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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

On October 1, Little Bobby Company’s equity is as follows.On October 1, Little Bobby declares and distributes a 10% share dividend when the market price is €15 per share.Instructionsa. Determine
All but one of the following is reported in a retained earnings statement. The exception is:a. share dividends.b. net income and net loss.c. sales revenue.d. cash dividends.
The statement of financial position for Lauren Ltd. shows the following: total equity£817,000, ordinary shares issued 44,000 shares, and ordinary shares outstanding 35,000 shares.Compute the book
In the equity section, Ordinary Share Dividends Distributable is reported as a(n):a. deduction from share capital and retained earnings.b. addition to share premium.c. deduction from retained
On January 1, 2025, Eddy Industries had retained earnings of £650,000. During the year, Eddy had the following selected transactions.1. Declared cash dividends £120,000.2. Earned net income
The return on ordinary shareholders’ equity is defined as:a. net income divided by total assets.b. cash dividends divided by average ordinary shareholders’ equity.c. income available to ordinary
Bindra A.Ş. reported retained earnings at December 31, 2024, of ₺310,000. Bindra had 200,000 shares outstanding at the beginning of 2025.The following transactions occurred during 2025.1. A cash
Katie Ltd. reported net income of NT\($186,000\) during 2025 and paid dividends of NT\($26,000\) on ordinary shares. It also has 10,000 shares of 6%, NT\($100\) par value, non-cumulative preference
Dirk SA reported the following balances at December 31, 2024: share capital—ordinary€500,000, share premium—ordinary €100,000, and retained earnings €250,000. During 2025, the following
The following accounts appear in the ledger of Tiger Ltd. after the books are closed at December 31 (¥ in thousands).Instructions Prepare the equity section at December 31, assuming retained
Since a statement of changes in equity is required, it is not necessary to prepare a(n):a. retained earnings statement.b. statement of financial position.c. income statement.d. statement of cash
Farley Farms declares a €55,000 cash dividend on December 31, 2025. The required annual dividend on preference shares is €10,000. Determine the allocation of the dividend to preference and
The ledger of JFK, plc shows share capital—ordinary, treasury shares—ordinary, and no preference shares. For this company, the formula for computing book value per share is:a. total equity
Maribel Ortiz is puzzled. Her company had a profit margin of 10% in 2025. She feels that this is an indication that the company is doing well. Gordon Liddy, her accountant, says that more information
At December 31, 2025, the fair value of non-trading securities is €41,300 and the cost is €39,800. At January 1, 2025, there was a credit balance of €900 in the Fair Value
On January 1, 2025, Lennon Enterprises acquires 100% of Ono Ltd. for £220,000 in cash. The condensed statements of financial position of the two companies immediately following the acquisition are
Which of the following will not be reported in the statement of cash flows?a. The net change in plant assets during the year.b. Cash payments for plant assets during the year.c. Cash receipts from
The equity section of Atrio Ltd. showed the following: share premium €6,101, share capital—ordinary €925, share capital—preference €58, retained earnings €7,420, and treasury
The following equity accounts are in the ledger of Eudaley Group at December 31, 2025.Instructions Prepare the equity section of the statement of financial position at December 31, 2025. Share
Travis Mordica asks, “Since share dividends don’t change anything, why declare them?” What is your answer to Travis?
Gorton Ltd. has 30,000 shares of £10 par value ordinary shares outstanding when it announces a 2-for-1 share split. Before the split, the shares had a market price of £120 per share. After the
The equity section of Ahab SA at December 31 is as follows.Instructions From a review of the equity section, as chief accountant, write a memo to the president of the company answering the following
The following financial information is available for Plummer SA.The weighted-average number of ordinary shares outstanding was 80,000 for 2024 and 100,000 for 2025.Instructions Calculate return on
In 2025, Orasco SA had net sales of R\($600,000\) and cost of goods sold of R\($360,000.Operating\) expenses were R\($153,000,\) and interest expense was R\($7,500.\) The corporation’s tax rate is
The equity section of Santano Group showed the following: share premium €6,101, share capital—ordinary €925, share capital—preference €58, retained earnings €7,420, and treasury shares
On October 1, Venden Holdings’ equity is as follows.On October 1, Venden declares and distributes a 12% share dividend when the market price of the shares is £14 per share.Instructionsa. Compute
What is the formula for computing book value per share when a corporation has only ordinary shares?
