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financial accounting an introduction
Questions and Answers of
Financial Accounting An Introduction
Do you think that accounting reports should be understandable to those who have not studied accounting?
To illustrate this last point, let us assume that a manager has to sell a custom-built machine owned by the business and has recently received a bid for it. This machine is very unusual and there is
What other sources of information might, say, an investment analayst use in an attempt to gain an impression of the financial position and performance of a business? What kind of information might be
Can you think of other examples where accounting information may be used to monitor potential conflicts of interest between the various user groups identified?
Identify each of the following assets as a plant asset (P) or an intangible asset (I): 1. Franchises 2. Vehicles 3. Buildings 4. Furniture 5. Patents 6. Copyrights 7. Trademarks 8. Land improvements
Identify each of the following as land (L) or land improvements (LI): 1. Survey fees 2. Fencing 3. Lighting 4. Clearing land 5. Parking lot
Refer to the data for S8-7. Compute second-year depreciation on the plane using the following methods:a. Straight-lineb. Units-of-productionc. Double-declining-balance8-7At the beginning of the year,
On March 31,2010, Orbit Airways purchased a used Boeing aircraft at a cost of $45 million. Orbit Airways expects to fly the plane for five years and to have a residual value of $5 million. Compute
Orbit Airways purchased a baggage-handling truck for $41,000. Suppose Orbit Airways sold the truck on December 31,2010, for $28,000 cash, after using the truck for two full years and accumulating
Kent Oil, a small Texas oil company, holds huge reserves of oil and gas assets. Assume that at the end of 2010, Kent Oil’s cost of mineral assets totaled approximately $18 million, representing 2.4
Classify each of the following as:Trading security (T)Available-for-sale security (A)Held-to-maturity security (H)None of the above (N) 1. A bond that management plans on owning until it is repaid.
Specify how each of the following items would be reported in the financial statements of Tanaka Enterprises for its current fiscal year. Also specify the amount that would appear on the statement.
Lynch Brothers manufactures conveyor belts. Early in January 2011, Lynch Brothers constructed its own building at a materials, labor, and overhead cost of $900,000. Lynch Brothers also paid for
Memorial Medical Center bought equipment on January 2, 2010, for $30,000.The equipment was expected to remain in service for four years and to perform 1,000 operations. At the end of the
On January 2, 2010, Bright Lights purchased showroom fixtures for $10,000 cash, expecting the fixtures to remain in service for five years. Bright Lights has depreciated the fixtures on a
Assume that Henson Corporation’s comparative balance sheet reported these amounts:Requirement 1. Assume that on January 2, 2010, Henson sold 1/10 of its plant and equipment for $75,500 in cash.
Mesilla Valley Transport is a large trucking company. Mesilla Valley Transport uses the units-of-production (UOP) method to depreciate its trucks. In 2009, Mesilla Valley Transport acquired a Mack
At the end of 2010, Zeman, Corp., had total assets of $25 million and total liabilities of $13 million. Included in the assets were property, plant, and equipment with a cost of $9 million and
White Brothers manufactures conveyor belts. Early in May 2011, White Brothers constructed its own building at a materials, labor, and overhead cost of $970,000. White Brothers also paid for architect
General Medical Center bought equipment on January 2, 2010, for $18,000. The equipment was expected to remain in service for four years and to perform 400 oper¬ ations. At the end of the
On January 2, 2010, Shine Lights purchased showroom fixtures for $18,000 cash, expecting the fixtures to remain in service for five years. Shine Lights has depreci¬ ated the fixtures on a
Assume that Hector Corporation’s comparative balance sheet reported these amounts:Requirement 1. Assume that on January 2, 2010, Hector sold 1/2 of its plant and equipment for $237,000 in cash.
