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understanding financial accounting

Questions and Answers of Understanding Financial Accounting

Europa Corporation engaged in the following transactions in \(20 \times 2\). Using the direct method, calcu-LO 4 Calculating Cash Flows from Operating Activities-Direct Method late the various cash
During 20x1, Mayfair Corporation had a net profit of 41,000. Included on the income statement LO 4 Calculating Cash Flows from Operating ActivitiesIndirect Method
LO 4 Preparing a Schedule of Cash Flows from Operating Activities-Direct Method was depreciation expense of 2,300 and amortisation expense of 300 . During the year, accounts receivable increased by
Using the data provided in E 12-9, prepare a schedule of cash flows from operating activities using LO 4 Preparing a Schedule of Cash the indirect method.
Krieger Company's T account for long-term available-for-sale investments at the end of \(20 \times 3\) is LO 5 Calculating Cash Flows from Investing ActivitiesInvestments shown below.In addition,
The T accounts for the Plant Assets and Accumulated Depreciation accounts for Krieger Company Investing Activities-Plant Assets E 12-13.LO 5 Determining Cash Flows from Investing and Financing
All transactions involving Notes Payable and related accounts engaged in by Krieger Company during \(20 \times 3\) are as follows:Determine the amounts and how these transactions are to be shown in
Bradbury Corporation's \(20 \times 2\) income statement and its comparative balance sheets for June 30 \(20 \times 2\) and \(20 \times 1\) appear on the opposite page. Statement The following
In 20x2, Kenetics Corporation had total assets of \(2,400,000\), net sales of \(3,300,000\), net profit of 410,000. In \(20 \times 1\), total assets were \(2,100,000\). Calculate the cash-generating
Gutierrez Corporation's \(20 \times 2\) income statement and its comparative balance sheets as of June 30, LO 6 The Cash Flow Statement-LO 7 Direct Method \(20 \times 2\) and \(20 \times 1\) appear
Use the information for Gutierrez Corporation given in P 12-1 to answer the requirements below.REQUIRED Prepare a cash flow statement using the indirect method. Include a supporting schedule of
Why are the concepts of significant influence and control important in accounting for long-term investments?
What is meant by a parent-subsidiary relationship?
Would the shareholders of Nestle be more interested in the consolidated financial statements of the overall company than in the statements of its many subsidiaries? Explain.
What is the equity method of accounting for investments?
Why should intercompany receivables, payables, sales, and purchases be eliminated in the preparation of consolidated financial statements?
What is meant by "minority interest"? Explain how it arises and where it appears on the consolidated balance sheet.
Why may the price paid to acquire a controlling interest in a subsidiary company exceed the subsidiary's book value?
What is meant by "goodwill from consolidation"? Explain how this item arises and where you would expect to find it on the consolidated balance sheet.
Subsidiary Corporation has a book value of 100,000 , of which Parent Corporation purchases 100 per cent for 115,000 . Noneof the excess of cost over book value is attributed to the fair value of
Subsidiary Corporation, a wholly-owned subsidiary, has total sales of \(500,000,100,000\) of which were made to Parent Corporation. Parent Corporation has total sales of \(1,000,000\), including
What does it mean to say that the exchange rate for a Swiss franc in terms of the U.S. dollar is .15? If a bottle of perfume from Switzerland costs 200 francs, how much will it cost in U.S. dollars?
If a British firm does business with a Russian firm and all their transactions take place in Russian roubles, which firm may incur exchange gains or losses, and why?
What is the difference between a reporting currency and a functional currency?
