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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

Phatboy Motorcycles, Inc., a motorcycle manufacturer, included the following note in its annual report:Notes to Consolidated Financial Statements Commitments and Contingencies The Company
Ling Company issued a \($200,000,\) 8%, 30-year mortgage on January 1, 2010, to purchase a building. Payments of \($8,840\) are made semiannually. Complete the following amortization schedule
Apex, Co., issued a \($225,000,\) 9% mortgage on January 1, 2010. Payments of \($10,900\) are made semiannually on June 30 and December 31 each year. Record the journal entries for(a) issuance of
Match the following terms with the correct definition. 1. Bonds that all mature at the same time. a. Convertible bonds 2. Interest rate investors are willing to pay for similar b. Premium on bond
Delta, Corp., issued 6%, five-year bonds payable with a maturity value of $5,000 on January 1,2010. Journalize the following transactions and include an explanation for each entry. The market rate of
Hastings, Corp., issued 6%, five-year bonds payable with a maturity value of \($5,000\) at a price of \($4,570\) when the market rate was 8% on January 1, 2010. Journalize the following transactions
Hastings, Corp., issued 6%, five-year bonds payable with a maturity value of \($5,000\) at a price of \($5,460\) when the market rate was 4% on January 1,2010. Journalize the following transactions
Hastings, Corp., issued 6%, five-year bonds payable with a maturity value of $5,000 at par on May 1, 2010. Assume that the fiscal year ends on December 31. Journalize the following transactions and
FastTrack Magazine, Inc., includes the following selected accounts in its general ledger at December 31,2010:Prepare the liabilities section of FastTrack Magazine’s balance sheet at December 31,
Record the following note payable transactions of Lisbon, Corp., in the company’s journal. Explanations are not required. 2010 May 1 Purchased equipment costing $15,000 by issuing a one-year, 6%
Ozark Publishing Company completed the following transactions during 2010: Requirements 1. Journalize these transactions. Explanations are not required.2. What amounts would Ozark Publishing Company
The accounting records of Osgood Carpets showed a balance of \($3,000\) in Estimated Warranty Payable at December 31,2009. In the past, Osgood’s warranty expense has been 5% of sales. During 2010,
Orbit, Corp., issued a $400,000, 10%, 15-year mortgage on January 1,2010, to purchase warehouses.Requirements 1. Complete the amortization schedule for Orbit, Corp., assuming payments are made
Carruthers Medical Group borrowed $300,000 on July 1,2010, by issuing a 9% long-term note payable that must be paid in three equal annual installments plus interest each July 1 for the next three
Appleway Company had the following balances as of December 31, 2010:Requirement 1. Calculate Apple way Company’s debt ratio as of December 31,2010. Does it appear that Apple way Company is in a
Record the following note payable transactions of Concilio, Corp., in the company’s journal. Explanations are not required. 2010 Oct 1 Purchased equipment costing $8,000 by issuing a one-year, 8%
TransWorld Publishing Company completed the following transactions during 2010:Requirements 1. Journalize these transactions. Explanations are not required.2. What amounts would TransWorld Publishing
The accounting records of Atkinson Books showed a balance of \($2,000\) in Estimated Warranty Payable at December 31, 2009. In the past, Atkinson’s warranty expense has been 6% of sales. During
Jupiter, Corp., issued a $500,000, 8%, 15-year mortgage on January 1,2010, to purchase warehouses.Requirements 1. Complete the amortization schedule for Jupiter, Corp., assuming payments are made
On January 1, Danvers, Corp., issues 5%, four-year bonds payable with a maturity value of $110,000. The bonds sell at 94 and pay interest on January 1 and July 1. Danvers, Corp., amortizes any bond
Bon Secour Medical Group borrowed $600,000 on July 1, 2010, by issuing a 14% long-term note payable that must be paid in three equal annual installments plus interest each July 1 for the next three
At December 31, Trumpette Drapes owes \($59,000\) on accounts payable, plus salary payable of \($15,000\) and income tax payable of \($13,000.\) Trumpette Drapes also has \($270,000\) of bonds
Pine City Company had the following balances as of December 31,2010:Requirement 1. Calculate Pine City Company’s debt ratio as of December 31, 2010. Does it appear that Pine City Company is in a
The following transactions of My Dollar stores occurred during 2010 and 2011:Requirement 1. Record the transactions in the company’s journal. Explanations are not required. 2010 Feb 3 28 Mar 7
Jordan, Corp., completed the following transactions in 2010:Requirements 1. Complete the following amortization schedule for the first four mortgage payments on the \($100,000\) mortgage note,
Assume that on April 1, 2010, Roland, Corp., issues 8%, 10-year bonds payable with a maturity value of $400,000. The bonds pay interest on March 31 and September 30, and Roland amortizes any premium
On January 1,2010, Cave Creek Golf Club issued \($600,000\) of 20-year, 9% bonds payable. The bonds were sold for \($600,000.\) The bonds pay interest each June 30 and December 31 and any discount or
The accounting records of Stokes, Corp., include the following items at December 31,2010:Requirement 1. Report these liabilities on Stokes’ balance sheet at December 31,2010, including headings.
