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principles financial accounting

Questions and Answers of Principles Financial Accounting

The IASB imposes the use of the classification by function for the income statement(a) True(b) False AppendixLO1
Which categories are used to classify assets?(a) Short-term versus long-term(b) Financial versus operating/trading(c) Tangible versus intangible(d) All of these AppendixLO1
The key choice(s) concerning the presentation of the balance sheet is (are)(a) The format of the list (vertical or horizontal)(b) The type of classification (by term or by nature)(c) The degree of
The IASB has authority to require compliance with its accounting standards(a) True(b) False AppendixLO1
None of the standards and interpretations issued before the creation of IASB in 200 1 are now applicable(a) True(b) False AppendixLO1
The main objective of the IASB is(a) To control local accounting regulators(b) To help firms apply local accounting standards correctly(c) To protect European investors(d) To promote convergence of
Which of the following does IASB stand for?(a) Internationally Accepted Standards Board(b) International Accounting Standards Board(c) Internationally Adopted Standards Board(d) International
The Dukas Company owns an interest-bearing note receivable with a nominal value of 1 ,000 CU.Interest at 4 percent per annum on the note receivable has accrued for three months and is expected to be
The Dukas Company owns offices, which are rented to other businesses. On 1 February, Dukas rented some office space and received six months rent in advance, totaling 6 ,000 CU. At that time, the
The Dukas Company signed a 3 ,000 CU debit note to Bankix, their local bank on 1 September X3. At that time, the accountant of the company made the appropriate entry. However, no other entry relating
On 1 June, The Dukas Company paid three months rent in advance, for a total cost of 900 CU. At the time of payment, prepaid rent was increased by this amount. What adjusting entry is necessary as
Which of the following fixed assets are generally not subject to depreciation?(a) Building(b) Equipment(c) Land(d) Office furniture AppendixLO1
Sales revenue should be recorded only when:(a) The order is received(b) The sales manager has negotiated the price with the customer(c) The customer is satisfied(d) The goods have been shipped and
Which answer in the list of principles below best serves to achieve the objective of prudence?(a) Conservatism(b) Matching(c) Accrual(d) All of these(e) None of these.AppendixLO1
Information which, if not disclosed on the financial statements, could influence the economic decisions of users, is known as:(a) Material(b) Substantial(c) Interesting(d) Important(e) None of these
A business has two bank accounts: one has a positive balance of 100 CU and the second has a negative balance of 40 CU. What should be reported in the balance sheet?(a) A net positive balance of 60 CU
Which of the following measurement basis does not exist?(a) Historical cost(b) Decreasing cost(c) Realizable value(d) Present value AppendixLO1
How accounting principles (conventions, broad guidelines, rules, and detailed procedures) structure and organize recording, accounting and reporting.AppendixLO1
A supporting document serves as the basis for an entry first in a(a) Trial balance(b) Journal(c) Financial statement(d) Ledger(e) None of these.AppendixLO1
Which of the following statements is true(a) An increase in an asset account can be balanced by an increase in a liability account(b) An increase in a liability account can be balanced by an increase
Banks use the terms ‘debit’ and ‘credit’ to mean the opposite of what a business records(a) True(b) False AppendixLO1
In terms of debit and credit, expenses accounts function in a similar way to(a) Liabilities accounts(b) Assets accounts(c) Shareholders’ equity accounts(d) Revenues accounts AppendixLO1
By convention, the right-hand side of a T-account is called(a) Debt side(b) Cash side(c) Debit side(d) Credit side(e) None of these.AppendixLO1
What does the cash balance in the opening balance sheet represent in the statement of cash flows?(a) It is not used in the statement of cash flows(b) The opening cash balance(c) The closing cash
The statement of cash flows consists of the following sections(a) Operating and non-operating(b) Current and non-current(c) Operating, investing, and financing(d) Trading and financial(e) None of
The choice made of the ________ approach for the recognition of revenues and expenses creates a need for the statement of cash flows(a) Cash(b) Prudence(c) Valuation(d) Accrual(e) None of these
The statement of financial position/balance sheet offers a dynamic vision of the financial position(a) True(b) False AppendixLO1
The statement of financial position/balance sheet emphasizes the dynamics of the cash flowing in and out of the business(a) True(b) False AppendixLO1
How to use the concepts of debit and credit.AppendixLO1
How the statement of cash flows relates to the statement of financial position/balance sheet and income statement.AppendixLO1
An example of an item that is not a current asset is(a) Accounts receivable(b) Inventory(c) Equipment(d) Cash(f) None of these.AppendixLO1
The depreciation recorded in the balance sheet includes(a) Only accumulated depreciation recognized in previous years(b) Only the depreciation expense for the current year(c) Both (a) and (b)(d) None
Advance cash payments to suppliers are included in(a) Revenues(b) Assets(c) Liabilities(d) Shareholders’ equity(e) Expenses(f) None of these AppendixLO1
Advance cash payments received from customers are included in(a) Revenues(b) Assets(c) Liabilities(d) Shareholders’ equity(e) Expenses (f) None of these.AppendixLO1
Retained earnings represent(a) Cash available for future investments(b) Dividends distributed to shareholders(c) Earnings not distributed(d) None of these AppendixLO1
