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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

Name five groups that create the demand for accounting information about businesses, and describe how each group uses accounting information.
What is the difference between financial and managerial accounting?
What are financial statements, and how are they related to generally accepted accounting principles?
What are the main sources of generally accepted accounting principles?
Describe the Financial Accounting Standards Board (FASB) and the Securi- ties and Exchange Commission (SEC). What is the relationship between the SEC and the FASB?
What is the conceptual framework of accounting? How do concepts and prin- ciples differ?
How do tax returns differ from financial statements?
Describe an accounting information product. Who would be willing to pay for it and why?
Identify the major occupational groups that-constitute the accounting profession, and briefly describe the employment of each group.
Describe how accountants are employed inside a business.
What services are offered by public accounting firms?
What are certified public accountants? Why are they necessary?
Explain what is meant by the separation of ownership from control in reference to the modern corporation.
Write the accounting model or equation. What is its significance?
Define the words assets, liabilities, and equity. How are the three words related? :
Name the two main components of equity. Describe the main sources of change in each component.
Name and describe three types of business activity.
Describe how each of the following transactions affects the accounting model(indicate the effect on total assets, total liabilities, and total equity):a) Sell common stock.b) Borrow cash from a
Describe how each of the following transactions affects the accounting model(indicate the effect on total assets, total liabilities, and total equity):a) Purchase supplies on credit.b) Sell services
Name and briefly describe the four financial statements.
THE VALUE OF FINANCIAL INFORMATION. Arlene Aldama is retired and lives on the income from investments in a number of businesses and financial institutions. She has just received in the mail an
USING ACCOUNTING INFORMATION. James Hadden is a freshman at Major State University. His summer-job earnings, a small scholarship, and a fixed amount per term from his parents are his only sources of
ANALYSIS OF ACCOUNTING PERIODICALS. The accounting profession is organized into three major groups: (1) accountants who work in nonbusiness entities,(2) accountants who work in business entities, and
CAREER PLANNING. A successful career requires us to take advantage of opportunities that are difficult to foresee, but success is also aided by having a plan or strategy by which to choose among
THE ACCOUNTING JOB MARKET. Secure the “help wanted” section from the Sunday issue of your local newspaper.REQUIRED:1. Determine the approximate total number of positions advertised in the paper
PROFESSIONAL ETHICS. Professional ethics guide public accountants in their work with financial statements. Why is ethical behavior by public accountants important to society? Describe the incentives
FINANCIAL STATEMENT QUESTIONS. State two questions that can be answered using each of the four financial statements. Give the answer to each of the eight different questions, using the information in
THE MARKET FOR ACCOUNTING INFORMATION. The market for accounting information is formed by the people who demand the information about businesses and the people who supply it. The list below names
DECISIONS BASED ON ACCOUNTING INFORMATION. Decision makers use accounting information in a wide variety of decisions, including the following:. Deciding whether or not to invest in a business..
ACCOUNTANTS IN SOCIETY. Accountants perform many functions in modern society, including the following:1. Design and install accounting systems for businesses.2. Conduct financial statement audits.3.
PROFESSIONAL ETHICS. Ethical behavior is essential to the conduct of business activity. Consider each of the following business behaviors:1. A controller prepares financial statements that grossly
BUSINESS ORGANIZATIONS AND BUSINESS ACTIVITY. For each of the three types of business entity, select as many of the definitions, examples, or descriptions as apply to that type of entity. ENTITY 1.
ACCOUNTING ENVIRONMENT. Match each of the terms listed below with the most closely related definition or example in the adjacent list. Your answer should pair each of the numbers from 1 through 11
BUSINESS ENTITIES AND OWNERS’ ACTIVITIES. Libby Vote owns and manages The Tennis Ball, a store selling tennis equipment and clothing. During 19x1 Libby engaged in the following activities:a) Libby
ACCOUNTING CONCEPTS. A list of accounting concepts is presented below.Match each of the concepts with the corresponding definition or example by pairing each of the numbers from 1 through 7 with the
THE FUNDAMENTAL ACCOUNTING MODEL. Compute the missing numbers in each of the three independent cases described below: ASSETS LIABILITIES EQUITY a) $107,000 b) 275,000 ? $51,000 150,000 ? c) ? 15,000
INCOME STATEMENT. An analysis of the transactions of Canary Cola, Inc. for the year 19x9 yields the following information: revenue, $70,000; supplies expense,$30,900; rent expense, $24,000; and
BALANCE SHEET. An analysis of the transactions of Cavernous Homes, Inc.yields the following totals at December 31, 19x7: cash, $2,200; accounts receivable,$5,100; notes payable, $4,000; supplies,
