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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

Shah Ltd needs a component for one of its products. It can subcontract production of the component to a subcontractor who will provide the components for £20 each.Shah Ltd can produce the components
Define and distinguish between relevant costs, outlay costs and opportunity costs.
Identify and quantify the costs that are relevant to a particular decision.
Use relevant costs to make decisions.
Set out the relevant cost analysis in a logical form so that the conclusion may be communicated to managers.
To be relevant to a particular decision, a cost must have two attributes. What are they?
Define the word ‘cost’ in the context of management accounting.
Can you think of any bases that could be used to compare a ratio you have calculated from the financial statements of a particular period?
Calculate the ROSF for Alexis plc for the year to 31 March 2009.
Calculate the ROCE for Alexis plc for the year to 31 March 2009.
Calculate the operating profit margin for Alexis plc for the year to 31 March 2009.
Calculate the gross profit margin for Alexis plc for the year to 31 March 2009.
Calculate the average inventories turnover period for Alexis plc for the year ended 31 March 2009.
Calculate the average settlement period for Alexis plc’s trade receivables for the year ended 31 March 2009.
Calculate the average settlement period for trade payables for Alexis plc for the year ended 31 March 2009.
Calculate the sales revenue to capital employed ratio for Alexis plc for the year ended 31 March 2009.
Calculate the sales revenue per employee for Alexis plc for the year ended 31 March 2009.
Show how the ROCE ratio for Alexis plc can be analysed into the two elements for each of the years 2008 and 2009. What conclusions can you draw from your figures?
Calculate the current ratio for Alexis plc as at 31 March 2009.
Calculate the acid test ratio for Alexis plc as at 31 March 2009.
Calculate the cash generated from operations to maturing obligations ratio for Alexis plc for the year ended 31 March 2009.
Assume that the operating profit was 20 per cent higher for each business than stated above (that is, an operating profit of £60,000). What would be the effect of this on ROSF?
Calculate the gearing ratio of Alexis plc as at 31 March 2009.
Calculate the interest cover ratio of Alexis plc for the year ended 31 March 2009.
Calculate the dividend payout ratio of Alexis plc for the year ended 31 March 2009.
Calculate the dividend yield for Alexis plc for the year ended 31 March 2009.
Calculate the earnings per share of Alexis plc for the year ended 31 March 2009.
Calculate the CGO per ordinary share for Alexis plc for the year ended 31 March 2009.
Calculate the P/E ratio of Alexis plc as at 31 March 2009.
What do you deduce from the investment ratios set out above?Can you offer an explanation why the share price has not fallen as much as it might have done, bearing in mind the very poor (relative to
Identify the major categories of ratios that can be used for analysis purposes.
Calculate important ratios for assessing the financial performance and position of a business, and explain the significance of the ratios calculated.
Discuss the limitations of ratios as a tool of financial analysis.
Discuss the use of ratios in helping to predict financial failure.
Aztec, Inc., had net sales of \($250,000\) and cost of goods sold of \($150,000\) in 2008, net sales of \($275,000\) and cost of goods sold of \($165,000\) in 2009, and net sales of \($300,000\) and
The 2010 accounting records of Star Records showed the following: Cash, \($15,000;\) Net Accounts Receivable, \($8,000;\) Inventory, \($5,000;\) Prepaid Expenses, \($4,000;\) Net Plant and Equipment,
Match the following terms to their definitions: 1. Tells whether a company can pay all its current liabilities if they become due immediately 2. Measures a company's success in using assets to earn
Identify each of the following financial ratios as follows:■ Profitability ratio (P)■ Asset management ratio (A)■ Liquidity ratio (L)■ Solvency ratio (S) a. Inventory turnover b. Debt ratio
The 2009 and 2010 balance sheets for Jackson and Sons showed net accounts receivable of \($10,000\) and \($14,000,\) respectively, and inventory of \($8,000\) and \($6,000,\) respectively. The
In addition to the information from S12-6, assume that cash on the 2010 balance sheet was \($20,000\) and current liabilities totaled \($24,000.\) Compute the following ratios for 2010:1. Current
The 2010 financial statements for Country Cousin Stores show total assets of \($490,000,\) total liabilities of \($290,000,\) net sales of \($1,800,000,\) net income of \($450,000,\) income from
Using the information from S12-8, a market price of $25 per share, and 100,000 shares of common stock outstanding, compute the following for 2010:1. Earnings per share2. Price/earnings ratio12-8The
In 2010, common stockholders received \($2\) per share in annual dividends. The market price per share for common stock was \($12.\) Compute the dividend yield for common stock.