Floyd Limited had the following transactions pertaining to debt investments.Instructionsa. Journalize the transactions.b. Prepare the adjusting entry for the accrual of interest at December 31,
Kimmel Industries AG purchased debt investments for CHF50,000 on January 1, 2025. On July 1, 2025, Kimmel received cash interest of CHF1,600. Journalize the purchase and the receipt of interest.
Debt investments are initially recorded at:a. cost.b. cost plus dividends.c. par value.d. face value.
Brook Ltd. purchased 70 Meissner AG 9%, 10-year, €1,000 bonds on January 1, 2025, for €70,000. The bonds pay interest annually on January 1. On January 1, 2026, after receipt of interest, Brook
Hanes Group sells debt investments costing £26,000 for £28,000, plus accrued interest that has been recorded. In journalizing the sale, credits are to:a. Debt Investments and Loss on Sale of Debt
The cost of the trading securities of Hardy Company at December 31, 2025, is£62,000. At December 31, 2025, the fair value of the securities is £59,000. Prepare the adjusting entry to record the
Diann Ltd. had the following transactions pertaining to share investments.Feb. 1 Purchased 600 ordinary shares of Ronn (2%) for £6,200.July 1 Received cash dividends of £1 per share on Ronn
Anatolian A.Ş. receives net proceeds of ₺42,000 on the sale of share investments that cost ₺39,500. This transaction will result in reporting in the income statement a:a. loss of ₺2,500 under
For the data presented in BE13.4, show the financial statement presentation of the trading securities and related accounts.Prepare adjusting entry using fair value.BE13.4The cost of the trading
The equity method of accounting for long-term investments in shares should be used when the investor has significant influence over an associate and owns:a. between 20% and 50% of the associate’s
Amazonas SA holds as a long-term investment non-trading share securities costing R\($72,000.\) At December 31, 2025, the fair value of the securities is R\($66,000.\) Prepare the adjusting entry to
Assume that Horicon NV acquired 25% of the ordinary shares of Sheboygan NV on January 1, 2025, for €300,000. During 2025, Sheboygan reported net income of €160,000 and paid total dividends of
For the data presented in BE13.6, show the financial statement presentation of the non-trading securities and related accounts. Assume the non-trading securities are non-current.Prepare investments
Using the information in Question 6, what entry would Horicon make to record the receipt of the dividend from Sheboygan?a. Debit Cash and credit Revenue from Share Investments.b. Debit Cash Dividends
Presented below are two independent situations.1. Chicory Cosmetics acquired 15% of the 200,000 ordinary shares of Racine Fashion at a total cost of €13 per share on March 18, 2025. On June 30,
You have a controlling interest if:a. you own more than 20% of a company’s ordinary shares.b. you are the president of the company.c. you use the equity method.d. you own more than 50% of a
Rijo SA uses the equity method to account for its ownership of 30% of the ordinary shares of Pippen Packing. During 2025, Pippen reported a net income of €80,000 and declares and pays cash
At December 31, 2025, the end of its first year of operations, the trading securities for Geneva AG are as follows.Instructionsa. Prepare the adjusting entry at December 31, 2025, to report the
At the end of the first year of operations, the total cost of the trading securities portfolio is ₩120,000,000. Total fair value is ₩115,000,000. The financial statements should show:a. a
Distinguish between the fair value and equity methods of accounting for investments in shares.
Zippydah SE has the following data at December 31, 2025.The non-trading securities are held as a long-term investment. This is the first year of the company’s operations.Instructionsa. Prepare the
In the statement of financial position, a debit balance in Unrealized Gain or Loss—Equity results in a(n):a. increase to equity.b. decrease to equity.c. loss in the income statement.d. loss in the
What are the classification guidelines for investments at a statement of financial position date?
Pate Ltd. pays £175,000 for 100% of Sinko’s ordinary shares when Sinko’s equity consists of Share Capital—Ordinary £100,000 and Retained Earnings £60,000. In the worksheet for the
Hashmi Group’s investments in non-trading securities at December 31 show total cost of£195,000 and total fair value of £205,000. Prepare the adjusting entry.