Peter Corporation has the following portfolio of long-term investments at year end:Prepare the year-end adjustment to reflect the above information. Company Percentage of Voting Shares Held Cost
On January 1, 20xx, Romano Corporation acquired 40 per cent of the voting shares of Burke LO 1 Long-Term Investments: Equity Method
Diversified Corporation has the following long-term investments:LO 1 Methods of Accounting for LO 2 Long-Term Investments Corporation's records to reflect this information. Corporation for
The Lardner Manufacturing Company purchased 100 per cent of the shares of the Gwynn Purchase at Book Value Manufacturing Company for 300,000 . Gwynn's shareholders' equity included ordinary shares of
The shareholders' equity section of the Brandt Corporation's balance sheet appeared as follows on December 31:Assume that Wegner Manufacturing Company owns 80 per cent of the voting shares of Brandt
On September 1, Y Company purchased 100 per cent of the voting shares of \(Z\) Company for 960,000 in cash. The separate condensed balance sheets immediately after the purchase follow:Prepare a work
Some of the separate accounts from the balance sheets for A Company and B Company, just after A Company purchased 85 per cent of B Company’s voting shares for 1,530,000 in cash, follow:Accounts
Polonia Company has owned 100 per cent of Cardwell Company since 20x0. The income statements of these two companies for the year ended December 31, 20x1 appear below. Also assume the following
London Corporation purchased a special-purpose machine from Hamburg Corporation on credit LO 5 Recording International Transactions: Fluctuating Exchange Rate
U.S. Corporation made a sale on account to U.K. Company on November 15 in the amount of LO 1 Long-Term Investments: Equity Method for DM 50,000 . At the date of purchase, the exchange rate was GB£.
What are the differences and similarities in the objectives of investors and lenders in using financial statement analysis?
What role does risk play in making loans? What role does it play in making investments?
What standards are commonly used to evaluate financial statements, and what are their relative merits?
Where may an investor look to find information about a publicly held company in which he or she is thinking of investing?
What is the basis of the statement "Accounting profit is a useless measurement because it is based on so many arbitrary decisions"? Is the statement true?
Why would an investor want to see both horizontal and trend analyses of a company's financial statements?
What does the following sentence mean: "Based on 1980 equalling 100 , net profit increased from 240 in 1996 to 260 in 1997 "?
Under what circumstances would a current ratio of \(3: 1\) be good? Under what circumstances would it be bad?
In a period of high interest rates, why are receivable and inventory turnover especially important?
Company A and Company B both have net profits of \(1,000,000\). Is it possible to say that these companies are equally successful? Why or why not?
A company has a return on assets of 12 per cent and a debt to equity ratio of .5 . Would you expect return on equity to be more or less than 12 per cent?
At the end of its first year of operations, a company could calculate its ending inventory according to LO 4 Effect of Alternative Accounting Methods LO 4 Effect of Alternative LO 6 Accounting
Jeans F' All and Jeans 'R' Us are very similar companies in size and operation. Jeans F' All uses FIFO and straight-line depreciation methods, and Jeans ' \(R\) ' Us uses LIFO and accelerated
Calculate the amount and percentage changes for the Lindquist Company's balance sheets, which imal place.) Lindquist Company Comparative Balance Sheets December 31, 20x2 and 20x1 Current Assets
Prepare a trend analysis of the following data using \(20 \times 1\) as the base year. State whether the trends show a favourable or unfavourable situation. (Round answers to one decimal place.) 20x5
Express the comparative income statements that follow as common-size statements, and comment on the changes from \(20 \times 1\) to \(20 \times 2\). (Round calculations to one decimal place.)
Alberto's Men's Shop has been in business for four years. Because the company has recently had a cash flow problem, management wonders whether there is a problem with receivables or inventories. Here
Partial comparative balance sheet and income statement information for Lam Company follows.The year-end balances for Accounts Receivable and Inventory in \(20 \times 0\) were 16,200 and 25,600,
At year end, Canzoneri Company had total assets of 640,000 in \(20 \times 0,680,000\) in \(20 \mathrm{x} 1\), and 760,000 LO 6 Profitability Analysis in \(20 \times 2\). Its debt to equity ratio was
An investor is considering investing in the long-term bonds and ordinary shares of Companies X LO 6 Long-Term Solvency and and Y. Both companies operate in the same industry. In addition, both
Using the data below, taken from the financial statements of Furri Corporation, calculate the cash flow yield, cash flows to sales, cash flows to assets, and free cash flow. Net Sales 3,200,000 Net
What are liabilities?
Why is the timing of liability recognition important in accounting?
At the end of the accounting period, Janson Company had a legal obligation to accept delivery and pay for a truckload of hospital supplies the following week. Is this legal obligation a liability?
Ned Johnson, a star basketball player, received a contract to play professional basketball. The contract calls for a salary of 300,000 a year for four years, dependent on his making the team in each
What is the rule for classifying a liability as current?
What are a line of credit and commercial paper? Where do they appear on the balance sheet?
