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understanding financial accounting

Questions and Answers of Understanding Financial Accounting

In January, 1996, the management of the Mead Company concludes that it has sufficient cash to permit some temporary investments in debt and stock securities. During the year, the following
On December 31, 1996, Karen Associates owned the following securities that are held as a long-term investment. The securities are not held for influence or control of the investee.On this date, the
DFM Services acquired \(30 \%\) of the outstanding common stock of BNA Company on January 1,1996 , by paying \(\$ 800,000\) for the 40,000 shares. BNA declared and paid \(\$ 0.20\) per share cash
The following data, presented in alphabetical order, are taken from the records of Alameda Corporation:The investment in Dodge common stock is considered to be a long-term available-for-sale
Linger Corporation purchased all the outstanding common stock of Chrissy Foods, Inc. on December 31, 1996. Just before the purchase, the condensed balance sheets of the two companies appeared as
An example of a cash flow from an investing activity is:a. receipt of cash from the issuance of bonds payable.b. payment of cash to repurchase outstanding capital stock.c. receipt of cash from the
Cash dividends paid to stockholders are classified on the statement of cash flows as:a. operating activities.b. investing activities.c. a combination of the above.d. financing activities.
An example of a cash flow from a financing activity is:a. receipt of cash from sale of land.b. issuance of debt for cash.c. purchase of equipment for cash.d. none of the above.
Which of the following about the statement of cash flows is incorrect?a. The direct method may be used to report cash provided by operations.b. The statement shows the cash provided (used) for three
Net income is \(\$ 132,000\), accounts payable increased \(\$ 10,000\) during the year, inventory decreased \(\$ 6,000\) during the year, and accounts receivable increased \(\$ 12,000\) during the
Noncash charges that are added back to net income in determining cash provided by operations under the indirect method do not include:a. depreciation expense.b. an increase in inventory.c.
The beginning balance in accounts receivable is \(\$ 44,000\), and the ending balance is \(\$ 42,000\). Sales during the period are \(\$ 129,000\). Cash receipts from customers is:a. \(\$
What are the major sources (inflows) of cash in a statement of cash flows? What are the major uses (outflows) of cash?
Wilma Flintstone and Barny Kublestone were discussing the presentation format of the statement of cash flows of Rock Candy Co. At the bottom of Rock Candy's statement of cash flows was a separate
Contrast the advantages and disadvantages of the direct and indirect methods. Are both methods acceptable? Which method is preferred by the FASB? Which method is more popular?
Describe the indirect method for determining net cash provided by operating activities.
The president of Aerosmith Company is puzzled. During the last year, the company experienced a net loss of \(\$ 800,000\), yet its cash increased \(\$ 300,000\) during the same period of time.
During 1996, Johnny Carson Company converted \(\$ 1,700,000\) of its total \(\$ 2,000,000\) of bonds payable into common stock. Indicate how the transaction would be reported on a statement of cash
Cindy Crawford Inc. reported sales of \(\$ 2\) million for 1996. Accounts receivable decreased \(\$ 100,000\) and accounts payable increased \(\$ 300,000\). Compute cash receipts from customers,
Why is depreciation expense not reported in the direct method cash flow from operating activities section?
Crystal, Inc., reported net income of \(\$ 2.5\) million in 1996. Depreciation for the year was \(\$ 260,000\), accounts receivable decreased \(\$ 350,000\), and accounts payable decreased \(\$
The net income for Sterling Engineering Co. for 1996 was \(\$ 280,000\). For 1996, depreciation on plant assets was \(\$ 60,000\), and the company incurred a loss on sale of plant assets of \(\$
Each of the following items must be considered in preparing a statement of cash flows for Murphy Co. for the year ended December 31, 1996. For each item, state how it should be shown in the statement
The comparative balance sheet for the Rolex Company shows the following changes in noncash current asset accounts: accounts receivable decrease \(\$ 80,000\), prepaid expenses increase \(\$ 12,000\),
Classify the following items as an operating, investing, or financing activity. Assume all items involve cash unless there is information to the contrary.(a) Purchase of equipment.(d) Depreciation(b)
Billy Idol Corporation has accounts receivable of \(\$ 14,000\) at \(1 / 1 / 96\) and \(\$ 24,000\) at \(12 / 31 / 96\). Sales revenues were \(\$ 480,000\) for the year 1996 . What is the amount of
Depeche Mode Corporation reported income taxes of \(\$ 70,000\) on its 1996 income statement and income taxes payable of \(\$ 12,000\) at December 31,1995 , and \(\$ 9,000\) at December 31, 1996.