RETAINED EARNINGS. At the end of 19x8, Sherwood Company had retained earnings of $21,240. During 19x9 Sherwood had revenues of $831,400 and expenses of$792,100 and paid cash dividends in the amount
EFFECTS OF EVENTS ON ASSETS. What effect does each of the following transactions have on the assets of a business?a) An owner invests cash in the business.b) The business purchases equipment on
INFERRING EVENTS FROM BALANCE SHEET CHANGES. Each of the following balance sheet changes is associated with a particular event:a) Cash increases by $100,000 and capital stock increases by $100,000.b)
TRANSACTION ANALYSIS AND THE ACCOUNTING MODEL. Amanda Webb opened a home health-care business under the name Home Care, Inc. During her first month of operations, the business had the following
IDENTIFICATION OF ACCOUNTS. The items listed below are selected from the financial statements of a business:1. Cash 2. Accounts payable 3. Capital stock 4. Fuel expense 5. Service revenue 6. Retained
CALCULATION OF INCOME FROM BALANCE SHEET DATA. During 19x5, Moore Corporation had no changes in its capital stock and paid $16,000. in dividends.Moore’s assets and liabilities at the end of 19x4
CALCULATION OF DIVIDENDS FROM BALANCE SHEET CHANGES. The following information is available at the end of 19x2. Assume that no stock was purchased by the owners during 19x2.REQUIRED:Calculate the
CAPITAL STOCK AND EQUITY. On January 1, 19x9, Wiley Manufacturing has assets, liabilities, and equity of $1,000,000, $250,000, and $750,000, respectively. The following day, stockholders contribute
APPLYING THE ACCOUNTING MODEL. At the beginning of 19x8 Huffer Corporation had total assets of $226,800, total liabilities of $84,200, capital stock of$80,000, and retained earnings of $62,600.
EQUITY, NET INCOME, AND DIVIDENDS. Compute the missing numbers in each of the four independent cases described below: DURING THE YEAR EQUITY AT THE BEGINNING OF THE YEAR INVESTMENT NET INCOME BY
INCOME STATEMENT AND BALANCE SHEET RELATIONSHIPS. The table below presents data taken from the most recent financial statements of five different companies, designated A, B, C, D, and E. Each column
RETAINED EARNINGS RELATIONSHIPS. Data from the financial statements of five different companies are presented in separate columns in the table below. Each column has one or more data items missing.
SEQUENTIAL RETAINED EARNINGS STATEMENTS. The table below presents the statements of retained earnings for Bass Corporation for 3 successive years. Certain numbers are missing.REQUIRED:Use your
THE FUNDAMENTAL ACCOUNTING MODEL. Using the symbols defined below, write an equation that expresses the relationship requested in each of the requirements that follow. Assume that, except for paying
ANALYZE TRANSACTIONS AND PREPARE FINANCIAL STATEMENTS. Luis Madero, after working for several years with a large public accounting firm, decided to open his own accounting service business. The
ANALYZE TRANSACTIONS AND PREPARE FINANCIAL STATEMENTS. Several gta years ago, Mary Emerson founded Emerson Consulting, Inc., a consulting business spe- 4 cializing in financial planning for young
INFERRING TRANSACTIONS FROM BALANCES. The Chen Construction Company recently started its operations. The following totals are computed after each of 10 transactions that occurred during
ARRANGEMENT OF THE INCOME STATEMENT. Powers Wrecking Service demolishes old buildings and other structures and sells the salvaged materials. During 19x3 Powers had $400,000 of revenue from demolition
PREPARE FINANCIAL STATEMENTS. An analysis of the 19x8 transactions for Hanover Rug Cleaners, a corporation owned by Jane Hanover, reveals the following end-of-the-year balances and changes in
Describe the operating cycle. Why are the operating cycles of some businesses longer than the operating cycles of others?L-1
How are the operating and financing cycles related?L-1
What are the effects of a longer operating cycle on a firm?L-1
Define the cost of an asset. Define the market value of an asset. When are the cost and market value of an asset the same amount? When are they different amounts?L-1
What are the advantages and disadvantages of cost as a measure of asset value?L-1
How does accrual-basis net income differ from cash-basis net income?L-1
Define the word revenue. How does revenue differ from cash collections for a period?L-1
Define gross margin and gross margin ratio. Why are they important?L-1
Four kinds of expenses are reported on the typical classified income statement. Describe each kind of expense, and name the subtotal that follows it on the statement.L-1
Define current assets and current liabilities. Why are current assets and current liabilities separated from long-lived assets and long-term liabilities on the balance sheet?L-1
Name and describe the three categories of the statement of cash flows.L-1
How is the statement of changes in retained earnings related to balance sheets? How is the income statement related to the statement of changes in retained earnings?L-1
Name and describe the two groups of unusual income items presented separately at the end of the income statement.L-1
What is the comprehensive income concept? Describe its effect on the statement of changes in retained earnings.L-1
What are consolidated financial statements?L-1
In an analysis of a business’ income statements for 2 consecutive years, you notice that sales have increased and gross margin has decreased. How might such changes be explained?