Where should the Discount on Notes Payable account appear on the balance sheet?
When can a portion of long-term debt be classified as a current liability?
Why are unearned revenues classified as liabilities?
What is definite about an estimated liability?
Why are income taxes payable considered to be estimated liabilities?
When does a company incur a liability for a product warranty?
What is a contingent liability, and how does it differ from an estimated liability?
What are some examples of contingent liabilities? For what reason is each a contingent liability?
What are the advantages and disadvantages of issuing longterm debt?
What is the difference amongst a bond certificate, a bond issue, and a bond covenant? What are some examples of items found in a bond covenant?
What are the essential differences between (a) secured and debenture bonds, (b) term and serial bonds, and (c) registered and coupon bonds?
Napier Corporation sold 500,000 of 5 per cent 1,000 bonds on the interest payment date. What would the proceeds from the sale be if the bonds were issued at 95 , at 100 , and at 102 ?
If you were buying bonds on which the face interest rate was less than the market interest rate, would you expect to pay more or less than nominal value for the bonds? Why?
Why does the amortisation of a bond discount increase interest expense to an amount greater than interest paid? Why does the amortisation of a premium have the opposite effect?
When the effective interest method of amortising a bond discount or premium is used, why does the amount of interest expense change from period to period?
What are the advantages of convertible bonds to the company issuing them and to the investor?
What are the two components of a uniform monthly mortgage payment?
When is a long-term lease called a finance lease? Why should the accountant record both an asset and a liability in connection with this type of lease? What items should appear on the income
What is a pension plan? What assumptions must be made to account for the expenses of such a plan?
What is the difference between a defined contribution plan and a defined benefit plan?
On the last day of October, Bayview Company borrows 30,000 on a bank note for sixty days at 12 LO 2 Interest Expense: Interest Not Included in Face Value of Note
Clarence Henry earns a salary of 70,000 per year. Social security taxes are 6.20 per cent up to 60,600 per cent interest. Assume that interest is not included in the face amount. Prepare the
Keystone Company manufactures and sells electronic games. Each game costs 25 to produce and LO 2 Product Warranty Liability
On March 1, 20x1, the Sperlazzo Corporation issued 1,200,000 of 10 per cent, five-year bonds. The
The long-term debt section of the Fleming Corporation's balance sheet at the end of its accounting LO 5 Journal Entries for Interest Payments Using the Effective Interest Method sells for 45. In
Graphic World is authorised to issue \(1,800,000\) in bonds on June 1. The bonds carry a face interest rate of 9 per cent, which is to be paid on June 1 and December 1 .Prepare journal entries for
Swoboda Corporation issued \(1,000,000\) of 9 per cent bonds on October 1, 20x1, at 96 . The bonds are dated October 1 and pay interest semiannually. The market rate of interest is 10 per cent, and
The Gallery Corporation has 400,000 of 6 per cent bonds outstanding. There is 20,000 of unamortised discount remaining on these bonds after the July 1, 20x2 semiannual interest payment. The bonds are
Inland Corporation purchased a building by signing a 150,000 long-term mortgage with monthly payments of 2,000 . The mortgage carries an interest rate of 12 per cent.1. For the first three months,
Ramos Corporation has leased a piece of equipment that has a useful life of twelve years. The terms LO 11 Recording Lease Obligations of the lease are 43,000 per year for twelve years. Ramos
Landover Corporation, whose accounting year ends June 30, 20x1, completed the following transacand End-of-Period Entries21 Obtained a sixty-day extension on an 18,000 trade account payable owed to a
Marrero Company is engaged in the retail sale of washing machines. Each machine has a twentyfour-month warranty on parts. If a repair under warranty is required, a charge for the labour is made.
Bannchi Corporation issued bonds twice during \(20 \times 1\). The transactions were as follows:\(20 \times 1\)Jan. 1 Issued \(2,000,000\) of \(91 / 5\) per cent, ten-year bonds dated January 1,
What is a corporation, and how is it formed?
What are the organisation costs of a corporation?
What is the proper accounting treatment of organisation costs?
What is the legal capital of a corporation, and what is its significance?
How is the value of shares determined when shares are issued for noncash assets?
Describe the significance of the following dates as they relate to dividends: (a) date of declaration, (b) date of record, and (c) date of payment.

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