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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

STOCKHOLDER’S EQUITY. On January 1, 19x1, Mulcahy Manufacturing, Inc., a newly formed corporation, issued 1,000 shares of capital stock in exchange for$150,000 cash. No other shares were issued
. CLASSIFIED BALANCE SHEET. College Spirit sells sportswear with logos of major universities. At the end of 19x6 the following balance sheet account balances were available:REQUIRED:Prepare a
Jerrison Company operates a wholesale hardware business. The following balance sheet accounts and balances are available forJerrison at December 31, 19x3. REQUIRED:Prepare a classified balance sheet
Zachary Corporation’s December 31, 19x4 balance sheet included the following amounts:REQUIRED:1. Calculate the amount of cash and retained earnings at the end of 19x5.2. Prepare a statement of cash
Suppose you gave a $20,000 gift to a friend. Would you pay a gift taxon $20,000 if you were single? If so, how much of the gift amountwould be taxed?
Use the Internet to learn more about Roth IRAs. From the informationyou find, write a paragraph about Roth IRAs. Who would choose themand why?
Explain the difference between a traditional IRA and a SEP-IRA. Explainwho can have these types of accounts.
What is comprehensive income? How does it differ from net income? Lo1
What is quality of earnings, and what are four ways in which quality of earnings mz be affected?Lo1
Why would the reader of financial statements be interested in management's choice of accounting methods and estimates? Give an example.Lo1
What is the difference between a write-down and a restructuring, and where do they appear on the corporate income statement?Lo1
In the first quarter of 1994, AT&T, the giant telecommunications company, reported a net loss because it reduced its income by $1 .3 billion, or $.96 per share, as a result of changing its method of
"Accounting income should be geared to the concept of taxable income because the public understands that concept." Comment on this statement, and tell why income tax allocation is necessary.Lo1
Nabisco had about $1 .3 billion of deferred income taxes in 1996, equal to about 1 1 percent of total liabilities. This percentage had risen or remained steady for many years. Given management's
Why should a gain or loss on discontinued operations be disclosed separately on the income statement?Lo1
Explain the two major criteria for extraordinary items. How should extraordinary- items be disclosed in the financial statements?Lo1
When an accounting change occurs, what disclosures must be made in the financial statements?Lo1
How are earnings per share disclosed in the financial statements?Lo1
When does a company have a simple capital structure? A complex capital structure?Lo1
What is the difference between basic and diluted earnings per share?Lo1
What is the difference between the statement of stockholders' equity and the stockholders' equity section of the balance sheet?Lo1
When does a company have a deficit in retained earnings?Lo1
What is the purpose of a restriction on retained earnings? Why might a company have restrictions on its retained earnings?Lo1
Explain how the accounting treatment of stock dividends differs from that of cash dividends.Lo1
What is the difference between a stock dividend and a stock split? What is the effect of each on the capital structure of the corporation? Lo1
Each of the items listed below is a quality of earnings issue. Indicate whether the item is (a) an accounting method, (b) an accounting estimate, or (c) a nonoperating item. For any item for which
Assume that Brown Company's chief financial officer gave you the following informa- tion: Net Sales, $720,000; Cost of Goods Sold, $350,000; Loss from Discontinued Operations (net of income tax
Using the corporate tax rate schedule in Table 1 , compute the income tax liability for taxable income of (1) $400,000 and (2) $20,000,000. L01
During 20x1, Halle Corporation reported a net income of $669,200. On January 1, Halle had 360,000 shares of common stock outstanding. The company issued an additional 240,000 shares of common stock
Refer to the statement of stockholders' equity for Tri-State Corporation in Exhibit 2 to answer the following questions: (1) At what price per share were the 5,000 shares of common stock sold? (2)
Tell whether each of the following actions will increase, decrease, or have no effect on total assets, total liabilities, and total stockholders' equity: 1 . Declaration of a stock dividend 2.
