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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

Identify each of the following as (a) an objective of financial statement analysis, (b) a standard for financial statement analysis, or (c) a source of information for financial statement analysis:
Compute the amount and percentage changes for the following balance sheets, and comment on the changes from 20x3 to 20x4. (Round the percentage changes to one decimal place.) L01 Trumpet Company
Express the comparative income statements that follow as common-size statements, 3,200and comment on the changes from 20x5 to 20x6. (Round computations to one decimal place.) L01 Trumpet Company
Partial comparative balance sheet and income statement information for Helig Company is as follows:In 20x2, the year-end balances for Accounts Receivable and Inventory were $16,200 and $25,600,
Main Tuxedo Shop has been in business for four years. Because the company has recently had a cash flow problem, management wonders whether there is a problem with receivables or inventories. Here are
D.J. Company had total assets of $640,000 in 20x2, $680,000 in 20x3, and $760,000 in 20x4. Its debt to equity ratio was 67 times in all three years. In 20x3, the company had net income of $77,112 on
An investor is considering investing in the long-term bonds and common stock of Companies M and N. Both companies operate in the same industry. In addition, both companies pay a dividend per share of
Using the data below from the financial statements of Cheng, Inc., compute the company's cash flow yield, cash flows to sales, cash flows to assets, and free cash flow. (Round computations to one
Why are the concepts of significant influence and control important in accounting for long-term investments? Lo1
For each of the following categories of long-term investments, briefly describe the applicable percentage of ownership and accounting treatment: (a) noninfluential and noncontrolling investment, (b)
What is a parent-subsidiary relationship?Lo1
Would the stockholders of American Home Products Corporation be more inter- ested in the consolidated financial statements of the overall company than in the statements of its many subsidiaries?
Merchant's summary of significant accounting policies also contained this state- ment: "Investments. Investments in companies in which Merchant has significant influence in management are on the
The 2000 annual report of Merchant Corporation included the following statement in its summary of significant accounting policies: "Principles applied in consolidation. Majority-owned subsidiaries
Why should intercompany receivables, payables, sales, and purchases be eliminated in the preparation of consolidated financial statements? Lo1
The following item appears on Merchant's consolidated balance sheet: "Minority Interest— $50,000." Explain how this item arose and where you would expect to find it on the consolidated balance
Why may the price paid to acquire a controlling interest in a subsidiary company exceed the subsidiary's book value? Lo1
The following item also appears on Merchant's consolidated balance sheet:"Goodwill from Consolidation — $70,000." Explain how this item arose and where you would expect to find it on the
Subsidiary Corporation has a book value of $100,000, of which Parent Corporation purchases 100 percent for $1 15,000. None of the excess of cost over book value is attributed to tangible assets. What
Subsidiary Corporation, a wholly-owned subsidiary, has total sales of $500,000, $100,000 of which were made to Parent Corporation. Parent Corporation has total sales of $1,000,000. What is the amount
What does it mean to say that the exchange rate for the euro in terms of the U.S.dollar is .95? If a bottle of French perfume costs 50 euros, how much will it cost in dollars? Lo1
If a U.S. company does business with a foreign company and all their transactions take place in the foreign currency, which company may incur exchange gains or losses, and why? Lo1
What is the difference between a functional currency and a reporting currency? Lo1
If you as an investor were trying to evaluate the relative performance of General Motors, Volkswagen, and Toyota Motors from their published financial statements, what problems might you encounter
What are some of the obstacles to uniform international accounting standards, and what efforts are being made to overcome them? Lo1
On December 31, 20x1, the market value of Cedar Deck Company's portfolio of long- term available-for-sale securities was $320,000. The cost of these securities was $285,000. Prepare the entry to
Refer to your answer to SE 1. Assume that on December 31, 20x2, the cost of Cedar Deck Company's portfolio of long-term available-for-sale securities was $640,000 and that its market value was
Sturchio Company owns 30 percent of Raymond Company. In 20x1, Raymond Com- pany earned $120,000 and paid $80,000 in dividends. Prepare entries in journal form for Sturchio Company's records on
For each of the investments listed below, tell which of the following methods should be used for external financial reporting: (a) cost-adjusted-to-market method, (b) equity method, (c) consolidation
Maple House Corporation buys 100 percent ownership of Winter Sweets Corporation for S50,000. At the time of the purchase, Winter Sweets' stockholders' equity consists of SI 0,000 in common stock and
Assume the same facts as in SE 5 except that Maple House purchased 80 percent of Winter Sweets Corporation for $40,000. After the purchase, what would be the amount, if any, of the following accounts