Excel Corporation reports operating expenses of \(\$ 90,000\) excluding depreciation expense of \(\$ 15,000\) for 1996. During the year prepaid expenses decreased \(\$ 6,600\) and accrued expenses
The T-accounts for Equipment and the related Accumulated Depreciation for Cindy Trevis Company at the end of 1996 are as follows:In addition, Cindy Trevis Company's income statement reported a loss
The following T-account is a summary of the cash account of Anita Baker Company.For Anita Baker Company what amount of net cash provided (used) by financing activities should be reported in the
Using the data in BE14-8, indicate how the changes in prepaid expenses and accrued expenses payable should be entered in the reconciling columns of a work sheet. Assume that beginning balances were:
Li Eng Corporation had the following transactions during 1996:1. Purchased a machine for \(\$ 30,000\), giving a long-term note in exchange.2. Issued \(\$ 50,000\) par value common stock for cash.3.
Joe Pesci Company reported net income of \(\$ 195,000\) for 1996. Pesci also reported depreciation expense of \(\$ 35,000\), and a loss of \(\$ 5,000\) on the sale of equipment. The comparative
- The current sections of Barth Inc.'s balance sheets at December 31, 1995 and 1996, are presented below.Barth's net income for 1996 was \(\$ 122,000\). Depreciation expense was \(\$
Presented below are three accounts that appear in the general ledger of Roberta Dupre Eorp. during 1996:Instructions From the postings in the accounts above, indicate how the information is reported
A comparative balance sheet for Oprah Winfrey Company is presented below.\section*{Additional information:}1. Net income for 1996 was \(\$ 105,000\).2. Cash dividends of \(\$ 40,000\) were declared
An analysis of comparative balance sheets, the current year's income statement and the general ledger accounts of Pierce Brosnan Corp. uncovered the following items.
Kelly McGillis Company has just completed its first year of operations on December 31, 1996. Its initial income statement showed that Kelly McGillis had revenues of \(\$ 157,000\) and operating
The income statement for the Garcia Company shows cost of goods sold \(\$ 355,000\) and operating expenses (exclusive of depreciation) \(\$ 230,000\). The comparative balance sheet for the year shows
The 1997 accounting records of Flypaper Airlines reveal the following transactions and events.\section*{Instructions}Prepare the cash flows from operating activities section using the direct method.
The following information is taken from the 1997 general ledger of Joan Robinson Company:\section*{Instructions}In each of above cases, compute the amount that should be reported in the operating
Refer to Exercise E14-5(Oprah Winfrey Company) and use these data to prepare a work sheet for a statement of cash flows for 1996. Enter the reconciling items directly on the work sheet, identifying
The income statement of Breckenridge Company is shown below:Additional information:1. Accounts receivable decreased \(\$ 300,000\) during the year.2. Prepaid expenses increased \(\$ 150,000\) during
Data for the Breckenridge Company are presented in P14-1.\section*{Instructions}Prepare the operating activities section of the statement of cash flows using the direct method.
Vail Company's income statement for the year ended December 31, 1996, contained the following condensed information:Vail's balance sheet contained the following comparative data at December
\section*{Instructions}Using the data from Problem 14-3, prepare the operating activities section of the statement of cash flows using the indirect method.