Jade Company has a lawsuit filed against it. The board took action to restrict retained earnings in the amount of $2,500,000 on May 31, 20x1, pending the outcome of the suit. On May 31, the company
On February 15, Red Mountain Corporation's board of directors declared a 2 percent stock dividend applicable to the outstanding shares of its $10 par value common stock, of which 200,000 shares are
On August 10, the board of directors of Torrelli International declared a 3-for-l stock split of its $9 par value common stock, of which 800,000 shares were authorized and 250,000 were issued and
Using data from the stockholders' equity section of Gem Corporation's balance sheet shown below, compute the book value per share for both the preferred and the com- mon stock. L01 Contributed
At the end of its first year of operations, a company calculated its ending merchandise inventory according to three different accounting methods, as follows: FIFO, $95,000;average-cost, $90,000;
Assume that the Silver Furniture Company's chief financial officer gave you the fol- lowing information: net sales, $1,900,000; cost of goods sold, $1,050,000; extraordinary gain (net of income taxes
The following items are components of Aconite Corporation's income statement for the year ended December 31, 20x1:Recast the income statement in proper multistep form, including allocating income
Using the corporate tax rate schedule in Table 1 , compute the income tax liability for the following situations: L01 Situation ABC Taxable Income $ 70,000 85,000 320,000
The Amarillo Corporation reported the following accounting income before income taxes, income taxes expense, and net income for 20x2 and 20x3: L01 Income before income taxes Income taxes expense 20x2
During 20x3, the La Jeune Corporation reported a net income of 51,529,500. On January 1, La Jeune had 700,000 shares of common stock outstanding. The company issued an additional 420,000 shares of
The board of directors of the Solwar Company has approved plans to acquire another company during the coming year. The acquisition should cost approximately 5550,000.The board took action to restrict
The stockholders' equity section of Molloy Corporation's balance sheet on December 3 1 , 20x4, appears as follows:Prepare a statement of stockholders' equity for the year ended December 31, 20x5,
The Halcyon Company has 30, ()()() shares of its $1 par value common stock outstanding. Record in journal form the following transactions as they relate to the company's common stock:July 17 Declared
The Chu Company currently has 500,000 shares of $1 par value common stock authorized with 200,000 shares outstanding. The board of directors declared a 2-for-l split on May 15, when the market value
On January 15, the board of directors of Extell International declared a 3-for-l stock split of its $12 par value common stock, of which 800,000 shares were authorized and 200,000 were issued and
In the statement of cash flows, what does cash include?lo1
To earn a return on cash on hand during 20x3, Sallas Corporation transferred$45,000 from its checking account to a money market account, purchased a$25,000 Treasury bill, and invested $35,000 in
What are the purposes of the statement of cash flows?lo1
Why is the statement of cash flows needed when most of the information in it is available from a company's comparative balance sheets and income statement?lo1
What are the three classifications of cash flows? Give some examples of each.lo1
Why is it important to disclose certain noncash transactions? How should they be disclosed?lo1
Define cash-generating efficiency and identify three ratios that measure it.lo1
Define free cash flow and identify its components. What do positive and negative free cash flows mean?lo1
What is the basic difference between the direct method and the indirect method of determining cash flows from operations?lo1
In determining net cash flows from operating activities (assuming the indirect method is used), what are the effects on cash generated by the following items:(a) an increase in accounts receivable,
In 20x1, Cell-Borne Corporation had a net loss of $12,000 but positive cash flows from operations of $9,000. What conditions might have caused this situation?lo1
What is the proper treatment on the statement of cash flows of a transaction in which a building that cost $50,000 with accumulated depreciation of $32,000 was soliat a loss of $5,000?lo1
What is the proper treatment on the statement of cash flows of (a) a transaction in which buildings and land were purchased by the issuance of a mortgage for$234,000 and (b) a conversion of $50,000
Glen Corporation has the following other income and expense items: interest expense, $12,000; interest income, $3,000; dividend income, $5,000; and loss on the retirement of bonds, $6,000. Where does
Stahl Corporation engaged in the transactions listed below. Identify each as (a) an operating activity, (b) an investing activity, (c) a financing activity, (d) a noncash transaction, or (e) none of
In 20x2, Portillo Corporation had year-end assets of $550,000, net sales of $790,000, net income of S90.000, net cash flows from operating activities of SI 80,000, purchases of plant assets of SI
Examine the cash flow measures in part 2 of the review problem in this chapter. Discuss the meaning of these ratios.L01
Global Market Corporation had a net income of $33,000 during 20x4. During the year, the company had depreciation expense of $14,000. Accounts Receivable increased by$11,000, and Accounts Payable
During 20x4, Cheng Corporation had a net income of $72,000. Included on its income statement were depreciation expense of $8,000 and amortization expense of $900.During the year, Accounts Receivable
