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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

Prepare a bank reconciliation from the following information: E-16a. Balance per bank statement as of May 31, $8,454.54b. Balance per books as of May 31, $6,138.04c. Deposits in transit, $1,134.42d.
What is merchandise inventory, ind what is the primary objective of inventory measurement? Q-1
How does inventory for a manufacturing company differ from that for a merchandising company? Q-2
Why is the level of inventory important, and what are two common measures of inventory level? Q-3
What items should be included in the cost of inventory? Q-4
Fargo Sales Company is very busy at the end of its fiscal year on June 30. It has an order for 130 units of product in its warehouse. Although the shipping department tries, it cannot ship the
What is the difference between goods flow and cost flow7 Q-6
Do the FIFO and LIFO inventory methods result in different quantities of ending inventory? Q-7
Under which method of cost flow are (a) the earliest costs assigned to inventory, Q-8(b) the latest costs assigned to inventor}', and (c) the average costs assigned to inventory?
What are the relative advantages and disadvantages of FIFO and LIFO from management's point of view? Q-9
Why do you think it is more expensive to maintain a perpetual inventory system? Q-10
In periods of steadily rising prices, which inventory method — average-cost, FIFO, or LIFO — will give the (a) highest ending inventory cost, (b) lowest ending inventory cost, (c) highest net
May a company change its inventory cost method from year to year? Explain. Q-12
What is the relationship between income tax rules and the inventory valuation methods? Q-13
If the merchandise inventory is mistakenly overstated at the end of 20x0, what is the effect on the (a) 20x0 net income, (b) 20x0 year-end balance sheet value,(c) 20x1 net income, and (d) 20x1
In the phrase lower of cost or market, what is meant by the word market? Q-15
What methods can be used to determine the lower of cost or market? Q-16
Does using the retail method mean that inventories are measured at retail value on the balance sheet? Explain. Q-17
For what reasons might management use the gross profit method of estimating inventory? Q-18
Which of the following inventory systems or methods do not require the taking of a physical inventory: (a) perpetual, (b) periodic, (c) retail, and (d) gross profit? Q-19
The lettered items below represent a classification scheme for the concepts of financial accounting. Match each numbered term with the letter of the category in which it belongs. E-1 a. Decision
Each of the statements below violates a convention in accounting. State which of the following accounting conventions is violated: comparability and consistency, materiality, conservatism, full
The lettered items below represent a classification scheme for a balance sheet, and the numbered items are account titles. Match each account with the letter of the category in which it belongs. E-3
The following data pertain to Mia, Inc.: Accounts Payable, $51 ,000; Accounts Receivable,$38,000; Accumulated Depreciation, Building, $14,000; Accumulated Depreciation, Equipment, $17,000; Bonds
Using the classification scheme below for a multistep income statement, match each account with the letter of the category in which it belongs. E-5 a. Net sales b. Cost of goods sold c. Selling
The following data pertain to a corporation: net sales, $810,000; cost of goods sold,$440,000; selling expenses, $180,000; general and administrative expenses, $120,000;income taxes, $15,000;
A single-step income statement appears below. Present the information in a multistep income statement, and tell what insights can be obtained from the multistep form as opposed to the single-step
The accounts and balances that follow are from the general ledger of Lake Corporation.Compute the (1) working capital and (2) current ratio. E-8 Accounts Payable $16,600 Accounts Receivable 10,200
The following end-of-year amounts are from the financial statements of Parto Corporation: total assets, $426,000; total liabilities, $172,000; stockholders' equity, $254,000; net sales, $782,000;
The simplified balance sheet and income statement for a corporation appear below.Total assets and stockholders' equity at the beginning of 20xx were $360,000 and $280,000, respectively.1 . Compute
What four issues must managers of merchandising businesses address? Q-1
What is the operating cycle of a merchandising business, and why is it important? Q-2
What are two important elements in achieving a satisfactory profit in a merchandising business? Q-3
What is an operating budget, and how does it help management improve profitability? Q-4
What is the difference between a trade discount and a sales discount? Q-5
Two companies quoted the following prices and terms on 50 units of product: Q-6 Supplier A Supplier B Price $20 per unit $21 per unit Terms FOB shipping point FOB destination Which supplier is
Under which inventory system is a Cost of Goods Sold account maintained? Explain why? Q-7
Discuss this statement: "The perpetual inventory system is the best system because management always needs to know how much inventory it has." Q-8
Why is it advisable to maintain a Sales Returns and Allowances account when the same result could be obtained by debiting each return or allowance to the Sales account? Q-9
Is freight in an operating expense? Explain your answer. Q-10
Under the periodic inventory system, an important figure in computing cost of goods sold is goods available for sale. What are the two main components of goods available for sale, and what is the
Under the periodic inventory system, how must the amount of inventory at the end of the year be determined? Q-12
Hornberger Hardware purchased the following items: (a) a delivery truck, (b) two dozen hammers, (c) supplies for its office workers, and (d) a broom for the janitor.Which items should be debited to
What is the difference between the perpetual inventory system and the periodic inventory system? Q-14
What are the principal differences in the handling of merchandise inventory in the accounting records under the perpetual inventory system and the periodic inventory system? Q-15
Merchants who accept credit cards from customers must allow the credit card companies a 2 to 6 percent discount on the sales. Why are they willing to do this? Q-16
Most people think of internal control as a means of making fraud harder to commit and easier to detect. What are some other important purposes of internal control? Q-17
What are the five components of internal control? Q-18
What are some examples of control activities? Q-19
Why is the separation of duties necessary to ensure sound internal control? What does this principle assume about the relationships of employees in a company and the possibility of two or more of
In a small business, it is sometimes impossible to separate duties completely. What are three other practices that a small business can follow to achieve the objectives of internal control over cash?