The classified balance sheet forTipke, Inc., as of December 31, 2010, is presented next.Requirements 1. Calculate Tipke’s debt ratio as of December 31, 2010.2. What percentage of Tipke’s assets
The following transactions of Crazy Craft stores occurred during 2010 and 2011:Requirement 1.Record the transactions in the company’s journal. Explanations are not required. 2010 Feb 3 28 Mar 7 Apr
Franco, Corp., completed the following transactions in 2010:Requirements 1. Complete the following amortization schedule for the first four mortgage payments on the \($140,000\) mortgage note,
Assume that on February 1, 2010, Atlantic, Corp., issued 9%, 10-year bonds payable with maturity value of $800,000. The bonds pay interest on January 31 and July 31, and Atlantic amortizes any
On January 1, 2010, De La Terre Bistro issued \($700,000\) of 15-year, 7% bonds payable. The bonds were sold for \($725,000.\) The bonds pay interest each June 30 and December 31, and any discount or
The accounting records of Green, Corp., include the following items at December 31, 2010:Requirement 1.Report these liabilities on Green’s balance sheet at December 31,2010, including headings.
The classified balance sheet for Thorn, Inc., as of December 31, 2010, is presented next.Requirements 1. Calculate Thorn’s debt ratio as of December 31, 2010.2. What percentage of Thorn’s assets
How can we deduce the cash inflows from sales using the income statement and statement of financial position for the business?
At the end of its accounting period, Zeneb plc’s statement of financial position included the following items:1 A bank deposit account where one month’s notice of withdrawal is required. This
What would be the effect on the profits and total assets of a business of incorrectly capitalising expenses?
Can you identify the kind of expenses where the directors make estimates or choices in the ways described?
Why might the directors of a company engage in creative accounting?
Why might the reporting of forward-looking information be a problem for the directors of a business?
What do you think are the main qualitative characteristics that information contained within the business review should possess?
Why might a business wish to do this?
What do you think are the main advantages of adopting the management approach?
Can you think of this example?
IAS 1 does not say that the requirement is for the financial statements to show a‘correct’ or an ‘accurate’ representation of financial health. Why, in your opinion, does it not use those
It can be argued that the publication of financial statements is vital to a well-functioning private sector. Why might this be the case?
Describe the responsibilities of directors and auditors concerning the annual financial statements provided to shareholders and others.
Discuss both the framework of regulation and the framework of principles that help to shape the form and content of annual financial statements.
Prepare a statement of financial position, statement of comprehensive income and statement of changes in equity in accordance with International Financial Reporting Standards.
Explain the purpose of two additional reports, segmental reports and the business review, and describe their main features.
Discuss the threat posed by creative accounting and identify the areas that are vulnerable to creative accounting techniques.
Can you remember the circumstances where the non-withdrawable part of a company’s capital could be reduced, without contravening the law? This was mentioned earlier in the chapter.
Would you expect a company to pay all of its revenue reserves as a dividend? What factors might be involved with a dividend decision?
Why are limited companies required to distinguish different parts of their shareholders’ claim whereas sole proprietorship and partnership businesses are not?
Can you think of any reasons why a company might want to make a bonus issue if it has no economic consequence?
A shareholder of the company in Example 4.3 owned 100 shares before the bonus issue.How will things change for this shareholder as regards the number of shares owned and the value of the shareholding?
Can you think of ways in which the shareholders themselves may try to ensure that the directors always act in the shareholders’ best interests?
If, as has been pointed out earlier, the change in ownership of shares does not directly affect the particular company, why do many public companies actively seek to have their shares traded in a
Discuss the nature of the limited company.
Describe the main features of the owners’ claim in a limited company.
Discuss the framework of rules designed to safeguard the interests of shareholders.
Explain how the income statement and statement of financial position of a limited company differ in detail from those of sole proprietorships and partnerships.