What were the dollar and percentage changes in Axel’s Pawn Shop’s working capital during 2009 and 2010? Is this trend favorable or unfavorable? 2010 Total Current Assets $410,000 2009 $380,000
Prepare a horizontal analysis of the following comparative income statement of R. Hanson, Inc. Round percentage changes to the nearest tenth of a percent.Requirement 1. Why did net income increase by
Compute trend percentages for net sales and net income for the following five- year period, using year 1 as the base year:Requirement 1. Which grew faster during the period, net sales or net income?
Lori’s Boutique requested that you perform a vertical analysis of its balance sheet to determine the component percentages of its assets, liabilities, and stockholders’ equity. Round to the
Prepare a comparative common-size income statement for R. Hanson, Inc., using the 2010 and 2009 data of E12-12A. Round percentages to the nearest tenth of a percent.12-12Prepare a horizontal analysis
Current ratio, quick ratio, inventory turnover, accounts receivable turnover, and days’ sales in accounts receivable (Learning Objective 5) 15-20 min.The financial statements of Hernandez &
Brandy Pitts Winery requested that you determine whether the company’s ability to pay its current liabilities and long-term debts improved or deteriorated during 2010. To answer this question,
For 2009 and 2010, compute the four ratios that measure the ability to earn profits for Fabulous Fashions, Inc., whose comparative income statement follows:Requirement 1. Did the company’s
Evaluate the common stock of TomCat Incorporated as an investment. Specifically, use the two market analysis ratios to determine whether the stock increased or decreased in attractiveness during the
The following data (dollar amounts in millions) are adapted from the financial statements of Valeo, Inc.:Requirement 1. Complete the following condensed balance sheet. Report amounts rounded to the
What were the dollar and percentage changes in Hillary’s Hair Salon’s working capital during 2009 and 2010? Is this trend favorable or unfavorable? 2010 2009 2008 Total Current Assets.. Total
Prepare a horizontal analysis of the following comparative income statement of Zinkowski, Inc. Round percentage changes to the nearest tenth of a percent.Requirement 1. Why did net income increase by
Compute trend percentages for net sales and net income for the following five- year period, using year 1 as the base year:Requirement 1. Which grew faster during the period, net sales or net income?
Mary’s Gift Store requested that you perform a vertical analysis of its balance sheet to determine the component percentages of its assets, liabilities, and stockholders’ equity. Round to the
Prepare a comparative common-size income statement for Zinkowski, Inc., using the 2010 and 2009 data of E12-22B. Round percentages to the nearest tenth of a percent.12-22Prepare a horizontal analysis
Hudson Crowe Winery requested that you determine whether the company’s ability to pay its current liabilities and long-term debts improved or deteriorated during 2010. To answer this question,
For 2009 and 2010, compute the four ratios that measure the ability to earn profits for Waldorf Fashions, Inc., whose comparative income statement and additional data follow: Waldorf Fashions, Inc.
Evaluate the common stock of Shamrock Incorporated as an investment. Specifically, use the two market analysis ratios to determine whether the stock increased or decreased in attractiveness during
The following data (dollar amounts in millions) are adapted from the financial statements of Drawler, Inc.Requirement 1.Complete the following condensed balance sheet. Report amounts rounded to the
Net sales, net income, and total assets for Gene Blue Clothing Emporium for a four-year period follow:Requirements 1. Compute trend percentages for each item for 2007-2010. Use 2007 as the base
Love Bug Used Auto Sales asked for your help in comparing the company’s profit performance and financial position with the average for the auto sales industry. The proprietor has given you the
Financial statement data of Barb Wired Fencing, Inc., include the following items:Requirements 1. Compute Barb Wired Fencing’s current ratio, debt ratio, and earnings per share. Assume that the
Comparative financial statement data of Lounge Around Furniture Company follow:Other information follows:a. Market price of common stock was \($48\) at December 31,2010, and \($30.75\) at December
Assume you are purchasing an investment and decide to invest in a company in the home remodeling business. You narrow the choice to Build It Right, Inc., or Structurally Sound, Corp. You assemble the
Net sales, net income, and total assets for Armanix Clothing Emporium for a four- year period follow:Requirements 1. Compute trend percentages for each item for 2007-2010. Use 2007 as the base
Verifine Used Auto Sales asked for your help in comparing the company’s profit performance and financial position with the average for the auto sales industry. The proprietor has given you the
Financial statement data of ABC Fencing, Inc., include the following items:Requirements 1. Compute ABC Fencing’s current ratio, debt ratio, and earnings per share. Assume that the company had no
Comparative financial statement data of Danfield Furniture Company follow:Other information follows:1. Market price of common stock was \($48.50\) at December 31, 2010, and \($31.75\) at December
Assume you are purchasing an investment and decide to invest in a company in the home remodeling business. You narrow the choice to Bob’s Home Repair, Inc., or Stellar Stability, Corp. You assemble
Which amount is the base amount for vertical analysis on the balance sheet?
