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business
financial accounting an introduction
Questions and Answers of
Financial Accounting An Introduction
Sparky Ltd is a business that employs a number of electricians. The business undertakes a range of work for its customers, from replacing fuses to installing complete wiring systems in new houses.In
A garage bases its prices on the direct cost of each job (car repair) that it carries out.How could the garage collect the direct cost (labour and materials) information concerning a particular job?
Fruitjuice Ltd has just one product, a sparkling orange drink that is marketed as ‘Orange Fizz’. During last month the business produced 7,300 litres of the drink. The cost incurred was made up
Discuss the nature and usefulness of activity-based costing.
Explain how new developments such as total life-cycle costing and target costing can be used to control costs.
Discuss the importance of non-financial measures of performance in managing a business and the way in which the balanced scorecard attempts to integrate financial and non-financial measures.
Explain the term ‘shareholder value’ and describe the role of EVA® in measuring and delivering shareholder value.
How does activity-based costing differ from the traditional approach? What is the underlying difference in the philosophy of each of them?
What are the four main areas on which the balanced scorecard is based?
Derry and Co. is a large computer consultancy business that has a division specialising in robotics. Can you identify three non-financial measures that might be used to help assess the performance of
You own a motor car, for which you paid a purchase price of £5,000 – much below the list price – at a recent car auction. You have just been offered £6,000 for this car.What is the cost to you
A garage business has an old car that it bought several months ago. The car needs a replacement engine before it can be driven. It is possible to buy a reconditioned engine for £300. This would take
Assume exactly the same circumstances as in Activity 8.2, except that the garage is quite busy at the moment. If a mechanic is to be put on the engine-replacement job, it will mean that other work
A business is considering making a bid to undertake a contract. Fulfilment of the contract will require the use of two types of raw material. Quantities of both of these materials are held by the
HLA Ltd is in the process of preparing a quotation for a special job for a customer. The job will have the following material requirements:Material Q is used consistently by the business on various
Past costs are irrelevant costs. Does this mean that what happened in the past is irrelevant?
Activity 8.3 was concerned with the cost of putting a car into a marketable condition.Apart from whether the car could be sold for more than the relevant cost of doing this, are there any other
Distinguish between fixed cost and variable cost and use this distinction to explain the relationship between cost, volume and profit.
Prepare a break-even chart and deduce the break-even point for some activity.
Discuss the weaknesses of break-even analysis.
Demonstrate the way in which marginal analysis can be used when making short-term decisions.
Can you give some examples of items of cost that are likely to be fixed for a hairdressing business?
What volume of activity is required by Cottage Industries Ltd (see Example 9.1 and Activity 9.6) in order to make a profit of £4,000 a month:(a) assuming that the basket-making machine is not
What types of business activity are likely to have high operating gearing?
Ali plc owns premises from which it provides a PC repair and maintenance service.There is a downturn in demand for the service, and it would be possible for Ali plc to carry on the business from
A commercial aircraft is due to take off in one hour’s time with 20 seats unsold. What is the minimum price at which these seats could be sold such that the airline would be no worse off as a
What steps could be taken that might lead to a higher level of contribution for the business in Activity 9.14?
Going back to Activity 9.14, what is the maximum price that the business concerned would logically be prepared to pay to have the remaining B14s machined by a subcontractor, assuming that no fixed or
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
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