Bad debts and allowances for trade receivables are two further examples where judgement is needed to derive an appropriate expense figure.What will be the effect of different judgements concerning
Clayton Conglomerates had trade receivables of £870,000 outstanding at the end of the accounting year to 31 March 2008. The chief accountant believed that £40,000 of those trade receivables were
When preparing the financial statements, what would be the effect on the income statement, and on the statement of financial position, of not taking into account the fact that a debt is bad?
Can you think of any circumstances where the net realisable value will be lower than the cost of inventories held, even during a period of generally rising prices?
Suppose the 900 tonnes of inventories in Example 3.8 were sold for £150 per tonne.(a) Calculate the gross profit for the period under each of the three methods.(b) What observations concerning the
Sally Dalton (Packaging) Ltd bought a machine for £40,000. At the end of its useful life of four years, the amount received on sale was £4,000. When the asset was bought the business received two
What kinds of judgements must be made to calculate a depreciation charge for a period?
Assume that the machine used in the example above was owned by a business that made a profit before depreciation of £40,000 for each of the four years in which the asset was held.Calculate the
Andrew Wu (Engineering) Ltd bought a new motor car for its marketing director.The invoice received from the motor car supplier showed the following:What is the total cost of the new car that will be
How will the payment of the electricity bill for the last quarter be dealt with in the accounting records of Domestic Ltd?
Can you think of any examples where cash may be demanded in advance of a service being provided?
A manufacturing business sells goods on credit (that is, the customer pays for the goods some time after they are received). Below are four points in the production/selling cycle at which revenue
The following information relates to the activities of H & S Retailers for the year ended 30 April 2009:Prepare an income statement for the year ended 30 April 2009. Motor vehicle running
With which one of the accounting conventions that we discussed earlier is this accounting treatment consistent?
Can you think of resources of a business that cannot usually be measured reliably in monetary terms?
What are the two aspects of each of the following transactions?1 Purchase £1,000 inventories on credit.2 Owner withdraws £2,000 in cash.3 Repayment of borrowings of £3,000.
What problems might arise if an excessively prudent view is taken of the financial position and performance of a business?
Plumber and Company has some motor vans that are used by staff when visiting customers’premises to carry out work. It is now the last day of the business’s accounting year.If it were decided to
Discuss the crucial importance of cash to a business.
Explain the nature of the statement of cash flows and discuss how it can be helpful in identifying cash flow problems.
Prepare a statement of cash flows.
Interpret a statement of cash flows.
Spratley Ltd is a builders’ merchant. On 1 September the business had, as part of its inventories, 20 tonnes of sand at a cost of £18 per tonne and at a total cost of £360. During the first week
The following is the statement of financial position of WW Associates as at 31 December 2008:During 2009, the following transactions took place:1 The owners withdrew equity in the form of cash of
Iqbal Ltd started trading on 1 January 2005. During the first five years of trading, the following occurred:Required:Assume that the company paid the maximum legal dividend each year. Under normal
Hudson plc’s outline statement of financial position as at a particular date was as follows:The directors made a one-for-four bonus issue, immediately followed by a one-for-four rights issue at a
Presented below is a draft set of simplified financial statements for Pear Limited for the year ended 30 September 2009.The following information is available:1 Depreciation has not been charged on
Presented below is a draft set of financial statements for Chips Limited.The following additional information is available:1 Purchase invoices for goods received on 29 June 2009 amounting to £23,000
Rose Limited operates a small chain of retail shops that sell high quality teas and coffees.Approximately half of sales are on credit. Abbreviated and unaudited financial statements are given
Manet plc had the following share capital and reserves as at 1 January 2009:During the year to 31 December 2009, the company revalued property, plant and equipment upwards by £30 million and made a
Professor Myddleton argues that accounting standards should be limited to disclosure requirements and should not impose rules on companies as to how to measure particular items in the financial
You have overheard the following statements:(a) ‘The role of independent auditors is to prepare the financial statements of the company.’(b) ‘International Accounting Standards (IASs) apply to
Obtain a copy of the business review for two separate companies within the same industry.Compare the usefulness of each. In answering this question, consider the extent to which each of the two
Why are most larger businesses not managed as a single unit by one manager?
What are the main advantages and disadvantages that should be considered when deciding between a partnership business and a limited liability company?
What are the main advantages and disadvantages that should be considered when deciding between a sole proprietorship and a partnership?
Suppose an item of information is capable of being provided. It is relevant to a particular decision, it is also reliable, comparable, can be understood by the decision maker concerned and is

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