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introduction to financial accounting
Questions and Answers of
Introduction To Financial Accounting
Prepare Balance Sheet Atlanta Corporation's balance sheet at March 30, 20X4, contained only the following items (arranged here in random order): Cash $10,000 Accounts payable $ 8,000 Notes payable
Prepare Balance Sheet Soho Corporation's balance sheet at November 29, 20X1, contained only the following items (arranged here in random order): Paid-in capital $189,000 Notes payable 21,000
Balance Sheet General Electric (GE) is one of the largest companies in the world with sales of more than \($130\) billion. The company's balance sheet on January 1, 2003, had total assets of \($575\)
Analysis of Transactions Use the format of Exhibit 1-2 to analyze the following transactions for April of Corner Cleaners. Then prepare a balance sheet as of April 30, 20X1. Corner Cleaners was
Analysis of Transactions Consider the following January transactions: 1. On January 1, 20X4, three persons, Xiao, Yergen, and Zimbel, formed XYZ Corporation. XYZ will be a wholesale distributor of PC
Analysis of Transactions You began a business as a wholesaler of woolen goods. The following events have occurred: 1. On March 1, 20X1, you invested $60,000 cash in your new sole proprietorship,
Analysis of Transactions Eduardo Gomez, a recent graduate of a law school, was penniless on December 25, 20X3. 1. On December 26, Gomez inherited an enormous sum of money. 2. On December 27, he
Analysis of Transactions Walgreen Company is a well-known drugstore chain. A condensed balance sheet for May 31, 2003, follows ($ in millions): Assets Liabilities and Stockholders' Equity Cash $ 854
Analysis of Transactions Nike, Inc. had the following condensed balance sheet on August 31, 2003 ($ in millions): Assets Liabilities and Owners' Equity Cash $ 998 Inventories 1,480 Property, plant, &
Prepare Balance Sheet Rachel Liebowitz is a realtor. She buys and sells properties on her own account, and she also earns commissions as a real estate agent for buyers and sellers. Her business was
Airline Balance Sheet KLM Royal Dutch Airlines is an international airline with a home base at Schiphol Airport in Amsterdam. It is the world's oldest scheduled airline still operating under its
Prepare Balance Sheet United Technologies Corporation provides a broad range of high-technology products and sup- port services to the building systems and aerospace industries. Those products
Prepare Balance Sheet May Department Stores, headquartered in St. Louis, operates Lord & Taylor, Filene's, and six- other department store chains. Its balance sheet of February 1, 2003 contained
Presenting Paid-In Capital Consider excerpts from two balance sheets (amounts in millions): Citigroup Common stock ($.01 par value; authorized shares: 6.0 billion), issued shares 5,477,416,254
Presenting Paid-In Capital Honeywell International Inc., maker of thermostats and a variety of complex control systems, presented the following in its January 1, 2003 balance sheet (in millions).
Presenting Paid-In Capital Honda Motor Company is the largest producer of motorcycles in the world, as well as a major auto manufacturer. Honda included the following items in its 2003 balance sheet
Board of Directors and Audit Committee Examine the 2003 annual report of General Mills, maker of cereals such as Cheerios, Betty Crocker cake mixes, Progresso soups, and other foods. Turn to the
Accounting and Ethics A survey of high school seniors and college freshmen by the AICPA showed that accountants are given high marks for their ethics. Professional associations for both internal
Understanding Transactions Form groups of three to five students each. Each group should choose one of the companies included in the Dow Jones Industrial Average (Exhibit 1-1 ), and find its most
Financial Statement Research Select the financial statements of any company, and focus on the balance sheet. 1. Identify the amount of cash (including cash equivalents, if any) shown on the most
Analyzing Starbucks' Financial Statements This and similar problems in succeeding chapters focus on the financial statements of Starbucks, contained in the Form 10-K in Appendix A. Starbucks is a
Analyzing Financial Statements Using the Internet: Cisco Go to www.cisco.com to locate the Cisco annual report. Click on About Cisco. Under Investor Relations, click Annual Reports. Then click the
Bank Balance Sheet Consider the following balance sheet accounts of Citigroup Inc. (in millions of $): Assets Cash Investment securities Loans receivable $ 18,515 440,550 Liabilities and
What is called-up share capital?
Company A has a high average stock turnover period when compared with the industry average and Company B has a low average stock turnover period compared with the industry average. Give three
It has been suggested that if an accountant is asked by the board of directors of a company, 'What is the value added for a period?', he or she could easily reply, 'What figure do you have in mind?'
Are there any arguments for using the historic cost method of accounting during a period of inflation?
Explain the relationship between an asset and an expense. Use the two possible treatments of interest charges dealt with in the chapter to illustrate this relationship.
G. Flay has three employees (A, B and C).A gets paid £6.00 per hour and worked 35 hours normal time this week and 2 hours overtime.B gets paid £7.00 per hour and worked 35 hours normal time this
Describe fully the provisions of IFRS 3 with regard to what constitutes a parent and a subsidiary.