The financial statements of Patrick Swayze Company appear below:The following additional data were provided:1. Dividends declared and paid were \(\$ 5,000\).2. During the year equipment was sold for
Data for the Patrick Swayze Company are presented in P14-5. Further analysis reveals the following:1. Accounts payable pertain to merchandise suppliers.2. All operating expenses except for
Condensed financial data of Fern Galenti, Inc. appear below.Additional information:1. New plant assets costing \(\$ 85,000\) were purchased for cash during the year.2. Old plant assets having an
Data for Fern Galenti, Inc., are presented in P14-7. Further analysis reveals that accounts payable pertains to merchandise creditors.\section*{Instructions}Prepare a statement of cash flows for Fern
Presented below is the comparative balance sheet for Cousin Tommy's Toy Company as of December 31:Additional information:1. Operating expenses include depreciation expense of \(\$ 42,000\) and
\section*{Instructions}Refer to Problem 14-7 (Fern Galenti, Inc.) and use these data to prepare a work sheet for a statement of cash flows for 1996. Enter the reconciling entries directly on the work
The income statement of Tina Maria Company is shown below:Additional information:1. Accounts receivable increased \(\$ 510,000\) during the year.2. Prepaid expenses increased \(\$ 170,000\) during
Data for the Tina Maria Company are presented in P14-1A.\section*{Instructions}Prepare the operating activities section of the statement of cash flows using the direct method.
The income statement of Hanalei International Inc. for the year ended December 31, 1996, reported the following condensed information:Hanalei's balance sheet contained the following comparative data
The financial statements of Sean Seymor Company appear below:The following additional data were provided:1. Dividends of \(\$ 12,000\) were declared and paid.2. During the year equipment was sold for
\section*{Instructions}(a) Prepare a statement of cash flows using the indirect method.(b) Compute the following cash basis ratios:(1) Current cash debt coverage ratio.(2) Cash return on sales
Data for the Sean Seymor Company are presented in P14-5A. Further analysis reveals the following:1. Accounts payable pertains to merchandise creditors.2. All operating expenses except for
Condensed financial data of Norway Company appear below:Additional information:1. New plant assets costing \(\$ 92,000\) were purchased for cash during the year.2. Investments were sold at cost.3.
Data for Norway Company are presented in P14-7A. Further analysis reveals that accounts payable pertains to merchandise creditors.\section*{Instructions}Prepare a statement of cash flows for Norway
Presented below is the comparative balance sheet for Cortina Company at December 31:Additional information:1. Operating expenses include depreciation expense \(\$ 70,000\) and charges from prepaid
\section*{Instructions}Refer to Problem 14-7A (Norway Company) and use these data to prepare a work sheet for a statement of cash flows. Enter the reconciling items directly in the work sheet
Leland Corporation reported net sales of \(\$ 300,000\), \(\$ 330,000\), and \(\$ 360,000\) in the years 1994,1995 , and 1996, respectively. If 1994 is the base year, what is the trend percentage for
A measure useful in evaluating the efficiency in managing inventories is:a. inventory turnover ratio.b. average days to sell inventory.c. Both (a) and (b).d. None of the above.
Which of the following is not a liquidity ratio?a. Current ratio.b. Asset turnover.c. Inventory turnover.d. Receivables turnover.
Plano Corporation reported net income \(\$ 24,000\), net sales \(\$ 400,000\), and average assets \(\$ 600,000\) for 1996. The 1996 profit margin was:a. \(6 \%\).b. \(12 \%\).c. \(40 \%\).d. \(200
In reporting discontinued operations, the income statement should show in a special section:a. gains and losses on the disposal of the discontinued segment.b. gains and losses from operations of the
The Candy Stick Corporation has income before taxes of \(\$ 400,000\) and an extraordinary loss of \(\$ 100,000\). If the income tax rate is \(25 \%\) on all items, the income statement should show
Adamo Limited (AL) is a wholesaler of machine parts. Jacob Avery, an employee of AL, recently purchased AL from the original owner, Mr. Adam, who is retiring. Mr. Avery has come to you for advice on
Cardigan Corp. (Cardigan) and Huskisson Ltd. (Huskisson) are small distribution companies. They are identical in every respect—amount of sales, quantity of inventory sold, number of
Weybridge Corp. (Weybridge)and Kennetcook Ltd. (Kennetcook) are small retail stores. They are identical in every respect—amount of sales, quantity of inventory sold, number of employees.Everything
Tesseralik Inc. (Tesseralik) is a small private manufacturing company that makes inexpensive laptop computers. Tesseralik is owned by three brothers who converted their interest in computers into a
Howser Ltd.(Howser) is a Canadian manufacturer of wooden shingles. Howser purchases lumber from saw mills and manufactures the shingles in one of its two factories. The shingles are used in house
