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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

What is a “receivable”? How are receivables classified and valued on a balance sheet?What are some of the different types of receivables that an entity can report?
What is the relationship between an account receivable and the income statement?What is the relationship between an account receivable and the revenue recognition criteria discussed in Chapter 4?
You are a bank manager. The owner of a small business has come to see you about a loan. He presents you with the financial statements of his business. The accounts receivable are reported at the
A small business has used the same percentage of end of year accounts receivable to calculate the allowance for doubtful accounts and the bad debt expense for the last eight years. What are the
What are the three methods for accounting for uncollectible amounts from customers?Explain each method.
How does management decide when to write off an account receivable or some other receivable? Is this an objective or subjective decision? Explain. How can management use the judgment required to
Verlo Ltd. recently made a $100,000 sale to a customer. Terms of the sale agreement permit the customer to pay the $100,000 in two years. The customer doesn’t have to pay any interest. The revenue
For each of the following items, explain whether the amount described should be included in “Cash and cash equivalents” on Jelly Inc.’s (Jelly) December 31, 2014, balance sheet:a. \($10,000\)
Calculate the future value in each of the following situations.a. Invest \($25,000\) at 5 percent for eight years.b. Invest \($25,000\) at 5 percent for eight years, compounded semi-annually.c.
Calculate the future value in each of the following situations:a. An investor purchases a long-term investment for \($100,000\) that pays 4 percent interest per year for nine years, compounded
Answer the following questions:a. Present value of \($1,000,000\) to be received in eight years at a discount rate of 10 percent.b. Present value of the following series of cash payments: \($10,000\)
Answer the following questions. Provide explanations for each:a. If your discount rate is 12 percent would you prefer \($10,000\) today or \($20,000\) in five years?b. A customer purchases
Answer the following questions.Explain your answers:a. You can purchase a series of cash flows of \($10,000\) for 25 years for a payment of\($100,000\) today. If your discount rate is 8 percent would
Use the tools introduced in the chapter to answer the following questions. You have to decide which tool to use in each case. Explain your conclusions. In all cases assume the interest or discount
Prepare the journal entries necessary to record the following transactions and economic events for Sahali Ltd. (Sahali):a. During 2015 Sahali had cash sales of \($175,000\) and credit sales of
In early 2014 Pugwash Ltd. (Pugwash)delivered a large order of goods to Ripon Inc. (Ripon), a new customer. In compliance with company policy, Pugwash did a credit check on Ripon and decided to
Malagash Ltd. (Malagash) recently learned that a major customer would be permanently shutting down its operations within 30 days. The reason for the shut-down isn’t clear but Malagash’s
On May 31, 2015, Namaka Ltd. (Namaka) sold specialized heavy equipment to Audy Inc. (Audy) for \($25,000,000\). The sale agreement required that Audy pay \($7,000,000\) to Namaka on May 31, 2015, and
Use the following information to calculate accounts receivable on July 31, 2015, and the amount of accounts receivable written off in 2015: July 31, 2015 2014 Accounts receivable Allowance for
Use the following information to calculate accounts receivable on December 31, 2016 and the amount of cash received from customers in 2016 for services to be provided during 2017: December 31, 2016
You are provided with the following information about Nyanza Corp.:i. Accounts receivable on December 31, 2015 = $287,500.il. Sales during the year ended December 31, 2015 = \($3,758,000\) (all sales
Capstick Ltd. (Capstick) uses the percentage of- credit-sales method of estimating the bad debt expense. Since 2011 Capstick has used too low a percentage in calculating the bad debt expense each
The following information has been obtained about Elzevir Inc. (Elzevir) for 2014. The information was obtained before any year-end adjusting entries were made.Requireda. Calculate the bad debt
Pipestone Ltd. (Pipestone) uses an aging schedule to estimate the amount of receivables that won’t be collected. Pipestone allows its customers up to 30 days to pay amounts owed. Any receivable
The following information was obtained from Acamac Corp.’s (Acamac) 2016 financial statements:Required:a. Calculate Acamac’s accounts receivable turnover ratio for 2016.b. Calculate the average
Which of the following assets would you classify as quick assets for purposes of calculating the quick ratio? Explain your reasoning.a. Prepaid rentb. Account receivable due to be paid in 16 monthsc.