Assume the same facts as in SE 5 except that the purchase of 100 percent of Winter Sweets Corporation was for $60,000. After the purchase, what would be the amount, if any, of the following accounts
T Company owns 1 00 percent of C Company. The following are accounts from the bal- ance sheets and income statements of both companies:What would be the combined amount of each of the above accounts
Prepare an entry to record a sale by a U.S. company on account on September 12 in the amount of C$ 420,000 to a Canadian company. Also, record the subsequent collection in full in Canadian dollars on
Prepare an entry to record a purchase by a U.S. company on account on September 12 in the amount of C$ 420,000 from a Canadian company. Also record the subsequent payment in full in Canadian dollars
Fenster Corporation has the following portfolio of long-term available-for-sale securities at vear end:Both the Unrealized Loss on Long-Term Investments account and the Allowance to Adjust Long-Term
On January 1, O'Byrne Corporation purchased, as long-term investments, 8 percent of the voting stock of Magda Corporation for $500,000 and 45 percent of the voting stock of Sumari Corporation for $2
On January 1, 20xx, Orcola Corporation acquired 40 percent of the voting stock of Visnjics Corporation, an amount sufficient to exercise significant influence over Visnjics Corporation's activities,
Diversified Corporation has the following long-term investments:1. 60 percent of the common stock of Tunis Corporation 2. 13 percent of the common stock of Iron Dale, Inc.3. 50 percent of the
Panda Manufacturing Company purchased 100 percent of the common stock of Soule Manufacturing Company for $300,000. Soule's stockholders' equity included common stock of $200,000 and retained earnings
The stockholders' equity section of Carney Corporation's balance sheet appeared as fol- lows on December 3 1 : LO1Souris Manufacturing Company owns 80 percent of Carney's voting stock and paid $11.20
On September 1, 20x1, A Company purchased 100 percent of the voting stock of B Company for $960,000 in cash. The separate condensed balance sheets immediately after the purchase were as follows:
A Company acquired control of B Company. Assume that any excess cost of A Company's investment in the subsidiary over book value is attributable to goodwill from consolidation.Barr Company has owned
Wooster Corporation purchased a special-purpose machine from Konigsberg Corporation on credit for E 50,000. At the date of purchase, the exchange rate was $.90 per euro. On the date of the payment,
U.S. Corporation made a sale on account to U.K. Company on November 15 in the amount of £300,000. Payment was to be made in British pounds on February 15. U.S.Corporation's fiscal year is the same
Indicate whether each of the following actions relates to (a) managing liquidity and cash L01 Issues in Accounting for flow, (bj recognition of liabilities, (c) valuation of liabilities, (d)
Rickland Company has current assets of 5130,000 and current liabilities of S80.000, of which accounts payable are S70,000. Rickland's cost of goods sold is $460,000, its mer- chandise inventon-
On the last day of August, Haas Company borrowed $60,000 on a bank note for 60 days at 10 percent interest. Assume that interest is stated separately. Prepare the following entries in journal form:
Assume the same facts as in SE 4, except that interest of 51 ,000 is included in the face amount of the note and the note is discounted at the bank on August 3 1 . Prepare the following entries in
The following payroll totals for the month of April are from the payroll register of Ciafi Corporation: salaries, S223,000.00; federal income taxes withheld, 531,440.00; social security tax withheld,
Sunchow Corp. manufactures and sells travel clocks. Each clock costs S25 to produce and sells for 5 50. In addition, each clock carries a warranty that provides for free replace- ment if it fails
Bailyn Motors, Inc., receives a one-year note that carries a 1 2 percent annual interest rate on S 1 ,500 for the sale of a used car. Compute the maturity value under each of the fol- lowing
Find the future value of (1) a single payment of 510,000 at 7 percent for ten years,(2) ten annual payments of 51 ,000 at 7 percent, (3) a single payment of 53,000 at 9 per- cent for seven years, and
Find the present value of (1) a single payment of 512,000 at 6 percent for 12 years,(2) 12 annual payments of 51,000 at 6 percent, (3) a single payment of 52,500 at 9 per- cent for five years, and
Tim O'Shea owns a machine shop and has the opportunity to purchase a new machine for SI 5,000. After carefully studying projected costs and revenues, O'Shea estimates that the new machine will
What are the characteristics of long-term assets?LO-3
Which of the following items would be classified as plant assets on the balance sheet? (a) A truck held for sale by a truck dealer, (b) an office building that was once the company headquarters but
Why is land different from other long-term assets?LO-3
What do accountants mean by the term depreciation, and what is its relationship to depletion and amortization?LO-3
What is asset impairment, and how does it affect the valuation of long-term assets?LO-3
How do cash flows relate to the decision to acquire a long-term asset, and how does the useful life of an asset relate to the means of financing it?LO-3
Why is it useful to think of a plant asset as a bundle of services?LO-3
What is the distinction between revenue expenditures and capital expenditures, why is it important, and what in general is included in the cost of a long-term asset?LO-3