Regional Highway Transport is a large trucking company. Regional Highway Transport uses the units-of-production (UOP) method to depreciate its trucks. In 2009, Regional Highway Transport acquired a
At the end of 2010, Zaney, Corp., had total assets of $26 million and total liabilities of $15 million. Included in the assets were property, plant, and equipment with a cost of $14 million and
Gegax Manufacturing incurred the following costs in acquiring land, making land improvements, and constructing and furnishing a new building.Gegax Manufacturing depreciates buildings over 40 years,
Regal Freightway provides freight service. The company’s balance sheet includes Land, Buildings, and Motor-Carrier Equipment. Regal Freightway uses a separate accumulated depreciation account for
On January 3, Jose Rojo, Inc., paid $224,000 for equipment used in manufacturing automotive supplies. In addition to the basic purchase price, the company paid $700 transportation charges, $100
Zed’s Manufacturing incurred the following costs in acquiring land, making land improvements, and constructing and furnishing a new building.Zed’s Manufacturing depreciates buildings over 50
Russell Freightway provides freight service. The company’s balance sheet includes Land, Buildings, and Motor-Carrier Equipment. Russell uses a separate accumulated depreciation account for each
On January 7, Red Tucker, Inc., paid $254,700 for equipment used in manufacturing automotive supplies. In addition to the basic purchase price, the company paid $500 transportation charges, $300
Airhead Oil Company’s balance sheet includes three assets: Natural Gas, Oil, and Coal. Suppose Airhead Oil Company paid $1,900,000 cash for the right to work a mine with an estimated 200,000 tons
Provide an example of a known liability, an estimated liability, and a contingent liability.
What happens to the difference between the carrying amount of bonds and the principal amount of the bonds over time?
Known liabilities of uncertain amounts should bea. estimated and accrued when they occur.b. ignored; record them when they are paid.C. reported on the income statement.d. described in the notes to
On January 1,2010, you borrowed $10,000 on a five-year, 8% note payable. At December 31,2010, you should record a journal entry that includes which of the following?a. Note Payable of $10,000b.
Your company sells $100,000 of goods and you collect sales tax of 3%. What current liability does the sale create?a. Accounts Payable of $3,000b. Unearned Revenue of $3,000c. Sales Revenue of
Sony owed Estimated Warranty Payable of \($1,000\) at the end of 2009. During 2010, Sony made sales of \($100,000\) and expects product warranties to cost the company 3% of the sales. During 2010,
What is the term used to describe an unsecured bond?a. Debenture bondb. Mortgage bondc. Serial bondd. Callable bond
Which interest rate on a bond determines the amount of the semiannual interest payment?a. Market rateb. Effective ratec. Stated rated. None of the above
Plavix Corporation’s bonds payable carry a stated interest rate of 7%, and the market rate of interest at the time of issuance is 8%. Plavix Corporation’s bonds will be sold ata. a premium.b. a
Bonds issued at a premium always havea. interest expense less than the interest payments.b. interest expense greater than the interest payments.C. interest expense equal to the interest payments.d.
Milton’s bonds pay interest semiannually on July 1 and January 1. If its fiscal year ends on September 30, which statement is true of Milton’s year-end adjusting journal entry for bond
A company recognizes a lease as a capital lease whena. the lease term is less than 75% of the estimated useful life of the leased asset.b. the lease has no option to purchase the asset at the end of
Which cost is not recorded as part of the cost of a building?a. Construction materials, labor, and overheadb. Annual building maintenance C. Real estate commission paid to buy the buildingd.
Orbit Airways bought two used Boeing 707 airplanes. Each plane was worth \($35\) million, but Orbit bought the combination for \($60\) million. How much is Orbit Airways’ cost of each plane?a.
How should a capital expenditure be recorded?a. Debit capitalb. Debit an expense C. Debit a liabilityd. Debit an asset
Which depreciation method usually produces the most depreciation in the first year?a. Straight-lineb. Units-of-productionc. Double-declining-balanced. All produce the same amount of depreciation for
A FedEx airplane costs $50 million and is expected to fly 500 million miles during its 10-year life. Residual value is expected to be zero because the plane was used when acquired. If the plane
Which depreciation method is generally preferable for income tax purposes? Why?a. Straight-line, because it is simplestb. Units-of-production, because it best tracks the asset’s usec.
A copy machine cost \($40,000\) when new and has accumulated depreciation of \($37,000.\) Suppose Copies R Us junks this machine, receiving nothing in return. What is the result of the disposal
Using information from the preceding question, suppose Copies R Us sold the machine for $5,000. What is the result of this disposal transaction?a. Gain of $2,000b. Loss of $2,000C. Gain of $3,000d.