Altoona Wholesale Supply owns shares in Key Ltd. Altoona intends to hold the shares indefinitely because of some negative tax consequences if sold. Should the investment in Key be classified as a
(a) What asset and equity balances are eliminated in preparing a consolidated statement of financial position for a parent and a wholly owned subsidiary?(b) Why are they eliminated?
Yinhu Finance pays HK\($318,000,000\) to purchase all the outstanding ordinary shares of Lia Ltd. At the date of purchase, the net assets of Lia have a book value of HK\($290,000,000.\) Yinhu’s
Each of the items below must be considered in preparing a statement of cash flows for Aksu A.Ş. for the year ended December 31, 2025. For each item, state how it should be shown in the statement of
Laurent AG had these transactions during 2025.a. Issued CHF50,000 par value ordinary shares for cash.b. Purchased a machine for CHF30,000, giving a long-term note in exchange.c. Issued CHF200,000 par
Classify each item as an operating, investing, or financing activity. Assume all items involve cash unless there is information to the contrary.a. Purchase of equipment.b. Proceeds from sale of
The following T-account is a summary of the Cash account of Wiegman Ltd.What amount of net cash (in £) provided (used) by financing activities should be reported in the statement of cash
Which is an example of a cash flow from an operating activity?a. Payment of cash to lenders for interest.b. Receipt of cash from the issuance of ordinary shares.c. Payment of cash dividends to the
Mokena Ltd. reported net income of €2.0 million in 2025. Depreciation for the year was €160,000, accounts receivable increased€350,000, and accounts payable increased €280,000. Compute net
Bracewell Ltd. reported net income of £195,000 for 2025. Bracewell also reported depreciation expense of £40,000 and a gain of£5,000 on disposal of plant assets. The comparative statements of
The current sections of Nasreen SA’s statements of financial position at December 31, 2024 and 2025, are presented here. Nasreen’s net income for 2025 was €147,000. Depreciation expense was
The net income for Lodi Ltd. for 2025 was £250,000. For 2025, depreciation on plant assets was £65,000, and the company incurred a gain on disposal of plant assets of £12,000. Compute net cash
The three accounts shown below appear in the general ledger of Chaudry NV during 2025.Instructions From the postings in the accounts, indicate how the information is reported on a statement of cash
Cash dividends paid to shareholders are classified on the statement of cash flows as:a. an operating activity.b. an investing activity.c. a combination of an operating activity and an investing
Which is an example of a cash flow from a financing activity?a. Receipt of cash from sale of land.b. Issuance of debt for cash.c. Purchase of equipment for cash.d. Receipt of interest.
The T-accounts for Equipment and the related Accumulated Depreciation—Equipment for Gao Ltd. at the end of 2025 are shown here.In addition, Gao’s income statement reported a loss on disposal of
Why is it necessary to use comparative statements of financial position, a current income statement, and certain transaction data in preparing a statement of cash flows?
Meera Ltd.’s comparative statements of financial position are presented below.Additional information:1. Net income was £22,590. Dividends declared and paid were £16,500.2. All other changes in
Here are comparative statements of financial position for Syal SE.Additional information:1. Net income for 2025 was €103,000.2. Depreciation expense was €32,000.3. Cash dividends of €45,000
Distinguish between the direct and indirect methods of preparing the statement of cash flows. Are both methods acceptable? Which method is preferred by the IASB? Which method is more popular?
