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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

Find the future value of (1) a single payment of $5,000 at 7 percent for ten years, (2) ten annual payments of $500 at 7 percent, (3) a single payment of $1,500 at 9 percent for seven years, and (4)
Find the present value of (1) a single payment of $24,000 at 6 percent for 12 years, (2) 12 annual payments of $2,000 at 6 percent, (3) a single payment of $5,000 at 9 percent for five years, and (4)
Develop a brief answer to each of the following questions:1. Ned Johnson, a star college basketball player, received a contract from the Midwest Blazers to play professional basketball. The contract
Indicate whether each of the following actions relates to (a) managing liquidity and cash flows, (b) recognition of liabilities, (c) valuation of liabilities, (d) classification of liabilities, or
In 20x7, Michaud Company had current assets of $155,000 and current liabilities of $100,000, of which accounts payable were $65,000. Cost of goods sold was $425,000, merchandise inventory increased
On the last day of October, Thornton Company borrows $60,000 on a bank note for 60 days at 12 percent interest. Interest is not included in the face amount. Prepare the following entries in journal
Web Design Services billed its customers a total of $490,200 for the month of August, including 9 percent federal excise tax and 5 percent sales tax.1. Determine the proper amount of service revenue
At the end of October, the payroll register for Symphony Tool and Die Corporation contained the following totals: wages, $371,000; federal income taxes withheld, $94,884; state income taxes withheld,
Snapz Company manufactures and sells electronic games. Each game costs $25 to produce, sells for $45, and carries a warranty that provides for free replacement if it fails during the two years
Bivens 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
Song receives a one-year note for $6,000 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 $40,000 at 7 percent for ten years, (2) ten annual payments of $4,000 at 7 percent, (3) a single payment of $12,000 at 9 percent for seven years, and
Denise Davis is contemplating paying five years’ rent in advance. Her annual rent is $12,600. Calculate the single sum that would have to be paid now for the advance rent if we assume compound
Find the present value of (1) a single payment of $12,000 at 6 percent for 12 years, (2) 12 annual payments of $1,000 at 6 percent, (3) a single payment of $2,500 at 9 percent for five years, and (4)
A contract calls for annual payments of $2,400. Find the present value of the contract, assuming that (1) the number of payments is seven, and the current interest rate is 6 percent; (2) the number
Charles Ogden owns a service station and has the opportunity to purchase a car wash machine for $15,000. After carefully studying projected costs and revenues, Ogden estimates that the car wash
Antwone Equipment Corporation sold a precision tool machine with computer controls to Trudeau Corporation for $400,000 on January 2 and agreed to take payment nine months later on October 2. Assuming
Playwright Publishing Company, a publisher of college textbooks, has just completed a successful fall selling season and has $2,500,000 in cash to invest for nine months, beginning on January 1. The
Semma Corporation borrows $1,500,000 from an insurance company on a five-year note. Management agrees to set aside enough cash at the end of each year to accumulate the amount needed to pay off the
Andrea Lima is attempting to sell her business to Alfonso Moreno. The company has assets of $1,800,000, liabilities of $1,600,000, and stockholders’ equity of $200,000. Both parties agree that the
Listed below are common types of current liabilities, contingencies, and commitments:a. Accounts payableb. Bank loans and commercial paperc. Notes payabled. Dividends payablee. Sales and excise taxes
Part A: Alhara Corporation, whose fiscal year ended June 30, 20xx, completed the following transactions involving notes payable:May 21 Obtained a 60-day extension on a $36,000 trade account payable
Visicorp Company is engaged in the retail sale of high-definition televisions (HDTVs). Each HDTV has a 24-month warranty on parts. If a repair under warranty is required, a charge for the labor is
Jose Hernandez opened a small motorcycle repair shop, Hernandez Cycle Repair, on January 2, 20x6. The shop also sells a limited number of motorcycle parts. In January 20x7, Hernandez realized he had
The management of Pzazz, Inc., took the following actions that went into effect on January 2, 20x7. Each action involved an application of the time value of money.a. Established in one payment of