What is the purpose for common-size financial statements?
Net income was \($245,000\) in 2008, \($240,000\) in 2009, and \($276,000\) in 2010. The change from 2009 to 2010 is a (an)a. increase of 5%.C. increase of 15%.b. increase of 10%.d. increase of 20%.
Horizontal analysis of a financial statement showsa. the relationship of each statement item to a specified base.b. percentage changes in comparative balance sheets.C. percentage changes in
A statement that reports only percentages is calleda. a comparative statement.b. a common-size statement.C. a condensed statement.d. a cumulative statement.
Working capital isa. a measure of the ability to meet short-term obligations with current assets.b. defined as current assets minus current liabilities.C. defined as current assets divided by current
Cash is \($15,000,\) net accounts receivable amount to \($6,000,\) inventory is \($10,000,\) prepaid expenses total \($4,000,\) and current liabilities are \($20,000.\) What is the quick ratio?a.
Days’ sales in receivables is computed bya. dividing net sales by 365.b. dividing 365 by accounts receivable turnover.C. dividing sales by average net accounts receivable,d. dividing accounts
Rubble Company is experiencing a severe cash shortage due to its inability to collect accounts receivable. Which of the following would most likely identify this problem?a. Current ratiob. Working
Which of the following statements is true of financial statement analysis?a. Horizontal analysis expresses all items on a financial statement as percentages of a common base.b. Vertical analysis
Which statement is most likely to be true?a. An increase in inventory turnover indicates that inventory is not selling as quickly as it was.b. A decrease in inventory turnover indicates that
How are financial ratios used in decision making?a. They eliminate uncertainty regarding cash flows.b. They can be used as a substitute for consulting financial statements.C. They are only used in
Intermountain, Inc., experienced an unbroken string of 10 years of growth in net income. Nevertheless, the business is facing bankruptcy. Creditors are calling all of Intermountain’s outstanding
Identify each of the following transactions as one of the following:■ Operating activity (O)■ Investing activity (I)■ Financing activity (F)■ Noncash investing and financing activity (NIF)For
C. Kirk Corporation reported the following data for 2010:Compute C. Kirk Corporation’s net cash provided by operating activities according to the indirect method. Income statement: Net Income
Inland Equipment’s accountants assembled the following data for the year ended June 30, 2010.Prepare Inland Equipment’s statement of cash flows for the year ended June 30, 2010 using the indirect
Uhura Health Spas began 2010 with cash of \($104,000.\) During the year, Uhura earned service revenue of \($600,000\) and collected \($590,000\) from customers. Expenses for the year totaled
Inland Equipment, Inc., assembled the following data related to its cash transactions for the year ended June 30, 2010:Prepare Inland Equipment’s statement of cash flows for the year ended June 30,
McCoy Medical Company reported the following financial statements for 2010:Use the information in McCoy Medical Company’s financial statements to compute the following:1. Collections from customers
Use the McCoy Medical Company data in S11-10 to compute the amount of plant assets acquired by McCoy Medical Company, assuming McCoy sold no plant assets in 2010.11-10McCoy Medical Company reported
Use the McCoy Medical Company data in S11-10 to compute the following amounts for 2010: N 1. Borrowing or payment of long-term notes payable, assuming McCoy had only one long-term note payable
The accounting records of Rising Star Talent Agency reveal the following:Requirements1. Compute cash flows from operating activities by the indirect method. Use the format of the operating activities
The income statement and additional data of Specialized Services, Inc., follow:Additional data follows:a. Acquisition of plant assets totaled \($116,000.\) Of this amount, \($101,000\) was paid in
The accounting records of The Fenceman, Inc., reveal the following:Requirements 1. Compute cash flows from operating activities by the direct method.2. Evaluate the operating cash flow of The
The income statement and additional data of Specialized Services, Inc., follow:Additional data follows:a. Collections from customers are \($15,000\) more than sales.b. Payments to suppliers are the
Compute the following items for the statement of cash flows:1. The beginning and ending Accounts Receivable balances are \($22,000\) and \($18,000,\) respectively. Credit sales for the period total
Top Ten Corporation, a nationwide insurance chain, reported the following selected amounts in its financial statements for the year ended August 31, 2010 (adapted, in millions):Requirement 1.
The accounting records of Rodeo Talent Agency reveal the following:Requirements1. Compute cash flows from operating activities by the indirect method. Use the format of the operating activities

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