In the periodic inventory system, the change in inventories of raw materials is equal to(a) Beginning inventory minus Ending inventory(b) Ending inventory minus Beginning inventory(c) (Beginning
The document reporting all the expenses and revenues for a given period is the(a) Statement of financial position(b) Statement of cash flows(c) Income statement(d) Balance sheet(e) Notes to financial
Land, buildings, furniture and computers are included in(a) Current assets(b) Fixed assets(c) Cash(d) Inventory(e) None of these AppendixLO1
Obtaining a long-term loan (debt) affects which of the following accounts(a) Operating liabilities(b) Financial liabilities(c) Shareholders’ equity(d) Retained earnings(e) None of these AppendixLO1
Raw materials and merchandise purchased can be included in (two possible alternative answers)(a) Cash(b) Expenses(c) Fixed assets(d) Current assets(e) None of these AppendixLO1
How a basic financial statements analysis can be performed by comparing statements over time (trend analysis), or by using the internal structure of the statements (common-size analysis) and by using
How profit is appropriated, i.e., divided between dividends (distributed to shareholders) and retained earnings (kept in the business, as a de facto increase in the financial investment of
How transactions involving additions or subtractions from inventories are recorded, during the year and at year-end.AppendixLO1
How purchases of goods (merchandise, raw materials and finished products) are recorded.AppendixLO1
What the concept of depreciation represents.AppendixLO1
How the income statement is derived from the basic business equation and is interlaced with the evolution of the balance sheet between two dates.AppendixLO1
What double-entry accounting is.AppendixLO1
That the equilibrium (or balance) in this equation must always be respected when recording any transaction.AppendixLO1
That the statement of financial position or balance sheet is a detailed representation of the ‘business equation’:Resources to operate the business ¼ Financing received from various
How these financial statements are defined and constructed.AppendixLO1
What sources of information on a business’ economic situation, other than financial statements, are available to the general public?AppendixLO1
Why are suppliers and customers interested in studying the financial statements of a company?AppendixLO1
How can a decision maker obtain a copy of a firm’s financial statements if the latter does not make them public (for example, statements of an unlisted business or of a closely held competitor)?
Are there possible conflicts of interests between the various users of financial information? If your answer is yes, please provide some illustrations; if your answer is no, explain why.AppendixLO1
Should managers of a firm (i.e., decision makers who are inside the business entity) be considered to be part of the population of ‘users’ of financial accounting?AppendixLO1
For a service firm, the choice of reporting date (date on which the books are ‘closed’ and the statement of financial position or balance sheet, income statement and statement of cash flows are
An accounting piece of data is considered ‘material’if (Explain your choice)(a) It refers to raw materials(b) It is relevant to the decisions considered(c) It is more than a previously defined
In the following list of qualitative characteristics of an accounting signal, choose the two that seem to you to be the most important ones (Explain your choice):(a) Verifiable(b) Fair and true(c)
For a manufacturing firm, the choice of reporting date (date at which the books are ‘closed’ and the statement of financial position or balance sheet, income statement and statement of cash flows
The operating cycle of a business is defined by(a) Tax authorities(b) Seasons(c) The time it takes for cash consumed (or committed)to acquire resources to be returned to cash through sales and
Which of the following statements best describes the purpose of financial reporting (Explain why you chose your answer and why you rejected the others)(a) Provide a listing of an entity’s resources
The objectives of financial reporting for a business entity are based on which elements(a) Generally accepted accounting principles(b) The needs of users(c) The needs for managers to be accountable
What distinguishes financial accounting and reporting, from managerial accounting?AppendixLO1
Why have standards of reporting emerged that constrain the way events are recorded in accounting?AppendixLO1
Why do decision makers use accounting information and for what purpose?AppendixLO1
Bookkeeping is a subset of . . .(a) Management accounting(b) Financial accounting(c) Auditing(d) None of these AppendixLO1
Financial accounting offers the great advantage of being completely objective and thus leaves no room for subjectivity in decision making(a) True(b) False AppendixLO1
Only events with a monetary implication (potential impact on the cash situation) must be recorded in financial accounting(a) True(b) False AppendixLO1
In general, financial statements are comprised of the followings documents (several possible answers)(a) Statement of financial position or Balance sheet(b) Statement of cash flows(c) Notes to
Evaluate a company comprehensively using ratio analysis. LO15
In reporting discontinued operations, the income statement should show in a special section: LO15(a) gains on the disposal of the discontinued component.(b) losses on the disposal of the discontinued
Which of the following would be considered an“Other comprehensive income” item?(a) Gain on disposal of discontinued operations. LO15(b) Unrealized loss on available-for-sale securities.(c) Loss
Adams Corporation reported net sales of $300,000, LO15$330,000, and $360,000 in the years 2015, 2016, and 2017, respectively. If 2015 is the base year, what percentage do 2017 sales represent of the
Which measure is an evaluation of a company’s ability LO15 to pay current liabilities?(a) Accounts receivable turnover.(b) Current ratio.(c) Both (a) and (b).(d) None of the above.