Part A: Green T Company, whose fiscal year ends December 31, completed the following transactions involving notes payable:20x7 Nov. 25 Purchased a new loading cart by issuing a 60-day, 10 percent
The Kow Long Products Company manufactures and sells wireless video cell phones, which it guarantees for five years. If a cell phone fails, it is replaced free, but the customer is charged a service
Rothberg Corporation’s management took the following actions, which went into effect on January 2, 20x7. Each action involved an application of the time value of money.a. Established a new
JetGreen Airways instituted a frequent flyer program in which passengers accumulate points toward a free flight based on the number of miles they fly on the airline. One point was awarded for each
When faced with lawsuits, many companies recognize a loss and therefore credit a liability or reserve account for any future losses that may result. For instance, in the famous WorldCom case,
Mitsubishi, the large Japanese electronics company, advertised its $4,499 Diamond Series 65-inch-wide screen Projection TV with no payments and no interest for 12 months.15 What role does the time
Both Sun Microsystems Inc. and Cisco Systems are in the computer industry. These data (in thousands) are for their fiscal year endsCompare the payables turnover ratio and days’ payable for both
The decision to recognize and record a liability is sometimes a matter of judgment. People who use General Motors credit cards earn rebates toward the purchase or lease of GM vehicles in relation to
The St. Louis Titans’ fifth-year shortstop Devon Turner made the All-Star team in 2007. Turner has three years left on a contract that is to pay him $2.4 million a year. He wants to renegotiate his
Refer to the quarterly financial report near the end of the notes to the financial statements in CVS’s annual report. Is CVS a seasonal business? Would you expect short-term borrowings and accounts
Refer to CVS’s financial statements in the Supplement to Chapter 1 and to the following data for Walgreens:Compute the payables turnover and days’ payable for CVS and Walgreens for the past two
Surf and Turf Restaurant is a large steak restaurant in the suburbs of Chicago. Don O’Shannon, an accounting student at a nearby college, recently secured a full-time accounting job at the
Pain medications have been in the news. The big drug company Merck had to withdraw its pain killer Vioxx from the market when it became known that the drug increased the risk of heart attacks. Other
Assume that you work for Relax-A-Pools, Inc., a retail company that sells backyard above-ground swimming pools for $10,000. Your boss is considering two types of promotions:1. Offering customers a
Ford Credit ran an advertisement offering three alternatives for a 24-month lease on a new Lincoln automobile. The three alternatives were zero dollars down and $587 per month for 24 months, $1,975
Indicate whether each of the following actions is primarily related to (a)acquisition of long-term assets, (b) evaluating the adequacy of financing of long-term assets, or (c) applying the matching
Sebel Corporation had cash flows from operating activities during the past year of $194,000. During the year, the company expended $25,000 for dividends; expended $158,000 for property, plant, and
Watts 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)
Lian Company purchased property with a warehouse and parking lot for$1,500,000. An appraiser valued the components of the property if purchased separately as follows:Determine the cost to be assigned
Willowbrook Fitness Center purchased a new step machine for $8,250.The apparatus is expected to last four years and have a residual value of$750. What will the depreciation expense be for each year
Assume that the step machine in SE 5 has an estimated useful life of 8,000 hours and was used for 2,400 hours in year 1, 2,000 hours in year 2, 2,200 hours in year 3, and 1,400 hours in year 4. How
Assume that the step machine in SE 5 is depreciated using the doubledeclining-balance method. How much would depreciation expense be in each year?Disposal of Plant Assets: No Trade-In
Alarico Printing owned a piece of equipment that cost $16,200 and on which it had recorded $9,000 of accumulated depreciation. The company disposed of the equipment on January 2, the first day of
Narda Company purchased land containing an estimated 4,000,000 tons of ore for $16,000,000. The land will be worth $2,400,000 without the ore after eight years of active mining. Although the
Danya Company has created a new software application for PCs. Its costs during research and development were $250,000. Its costs after the working program was developed were $175,000. Although the
