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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

"Some assets are expenses that have not expired." Explain this statement. Q-10
What do plant and equipment, office supplies, and prepaid insurance have in common? Q-11
What is the difference between accumulated depreciation and depreciation expense? Q-12
What is a contra account? Give an example. Q-13
Why are contra accounts used to record depreciation? Q-14
How does unearned revenue arise? Give an example. Q-15
Where does unearned revenue appear in the financial statements? Q-16
What accounting problem does a magazine publisher who sells three-year sub- scriptions have? Q-17
Under what circumstances does a company have accrued revenues? Give an example. What asset arises when the adjustment is made? Q-18
What is an accrued expense? Give two examples. Q-19
"Why worry about adjustments? Doesn't it all come out in the wash?" Discuss these questions. Q-20
Why is the income statement usually the first statement prepared from the adjusted trial balance? Q-21
To what management goals do the measurements of net income and cash flow relate? Q-22
Gigi Liken and Ron Bobo are organizing Gold Unlimited Inc. to undertake a high-risk gold-mining venture in Canada. Gigi and Ron tentatively plan to request authorization for \(75,000,000\) shares of
Sentinel Inc. has paid quarterly cash dividends since 1995. These dividends have steadily increased from \(\$ 0.05\) per share to the latest dividend declaration of \(\$ 0.40\) per share. The board
Darnell Company owns plant and equipment that has a book value of \(\$ 120\) million. Due to a permanent decline in consumer demand for the products produced by this plant, the market value of the
During the current year, 40 acres of land that cost \(\$ 200,000\) were condemned for construction of an interstate highway. Assuming that an award of \(\$ 320,000\) in cash was received and that the
An annual report of Ford Motor Company disclosed the sale of its ownership interest in Visteon Corporation, a major automotive components manufacturer. The estimated after-tax loss on disposal of
A corporation reports earnings per share of \(\$ 1.38\) for the most recent year and \(\$ 1.10\) for the preceding year. The \(\$ 1.38\) includes a \(\$ 0.40\)-per-share gain from insurance proceeds
Glover Inc. received a \(\$ 0.20\)-per-share cash dividend on 50,000 shares of Gestalt Corporation common stock, which Glover Inc. carries as a long-term investment. Assuming that Glover Inc. uses
On December 15 of the current year, Adams Corporation determined that equipment had been impaired so that the book value of the equipment was reduced by \(\$ 46,000\). In addition, the senior
On December 23 of the current year, Dallas Corporation determined that land had been impaired so that the book value of the land was reduced by \(\$ 320,000\). In addition, the senior management of
Gilliam Company purchased \(35 \%\) of the outstanding stock of Forrester Company on January 1, 2008. Forrester reported net income of \(\$ 675,000\) and declared dividends of \(\$ 155,000\) during
Miranda Company purchased \(25 \%\) of the outstanding stock of Orson Company on January 1, 2008. Orson reported a net loss of \(\$ 300,000\) and declared dividends of \(\$ 40,000\) during 2008. How
Storage Systems Inc. recognized service revenue of \(\$ 420,000\) on its financial statements in 2007. Assume, however, that the Tax Code requires this amount to be recognized for tax purposes in
Eason Company began operations on January 1, 2007, and reported net income of \(\$ 260,000\) during the year. Eason had a taxable income of \(\$ 350,000\) for 2007 . The difference between the
Laser Pulse Communications Inc. spent \(\$ 90\) million expanding its fiber optic communication network between Chicago and Los Angeles during 2006. The fiber optic network was assumed to have a 10
Morton Company's board of directors approved and communicated an employee severance plan in response to a decline in demand for the company's products. The plan called for the elimination of 180
Kiwi Juice Company has been suffering a downturn in its juice business due to adverse publicity regarding the caffeine content of its drink products. As a result, the company has been required to
What three issues underlie most accounting measurement decisions? Q-1
Why is recognition an issue for accountants? Q-2
A customer asks the owner of a store to save an item for him and says that he will pick it up and pay for it next week. The owner agrees to hold it. Should this trans- action be recorded as a sale?