Cassandra SA’s comparative statements of financial position are presented below.Additional information:1. Net income was €23,300. Dividends declared and paid were €14,600.2. Equipment that cost
The following data are available for Allen Clapp Ltd.Net cash provided by operating activities is:a. HK$1,600,000.b. HK$2,200,000.c. HK$2,400,000.d. HK$2,800,000. Net income Depreciation expense
Recife Company completed its first year of operations on December 31, 2025. Its initial income statement showed that Recife had revenues of R\($195,000\) and operating expenses of R\($78,000.\)
The following data are available for Orange Peels Ltd.Net cash provided by investing activities is:a. NT$1,200,000.b. NT$1,300,000.c. NT$1,500,000.d. NT$1,900,000. Sale of land NT$1,000,000 Sale of
Suppose a recent income statement for McDonald’s Corporation (USA) shows cost of goods sold \($4,527.8\) million and operating expenses (including depreciation expense of \($1,120\) million)
The 2025 accounting records of Liz Ten Transport Ltd. reveal these transactions and events.Instructions Prepare the cash flows from operating activities section using the direct method. (Not all of
The following information is taken from the 2025 general ledger of Okonedo ASA.Instructions In each case, compute the amount that should be reported in the operating activities section of the
Kinsey Ltd. reported income taxes of £360,000,000 on its 2025 income statement, income taxes payable of £277,000,000 at December 31, 2024, and £525,000,000 at December 31, 2025. What amount of
Yaddof SE reports operating expenses of €70,000 excluding depreciation expense of €19,000 for 2025. During the year, prepaid expenses decreased €6,800 and accrued expenses payable increased
Financial information for Gallup SA is presented below.Instructions Prepare a schedule showing a horizontal analysis for 2025 using 2024 as the base year.Prepare vertical analysis. December 31, 2025
Free cash flow provides an indication of a company’s ability to:a. generate net income.b. generate cash to pay additional dividends.c. generate cash to invest in new capital expenditures.d.
Maria Fierro SpA reported the following amounts in 2023, 2024, and 2025.Instructions(a) Identify and describe the three tools of financial statement analysis.(b) Perform each of the three types of
Operating data for Conard Limited are presented below.Instructions Prepare a schedule showing a vertical analysis for 2025 and 2024.Prepare horizontal and vertical analyses. 2025 2024 Net sales
The comparative condensed statements of financial position of Garcia SLU are presented below.Instructionsa. Prepare a horizontal analysis of the statement of financial position data for Garcia using
Using the same data presented above in BE15.3 for Dotte NV, illustrate vertical analysis.Calculate percentage of change.BE15.3Using the following data from the comparative statements of financial
Sammy plc reported net sales of £300,000, £330,000, and £360,000 in the years, 2023, 2024, and 2025, respectively. If 2023 is the base year, what is the trend percentage for 2025?a. 77%.b. 108%.c.
The comparative condensed income statements of Hendi A.Ş. are shown below.Instructionsa. Prepare a horizontal analysis of the income statement data for Hendi using 2024 as a base.(Show the amounts
Bates Company issued \($1,000,000,\) 12-year bonds and agreed to make annual sinking fund deposits of \($60,000.\) The deposits are made at the end of each year into an account paying 6% annual
a. If Nimoy SA had net income of €350,000 in 2024 and it experienced a 22.4% increase in net income for 2025, what is its net income for 2025?b. If five cents of every euro of Nimoy revenue is net
Nordstrom, Inc. (USA), operates department stores in numerous states. The following is selected financial statement data for a recent year.For the year, net sales were $12,166 and cost of goods sold
Net income was €550,000 in 2023, €500,000 in 2024, and €525,000 in 2025. What is the percentage of change from(a) 2023 to 2024 and(b) 2024 to 2025? Is the change an increase or a
If Valdamorte plc had net income of £560,000 in 2025 and it experienced a 40%increase in net income over 2024, what was its 2024 net income?Calculate change in net income.
For KDK Co., beginning capital balances on January 1, 2025, are Deepika Kapoor INR20,000 and Kareena Dutt INR18,000 (amounts in thousands). During the year, drawings were Kapoor INR8,000 and Dutt
Bennis SA had the following transactions occur involving current assets and current liabilities during February 2025.Instructionsa. Compute the current ratio as of the beginning of the month and
Horizontal analysis (trend analysis) percentages for Kemplar Company’s sales revenue, cost of goods sold, and expenses are shown below.Did Kemplar’s net income increase, decrease, or remain
Hugh Curtin borrowed $35,000 on July 1, 2025. This amount plus accrued interest at 8% compounded annually is to be repaid on July 1, 2030. How much will Hugh have to repay on July 1, 2030?
Willingham Ltd. has the following comparative statements of financial position data.Additional information for 2025:1. Net income was £28,000.2. Sales on account were £418,000. Sales returns and
Arif, Falel, and Bayu are forming The Doctor Partnership. Arif is transferring Rs30,000 of personal cash and equipment worth Rs25,000 to the partnership (amounts in thousands). Falel owns land worth

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