Develop a brief answer for each of the following questions:1. Is carrying value ever the same as market value?2. What major advantage does a company that has positive free cash flow have over a
Develop a brief answer for each of the following questions:1. When would the disposal of a long-term asset result in no gain or loss?2. When would annual depletion not equal depletion expense?3. Why
Indicate whether each of the following actions is primarily related to (a)acquisition of long-term assets, (b) evaluating the financing of long-term assets, or (c) applying the matching rule to
Management is considering the purchase of a new machine for a cost of$6,000. It is estimated that the machine will generate positive net cash flows of $1,500 per year for five years and will have a
Zedek Corporation had cash flows from operating activities during the past year of $216,000. During the year, the company expended $462,000 for property, plant, and equipment; sold property, plant,
Tell whether each of the following transactions related to an office building is a revenue expenditure (RE) or a capital expenditure (CE). In addition, indicate whether each transaction is an
Sakai Manufacturing purchased land next to its factory to be used as a parking lot. The expenditures incurred by the company were as follows:purchase price, $300,000; broker’s fees, $24,000; title
Ebra Allen purchased a car wash for $240,000. If purchased separately, the land would have cost $60,000, the building $135,000, and the equipment$105,000. Determine the amount that should be recorded
Demarco Phipps purchased a used tractor for $17,500. Before the tractor could be used, it required new tires, which cost $1,100, and an overhaul, which cost $1,400. Its first tank of fuel cost $75.
On January 13, 2006, Silverio Oil Company purchased a drilling truck for$45,000. Silverio expects the truck to last five years or 200,000 miles, with an estimated residual value of $7,500 at the end
Percival Burglar Alarm Systems Company purchased a computer for$1,120. It has an estimated useful life of four years and an estimated residual value of $120. Compute the depreciation charge for each
Feld Hospital purchased a special x-ray machine. The machine, which cost $623,120, was expected to last ten years, with an estimated residual value of $63,120. After two years of operation (and
King Company purchased a computer on January 2, 20x6, at a cost of$2,500. The computer is expected to have a useful life of five years and a residual value of $250. Assume that the computer is
Cooby Company purchased land containing an estimated 5 million tons of ore for a cost of $8,800,000. The land without the ore is estimated to be worth $500,000. During its first year of operation,
The following exercise is about amortizing copyrights and trademarks.1. Akram Publishing Company purchased the copyright to a basic computer textbook for $40,000. The usual life of a textbook is
At the beginning of the fiscal year, Ricks Company purchased for$1,030,000 a patent that applies to the manufacture of a unique tamperproof lid for medicine bottles. Ricks incurred legal costs of
Listed below are common terms associated with long-term assets:a. Tangible assets g. Depreciationb. Natural resources h. Depletionc. Intangible assets i. Amortizationd. Additions j. Revenue
Oslo Company was formed on January 1, 2007, and began constructing a new plant. At the end of 2007, its auditor discovered that all expenditures involving long-term assets had been debited to an
Laughlin Designs, Inc., purchased a computerized blueprint printer that will assist in the design and display of plans for factory layouts. The cost of the printer was $22,500, and its expected
Myles Construction Company purchased a new crane for $360,500 at the beginning of year 1. The crane has an estimated residual value of $35,000 and an estimated useful life of six years. The crane is
Dombrad Mining Company purchased land containing an estimated 10 million tons of ore for a cost of $4,400,000. The land without the ore is estimated to be worth $800,000. The company expects that all
Pappas Computers constructed a new training center in 20x7. You have been hired to manage the training center. A review of the accounting records shows the following expenditures debited to an asset
Gent Manufacturing Company purchased a robot for $720,000 at the beginning of year 1. The robot has an estimated useful life of four years and an estimated residual value of $60,000. The robot, which
Karanga Company purchased land containing an estimated 20 million tons of ore for a cost of $6,600,000. The land without the ore is estimated to be worth $1,200,000. The company expects that all the