Depletion is calculated in a manner similar to which depreciation method?a. Accelerated methodb. Straight-line methodc. Units-of-production methodd. Double-declining-balance method
Which intangible asset is recorded only as part of the acquisition of another company?a. Copyrightb. Patentc. Franchised. Goodwill
Record the following petty cash transactions of Handy Dan in the journal; explanations are not required. Nov 1 Established a petty cash fund with a $100 balance. 30 The petty cash fund had $33 in
Record the following petty cash transactions of Xeno, Corp., in the journal; expla¬ nations are not required. Jun 1 Established a petty cash fund with a $200 balance. 30 The petty cash fund had $22
On July 1, Chi Kong creates a petty cash fund with a balance of $300. During July, Elise Sautter, the fund custodian, signs the following petty cash tickets: Petty Cash Ticket Number 101 102 103
For each of the following, indicate whether the item is an adjustment to the bank balance or the book balance: 1. Bank service charge 2. Deposit in transit 3. Bank collection of amount due from
The T-account for cash and the bank statement of Mee Auto Services for the month of March 2010 follows: Cash Mar 1 3,200 Check #704 540 Mar 10 deposit 750 Check #705 210 Mar 31 deposit 200 Check #706
Prepare the current assets section of the balance sheet as of December 31,2010, for Lipton, Inc., using the following information: Accounts Receivable. Petty Cash.. Cash in Bank Accounts Inventory...
Match the term with its definition by placing the corresponding letter in the space provided: C Example: Amounts owed to a business by another business or individual 1. A contra-account, related to
Antonio Galvan, an attorney, uses the direct write-off method to account for uncollectible receivables. On August 31, Galvan’s accounts receivable were $8,000. During September, he earned service
During its first year of operations, Atlas Travel earned revenue of $400,000 on account. Industry experience suggests that Atlas Travel’s uncollectible accounts will amount to 2% of revenues. On
Atlas Travel ended 2009 with Accounts Receivable of $90,000 and an Allowance for Uncollectible Accounts balance of $8,000. During 2010, Atlas Travel had the following activity:a. Service revenue
Gorav Dental Group started 2010 with Accounts Receivable of $120,000 and an Allowance for Uncollectible Accounts balance of $6,000. The following information relates to Gorav Dental’s 2010
Limo.com had the following balances on December 31, 2010, before the year- end adjustments: Accounts Receivable 104,000 Allowance for Uncollectible Accounts 1,300 The aging of receivables yields
Match the term with its definition by placing the corresponding letter in the space provided: 1. A written promise to pay a specified amount of money at a particular future date 2. The date when
For each of the following notes receivable, compute the amount of interest revenue earned during 2010. Use a 360-day year, and round to the nearest dollar. Note 1 Note 2 Note 3 Note Principal
Bank of America lent $100,000 to Christine Kleuters on a 90-day, 8% note. Record the following transactions for Bank of America (explanations are not required):1. Lending the money on June 12.2.
Dirk Cole’s checkbook lists the following:Dirk Cole’s September bank statement shows the following:Requirements 1. Prepare Dirk Cole’s bank reconciliation on September 30, 2010. How much cash
Information from Goddard Picture Frames’ cash account as well as the January bank statement is presented next.Requirements 1. Prepare the bank reconciliation on January 31.2. Prepare all necessary
Allied Industries uses the direct write-off method to account for bad debts. Record the following transactions that occurred during the year: Feb 3 Aug 8 Nov 10 Provided $600 of services to Bill
Rice Automotive ended December 2009 with Accounts Receivable of $30,000 and Allowance for Uncollectible Accounts of $1,500. During January 2010, Rice Automotive completed the following
On December 31,2010, the Accounts Receivable balance of Alterations Express is $300,000. The Allowance for Uncollectible Accounts has a $3,900 credit balance. Alterations prepares the following aging
Inland Equipment uses the allowance method to account for uncollectible accounts. On December 31,2010, Allowance for Uncollectible Accounts has a $600 credit balance. Journalize the year-end
On April 30, 2010, Citibank loaned $100,000 to Grant Hughes on a one-year, 6% note.Requirements 1. Compute the interest for the years ended December 31,2010 and 2011, on the Hughes note.2. Which
Journalize the following transactions of Cramer, Inc., which ends its accounting year on June 30: Apr 1 Jun 6 30 Loaned $20,000 cash to R. Simpson on a one-year, 8% note. Sold goods to Friday, Corp.,
Gorman Enterprises sells on account. When a customer account becomes four months old, Gorman converts the account to a note receivable. During 2010, Gorman completed these transactions:Requirement 1.