Why is it practical for accountants to rely on original cost for valuation purposes? Q-4
Under the cost principle, changes in value after a transaction is recorded are not usually recognized in the accounts. Comment on this possible limitation of using original cost in accounting
What is an account, and how is it related to the ledger? Q-6
Tell whether each of the following accounts is an asset account, a liability account, or a stockholders' equity account: Q-7 a. Notes Receivable b. Land c. Dividends d. Mortgage Payable e. Prepaid
In the stockholders' equity accounts, why do accountants maintain separate accounts for revenues and expenses rather than using the Retained Earnings account? Q-8
Why is the system of recording entries called the double-entry system? What is significant about this system? Q-9
"Double-entry accounting refers to entering a transaction in both the journal and the ledger." Comment on this statement. Q-10
"Debits are bad; credits are good." Comment on this statement. Q-11
What are the rules of double entry for (a) assets, (b) liabilities, and (c) stockholders' equity? Q-12
Why are the rules of double entry the same for liabilities and stockholders' equity? Q-13
What is the meaning of the statement, "The Cash account has a debit balance of$500"? Q-14
Explain why debits, which decrease stockholders' equity, also increase expenses, which are a component of stockholders' equity. Q-15
What are the five steps in analyzing and processing a transaction? Q-16
What does a trial balance prove? Q-17
What is the normal balance of Accounts Payable? Under what conditions could Accounts Payable have a debit balance? Q-18
Is it possible for errors to be present even though a trial balance balances? Explain your answer. Q-19
Is it a good idea to forgo the journal and enter a transaction directly into the ledger? Explain your answer. Q-20
In recording entries in a journal, which is written first, the debit or the credit?How is indentation used in the journal? Q-21
What is the relationship between the journal and the ledger? Q-22
Describe each of the following: Q-23a. Accountb. Journalc. Ledgerd. Book of original entrye. Post. Ref columnf. Journalizing g. Posting h. Footings i. Compound entry
List the following six items in sequence to illustrate the flow of events through the accounting system: a. Analysis of the transaction b. Debits and credits posted from the journal to the
Which of the following events would be recognized and entered in the accounting records of Thorpe Corporation? Why? Jan. 10 Thorpe Corporation places an order for office supplies. Feb. 15 Mar. 1
Tell whether each of the following accounts is an asset, a liability, a revenue, an expense, or none of these:a. Accounts Payableb. Suppliesc. Dividendsd. Fees Earnede. Supplies Expense f Accounts
For each transaction below, tell which account is debited and which account is credited. May 2 Han Kim started a computer programming business, Kim's Programming Service, Inc., by investing $5,000 in
From the T accounts created in SE 6, prepare a trial balance dated May 31, 20x4.
The trial balance that follows is out of balance. Assuming all balances are normal, place the accounts in proper order and correct the trial balance so that debits equal credits. Cash Accounts
Prepare a general journal form like the one in Exhibit 4 and label it Page 4. Record the following transactions in the journal: Sept. 6 Billed a customer for services performed, $1,900. 16 Received
Prepare ledger account forms like the ones in Exhibit 5 for the following accounts: Cash(1 1 1), Accounts Receivable (113), and Service Revenue [411). Post the transactions that are recorded in SE 9
Which of the following events would be recognized and recorded in the accounting records of the Friese Corporation on the date indicated? Jan. 15 Friese Corporation offers to purchase a tract of land
Dempsey's Parts Shop, Inc., uses a large amount of supplies in its business. The following table summarizes selected transaction data for supplies that Dempsey's Parts Shop purchased:Determine the
The following ledger accounts are for the Arif Service Corporation:Complete the table that appears at the top of the next page, using Xs to indicate each account's classification and normal balance
Analyze transactions a-g, following the example below.a. Harry Boka established Whiskers Barber Shop, Inc., by incorporating and investing$1,200 in exchange for 120 shares of $10 par value common
Open the following T accounts: Cash; Repair Supplies; Repair Equipment; Accounts Payable; Common Stock; Dividends; Repair Fees Earned; Salaries Expense; and Rent Expense. Record the following
The list that follows presents the accounts of the Gobi Metal Corporation as of March 31, 20xx, in alphabetical order. The list does not include the amount of Accounts Payable.Prepare a trial balance
Which of the following errors would cause a trial balance to have unequal totals?Explain your answers.a. A payment to a creditor was recorded as a debit to Accounts Payable for $86 and as a credit to
This was the trial balance for Maxx Services, Inc., at the end of July:The trial balance does not balance because of a number of errors. Maxx's accountant compared the amounts in the trial balance