At Thrift}' Variety Store, each sales clerk counts the cash in his or her cash drawer at the end of the day, then removes the cash register tape and prepares a daily cash form, noting any
How does a movie theater control cash receipts? Q-23
Is the normal balance of the Sales Discounts account a debit or a credit balance? Is it an asset, liability, expense, or contra-revenue account? Q-24
Identify each of the following decisions as most directly related to (a) cash flow management, (b) profitability management, (c) choice of inventory system, or (d) control of merchandising
A dealer buys tooling machines from a manufacturer and resells them to its customers.a. The manufacturer sets a list or catalogue price of $6,000 for a machine. The manufacturer offers its dealers a
Record in journal form each of the following transactions, assuming the perpetual inventory system is used: SE-3 Aug. 2 3 Purchased merchandise on credit from Foxx Company, invoice dated August 1,
Using the following data and assuming cost of goods sold is $230,000, prepare the cost of goods sold section of a merchandising income statement (periodic inventory system), including computation of
Record in journal form the following transactions, assuming the periodic inventory system is used:Aug. 4 Sold merchandise on credit to Bonds Corporation, terms n/30, FOB destination, $1,200.5 Paid
Match the check-writing policies for a small business described below to these control activities:1. The person who writes the checks to pay bills is different from the persons who authorize the
Internal control is subject to several inherent limitations. Indicate whether each of the following situations is an example of (a) human error, (b) collusion, (c) changed conditions, or (d)
On April 15, Eiji Company sold merchandise to Pinto Company for $1,500 on terms of 2/10, n/30. Record the entries in both Eiji's and Pinto's records for (1) the sale, (2) a return of merchandise on
What are the three objectives of financial reporting? Q-1
What are the qualitative characteristics of accounting information, and what is their significance? Q-2
What are the accounting conventions? How does each help in the interpretation of financial information? Q-3
Who is responsible for the preparation of reliable financial statements, and what is a principal way of achieving this objective? Q-4
What is the purpose of classified financial statements? Q-5
What are four common categories of assets? Q-6
What criteria must an asset meet to be classified as current? Under what condition is an asset considered current even though it will not be realized as cash within a year? What are two examples of
In what order should current assets be listed? Q-8
What is the difference between a short-term investment in the current assets section of the balance sheet and a security in the investments section?
What is an intangible asset? Give at least three examples. Q-9
Name the two major categories of liabilities. Q-11
What are the primary differences between the equity section of the balance sheet for a sole proprietorship or partnership and the corresponding section for a corporation? Q-12
What is the primary difference between the operations of a merchandising business and those of a service business? How is this difference reflected on the income statement? Q-13
Define gross margin. Why is it important? Q-14
During its first year in operation, Kumler Nursery had a cost of goods sold of$64,000 and a gross margin equal to 40 percent of sales. What was the dollar amount of the company's sales? Q-15
Could Kumler Nursery (in Question 15) have a net loss for the year? Explain your answer. Q-16
Explain how the multistep form of income statement differs from the single-step form. What are the relative merits of each? Q-17
Why are other revenues and expenses separated from operating revenues and expenses in the multistep income statement? Q-18
What are some of the differences between the income statement for a sole proprietorship and that for a corporation? Q-19
Explain earnings per share and indicate how this figure appears on the income statement. Q-20
Define liquidity and name two measures of liquidity. Q-21
How is the current ratio computed, and why is it important? Q-22
Which is the more important goal, liquidity or profitability? Explain your answer. Q-23
Name five measures of profitability. Q-24
"Return on assets is a better measure of profitability than profit margin." Evaluate this statement. Q-25
Identify each of the following statements as either an objective (Q) of financial information or a qualitative (Q) characteristic of accounting information:1. Information about business resources,
State which of the accounting conventions — comparability and consistency, materiality, SE-2 conservatism, full disclosure, or cost-benefit — is being followed in each of the cases listed below.1
Using the following accounts, prepare a classified balance sheet at year end, May 31, 20xx: Accounts Payable, $400; Accounts Receivable, $550; Accumulated Depreciation, Equipment, $350; Cash, $100;
Tell whether each of the following accounts is part of net sales, cost of goods sold, operating expenses, or other revenues and expenses, or is not on the income statement: SE-5 1. Delivery Expense
Using the following accounts, prepare a single-step income statement at year end, May 31, 20xx: Cost of Goods Sold, $280; General Expenses, $150; Income Taxes, $35;Interest Expense, $70; Interest
Using the accounts presented in SE 6, prepare a multistep income statement. SE-7Data in SE 6Using the following accounts, prepare a single-step income statement at year end, May 31, 20xx: Cost of
Using the following accounts and balances taken from a year-end balance sheet, compute working capital and the current ratio: SE-8 Accounts Payable Accounts Receivable Cash Common Stock Marketable
Using the following information from a balance sheet and an income statement, compute the (1) profit margin, (2) asset turnover, (3) return on assets, (4) debt to equity ratio, and (5) return on
Assume that a company has a profit margin of 6.0 percent, an asset turnover of 3.2 times, and a debt to equity ratio of 50 percent. What are the company's return on assets and return on equity? SE-10
Go online for the financial statements of Cadbury, plc.Required:1. How much did the company pay in interest for the 2008 fiscal year? Where did you find this information?2. To what account is
Go online for the financial statements of Cadbury, plc. and to Appendix A for the financial statements of the Nestlé Group.Required:1. What was the cost of goods sold for each company's most recent
A March 8, 2004, article in The Wall Street Journal discusses the underlying cause of accounting scandals and offers a suggestion for improved reporting. * You can access the article
Seneca Land Company, a closely held corporation, invests in commercial rental properties. Seneca's fiscal year ends on December 31. At the end of each year, numerous adjusting entries must be made

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