During 20x3, Okee Company purchased land for $750,000. It paid $250,000 in cash and signed a 5500,000 mortgage for the rest. The company also sold a building that originally cost $180,000, on which
During 20x4, Dakota Company issued $1,000,000 in long-term bonds at 96, repaid SI 50,000 of bonds at face value, paid interest of $80,000, and paid dividends of$50,000. Prepare the cash flows from
In 20x5, Ignatz Corporation had year-end assets of $4,800,000, net sales of $6,600,000, net income of $560,000, net cash flows from operating activities of $780,000, dividends of $240,000, and net
The condensed single-step income statement for the year ended December 31, 20x2, of Gro-More Chem Company, a distributor of farm fertilizers and herbicides, appears as follows: Sales $6,500,000 Less:
During 20x1, Germaine Corporation had a net income of $41,000. Included on its income statement were depreciation expense of $2,300 and amortization expense of$300. During the year, Accounts
For the year ended June 30, 20xx, net income for Pine Corporation was $7,400.Depreciation expense was $2,000. During the year, Accounts Receivable increased by$4,400, Inventories increased by $7,000,
FBR Company's T account for long-term available-for-sale investments at the end of 20x3 is as follows: Investments Beg. Bal. Purchases 38,000 Sales 58,000 39,000 End Bal. 57,000 In addition, FBR's
The T accounts for plant assets and accumulated depreciation for FBR Company at the end of 20x3 are as follows:In addition, FBR Company's income statement shows a gain on sale of plant assets of
All transactions involving Notes Payable and related accounts of Wix Company during 20x4 are as follows:Determine the amounts of the transactions affecting financing activities and show how they are
Margol Corporation's 20x4 income statement appears below. Its comparative balance sheets for June 30, 20x4 and 20x3 are on the next page. Margol Corporation Income Statement For the Year Ended June
How are the objectives of investors and creditors in using financial performance evaluation similar? How do they differ? Q-1
What role does risk play in making loans and investments? Q-1
What standards of comparison are commonly used to evaluate financial statements, and what are theii relative merits? Q-1
Why would a financial analyst compare the ratios of Steelco, a steel company, with the ratios of other companies in the steel industry? What factors might invalidate such a comparison? Q-1
Where can investors find information about a publicly held company in which they are thinking of investing Q-1
Why would an investor want to see both horizontal and trend analyses of a company's financial statements? Q-1
What does the following sentence mean: "Based on 1990 equaling 100, net income increased from 240 in 1997 to 260 in 1998"? Q-1
What is the difference between horizontal and vertical analysis? Q-1
What is the purpose of ratio analysis?Q-1
In a period of high interest rates, why are receivable turnover and inventory turnover especially important? Q-1
The following statements were made on page 35 of the November 6, 1978, issue of Fortune magazine: "Supermarket executives are beginning to look back with some nostalgia on the days when the standard
Company A and Company B both have net incomes of $1 ,000,000. Is it possible to say that these companies are equally successful? Why or why not? Q-1
Circo Company has a return on assets of 12 percent and a debt to equity ratio of.5. Would you expect return on equity to be more or less than 12 percent? Q-1
What amount is common to all cash flow adequacy ratios? To what other groups of ratios are the cash flow adequacy ratios most closely related? Q-1
The market price of Company J's stock is the same as that of Company Q's. How might you determine whether investors are equally confident about the future of these companies? Q-1
Indicate whether each of the following items is (a) an objective or (b) a standard of com- parison of financial statement analysis:1 . Industry norms 2. Assessment of a company's past performance 3.
For each piece of information listed below, indicate whether the best source would be(a) reports published by the company, (b) SEC reports, (c) business periodicals, or(d) credit and investment
Using 20x0 as the base year, prepare a trend analysis for the following data, and tell whether the results suggest a favorable or unfavorable trend. (Round your answers to one decimal place.) LO1
The comparative income statements and balance sheets of Site Works, Inc., appear on the oppposite page. Compute the amount and percentage changes for the income state- ments, and comment on the
Express the comparative balance sheets of SiteWorks, Inc., as common-size statements, and comment on the changes from 20x0 to 20x1 . (Round computations to one decimal place.) LO1
Using the information for SiteWorks, Inc., in SE 4 and SE 5, compute the current ratio, quick ratio, receivable turnover, average days' sales uncollected, inventory turnover, average days' inventory
Using the information for SiteWorks, Inc., in SE 4 and SE 5, compute the profit margin, asset turnover, return on assets, and return on equity for 20x0 and 20x1. In 19x9, total assets were 5100,000
Using the information for SiteWorks, Inc., in SE 4 and SE 5, compute the debt to equity- ratio and the interest coverage ratio for 20x0 and 20x1 . Comment on the results. (Round computations to one
Using the information for SiteWorks, Inc., in SE 4, SE 5, and SE 7, compute the cash flow yield, cash flows to sales, cash flows to assets, and free cash flow for 20x0 and 20x1 .Net cash flows from
Using the information for SiteWorks, Inc., in SE 4, SE 5, and SE 9, compute the price/earnings ratio and dividends yield for 20x0 and 20x1. The company had 10,000 shares of common stock outstanding

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