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business
principles financial accounting

Questions and Answers of Principles Financial Accounting

(b) Which filing is the most recent? What is the date?
(a) What company did you select?
(c) Who was the President of the United States at the time of the creation of the SEC? Who was the first SEC Chairperson?
(b) After the Depression, Congress passed the Securities Acts of 1933 and 1934 to improve in¬vestor confidence in the markets. What two “common sense” notions are these laws based on?
(a) Flow many enforcement actions does the SEC take each year against securities law viola¬tors? What are typical infractions?
(b) What conclusions concerning the management of cash can be drawn from these data?
(a) Based on the information contained in these financial statements, compute free cash flow for each company.
(f) What was the amount of interest paid in the year ended December 31,2005? What was the amount of income taxes paid in the year ended December 31,2005? (See Note 14.)
(e) What was the net outflow or inflow of cash from investing activities for the year ended December 31,2005?
(d) From your analysis of the 2005 statement of cash flows, did the change in accounts and notes receivable require or provide cash? Did the change in inventories require or provide cash?Did the
(c) Which method of computing net cash provided by operating activities does PepsiCo use?
(b) What was the amount of increase or decrease in cash and cash equivalents for the year ended December 31,2005?
(a) What was the amount of net cash provided by operating activities for the year ended December 31,2005? For the year ended December 25,2004?
BE14-15 Flynn Corporation reports operating expenses of $80,000 excluding depreciation ex¬pense of $15,000 for 2008. During the year prepaid expenses decreased $6,600 and accrued ex¬penses payable
BE14-14 Young Corporation reported income taxes of $340,000,000 on its 2008 income stateincometares—direct method. ment and income taxes payable of 277,000,000 at December 31, 2007, and
BE14-13 Columbia Sportswear Company had accounts receivable of $206,024,000 at the be¬ginning of a recent year, and $267,653,000 at year-end. Sales revenues were $1,095,307,000 for the year. What is
BE14-12 During the year, prepaid expenses decreased $6,600, and accrued expenses increased$2,400. Indicate how the changes in prepaid expenses and accrued expenses payable should be entered in the
BE14-11 The management of Radar Inc. is trying to decide whether it can increase its divi¬dend. During the current year it reported net income of $875,000. It had cash provided by oper¬ating
BE14-10 Alliance Atlantis Communications Inc. reported a $35.8 million increase in operat-(50 4) ing cash flow for its first quarter of 2005. Alliance reported cash provided by operating activities
BE14-9 Lott Corporation reported cash provided by operating activities of $360,000, cash used by investing activities of $250,000, and cash provided by financing activities of $70,000. In addition,
BE14-8 In a recent year, Cypress Semiconductor Corporation reported cash provided by operating activities of $155,793,000, cash used in investing of $207,826,000, and cash used in financing of
BE14-7 The T accounts for Equipment and the related Accumulated Depreciation for Pettengill Company at the end of 2008 are shown here.Equipment Accumulated Depreciation Beg. bal.Acquisitions 80,000
BE14-6 The comparative balance sheets for Goltra Company show these changes in noncash current asset accounts: accounts receivable decrease $80,000, prepaid expenses increase $28,000, and inventories
BE14-5 The net income for Adcock Co. for 2008 was $280,000. For 2008 depreciation on plant assets was $70,000, and the company incurred a loss on sale of plant assets of $12,000. Compute net cash
BE14-4 Martinez, Inc. reported net income of $2.5 million in 2008. Depreciation for the year was $160,000, accounts receivable decreased $350,000, and accounts payable decreased $280,000.Compute net
BE14-3 The following T account is a summary of the cash account of Edmonds Company.Cash (Summary Form)Balance, Jan. 1 Receipts from customers 8,000 364,000 Payments for goods 200,000 Dividends on
BE14-2 Classify each item as an operating, investing, or financing activity. Assume all items involve cash unless there is information to the contrary.(a) Purchase of equipment. (d) Depreciation.(b)
BE14-1 Each of these items must be considered in preparing a statement of cash flows for Kiner Co. for the year ended December 31,2008. For each item, state how it should be shown in the statement of
21. In the direct method, why is depreciation expense not re¬ported in the cash flows from operating activities section?
20. Garcia Inc. reported sales of $2 million for 2008. Accounts receivable decreased $200,000 and accounts payable in¬creased $300,000. Compute cash receipts from customers, assuming that the
19. Give the formulas under the direct method for computing(a) cash receipts from customers and (b) cash payments to suppliers.
