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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

The following schedule is based on a physical inventory and replacement costs for one product line of men's shirts: SE-11Determine the value of this category of inventory at the lower of cost or
Indicate whether each of the following items is associated with (a) allocating the cost of inventories in accordance with the matching rule, (b) assessing the impact of inventory decisions, or (c)
Dollar Discount Stores is assessing its levels of inventory for 20x2 and 20x3 and has gathered the following data: Ending inventory Cost of goods sold 20x3 20x2 20x1 $128,000 $108,000 $92,000 640,000
Ray's Farm Store recorded the following purchases and sales of fertilizer during the past year:Assume that Ray's Farm Store sold all of the June 1 5 purchase and 200 cases each from the January 1
During its first year of operation, Bellows Company purchased 5,600 units of a product at $21 cm During the second year, it purchased 6,000 units of the same product at $24 per unit During the third
Using the data provided in E 5 and assuming the perpetual inventory system, compute the cost of ending inventory, cost of goods sold, and gross margin. Use the average-cost, FIFO, and LIFO inventor)'
During July 20x1, Toan, Inc., sold 250 units of its product Velt for $4,000. The following units were available:A sale of 100 units was made after purchase 1, and a sale of 150 units was made after
Won Products, Inc., sold 120,000 cases of glue at $40 per case during 20x1. Its beginning inventor)' consisted of 20,000 cases at a cost of $24 per case. During 20x1 , it pur- chased 60,000 cases at
Match each of the descriptions listed below to these inventory costing methods: a. Specific identification b. Average-cost c. First-in, first-out (FIFO) d. Last-in, first-out (LIFO) 1. Matches recent
Condensed income statements for Elan Company for two years are shown below.After the end of 20x4, the company discovered that an error had resulted in a $9,000 understatement of the 20x3 ending
Rumore Company values its inventory, shown below, at the lower of cost or market. Compute Rumore's inventory value using (1) the item-by-item method and (2) the major category method. Category I Item
Irene's Dress Shop had net retail sales of $500,000 during the current year. The follow- ing additional information was obtained from the accounting records:1 . Using the retail method, estimate the
Lind Bales was at home watching television when he received a call from the fire department telling him his store had burned. His business was a total loss. The insurance company asked him to prove
What are liabilities? Q-1
Why is the timing of liability recognition important in accounting? Q-2
At the end of the accounting period, Janson Company had a legal obligation to accept delivery of and pay for a truckload of hospital supplies the following week.Is this legal obligation a liability?
Ned Johnson, a star college basketball player, received a contract from the Midwest Blazers to play professional basketball. The contract calls for a salary of $300,000 a year for four years,
What is the rule for classifying a liability as current? Q-5
What are a line of credit and commercial paper? Where do they appear on the balance sheet? Q-6
A bank is offering Diane Wedge two alternatives for borrowing $2,000. The first alternative is a $2,000, 12 percent, 30-day note. The second alternative is a $2,000, 30-day note discounted at 12
Where should the Discount on Notes Payable account appear on the balance sheet? Q-8
When can a portion of long-term debt be classified as a current liability7 Q-9
What are three types of employer-related payroll liabilities? Q-10
How does an employee differ from an independent contractor? Q-11
Who pays social security and Medicare taxes? Q-12
Why are unearned revenues classified as liabilities? Q-13
What is definite about an estimated liability? Q-14
Why are income taxes payable considered to be estimated liabilities? Q-15
When does a company incur a liability for a product warranty? Q-16
What is a contingent liability, and how does it differ from a commitment? Q-17
What are some examples of contingent liabilities? For what reason is each a contingent liability? Q-18
What is the difference between simple and compound interest? Q-19
What is an ordinary annuity? Q-20
What is the key variable that distinguishes present value from future value? Q-21
How does the use of a compounding period of less than one year affect the computation of present value? Q-22
Why is present value important to accounting? (Illustrate your answer by giving concrete examples of applications in accounting.) Q-23
In 20x1, Telo Company had current assets of $310,000 and current liabilities of $200,000, of which accounts payable were $130,000. Cost of goods sold was $850,000, merchandise inventory increased by
On the last day of October, Ready Company borrows $30,000 on a bank note for 60 days at 1 2 percent interest. Interest is not included in the face amount. Prepare the following entries in journal
Assume the same facts as in E 3, except that interest is included in the face amount of the note and the note is discounted at the bank on October 3 1 . Prepare the following entries in journal form:
