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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

If the inventory is mistakenly overstated at the end of \(20 \mathrm{x} 1\), what is the effect on the (a) \(20 \mathrm{x} 1\) net profit, (b) \(20 \mathrm{x} 1\) year-end balance sheet value, (c)
Why do you think it is more expensive to maintain a perpetual inventory system?
In the phrase lower of cost and market, what is meant by the word market?
What methods can be used to determine lower of cost and market?
Does using the retail inventory method mean that inventories are measured at retail value on the balance sheet? Explain.
What are some of the reasons that may cause management to use the gross profit method of estimating inventory?
Which inventory systems do not require a physical inventory: (a) perpetual, (b) periodic, (c) retail, (d) gross profit?
Indicate whether each item listed below is associated with (a) allocating the cost of inventories in LO 1 Management Issues Related to Inventory\section*{LO 1 Inventory Ratios}
Costco Discount Stores is assessing its levels of inventory for \(20 \times 2\) and \(20 \times 3\) and has gathered the following data:Calculate the inventory turnover and average days' inventory
Helen's Farm Store sells agricultural equipment and supplies. During a recent year, the company LO 3 Inventory Costing Methods had the following purchases and sales of fertiliser:Assume that the
In chronological order, the inventory, purchases, and sales of a single product of the O'Shaughnessy Company during a recent month are as follows:Using the periodic inventory system, calculate the
During July 20x2, Servex sold 250 units of its product Dervex for 2,000 . The following units were available:A sale of 100 units of Dervex was made after purchase 1, and a sale of 150 units of the
Ross Products sold 120,000 cases of glue at 40 per case during 20x1. Its beginning inventory con-LO 5 - Effects of Inventory Methods sisted of 20,000 cases at a cost of 24 per case. During \(20
The lettered items in the list below represent inventory costing methods. Identify by letter the method that each of the following statements best describes.\section*{LO 5 Characteristics}a. Specific
Condensed income statements for Hamlin Company for two years are shown below.After the end of \(20 \times 2\) it was discovered that an error had resulted in a 9,000 understatement of the \(20 \times
Mercurio Company values its inventory, shown in the following table, at the lower of cost and market. Calculate Mercurio’s inventory value using (1) the item-by-item method and (2) the major
Roseanne's Dress Shop had net retail sales of 500,000 during the current year. The following addi-SO 7 Retail Method tional information was obtained from the accounting records:1. Estimate the
Dale Nolan was at home watching television when he received a call from the fire department. His business was a total loss from fire. The insurance company asked him to prove his inventory loss, For
The inventory, purchases, and sales of Jamboree Products for the months of May and June are preand Inventory Methods sented below. The company closes its books at the end of each month and uses a
Use the data provided in P 7-1, but assume that the company uses the perpetual inventory system.LO 4 Perpetual Inventory System and Inventory Methods REQUIRED(Note: In preparing the solutions below,
The employees of Kuberski's Shoes completed their physical inventory as follows:REQUIRED Determine the value of inventory at lower of cost and market using (1) the item-by-item method and (2) the
Overland Company switched recently to the retail inventory method to estimate the cost of ending SO 7 Retail Inventory Method inventory. To test this method, the company took a physical inventory one
What are the characteristics of long-term assets?
Which items would be classified as plant assets on the balance sheet? (a) A truck held for sale by a truck dealer, (b) an office building that was once the company headquarters but is now to be sold,
Why is land different from other long-term assets?
What do accountants mean by the term depreciation, and what is its relationship to depletion and amortisation?
How do cash flows relate to the decisions on acquiring longterm assets and how does the useful life of the assets relate to the means of financing them?
Why is it useful to think of a plant asset as a bundle of services?
What is the distinction between revenue expenditures and capital expenditures, and what in general is included in the cost of a long-term asset?