18. Describe the direct method for determining net cash pro¬vided by operating activities.
17. Why is it advantageous to use a worksheet when prepar¬ing a statement of cash flows? Is a worksheet required to prepare a statement of cash flows?
16. During 2008 Doubleday Company converted $1,700,000 of its total $2,000,000 of bonds payable into common stock. Indicate how the transaction would be reported on a statement of cash flows, if at
15. Why is the statement of cash flows useful?
14. Why and how is depreciation expense reported in a state¬ment prepared using the indirect method?
13. Identify five items that are adjustments to convert net in¬come to net cash provided by operating activities under the indirect method.
12. The president of Ferneti Company is puzzled. During the last year, the company experienced a net loss of $800,000, yet its cash increased $300,000 during the same period of time. Explain to the
11. Why is it necessary to convert accrual-based net income to cash-basis income when preparing a statement of cash flows?
10. Describe the indirect method for determining net cash provided (used) by operating activities.
9. When the total cash inflows exceed the total cash outflows in the statement of cash flows, how and where is this ex¬cess identified?
8. Contrast the advantages and disadvantages of the direct and indirect methods of preparing the statement of cash flows. Are both methods acceptable? Which method is preferred by the FASB? Which
7. Why is it necessary to use comparative balance sheets, a current income statement, and certain transaction data in preparing a statement of cash flows?
6. Wilma Flintstone and Barny Rublestone were discussing the format of the statement of cash flows of Hart Candy Co.At the bottom of Hart Candy’s statement of cash flows was a separate section
5. Why is it important to disclose certain noncash transac¬tions? How should they be disclosed?
4. (a) What are the major sources (inflows) of cash in a statement of cash flows?(b) What are the major uses (outflows) of cash?
3. Distinguish among the three types of activities reported in the statement of cash flows.
2. What questions about cash are answered by the statement of cash flows?
1. (a) What is a statement of cash flows?(b) John Norris maintains that the statement of cash flows is an optional financial statement. Do you agree? Explain.
14. Which of the following items is reported on a cash flow (SO 6)statement prepared by the direct method?a. Loss on sale of building.b. Increase in accounts receivable.c. Depreciation expense.d.
13. The beginning balance in accounts receivable is $44,000, (SO 6)the ending balance is $42,000, and sales during the period are $129,000. What are cash receipts from customers?a. $127,000.c.
12. In a worksheet for the statement of cash flows, a decrease in (SO 5)accounts receivable is entered in the reconciling columns as a credit to Accounts Receivable and a debit in the:a. investing
11. Free cash flow provides an indication of a company’s abil- (SO 4)ity to:a. generate net income.b. generate cash to pay dividends.c. generate cash to invest in new capital expenditures.d. both
10. The statement of cash flows should not be used to evalu- (SO 4)ate an entity’s ability to:a. earn net income.b. generate future cash flows.c. pay dividends.d. meet obligations.
9. Items that are added back to net income in determining cash provided by operating activities under the indirect method do not include:a. depreciation expense.b. an increase in inventory.c.
8. Net income is $132,000, accounts payable increased $10,000 during the year, inventory decreased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the
7. Which of the following is incorrect about the statement of cash flows?a. The direct method may be used to report cash pro¬vided by operations.b. The statement shows the cash provided (used) for
6. Which is an example of a cash flow from a financing activity?a. Receipt of cash from sale of land.b. Issuance of debt for cash.c. Purchase of equipment for cash.d. None of the above
5. Cash dividends paid to stockholders are classified on the statement of cash flows as:a. operating activities.b. investing activities.c. a combination of (a) and (b).d. financing activities.
4. Which is an example of a cash flow from an investing (SO 2)activity?a. Receipt of cash from the issuance of bonds payable.b. Payment of cash to repurchase outstanding capital stock.c. Receipt of
3. Which is an example of a cash flow from an operating (SO 2)activity?a. Payment of cash to lenders for interest.b. Receipt of cash from the sale of capital stock.c. Payment of cash dividends to the
2. The statement of cash flows classifies cash receipts and cash payments by these activities:a. operating and nonoperating.b. investing, financing, and operating.c. financing, operating, and
1. Which of the following is incorrect about the statement of cash flows?a. It is a fourth basic financial statement.b. It provides information about cash receipts and cash payments of an entity
1. How are retained earnings restrictions generally reported?
2. What is a prior period adjustment, and how is it reported?
3. What are the principal sources of debits and credits to Retained Earnings?
1. Identify the classifications within the paid-in capital section and the totals that are stated in the stockholders’ equity section of a balance sheet.