Web Page Service billed its customers a total of $980,400 for the month of August, including 9 percent federal excise tax and 5 percent sales tax.1 . Determine the proper amount of service revenue to
At the end of October, the payroll register for Prairie Tool and Die Corporation contained the following totals: wages, $185,500; federal income taxes withheld, $47,442;state income taxes withheld,
Hoop Company manufactures and sells electronic games. Each game costs $25 to produce and sells for $45. In addition, each game carries a warranty that provides for free replacement if it fails during
Seacliff Corporation gives three weeks' paid vacation to each employee who has worked at the company for one year. Based on studies of employee turnover and previous experience, management estimates
Peters receives a one-year note for S3, 000 that carries a 12 percent annual interest rate for the sale of a used car. Compute the maturity value under each of the following assumptions: (1) The
Find the future value of (1) a single payment of S20,000 at 7 percent for ten years, E-10(2) ten annual payments of S2.000 at 7 percent, (3) a single payment of S6.000 at 9 percent for seven years,
The decisions that follow were made by the management of Cotton Gold Company.Indicate whether each decision pertains primarily to (a) cash flow management,(b) profitability management, (c) choice of
The operating budget and actual performance for the six months ended June 30, 20x1, for Kobe Hardware Corporation appear below. E-21 . Prepare an operating report that shows budget, actual, and
A household appliance dealer buys refrigerators from a manufacturer and resells them to its customers.a. The manufacturer sets a list or catalogue price of $1,000 for a refrigerator. The manufacturer
Using the selected account balances at December 31, 20xx, for Tents, Etc. that follow, prepare an income statement for the year ended December 31, 20xx. Show detail of net sales. The company uses the
Give the entries to record each of the following transactions under the perpetual inventory system:a. Purchased merchandise on credit, terms n/30, FOB shipping point, $2,500.b. Paid freight on the
On June 15, Ohio Company sold merchandise for $1,300 on terms of n/30 to Whist Company. On June 20, Whist Company returned some of the merchandise for a credit of $300, and on June 25, Whist paid the
Using the selected year-end account balances at December 31, 20x2, for the Happ General Store shown below, prepare a 20x2 income statement. Show detail of net sales. The company uses the periodic
Determine the missing data for each letter in the following three income statements for Iron Wholesale Paper Company (in thousands): E-8 Sales Sales returns and allowances Net sales Merchandise
Careful scrutiny of accounting records and financial statements can lead to the discovery of fraud or embezzlement. Each of the following situations may indicate a break- down in internal control.
Ned Remy, who operates a small grocery store, has established the following policies with regard to the checkout cashiers: E-12 1 . Each cashier has his or her own cash drawer, to which no one else
Give the entries to record the following transactions engaged in by Rios Company, which uses the periodic inventory system: E-14 Mar. 1 Sold merchandise on credit to Bee Company, terms 2/10, n/30,
Tanweiczk Company purchased $4,600 of merchandise, terms 2/10, n/30, from A&G Company and paid for the merchandise within the discount period. Give the entries (1)by Tanweiczk Company to record the
Why does a business need short-term financial assets? What three issues does management face in dealing with short-term financial assets? Q-1
What is a factor, and what do the terms factoring with recourse and factoring without recourse mean? Q-2
What items are included in the Cash account? What is a compensating balance? Q-3
How do cash equivalents differ from cash? From short-term investments? Q-4
What are the three kinds of securities held as short-term investments, and how are they valued at the balance sheet date? Q-5
What are unrealized gains and losses on trading securities7 On what statement are they reported? Q-6
Which of the following items should be in accounts receivable? If an item does not belong in accounts receivable, tell where on the balance sheet it does belong:(a) installment accounts receivable
Why does a company sell on credit if it expects that some of the accounts will not be paid? What role does a credit department play in selling on credit? Q-8
What accounting rule is violated by the direct charge-off method of recognizing uncollectible accounts? Why? Q-9
According to generally accepted accounting principles, at what point in the cycle of selling and collecting does a loss on an uncollectible account occur?Q-10
Do the following terms differ in any way: allowance for bad debts, allowance for doubt- ful accounts, allowance for uncollectible accounts? Q-11
What is the effect on net income of management's taking an optimistic versus a pessimistic view of estimated uncollectible accounts? Q-12
In what ways is Allowance for Uncollectible Accounts similar to Accumulated Depreciation? In what ways is it different? Q-13
What is the reasoning behind the percentage of net sales method and the accounts receivable aging method of estimating uncollectible accounts? Q-14
What is the procedure for estimating uncollectible accounts that also gives management a view of the status of collections and the overall quality of accounts receivable? Q-15