Following are the balance sheets for the years ended June 30, 2015 and 2014, for Seahorse Inc.:Required:a. Calculate the current ratio and the quick ratio on June 30, 2014 and 2015.b. Assess the
During 2014 Oderin Inc. (Oderin) reported revenue of \($1,178,000\). Oderin’s accounts receivable turnover ratio for 2014 was 6.32. What was Oderin’s average amount of accounts receivable during
During 2015 Hemlo Inc. (Hemlo) reported revenue of \($3,250,000\). During 2015 the average collection period for accounts receivable was 38 days. Accounts receivable at the end of 2016 was 10 percent
Agassiz Inc. (Agassiz) provides commercial cleaning services. The company picks up items needing cleaning and returns them to the business within 48 hours. Agassiz invoices customers monthly and
Prepare the journal entries to record the following transactions on \(\mathrm{H}\). Hunt Company's books using a periodic inventory system.(a) On March 2, H. Hunt Company purchased \(\$ 900,000\) of
Assume that \(K\). Bassing Company uses a periodic inventory system and has the following account balances: Purchases \(\$ 400,000\), Purchase Returns and Allowances \(\$ 11,000\), Purchase Discounts
Assume the same information as in BE9-2, and also that K. Bassing Company has beginning inventory of \(\$ 60,000\), ending inventory of \(\$ 90,000\), and net sales of \(\$ 630,000\). Determine the
Ginger Helgeson Company identifies the following items for possible inclusion in the taking of a physical inventory. Indicate whether each item should be included or excluded from the inventory
The ledger of Wharton Company includes the following items: (1) Freight-in, (2) Purchase Returns and Allowances, (3) Purchases, (4) Sales Discounts, (5) Purchase Discounts. Identify which items are
In its first month of operations, Quilt Company made three purchases of merchandise in the following sequence: (1) 300 units at \(\$ 6\), (2) 400 units at \(\$ 7\), and (3) 300 units at \(\$ 8\).
Data for Quilt Company are presented in BE9-6. Compute the cost of the ending inventory under the average cost method, assuming there are 400 units on hand.
Hawkeye Appliance Center accumulates the following cost and market data at December 31 :Compute the lower of cost or market valuation using categories. Inventory Cost Market Categories Data Data
At May 31, Jansen Company has net sales of \(\$ 300,000\) and cost of goods available for sale of \(\$ 210,000\). Compute the estimated cost of the ending inventory assuming the gross profit rate is
On June 30, Faber's Fabrics has the following data pertaining to the retail inventory method: Goods available for sale: at cost \(\$ 35,000\), at retail \(\$ 50,000\); net sales \(\$ 30,000\), and
Creole Company reports net income of \(\$ 90,000\) in 1998 . However, ending inventory was understated \(\$ 7,000\). What is the correct net income for 1998 ? What effect, if any, will this error
Graf Department Store uses a perpetual inventory system. Data for product XX include the following purchases:On June 1 Graf sold 30 units, and on August 27,33 more units. Prepare the perpetual
Presented below is the following information related to Hans Olaf Co.1. On April 5, purchased merchandise from D. DeVito Company for \(\$ 18,000\) terms \(2 / 10\), net \(/ 30\), FOB shipping
The trial balance of G. Garbo Company at the end of its fiscal year, August 31, 1998, includes the following accounts: Merchandise Inventory \(\$ 17,200\), Purchases \(\$ 142,400\), Sales \(\$
Presented is information related to Baja Co. for the month of January 1998.Beginning merchandise inventory was \(\$ 42,000\) and ending inventory was \(\$ 63,000\).\section*{Instructions}Prepare an
First Bank and Trust is considering giving Novotna Company a loan. Before doing so, they decide that further discussions with Novotna's accountant may be desirable. One area of particular concern is
Mawmey Inc. uses a periodic inventory system. Its records show the following for the montb of May, in which 78 units were sold.\section*{Instructions}Compute the ending inventory at May 31 using the
In June, Dakota Company reports the following for the month of June.\section*{Instructions}(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO and (2) LIFO.(b)
Inventory data for Dakota Company are presented in E9-6.\section*{Instructions}(a) Compute the cost of the ending inventory and the cost of goods sold using the average cost method.(b) Will the
Cody Camera Shop uses the lower of cost or market basis for its inventory. The following data are available at December 31:\section*{Instructions}Determine the amount of the ending inventory by
The inventory of Susan Company was destroyed by fire on March 1. From an examination of the accounting records, the following data for the first 2 months of the year are obtained: Sales \(\$
Sharp Shoe Store uses the retail inventory method for its two departments: Women's Shoes and Men's Shoes. The following information for each department is obtained:\section*{Instructions}Compute the
Seles Hardware reported cost of goods sold as follows:Seles made two errors: (1) 1998 ending inventory was overstated \(\$ 4,000\) and (2) 1999 ending inventory was understated \(\$
Aruba Company reported the following income statement data for a 2-year period.Aruba uses a periodic inventory system. The inventories at January 1, 1998, and December 31, 1999, are correct. However,
Stracka Appliance uses a perpetual inventory system. For its model B47 television sets, the January 1 inventory was four sets at \(\$ 600\) each. During January, the following purchase was made: Jan.
