its balance sheet as of December 31, 2011, the end of the fiscal year ($ in millions):
38 Four Major Adjustments (Alternates are 35, 37, and 39.) Columbia Sportswear included the following items in its December 31, 2011, balance sheet ($ in thousands): Prepaid expenses and other
37 Four Major Adjustments (Alternates are 35, 38, and 39.) Leslie Baker, an attorney, had the following transactions (among others) during 20X0, her initial year in law practice:a. On July 1, Baker
36 Multiple-Step Income Statement (Alternates are 40 and 51.) From the following data, prepare a multiple-step income statement for the Huffman Company for the fiscal year ended May 31, 20X0 ($ in
35 Adjusting Entries (Alternates are 37 through 39.) Susan Hatfield, certified public accountant, had the following transactions (among others) during 20X0: 1. For accurate measurement of performance
34 Impact of Adjusting Entries on Ratios Exercise 31 asked you to write adjusting/correcting entries for transactions (a) through (i). In this problem, consider the effect on the current ratio and
33 Profitability Ratios The Nestlé Group, the Swiss chocolate company, sells many other food items in addition to various types of chocolates. Sales in 2011 were CHF83,642 million (where CHF means
32 Working Capital and Current Ratio Using the Columbia Sportswear balance sheet in Exhibit 6, compute Columbia’s working capital, current ratio, and quick ratio for 2010. Compute the quick ratio
31 Effects of Adjustments and Corrections Listed here are a series of accounts that are numbered for identification. 1. Cash 2. Accounts Receivable 3. Notes Receivable 4. Inventory 5. Accrued
30 Effects of Errors in Adjustments What will be the effect—understated (U), overstated (O), or no effect (N)—on the income of the present and future periods if the following errors were made? In
29 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,
28 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
27 Effects of Interest on Lenders and Borrowers Bank of America loaned Miller Paint Company $1,500,000 on May 1, 20X0. The loan plus interest of 4% is payable on May 1, 20X1. 1. Using the balance
26 Placement of Interest in Income Statement Two companies have the following balance sheets as of December 31, 20X8: Sunriver Company Cash $ 75,000 Note payable* $125,000 Other assets 150,000
25 Accrued Vacation Pay As of December 31, 2008, Delta Air Lines had the following account listed as a current liability on its balance sheet: Accrued salaries and related benefits $1,367,000,000 The
24 Accrual of Wages Consider the following calendar:Miller’s Department Store commenced business on September 1. It is open every day except Sunday. Its total payroll for all employees is $6,000
23 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
22 Tenant and Landlord The Klassen Company, a retail hardware store, pays quarterly rent on its store at the beginning of each quarter. The rent per quarter is $24,000. The owner of the building in
21 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 noncurrent liability. 2. Deferred Revenue will
20 Accounting for Supplies A company began business on July 1 and purchased $2,000 in supplies including paper, pens, paper clips, and so on. On December 31, as financial statements were being
19 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
18 What Constitutes Revenue? You have just started a program of selling gift certificates at your store. In the first month, you sold $7,000 worth and customers redeemed $2,300 of these certificates
17 Accounting Errors You have discovered an error in which the tenant has “incorrectly” recorded as rent expense a $5,000 payment made on December 1 for rent for the months of December and
16 “Computer software companies are generally more profitable than grocery stores because their gross profit percentages are usually at least twice as large.” Do you agree? Explain.
15 Name four popular ratios for measuring profitability, and indicate how to compute each of the four.
14 The term “costs and expenses” is sometimes found instead of just “expenses” on the income statement. Would expenses be an adequate description? Why?
13 Why does interest expense typically appear below operating income on a multiple-step income statement?
12 Explain the difference between a singlestep and a multiple-step income statement.
11 “Companies should always strive to avoid negative working capital.” Do you agree? Explain.
10 “Google is much more profitable than Amazon.com because its current ratio is nine times larger than Amazon’s.” Do you agree? Explain.
9 Why are current assets and current liabilities grouped separately from long-term assets and long-term liabilities?
8 What types of adjusting entries are made prior to the related cash flows? After the related cash flows?
7 “The accrual of previously unrecorded revenues is the mirror image of the accrual of previously unrecorded expenses.” Explain by using an illustration.
6 Explain why income tax expense is usually the final deduction on both single-step and multiple-step income statements.
5 Give a synonym for income tax expense.
4 Distinguish between the accrual of wages and the payment of wages.
3 Give two synonyms for unearned revenue.
2 Give two examples of implicit transactions.
1 Give two examples of explicit transactions.
56 Analyzing Financial Statements Using the Internet: Delta Go to www.delta.com. In the menu at the bottom of the home page, click on About Delta. Then locate Delta’s Annual Reports under Investor
55 Analyzing Starbucks’ Financial Statements Using either the SEC EDGAR Web site or Starbucks’ Web site, find Starbucks’ 2011 financial statements. Note the following summarized items (dollars
54 Financial Statement Research Select the financial statements of any company. 1. Prepare an income statement in the following format: Total sales (or revenue) Cost of goods sold Gross margin Other
53 Income Statement and Balance Sheet Accounts Form teams of two persons each. Each person should make a list of 10 account names, with approximately one-half being income statement accounts and
52 Management Incentives, Financial Statements, and Ethics Alicia Perez was controller of the vascular products division of a major medical instruments company. On December 30, 2012, Perez prepared a

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