Which measure is useful in evaluating the effi ciency in managing inventories?(a) Inventory turnover. LO15(b) Days in inventory.(c) Both (a) and (b).(d) None of the above.
Which of these is not a liquidity ratio?(a) Current ratio.(b) Asset turnover. LO15(c) Inventory turnover.(d) Accounts receivable turnover.
Compute the days in inventory for 2017.(a) 64.4 days. (c) 6 days.(b) 60.8 days. (d) 24 days. LO15
Compute the times interest earned for 2017.(a) 11.2 times. (c) 14.0 times. LO15(b) 65.3 times. (d) 13.0 times.
The comparative condensed balance sheets of Roadway Corporation are presented LO15 below.ROADWAY CORPORATION Condensed Balance Sheets December 31 2017 2016 Assets Current assets $ 76,000 $ 80,000
Identify and explain factors that affect quality of LO15 earnings.
Two popular methods of fi nancial statement analysis are horizontal analysis and vertical analysis. Explain the difference between these two methods. LO15
Name the major ratios useful in assessing (a) liquidity and (b) solvency. LO15
Handi Mart, a retail store, has an accounts receivable turnover of 4.5 times. The industry average is LO15 12.5 times. Does Handi Mart have a collection problem with its receivables?
At year-end, the price-earnings ratio of General Motors was 11.3, and the price-earnings ratio of Microsoft was LO15 28.14. Which company did the stock market favor?Explain.
The return on assets for Ayala Corporation is 7.6%.During the same year, Ayala’s return on common stockholders’ equity is 12.8%. What is the explanation LO15 for the difference in the two rates?
Which two ratios do you think should be of greatest interest in each of the following cases?(a) A pension fund considering the purchase of 20-year LO15 bonds.(b) A bank contemplating a short-term
If Coho Company had net income of $382,800 in 2017 and it experienced a 16%increase in net income over 2016, what was its 2016 net income? LO15
Vertical analysis (common-size) percentages for Palau Company’s sales revenue, cost of goods sold, and expenses are listed here.Vertical Analysis 2017 2016 2015 LO15 Sales revenue 100.0% 100.0%
Horizontal analysis (trend analysis) percentages for Phoenix Company’s sales revenue, cost of goods sold, and expenses are listed here. LO15 Horizontal Analysis 2017 2016 2015 Sales revenue 96.2%
Summary fi nancial information for Gandaulf Company is as follows.Dec. 31, 2017 Dec. 31, 2016 LO15 Current assets $ 200,000 $ 220,000 Plant assets 1,040,000 780,000 Total assets $1,240,000 $1,000,000
Here is fi nancial information for Glitter Inc.December 31, 2017 December 31, 2016 Current assets $106,000 $ 90,000 Plant assets (net) 400,000 350,000 LO15 Current liabilities 99,000 65,000 Long-term
Operating data for Joshua Corporation are presented below.2017 2016 Sales revenue $800,000 $600,000 Cost of goods sold 520,000 408,000 Selling expenses 120,000 72,000 LO15 Income tax expense 30,000
Suppose the comparative balance sheets of Nike, Inc. are presented here.NIKE, INC. LO15 Comparative Balance Sheets May 31($ in millions)Assets 2017 2016 Current assets $ 9,734 $ 8,839 Property,
Here are the comparative income statements of Delaney Corporation.DELANEY CORPORATION Comparative Income Statements For the Years Ended December 31 2017 2016 Net sales $598,000 $500,000 Cost of goods
Nordstrom, Inc. operates department stores in numerous states. Suppose selected fi nancial statement data (in millions) for 2017 are presented below.End of Year Beginning of Year Cash and cash
Condensed balance sheet and income statement data for Jergan Corporation are presented here.JERGAN CORPORATION Balance Sheets December 31 2017 2016 2015 Cash $ 30,000 $ 20,000 $ 18,000 Accounts
Suppose selected fi nancial data of Target and Wal-Mart for 2017 are presented here (in millions).Target Wal-Mart LO15 Corporation Stores, Inc.Income Statement Data for Year Net sales $65,357
Natalie and Curtis have comparative balance sheets and income statements for Cookie & Coffee Creations Inc. They have been told that they can use these fi nancial statements to prepare horizontal and
Your parents are considering investing in Apple Inc. common stock. They ask you, as an accounting expert, to make an analysis of the company for them. Financial statements of Apple are presented in
The Coca-Cola Company and PepsiCo, Inc. provide refreshments to every corner of the world. Suppose selected data from recent consolidated fi nancial statements for The Coca-Cola Company and for

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