Chi Chi Ramos, a former professional golf star, operates Chi Chi's Pro Shop at Bay Golf Course. At the beginning of the current season on April 1, the ledger of Chi Chi's Pro Shop showed Cash \(\$
Metro Department Store is located in midtown Metropolis. During the past several years, net income has been declining because of suburban shopping centers. At the end of theAnalysis reveals the
Kane Company had a beginning inventory on January 1 of 100 units of Product SXL at a cost of \(\$ 20\) per unit. During the year, the following purchases were made.850 units were sold. Kane Company
The management of Tumatoe Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 1998, the accounting records show the following data:Units
M. Chang Company lost all of its inventory in a fire on December 28, 1998. The accounting records showed the following gross profit data for November and December.M. Chang is fully insured for fire
Barker's Book Store uses the retail inventory method to estimate its monthly ending inventories. The following information is available for two of its departments at October 31, 1998.At December 31,
The primary criterion by which accounting information can be judged is:a. consistency.b. predictive value.c. decision-usefulness.d. comparability.
Verifiable is an ingredient of:Reliability Relevancea. Yes Yesb. No No(oh Yes Nod. No Yes
The accounting constraint that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues is known as (the):a. matching principle.b. materiality.c.
Mark Enterprises has current assets of $80,000 and current liabilities of $20,000. It’s current ratio and working capital are:a. .25:1; $60,000b. 4:1; $60,000c. .25:1; $80,000d. 4:1; $80,000
Hernandez Company has a retained earnings balance of $162,000 at the beginning of the period. At the end of the period, the retained earnings balance was $220,000. Assuming a dividend of $25,000 was
Atmel Corp. has total liabilities of $1,400,000, total stockholders’ equity of $2,800,000, current assets of$600,000, and current liabilities of $400,000.Atmel’s total debt to total assets ratio
(a) What are generally accepted accounting principles (GAAP)? (b) What bodies provide authoritative support for GAAP?
Ray Aldag, the president of Raynard Company, is _ pleased. Raynard substantially increased its net in come in 1995 while keeping the number of units in its inventory relatively the same. Tom Erhardt,
(a) Where does the accountant disclose information about an entity's financial position, operations, and cash flows? (b) The full disclosure principle recognizes that the nature and amount of
Sue Leonard is the president of Better Books. She has no accounting background. Leonard cannot understand why current cost is not used as the basis for accounting measurement and reporting. Explain
In February 1996, Richard Holland invested an additional \(\$ 5,000\) in his business, Holland's Phar- macy, which is organized as a corporation. Holland's accountant, Donna Havaci, recorded this
Ann Schmitt Company has current assets of \(\$ 50,000\) and current liabilities of \(\$ 20,000\). What is its (a) working capital and (b) current ratio?
Whitehurst Inc.'s debt to total assets stands at 62 percent. If you were a banker, would you be comfortable abouit extending additional credit to Whitehurst? Why or why not?