Vision Equipment reported the following items on February 28, 2010 (amounts in thousands, with last year’s amounts also given as needed): Accounts Payable.. $ 449 Accounts Receivable, Net: Cash.
Requirements:1. Compute Vision Equipment’s (a) quick ratio and (b) accounts receivable turnover for 2010.2. Evaluate each ratio value as strong or weak. Assume Vision Equipment sells on terms of
Dan Cryer’s checkbook lists the following:Dan Cryer’s October bank statement shows the following:Requirements 1. Prepare Dan Cryer’s bank reconciliation on October 31, 2010. How much cash does
Information from Sheppard Picture Frames’ cash account as well as the November bank statement is presented next.Requirements 1. Prepare the bank reconciliation on November 30.2. Prepare all
White Top Rafters uses the direct write-off method to account for bad debts. Record the following transactions that occurred during the year: May 3 Nov 8 Dec 10 Provided $970 of services to Sam
Ortiz Automotive ended December 2009 with Accounts Receivable of $20,000 and Allowance for Uncollectible Accounts of $5,900. During January 2010, Ortiz Automotive completed the following
On July 31, 2010, the Accounts Receivable balance of Questor Application, Inc., is$320,000. The Allowance for Uncollectible Accounts has a $6,400 credit balance. Questor prepares the following aging
Cotton, Corp., uses the allowance method to account for uncollectible accounts. On May 31,2010, Allowance for Uncollectible Accounts has a $1,300 credit bal¬ ance. Journalize the year-end adjusting
On June 30, 2010, Nature Bank loaned $2,000,000 to Gary Simon on a one-year, 7% note.Requirements 1. Compute the interest for the years ended December 31,2010 and 2011, on the Simon note.2. Which
Professional Enterprises sells on account. When a customer account becomes four months old, Professional converts the account to a note receivable. During 2010, Professional completed these
Algonquin Equipment reported the following items on November 30, 2010 (amounts in thousands, with last year’s amounts also given as needed):Requirements 1. Compute Algonquin Equipment’s (a) quick
The May cash records of Nielson, Inc., follow:Nielson’s Cash account shows the balance of $6,171 on May 31. On May 31, Nielson, Inc., received the following bank statement:Additional data for the
The October 1, bank statement of Blake’s Hamburger just arrived from First State Bank.To prepare the bank reconciliation, you gather the following additional data:a.The following checks are
On August 31, Pro Tennis Equipment had a $150,000 debit balance in Accounts Receivable. During September, Pro Tennis Equipment had the following transactions:■ Sales of $500,000, all on credit.■
Regents Supply completed the following selected transactions during the year:Requirements 1. Open T-accounts for Allowance for Uncollectible Accounts and Uncollectible Accounts Expense. These
The Bailey Insurance Agency received the following notes during 2010:Requirements 1. Identifying each note by number, compute interest using a 360-day year, and determine the due date and maturity
Record the following transactions in the journal of Bingham Phone Accessories. Explanations are not required 2009 31 Dec 19 Received a $3,000, 60-day, 12% note on account from Arnold Collins. Made an
The comparative financial statements of Bien Taco Restaurants for 2010, 2009, and 2008 include the following selected data:Requirements 1. Compute these ratios for 2010 and 2009:a. Quick ratio.b.
The November cash records of Stenback, Inc., follow:Stenback’s Cash account shows the balance of $6,172 on November 30. On November 30, Stenback received the following bank statement:Additional
The December 1, bank statement of Billy’s Hamburger just arrived from Safety Bank.To prepare the bank reconciliation, you gather the following additional data:a. The following checks are
On March 31, Daisy Tennis Equipment had a $165,000 debit balance in Accounts Receivable. During April, Daisy Tennis Equipment had the following transactions:■ Sales of $490,000, all on credit.■
Beta Supply completed the following selected transactions during the year:Requirements 1. Open T-accounts for Allowance for Uncollectible Accounts and Uncollectible Accounts Expense. These accounts
The Buffalo Insurance Agency received the following notes during 2010:Requirements 1. Identifying each note by number, compute interest using a 360-day year, and determine the due date and maturity
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