Which expenditures incurred in connection with the purchase of a computer system would be charged to the asset account? (a) The purchase price of the equipment, (b) interest on the debt incurred to
Hale's Grocery obtained bids on the construction of a dock for receiving goods at the back of its store. The lowest bid was 22,000 . The company decided to build the dock itself, however, and was
A firm buys a piece of technical equipment that is expected to last twelve years. Why might the equipment have to be depreciated over a shorter period of time?
Evaluate the following statement: "A car park should not be depreciated because adequate repairs will make it last forever."
Is the purpose of depreciation to determine the value of equipment? Explain your answer.
Contrast the assumptions underlying the straight-line depreciation method with the assumptions underlying the production depreciation method.
What is the principal argument supporting an accelerated depreciation method?
If a plant asset is sold during the year, why should depreciation be calculated for the partial year prior to the date of the sale?
If a plant asset is discarded before the end of its useful life, how is the amount of loss measured?
Old Stake Mining Company calculates the depletion rate of ore to be 2 per ton. During 20xx the company mined 400,000 tons of ore and sold 370,000 tons. What is the total depletion for the year?
Under what circumstances can a mining company depreciate its plant assets over a period of time that is less than their useful lives?
Because accounts receivable have no physical substance, can they be classified as intangible assets?
Under what circumstances can a company have intangible assets that do not appear on the balance sheet?
When it is stated that accounting for intangible assets involves the same issues as accounting for tangible assets, what issues are being referred to?
How does the International Accounting Standards Committee recommend that research and development costs be treated?
Archi Draw Company spent three years developing a new software program for designing office buildings and recently completed the detailed working program. How does accounting for the costs of
How is accounting for software development costs similar to and different from accounting for research and development costs?
Under what conditions should goodwill be recorded? Should it remain in the records permanently once it is recorded?
What basic procedure should be followed in revising a depreciation rate?
On what basis can depreciation be taken on a group of assets rather than on individual items?
What is the difference between depreciation for accounting purposes and cost recovery for income tax purposes?
Pavlenko Manufacturing purchased land next to its factory to be used as a car park. Expenditures LO 2 Determining Cost of LongTerm Assets\section*{LO 2 Group Purchase}
Linda Regalado went into business by purchasing a car wash for 480,000 . The car wash assets included land, building, and equipment. If purchased separately, the land would have cost 120,000 , the
Myron Walker purchased a used tractor for 35,000 . Before the tractor could be used, it required new LO 2 Cost of Long-Term Asset LO 4 and Depreciation
Findlay Oil Corporation purchased a drilling truck for 90,000 . The company expected the truck to LO 3 Depreciation Methods LO 4 LO 4 Declining-Balance Method
A piece of equipment that cost 32,400 and on which 18,000 of accumulated depreciation had been L.O 5 Disposal of Plant Assets recorded was disposed of on January 2, the first day of business of the
Church Mining Corporation purchased land containing an estimated 10 million tons of ore for a LO 6 Natural Resource Depletion and Depreciation of Related Plant Assets cost of \(8,800,000\). The land
1. Fortunato Publishing Company purchased the copyright to a basic computer textbook for and Trademarks 20,000 . The usual life of a textbook is about four years. However, the copyright will remain
Using the same data given for Findlay Oil Corporation in E 8-5, calculate the depreciation for calendar year \(20 \times 2\) under each of the following methods, assuming that the truck was purchased
Idriss Manufacturing Corporation purchased three machines during the year: February 10 July 26 Machine 1 3,600 Machine 2 24,000 October 11 Machine 3 43,200
Tasman Hospital purchased a special X-ray machine for its operating room. The machine, which\begin{tabular}{llr}February 10 & Machine 1 & 3,600 \\July 26 & Machine 2 & 24,000 \\October 11 & Machine 3
Why is accounting considered an information system?
What is the role of accounting in the decision-making process?
Distinguish among these terms: accounting, bookkeeping, and management information systems.
Which decision makers use accounting information?
Why are investors interested in reviewing the financial statements of a company?