Tell whether each of the following words or phrases relates most closely to (a) a business transaction, (b) a separate entity, or (c) a money measure: SE 1. Partnership 2. U.S. dollar 3. Payment of
Match the descriptions on the left with the forms of business enterprise on the right: SE 1. Most numerous 2. Commands most revenues 3. Two or more co-owners 4. Has stockholders 5. Owned by one
Determine the amount missing from each accounting equation below. SE 1. Assets ? = Liabilities + Stockholders' Equity 2. $ 78,000 3. $146,000 $25,000 $42,000 ? $35,000 ? $96,000
Use the accounting equation to answer each question below.1 . The assets of Sully Company are $480,000, and the liabilities are $360,000. What is the amount of the stockholders' equity?2. The
Use the accounting equation to answer each question below.1. At the beginning of the year, Lanier Company's assets were $180,000, and its stockholders' equity was $100,000. During the year, assets
Use the following information and the accounting equation to determine the net income for the year for each alternative below. SE1 . No investments were made in the business, and no dividends were
Meader Company had assets of $140,000 and liabilities of $60,000 at the beginning of the year, and assets of $200,000 and liabilities of $70,000 at the end of the year. During the year, there was an
On a sheet of paper, list the numbers 1 through 6, with columns labeled Assets, Liabilities, and Stockholders' Equity. In the columns, indicate whether each transaction that follows caused an
On a sheet of paper, list the numbers 1 through 6, with columns labeled Assets, Liabilities, and Stockholders' Equity. In the columns, indicate whether each transaction below caused an increase (+),
Use the following accounts and balances to prepare a balance sheet for Anatole Company at June 30, 20x1, using Exhibit 2 as a model: SE Accounts Receivable Wages Payable Retained Earnings Common
Match the terms on the left with the descriptions on the right E-1 1. Bookkeeping 2. Creditors 3. Measurement 4. Financial Accounting Standards Board (FASB) 5. Tax authorities 6. Computer 7.
Vylex Pharmaceuticals has recently been formed to develop a new type of drug treat- ment for cancer. Previously a partnership, Vylex has now become a corporation. Describe the various groups that
Edgar owns and operates a minimart. State which of the actions below are business transactions. Explain why any other actions are not regarded as transactions.1. Edgar reduces the price of a gallon
Financial accounting uses money measures to gauge the impact of business transactions on a separate business entity. Tell whether each of the following words or phrases relates most closely to (a) a
Use the accounting equation to answer each question that follows. Show any calculations you make. E-6 1. The assets of Caton Corporation are $800,000, and the stockholders' equity is $310,000. What
Identify the following transactions by marking each as a stockholders' investment (I), dividend (D), revenue (R), expense (E), or not a stockholders' equity transaction (NSE):a. Received cash for
For each of the categories below, describe a transaction that would have the required effect on the elements of the accounting equation.1. Increase one asset and decrease another asset.2. Decrease an
The total assets and liabilities at the beginning and end of the year for Flag Company are listed below. E-10 Beginning of the year End of the year Assets Liabilities $140,000 $'55,000 220,000
In computing the period's net cash operating flows, why are non cash expenses added back to net income? E-11
Ridge Corporation engaged in the following activities during the year: Service Revenue, $26,400; Rent Expense, $2,400; Wages Expense, $16,540; Advertising Expense, $2,700; Utilities Expense, $1,800;
Waters Corporation began the year 20x1 with cash of $43,000. In addition to earning a net income of $25,000 and paying a cash dividend of $15,000, Waters borrowed $60,000 from the bank and purchased
Identify the accounting meaning of each of the following abbreviations: AICPA, SEC, GAAP, FASB, IRS, GASB, IASB, IMA, and CPA. E-16
Why is accounting considered an information system? (Q=1)
What is the role of accounting in the decision-making process, and what broad business goals and activities does it help management achieve and manage? (Q=2)
Distinguish between management accounting and financial accounting. (Q=3)
Distinguish among these terms: accounting, bookkeeping, and management information systems (Q=4)
Which decision makers use accounting information? (Q=5)
A business is an economic unit whose goal is to sell goods and services to customers at prices that will provide an adequate return to the business's owners. What functions must management perform to
Why are investors and creditors interested in reviewing the financial statements of a company? (Q=7)
Among those who use accounting information are people and organizations that have an indirect interest in the business entity. Briefly describe these people and organizations. (Q=8)
Why has society as a whole become one of the largest users of accounting information? (Q=9)
Use the terms business transactions, money measure, and separate entity in a single sentence that demonstrates their relevance to financial accounting. (Q=10)

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