What is working capital? Describe a change in the balance sheet that increases working capital. Describe a change in the balance sheet that decreases working capital.L-1
There are two retail stores in Millersburgh. One is a full-service store that typically sells on credit to its customers; the other is a discount store that usually sells for cash. Full-service
COST OR MARKET VALUES. Randy Patterson, the president of Landco, is con- cerned about the way generally accepted accounting principles require his firm to pres- ent its assets. Landco specializes in
CASH OR ACCRUAL ACCOUNTING. Katie Vote owns a small business that rents computers to students at the local university. Katie’s typical rental contract requires the student to pay the year’s rent
CREDIT ANALYSIS. Roberts’ Rug Shop has been in business for 15 years. Sales during 5 consecutive years increased 8 to 10% each year, owing primarily to price increases resulting from inflation.
CREDIT ANALYSES (LONG-TERM). Benninghove’s Books sells college textbooks and supplies from a store near a major university. Benninghove’s has lost its lease and is seeking financing for the
CREDIT ANALYSIS. Saltzman Stereo Shops sells home and automobile stereo components and supplies. Sales have increased by 10% each year for the past 4 years, but net income has been declining by 5%
FINANCIAL STATEMENTS FOR A FAILED FIRM. Berkshire Novelties sold toys to retail stores. For the past 2 years Berkshire has not been successful in identifying toys that would be in demand. Therefore,
OPERATING CYCLE. A list of businesses is presented below:REQUIRED:Match each business with a description of the operating cycle for that business. l01 BUSINESS 1. Appliance store 2. Clothing store 3.
FINANCING AND OPERATING CYCLES. Which of the following activities belong to the operating cycle, and which belong to the financing cycle?a) Collection of cash from customersb) Payment of dividends to
CALCULATION OF REVENUE. Wallace Motors, which began business on December 31, 19x6, buys and sells used cars. All its sales are to other car dealers. Four cars were purchased during January and none
REVENUE RECOGNITION. Volume Electronics sold a television to Sarah Merrifield on December 15, 19x3. Sarah paid $100 at the time of the purchase and agreed to pay $100 each month for 5 months
REVENUE AND CASH COLLECTION. McDonald Books sells used paperback books for $2 each. During the month of April, McDonald Books sold 21,200 books for cash and 7,300 books on credit. McDonald’s cash
CALCULATION OF REVENUE FROM CASH COLLECTION. Anderson Lawn Service provides mowing, weed control, and pest management services for a flat fee of$60 per lawn per month. During July Anderson collected
CALCULATION OF EXPENSE FROM BALANCE SHEET CHANGES. The following information is available for the month of November 19x3:a) The only change in equity during November was net income.b) During November
EXPENSE AND CASH PAYMENT. The following information is taken from the accrual accounting records of Kroger Sales Company:a) During January 19x2, Kroger paid $8,500 for all the packing supplies to be
CASH-BASIS AND ACCRUAL-BASIS ACCOUNTING. The records of Summers Lumber Company reveal the following information for 19x8:a) Cash receipts during 19x8 (including $50,000 paid by stockholders in
COST AND MARKET VALUE. An asset was purchased on October 15, 19x7, for $50,000 cash. On December 31, 19x7, identical assets were selling for $60,000 cash.Generally accepted accounting principles
INCOME STATEMENT STRUCTURE. Organize the following items into a properly prepared classified income statement for a firm that sells goods to retail customers.Add subtotals where necessary. The items
CLASSIFIED INCOME STATEMENT. The following 19x3 information is available for Bergin Pastry Shop: L-1REQUIRED:Prepare a classified income statement for Bergin for 19x3. l01 Gross margin $30,700 9,200
CLASSIFIED INCOME STATEMENT. Prepare a classified income statement for the year ended December 31, 19x9, using the following information for Wright Auto Supply:L-1 Cost of goods sold... Depreciation
CLASSIFIED INCOME STATEMENT WITH EARNINGS PER SHARE. ERS, Inc., maintains and repairs office equipment. The following income statement account balances are available for ERS at the end of 19x8:
BALANCE SHEET STRUCTURE. Organize the following items into a properly prepared classified balance sheet. Add subtotals where necessary. The items are accounts payable; accounts receivable;
OPERATING CYCLE AND CURRENT RECEIVABLES. For each of the businesses described below, indicate the length of the operating cycle and the duration of the longest receivable that can be classified as
IDENTIFYING CURRENT ASSETS AND LIABILITIES. Dunn Sporting Goods sells athletic clothing and footwear to retail customers. Dunn’s accountant indicates that the firm’s operating cycle averages 6
CURRENT ASSETS AND CURRENT LIABILITIES. Hanson Construction has an operating cycle of 9 months. On December 31, 19x6, Hanson has the following assets and liabilities:a) A note receivable in the
DEPRECIATION. Swanson Products was organized as a new business on January 1, 19x1. On that date, Swanson acquired equipment at a cost of $400,000, which is depreciated at a rate of $40,000 per

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