2. Explain the return on common stockholders’ equity ratio.
4. ABC Corporation issues 1,000 shares of $10 par value common stock at $12 per share. In recording the transac¬tion, credits are made to:a. Common Stock $10,000 and Paid-in Capital in Excess of
6. In the stockholders’ equity section, the cost of treasury (SO 3)stock is deducted from:a. total paid-in capital and retained earnings.b. retained earnings.c. total stockholders’ equity.d.
7. Preferred stock may have priority over common stock (SO 4)except in:a. dividends.b. assets in the event of liquidation.c. cumulative dividend features.d. voting.
10. All but one of the following is reported in a retained earn- (SO 6)ings statement. The exception is:a. cash and stock dividends.b. net income and net loss.c. some disposals of treasury stock
9. What factors help determine the market value of stock?
10. Why is common stock usually not issued at a price that is less than par value?
11. Land appraised at $80,000 is purchased by issuing 1,000 shares of $20 par value common stock. The market price of the shares at the time of the exchange, based on active trading in the securities
12. For what reasons might a company like IBM repurchase some of its stock (treasury stock)?
16. Identify the events that result in credits and debits to retained earnings.
18. What three conditions must exist before a cash dividend is paid?
20. Contrast the effects of a cash dividend and a stock divi¬dend on a corporation’s balance sheet.
21. Mark Federia asks, “Since stock dividends don’t change anything, why declare them?” What is your answer to Mark?
24. What is a prior period adjustment, and how is it reported in the financial statements?
26. What is the formula for computing book value per share when a corporation has only common stock?
BE12-1 Ron Child is studying for his accounting midterm examination. Identify for Ron the advantages and disadvantages of the corporate form of business organization.
BE12-2 On May 10, Romano Corporation issues 1,000 shares of $10 par value common stock for cash at $18 per share. Journalize the issuance of the stock.
BE12-3 On June 1, Herrera Inc. issues 3,000 shares of no-par common stock at a cash price of$7 per share. Journalize the issuance of the shares assuming the stock has a stated value of $1 per share.
BE12-4 Tara Inc.’s $10 par value common stock is actively traded at a market value of $16 per share. Tara issues 5,000 shares to purchase land advertised for sale at $85,000. Journalize the
BE12-5 On July 1 , Fritz Corporation purchases 500 shares of its $5 par value common stock for the treasury at a cash price of $9 per share. On September 1, it sells 300 shares of the treasury stock
BE12-6 Ervay Inc. issues 5,000 shares of $100 par value preferred stock for cash at $120 per share. Journalize the issuance of the preferred stock.
BE12-7 Chavez Corporation has 50,000 shares of common stock outstanding. It declares a $1 per share cash dividend on November 1 to stockholders of record on December l.The dividend is paid on
BE12-8 Walters Corporation has 60,000 shares of $10 par value common stock outstanding.It declares a 10% stock dividend on December 1 when the market value per share is $16. The dividend shares are
BE12-10 For the year ending December 31,2008, Mount Inc. reports net income $120,000 and dividends $85,000. Prepare the retained earnings statement for the year assuming the balance in retained
El 2-1 Jeff Lynne has prepared the following list of statements about corporations.1. A corporation is an entity separate and distinct from its owners.2. As a legal entity, a corporation has most of
El 2-3 During its first year of operations, Klumpe Corporation had the following transactions pertaining to its common stock.Jan. 10 Issued 70,000 shares for cash at $5 per share.July 1 Issued 40,000
El 2-6 AI Corporation issued 100,000 shares of $20 par value, cumulative, 8% preferred stock on January 1,2007, for $2,100,000. In December 2009, AI declared its first dividend of
El 2-11 The stockholders’ equity section of Lumley Corporation at December 31 is as follows.
El2-12 Flores Corporation recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review his
E12-14 On January 1,2008, Abdella Corporation had $1,000,000 of common stock outstand¬ing that was issued at par. It also had retained earnings of $750,000. The company issued 60,000 shares of
El 2-16 Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts.1. The declaration and payment of $50,000
El 2-17 On January 1,2008, Castle Corporation had retained earnings of $550,000. During the year, Castle had the following selected transactions.1. Declared cash dividends of $120,000.2. Corrected
El 2-18 Sasha Company reported retained earnings at December 31,2007, of $310,000. Sasha had 200,000 shares of common stock outstanding throughout 2008.The following transactions occurred during

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