Indicate whether each of the following statements is true or false.1. GAAP is a set of rules and practices established by the accounting profession to Generally accepted accounting serve as a general
Indicate which of the following items is(are) included in the FASB's conceptual frame-Items included in conceptual work. (Use "Yes" or "No" to answer this question.) framework.1. Analysis of
Given the qualitative characteristics of accounting established by the FASB's conceptual framework, complete each of the following statements:1. For information to be \(\qquad\) , it should have
Presented below is a set of qualitative characteristics of accounting information.(a) Predictive value(c) Verifiable(b) Neutral(d) Timely Match these qualitative characteristics to the following
Presented below are four concepts discussed in this chapter.(a) Time period assumption(c) Full disclosure principle(b) Cost principle(d) Conservatism Match these concepts to the following accounting
The Emelda Company uses the following accounting practices:1. Inventory is reported at cost when market value is lower.2. Expenses are overstated in order to avoid reporting a higher net income.3.
The following data are taken from the balance sheet of Kellogg Company. The data are arranged in alphabetical order.Compute Kellogg's (a) current ratio and (b) working capital. Accounts payable
The following information, presented in alphabetical order, is taken from the financial statements of Glassgow Inc.:Compute Glassgow's (a) operating expenses and (b) income tax expense for the
Additional information for Glassgow Inc. (BE6-10) is as follows:Given the information above and in BE6-10, compute Glassgow's earnings per share. Common shares outstanding for the entire year
A number of accounting reporting situations are described below.1. Tercek Company recognizes revenue at the end of the production cycle, but before sale. The price of the product, as well as the
Presented below are some business transactions that occurred during 1996 for Marietta Co.(a) Merchandise inventory with a cost of \(\$ 208,000\) is reported at its market value of \(\$ 260,000\). The
Presented below are the assumptions, principles, and constraints discussed in this chapter:(a) Economic entity assumption(f) Matching principle(b) Going concern assumption(g) Full disclosure
Consider the following transactions of Kokomo Company for 1996.1. Sold a 6-month insurance policy to Taylor Corporation for \(\$ 9,000\) on March 1.2. Leased office space to Excel Supplies for a
The ledger of Geneva Corporation at December 31, 1997 contains the following summary information:The income tax rate for all items is \(30 \%\). Geneva had 10,000 shares of common stock outstanding
Presented below, in alphabetical order, is information related to the Pritt Corporation for the year 1997:Pritt had 35,000 shares outstanding for the entire year.Instructions (a) Prepare in good form
Net sales, net income, total assets, and total common stockholders’ equity information for fiscal year 1996 is available for the following three companies:\section*{Instructions}(a) Compute the
Net sales, net income, total assets, and total common stockholders' equity information for fiscal year 1996 is available for the following three companies:\section*{Instructions}(a) Compute the
As of December 31,1996, Yosemite Corporation has a current ratio of \(2.6: 1\) and working capital of \(\$ 600,000\). Yosemite's total debt is \(60 \%\) of its total assets. All of Yosemite's
Presented below, is partial balance sheet information related to Bato Ltd., a United Kingdom company. All financial information has been translated from pounds to dollars.\section*{Instructions}(a)
Garner and Simon are accountants for Desktop Computers. They are having disagreements concerning the following transactions that occurred during the calendar year 1996.1. A 1-year insurance policy
Presented below are a number of business transactions that occurred during the current year for Hialeah, Inc.1. Because the general level of prices increased during the current year, Hialeah, Inc.
Presented below are the assumptions, principles, and constraints used in this chapter.(1) Economic entity assumption(b) Going concern assumption(C) Monetary unit assumption(di) Time period assumption
The adjusted trial balance of Bresnehan Bottle and Glass, Inc., as of June 30, 1997 (its year-end) contains the following information:\section*{Instructions}(a) Prepare in good form a classified
The ledgers of Lee's Leathers Inc. contain the following balances as of January 31, 1997 (its year end): \(\square\)Income taxes are calculated at 30 percent of income; Lee's had 84,000 shares of
Ava and Brad are accountants for Qwik Printers. They are having disagreements concerning the following transactions that occurred during the year.1. Qwik bought equipment for \(\$ 30,000\), including
Presented below are a number of business transactions that occurred during the current year for Chita, Inc.1. An order for \(\$ 70,000\) has been received from a customer for products on hand. This

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