The airline industry was hit particularly hard after the 9/11 attacks on the World Trade Center in 2001. In 2002, Southwest Airlines, one of the healthier airlines companies, made a decision to
The annual report for Costco Wholesale Corporation, the large discount company, contains the following statement:The company periodically evaluates the realizability of long-lived assets for
IBM, the large computer equipment and services company, states in its annual report that “plant, rental machines and other property are carried at cost and depreciated over their useful lives using
Depreciation expense is a significant cost for companies in which plant assets are a high proportion of assets. The amount of depreciation expense in a given year is affected by estimates of useful
Morningside Machine Works has obtained a subcontract from the government to manufacture special parts for a new military aircraft. The parts are to be delivered over the next five years, and the
To answer the following questions, refer to CVS Corporation’s annual report in the Supplement to Chapter 1. Examine the balance sheets and the summary of significant accounting policies on property
Refer to the annual report of CVS Corporation and to the financial statements of Southwest Airlines Co. in the Supplement to Chapter 1 to answer the following questions:1. Prepare a table that shows
Signal Company has purchased land and a warehouse for $18,000,000. The warehouse is expected to last 20 years and to have a residual value equal to 10 percent of its cost. The chief financial officer
Public corporations are required not only to communicate with their stockholders by means of an annual report but also to submit an annual report to the Securities and Exchange Commission (SEC). The
Is it ethical to choose aggressive accounting practices to advance a company’s business? During the 1990s, America Online (AOL), the largest Internet service provider in the United States, was one
Polaroid Corporation, a manufacturer of instant cameras and film, changed from an accelerated depreciation method for financial reporting purposes to the straight-line method for assets acquired
What are the purposes of (a) the statement of earnings, (b) the statement of financial position, (c)the statement of cash flows, and (d) the statement of changes in equity?
Explain why the statement of earnings and statement of cash flows are dated, for example, “For the Year Ended December 31, 2020,” whereas the statement of financial position is dated, for
Briefly define net earnings and net loss.
Explain the accounting equation for the statement of cash flows. Explain the three major components reported on the statement of cash flows.
Financial statements discussed in this chapter are aimed at external users. Briefly explain how a company’s internal managers in different functional areas (e.g., marketing, purchasing, human
Briefly describe how accounting standards are determined in Canada, including the role of the AcSB.
(Appendix 1A) Briefly differentiate among a sole proprietorship, a partnership, and a corporation.
(Appendix 1B) List and briefly explain the three primary services that accountants in public practice provide.
Matching Elements with Financial Statements LO1-1 Match each element with its financial statement by entering the appropriate letter in the space provided. Element (1) Expenses (2) Cash flow from
Matching Financial Statement Items to Financial Statement Categories LO1-1 Mark each item in the following list as an asset (A), liability (L), or shareholders’ equity (SE) item that would appear
Identifying Important Accounting Abbreviations LO1-1 The following is a list of important abbreviations used in the chapter. These abbreviations also are used widely in business. For each
Matching Definitions with Terms or Abbreviations LO1-1, 1-2 Match each definition with its related term or abbreviation by entering the appropriate letter in the space provided. Term or Abbreviation
Preparing a Statement of Financial Position LO1-1 Leon’s Furniture Limited Leon’s Furniture Limited is one of Canada’s largest retailers, selling a wide range of merchandise, including
Completing a Statement of Financial Position and Inferring Net Earnings LO1-1 Terry Lloyd and Joan Lopez organized Read More Store as a corporation; each contributed $50,000 cash to start the
Analyzing Revenues and Expenses and Preparing a Statement of Earnings LO1-1 Assume that you are the owner of The University Shop, which specializes in items that interest students. At the end of

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