Abney Ltd. (Abney) is a small manufacturing company. During the fiscal year just ended, a number of errors were made in accounting for inventory. For each of the following errors indicate their
Cariboo Ltd. (Cariboo) is a distributor of imported products. In the fiscal year just ended a number of errors were made in accounting for inventory. For each of the following errors indicate their
On March 24, 2015 Ahousat Inc. (Ahousat) suffered a flood that destroyed its entire inventory of Persian rugs. Ahousat uses a periodic inventory control system and as a result doesn’t keep track of
On February 19, 2015 Exploits Inc.’s (Exploits) entire inventory was stolen in a daring daylight robbery. The thieves held warehouse personnel at gunpoint while they methodically loaded trucks with
Tumbell Corp. (Tumbell) reports its inventory at the lower of cost and net realizable value. Tumbell has five inventory categories. You are provided with the following cost and NRV information about
Wekusko Ltd. (Wekusko) is a wholesaler of electronic equipment that it imports from Asia. Recently, the manager of Wekusko’s warehouse in Winnipeg became concerned that a significant amount of
Magyar Ltd. (Magyar) is a large retail clothing store. Recently, the store manager became concerned about the amount theft and she wanted an idea of how much was being stolen so she could decide
Xena Inc. (Xena) is an importer of gift items from Europe and Asia. Xena classifies its inventory into three categories: porcelain figurines, toys, and linens. Over the years Xena has found that the
Herschel Inc. (Herschel) is a small chain of convenience stores. Herschel classifies its inventory into three categories: perishable items, packaged goods, and household items. On its balance sheet
The purchase and sale of inventory by Yearly Inc.(Yearly) during the year ended November 30, 2015 is summarized below. Assume that purchases are made on the first day of each quarter and sales on the
What amount of inventory did RONA report on its December 28, 2008, balance sheet?What proportion of current assets and what proportion of total assets did inventory comprise? What do you think is
Describe the accounting policies that RONA uses to account for its inventory. What does the term “net realizable value” mean? How would RONA know the net realizable value of the inventory in its
What was the cost of inventory sold by RONA in 2008 and 2007? How much was expensed in each year? Why do the amounts differ? Calculate RONA’s gross margin and gross margin percentage for 2008 and
During fiscal 2007 and 2008 RONA reported inventory writedowns. What is a writedown and why was it necessary for RONA to write down some of its inventory? What was the amount of the writedowns? Where
Examine the operating activities section of RONA’s cash flow statement and Note 7 to the financial statements. What was RONA’s cash flow from operations in 2008? Why was cash from operations so
Calculate RONA’s inventory turnover ratio and the number of days inventory on hand for 2008 and 2007. (The amount of inventory sold in 2008 and 2007 isn’t in the income statement—you have to
Read the extracts from RONA’s Management Discussion and Analysis.a. What has RONA’s management identified as a strategic objective with respect to inventory? Why is this objective desirable? How
Why is careful management of inventory so important for a company like RONA?RONA Inc. (RONA) is the largest distributor and retailer of hardware, home renovation, and gardening products in Canada. It
Read the financial statement note that discusses accounting estimates. What important information for readers does this note provide? Why is it important for stakeholders to understand this note?
A problem frequently faced by retail businesses like RONA is the loss of inventory or inventory shrinkage. What are the possible ways that inventory in a RONA store could "shrink"? Is shrinkage bad
Describe the types of capital assets you would expect each of the following entities to have:a. grocery storeb. universityc. fast food restaurantd. bank branche. car dealershipf. arena
Why do intangible assets often not appear on the balance sheet? Under what circumstances will intangible assets be reported on the balance sheet?
Why is the depreciation of the cost of an asset considered arbitrary?
An uncle of yours explains that depreciation is important because it ensures that money is set aside for replacing the capital assets that are being used up. What is your response to your uncle?
For each business identified below, explain how the capital asset contributes to generating revenue by the business: Business a. house painting b. bank c. shopping centre d. bowling alley e.
You are the accountant for a restaurant. The restaurant has recently started a home delivery service and purchased a car to make deliveries. You have to prepare the yearend financial statements for
Explain the following bases for valuing capital assets. Provide examples of how each might provide useful information to a user:a. historical costb. replacement costc. net realizable valued.

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