After adjusting and closing the accounts at the end of the year, suppose that Accounts Receivable is $176,000 and Allowance for Uncollectible Accounts is $14,500.(a) What is the collectible value of
Why should an account that has been written off as uncollectible be reinstated if the amount owed is subsequently collected? Q-17
What is a promissory note? Who is the maker? Who is the payee? Q-18
What are the maturity dates of the following notes: (a) a three-month note that is dated August 16, (b) a 90-day note that is dated August 16, and (c) a 60-day note that is dated March 25? Q-19
Indicate whether each of the following actions is related to (a) managing cash needs during seasonal cycles, (b) setting credit policies, or (c) financing receivables: SE-1 1. Selling accounts
Hobin Company has cash of $20,000, short-term investments of $25,000, net accounts receivable of $45,000, inventory of $44,000, accounts payable of $60,000, and net sales of $360,000. Last year's net
Compute the amount of cash and cash equivalents on Catta Company's balance sheet I if on the balance sheet date, it has currency and coins on hand of $500, deposits in I checking accounts of $3,000,
On May 3 1 , Jeans Company invested $49,000 in U.S. Treasury bills. The bills mature in 120 days at $50,000. Prepare entries to record the purchase on May 31; the adjustment to accrue interest on
Fallow Corporation began investing in trading securities in 20x1. At the end of 20x1, it had the following trading portfolio: SE-5Prepare the necessary year-end adjusting entry on December 31 and the
At the end of October, Soo Company's management estimates the uncollectible accounts expense to be 1 percent of net sales of $2,770,000. Give the entry to record the uncollectible accounts expense,
An aging analysis on June 30 of the accounts receivable of Allsides Corporation indicates that uncollectible accounts amount to $43,000. Give the entry to record uncol- lectible accounts expense
Mint Company, which uses the allowance method, has an account receivable from Lana Freer of $4,400 that it deems to be uncollectible. Prepare the entries on May 31 to write off the account and on
On August 25, Landau Company received a 90-day, 9 percent note in settlement of an account receivable in the amount of $10,000. Record the receipt of the note, the accrual of interest at the end of
Prepare a bank reconciliation from the following information: SE-10a. Balance per bank statement as of June 30, $2,586.58b. Balance per books as of June 30, $1,318.87c. Deposits in transit, $348.00d.
Indicate whether each of the following actions is primarily related to (a) managing cash needs during seasonal cycles, (b) setting credit policies, or (c) financing receivables: E-1 1 . Buying a U.S.
Using the following data from the financial statements of Russo Company, compute the quick ratio, the receivable turnover, and the average days' sales uncollected: E-2 Current assets Cash Short-term
At year end, Taft Company had currency and coins in cash registers of $2,800, money orders from customers of $5,000, deposits in checking accounts of $32,000, U.S. Treasury bills due in 80 days of
Epps Corporation, which has begun investing in trading securities, engaged in the following transactions: E-5 Jan. 6 Purchased 7,000 shares of Quaker Oats stock, $30 per share. Feb. 15 Purchased
At the end of the year, Simone Enterprises estimates the uncollectible accounts expense to be .7 percent of net sales of $30,300,000. The current credit balance of Allowance for Uncollectible
Accounts Receivable of Jovic Company shows a debit balance of $52,000 at the end of the year. An aging analysis of the individual accounts indicates estimated uncollectible accounts to be
At the beginning of 20xx, the balances for Accounts Receivable and Allowance for Uncollectible Accounts were $430,000 and $31,400, respectively. During the year, credit sales were $3,200,000, and
During 20x1, Moon Supply Company had net sales of $2,850,000. Most of the sales were on credit. At the end of 20x1, the balance of Accounts Receivable was $350,000, and Allowance for Uncollectible
The Montana Parts Company sells merchandise on credit. During the fiscal year ended July 31 , the company had net sales of $4,600,000. At the end of the year, it had Accounts Receivable of $1,200,000
Assuming that the allowance method is used, prepare entries in journal form to record the following transactions: E-11 July 12, 20x4 Oct. 18, 20x4 May 8, 20x5 Sold merchandise to Ezra Lief for
Determine the interest on the following notes:a. $22,800 at 10 percent for 90 daysb. $16,000 at 12 percent for 60 daysc. $18,000 at 9 percent for 30 daysd. $30,000 at 15 percent for 120 dayse.
Prepare entries in journal form to record the following transactions: E-13 Jan. 16 Sold merchandise to Meier Corporation on account for $36,000, terms n/30.Feb. 15 Accepted a 90-day, 10 percent,
Prepare entries in journal form (assuming reversing entries were not made) to record the following: E-14 Dec. 1 Received a 90-day, 12 percent note for $10,000 from a customer for a sale of
Prepare entries in journal form to record these transactions: E-15 Jan. 5 Accepted a 60-day, 10 percent, $4,800 note dated this day in granting a time extension on the past-due account of N. Tagaki.

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