Apart from management many people and organisations have an interest in the business entity. Briefly describe them.
Why has society as a whole become one of the largest users of accounting information?
Use the terms business transaction, money measure, and separate entity in a single sentence that demonstrates their relevance to financial accounting.
How do sole proprietorships, partnerships, and corporations differ?
In a corporation, what are the functions of shareholders, the board of directors, and management?
Define assets, liabilities, and shareholders' equity.
Arnold Smith's corporation has assets of 22,000 and liabilities of 10,000 . What is the amount of the shareholders' equity?
What three elements affect retained earnings? How?
Give examples of the types of transactions that (a) increase assets and (b) increase liabilities.
Why is the balance sheet sometimes called the statement of financial position?
Contrast the purpose of the balance sheet with that of the income statement.
How does the income statement differ from the cash flow statement?
What are accounting standards? Why are they important to the users of financial statements?
What is the significance of "international" accounting standards?
Why are auditors important?
What factors most influence accounting standards?
Discuss the importance of professional ethics in the accounting profession
Indicate the IASC term and its North American or British origin for the following accounting terms: 1. Financial statements. 2. Profit and loss account 3. Turnover 4. Balance sheet 5. Net income 6.
Theresa owns and operates a general store. State which of the actions below are business transactions. Explain why any other actions are not regarded as transactions.1. Theresa reduces the price of a
Financial accounting uses money measures to gauge the impact of business transactions on a sepa-LO 3 Accounting Concepts rate business entity. State whether each of the following words or phrases
You have been asked to compare the sales and assets of four companies that make computer chips in LO 3 Money Measure order to determine which company is the largest in each category. You have
Use the accounting equation to answer each question below. Show any calculations you make.1. The assets of Newport Corporation are 650,000 , and the shareholders' equity is 360,000 . What is the
During the month of April, Andres Corporation had the following transactions:LO 5 Effect of Transactions on the Accounting Equationa. Paid salaries for April, 5,400 .b. Purchased equipment on credit,
The total assets and liabilities at the beginning and end of the year for Pizarro Company are listed LO 5 Effect of Transactions on the Accounting Equation below.Determine Pizarro Company's net
1. Indicate whether each of the following accounts is an asset (A), a liability (L), or a part of share-LO 5 holders' equity (SE).a. Cashe. Landb. Salaries Payablef. Accounts Payablec. Accounts
Listed in random order below are the balance sheet figures for the Glick Company as of June 30 \(20 \mathrm{xx}\)Sort the balances and prepare a balance sheet similar to the one in Exhibit 1-2.
Strickland Corporation engaged in the following activities during the year: Service Revenue, 52,800 Rent Expense, 4,800; Wages Expense, 33,080; Advertising Expense, 5,400; Electricity Expense, 3,600;
Sheila, a lawyer, bills her clients at a rate of 100 per hour. During July, she worked 150 hours for LO 6 Revenues, Expenses, and Cash Flows
Diamond Corporation began the year 20xx with cash of 86,000 . In addition to earning a net profit LO 6 Cash Flow Statement of 50,000 and paying cash dividends of 30,000 , Diamond borrowed 120,000
The Creative Frames Shop was started by Rosa Partridge in a small shopping centre. In the first Effect of Transactions on the Accounting Equation LO 5 Effect of Transactions on the Accounting
The Quality Courier Corporation was founded by Johnny Hui on March 1 and engaged in the fol-weeks of operation, she completed the following transactions:a. Deposited 21,000 in cash in the name of the
At the end of its first month of operation, March 20xx, Ellis Plumbing Corporation had the follow-LO 6 Preparation of Financial Statements ing account balances:In addition, during the month of March,
Arrow Copying Service began operations and engaged in these transactions during August 20xx:LO 5 Effect of Transactions on the LO 6 Accounting Equation and Preparation of Financial Statementsa. Myra
What three issues underlie most accounting measurement decisions?
Why is recognition an issue for accountants?

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