Which of the following expenditures stemming from the purchase of a computer system would be charged to the asset account? (a) The purchase price of the equipment, (b) interest on the debt incurred
Hale's Grocery obtained bids on the construction of a receiving dock at the back of its store. The lowest bid was $22,000. The company decided to build the dock itself, however, and was able to do so
A firm buys technical equipment that is expected to last twelve years. Why might the equipment have to be depreciated over a shorter period of time?LO-3
A company purchased a building five years ago. The market value of the building is now greater than it was when the building was purchased. Explain why the company should continue depreciating the
Evaluate the following statement: "A parking lot should not be depreciated because adequate repairs will make it last forever."LO-3
Is the purpose of depreciation to determine the value of equipment? Explain your answer.LO-3
Contrast the assumption underlying the straight-line depreciation method with the assumption underlying the production depreciation method.LO-3
What is the principal argument supporting an accelerated depreciation method?LO-3
If a plant asset is sold during the year, why should depreciation be computed for the partial year prior to the date of the sale?LO-3
If a plant asset is discarded before the end of its useful life, how is the amount of loss measured?LO-3
Old Stake Mining Company computes the depletion rate of ore to be $2 per ton.During 20xx the company mined 400,000 tons of ore and sold 370,000 tons. What is the total depletion expense for the
Under what circumstances can a mining company depreciate its plant assets over a period of time that is less than their useful lives?LO-3
Because accounts receivable have no physical substance, can they be classified as intangible assets?LO-3
Under what circumstances can a company have intangible assets that do not appear on the balance sheet?LO-3
How does the Financial Accounting Standards Board recommend that research and development costs be treated?LO-3
After spending three years developing a new software program for designing office buildings, Archi Draw Company recently completed the detailed working program.How does accounting for the costs of
How is accounting for software development costs similar to and different from accounting for research and development costs? LO-3
Under what conditions should goodwill be recorded? Should it remain in the records permanently once it is recorded?LO-3
What basic procedure should be followed in revising a depreciation rate? LO-3
On what basis can depreciation be taken on a group of assets rather than on indi- vidual items? LO-3
What will be the effect on future years' income of charging an addition to a build- ing to repair expense? LO-3
In what ways do an addition, a betterment, and an extraordinary repair differ? LO-3
How does an extraordinary repair differ from an ordinary repair!' What is the accounting treatment for each?LO-3
What is the difference between depreciation for accounting purposes and the Modified Accelerated Cost Recovery System for income tax purposes? LO-3
Indicate whether each of the following actions is primarily related to (a) acquisition of long-term assets, (b) financing of long-term assets, or (c) choosing methods and estimates related to
Parsons Auto purchased a neighboring lot for a new building and parking lot. Indicate whether each of the following expenditures is properly charged to (a) Land, (b) Land Improvements, or (c)
Apse Company purchased property with a warehouse and parking lot for $750,000. An appraiser valued the components of the property if purchased separately as follows:Determine the cost to be assigned
Canondale Fitness Center purchased a new step machine for $5,500. The apparatus is expected to last four years and have a residual value of $500. What will be the depreciation expense for each year
Assuming that the step machine in SE 4 has an estimated useful life of 8,000 hours and was used for 2,400 hours in year 1 , for 2,000 hours in year 2, for 2,200 hours in year 3, and for 1,400 hours
Assuming that the step machine in SE 4 is depreciated using the double-declining- balance method, how much would depreciation expense be in each year?Lo1
Midwest Printing had a piece of equipment that cost $8,100 and on which $4,500 of accumulated depreciation had been recorded. The equipment was disposed of on January 4, the first day of business of
For each of the following assumptions and referring to the equipment mentioned in SE 7, compute the gain (loss) on the exchange, the cash payment required, and the amount at which the new equipment
Tierra Company purchased land containing an estimated 4,000,000 tons of ore for$8,000,000. The land will be worth $1,200,000 without the ore after eight years of active mining. Although the equipment
Kabira created a new software application for PCs. Its costs during research and devel- opment were $500,000, and its costs after the working program was developed were$350,000. Although its
Indicate whether each of the following actions is primarily related to (a) acquisition of long-term assets, (b) financing of long-term assets, or (c) choosing methods and estimates related to
Management is considering the purchase of a new machine for a cost of $12,000. It is estimated that the machine will generate positive net cash flows of $3,000 per year for five years and will have a
Macoma Manufacturing purchased land next to its factory to be used as a parking lot.Expenditures incurred by the company were as follows: purchase price, $150,000; broker's fees, $12,000; title

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