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financial accounting an introduction
Questions and Answers of
Financial Accounting An Introduction
Gamma Corporation was organized in 2009. At December 31,2009, Gamma Corporation’s balance sheet reported the following stockholders’ equity:Requirements Answer the following questions and make
Radisson, Inc., included the following stockholders’ equity on its year-end balance sheet at December 31,2010, with all dollar amounts, except par value per share, adapted and in
Klammer Consulting, Inc., has 10,000 shares of \($4.50,\) no-par preferred stock and 50,000 shares of no-par common stock outstanding. Klammer Consulting, Inc., declared and paid the following
Ralston Sports Corporation completed the following selected transactions during 2010:Requirement 1. Record the transactions in the journal. Jan 6 Declared a cash dividend on the 10,000 shares of
The balance sheet of Quartz, Inc., at December 31, 2009, reported 500,000 shares of \($1\) par common stock authorized with 100,000 shares issued and outstanding. Paid-in Capital in Excess of Par had
Business Analysts, Inc., reported the following statement of stockholders’ equity for the year ended September 30, 2010: (Dollar amounts in thousands) Balance, September 30, 2009 Net Income Cash
Partners Meeks and Olsen wish to avoid the unlimited personal liability of the partnership form of business, so they are incorporating the company as M & O Services, Inc. The charter from the
Robert Corporation was organized in 2009. At December 31,2009, Robert Corporation’s balance sheet reported the following stockholders’ equity:Requirements Answer the following questions and make
Madison Hotel, Inc., included the following stockholders’ equity on its year-end balance sheet at December 31,2010, with all dollar amounts, except par value per share, adapted and in
Krystal Consulting, Inc., has 13,000 shares of \($4.00\) no-par preferred stock and 90,000 shares of no-par common stock outstanding. Krystal declared and paid the following dividends during a
Triton Triathlete Corporation completed the following selected transactions during 2011: Jan 6 Declared a cash dividend on the 7,000 shares of $3.00, no-par preferred stock outstanding. Declared a
The balance sheet of Playtime, Inc., at December 31,2009, reported 900,000 shares of \($1\) par common stock authorized with 90,000 shares issued and outstanding. Paid-in Capital in Excess of Par had
Financial Analysts, Inc., reported the following statement of stockholders’ equity for the year ended September 30, 2010.Requirements1. What is the par value of the company’s common stock?2. At
With which type of stock would dividends in arrears be associated? Why?
What are some of the reasons for issuing a stock dividend?
Which characteristic of a corporation is considered to be an advantage?a. Ease of transferring ownershipb. Indefinite lifec. Limited stockholder liabilityd. All of the above
Which of the following is a disadvantage of organizing as a corporation?a. Separate legal entityb. Limited ability to raise capital C. Double taxationd. Limited stockholder liability
What are the two basic sources of corporate capital?a. Paid-in capital and retained earningsb. Stock and bonds C. Common stock and preferred stockd. Retained earnings and dividends
Suppose PETCO issued 100,000 shares of its \($0.05\) par common stock at \($1\) per share. Which journal entry correctly records the issuance of this stock? DATE ACCOUNTS a. Cash Common Stock b.
Chewning Corporation has 10,000 shares of 5%, \($10\) par, cumulative preferred stock and 50,000 shares of common stock outstanding. Chewning Corporation declared no dividends in 2010. In 2011,
Techster Company has 10,000 shares of \($1\) par common stock outstanding, which Techster Company issued at \($5\) per share. Techster Company also has retained earn¬ ings of \($80,000.\) How much
What is the term for a company's own stock that it has issued and repurchased?a. Issued stockb. Stock dividendc. Outstanding stockd. Treasury stock
What does a stock dividend do?a. Increases Common Stockb. Has no effect on total equityc. Decreases Retained Earningsd. All of the above
What happens with a stock split?a. Increases the number of shares of stock issuedb. Decreases the par value of the stock C. Both a and bd. None of the above
Assume that Pier 1 Imports pays \($10\) per share to purchase 1,000 of its \($1\) par common stock as treasury stock. What is the effect of purchasing the treasury stock?a. Decreases total
On June 30, 2010, Harper, Co., purchased $9,000 of inventory for a one-year, 9% note payable. Journalize the following for the company:1. Accrual of interest expense on December 31, 20102. Payment of
On September 30, 2010, Tucker, Co., borrowed $15,000 on a one-year, 7% note payable. What amounts would Tucker, Co., report for the note payable and the related interest payable on its balance sheet
Lake Country Boats guarantees its boats for three years or 1,500 hours, whichever comes first. Past experience of other boat makers indicates that Lake Country can expect warranty costs will equal 6%
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
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