Ermine commenced trading on 1 July 20X4 with a capital of £100,000 cash. During the year ended 30 June 20X5, he operated from rented premises and at the end of the year he had sold all his
a. Outline the concept of economic income as defined by Hicks (1946) and explain its relevance in the measurement of profit (see Chapter 7 ‘The Accounting Equation and its Components’).b.
Explain how assets are valued using each of the following measurement methods: (a) Historical cost; (b) Current cost; and (c) Current purchasing power.
A. Daley commenced trading on 1 January 20X0 as a second-hand car dealer. His capital in cash was £20,000. On that date Daley acquired a 5-year lease on a lock-up garage at a cost of £5,000.The
Describe the main conceptual differences between current cost accounting and current purchasing power accounting.
Explain why the profit computed using historical cost accounting usually differs from that when calculated using replacement cost accounting and current purchasing power accounting.
McKee Ltd commenced trading on 1 January 20X0, selling a single type of imported DVD player. The company’s opening statement of financial position is shown below:All assets are shown at cost on 1
Discuss: a. the arguments for making price-level adjustments (in addition to specific price adjustments); b. the advantages and disadvantages of making a single general price level adjustment to the
Using the information from Exercise 35.12, prepare statements of financial position on current cost and historic cost bases at 31 December 20X0.Data From Exercise 35.12McKee Ltd commenced trading on
Joe Jones is an entrepreneurial student who decides to earn some funds to subsidise his studies. He purchases 25kg bags of potatoes and re-bags them into smaller 2.5kg bags and then sells them at the
The majority shareholder in McKee Ltd’s comments: ‘Both sets of financial statements give me the same dividend, so what does it matter’. Discuss.
After completing a training course at a technical college, Michael Faraday set up in business as a self-employed electrician on 1 January 20X5.He was very competent at his job, but had no idea how to
Kwella Ltd received the following invoices from suppliers during the week commencing 23 November 20X4. All purchases made by Kwella Ltd are subject to value added tax at 15 per cent. The following
Explain the differences and/or interrelationship between: (a) Changes in specific price levels;(b) Changes in general price levels; (c) Inflation; (d) The retail price index (RPI).
Explain fully why there is said to be a need to account for changing prices in final financial statements.
Explain the limitations of historical cost accounting in times of rising prices.
Mudgee Ltd issued the following invoices to customers in respect of credit sales made during the last week of May 20X5. The amounts stated are all net of value added tax. All sales made by Mudgee Ltd
M. Essex is in business as a wholesale coal merchant. The following transactions took place during December 20X4:1 Dec Balance at bank £5,000.3 Dec Purchased goods on credit from English Coal for
A business commenced trading for the week commencing 28 May 20X4 with £79 in cash and a bank overdraft of £515.The following receipts and payments occurred during the week ending 3 June
The following are extracts from the payroll of J. Sutcliffe Ltd for the week ending 24 January 20X0.There were no other deductions from the employees’ pay.You are required to prepare journal
Using the information from Exercise 34.6 write up the VAT account and highlight the amount that should be paid to, or received from, HM Revenue and Customs.Data from Exercise 34.6Write journals to
Fresh Ltd acquired 80 per cent of Stale Ltd on 1 January 20X9, when the balance on Fresh Ltd’s retained earnings was £160,000 and the balance on Stale Ltd’s retained earnings was £100,000.
Write journals to post the following transactions. (VAT is chargeable at 20 per cent.)1. The purchase of a motor vehicle for £12,000 (gross) in cash.2. The purchase of goods for £500 (net price
a. Briefly describe how each of the following is computed: (i) Employee’s gross pay; (ii) Employee’s net pay.b. Outline the nature of those items that are required by UK law to be
P buys 70 per cent of the shares of S on 31 Dec 20X0. The statements of financial position of the two companies on 31 December 20X1 are as follows:RequiredPrepare the consolidated statement of
a. Explain the main purpose of columnar day books.b. Describe the possible format of: (i) A columnar purchases day book; and (ii) A columnar cash book. Your answer should include reference
The following are the statements of financial positions of Wood plc and Stone plc as at 1 May 20X0:Wood plc purchased 80 per cent of the equity shares of Stone plc on 1 May 20X0 at a price of
The following are the statements of financial position of Gold plc and Silver plc as at 1 January 20X9:Gold plc purchased all the equity shares of Silver plc on 1 January 20X9. The assets and
The following are the statements of comprehensive income and statements of financial position of Gold plc and Silver plc for the year ended 31 December 20X9:Other informationGold plc paid a dividend
a. Briefly explain the nature of value added tax (VAT) and its associated cash flows.b. Describe how this affects the items shown in the final financial statements of businesses.c. What does it mean
The following are the statements of comprehensive income and statements of financial position of Wood plc and Stone plc for the year ended 30 April 20X1:Other informationWood plc paid a dividend of
H Ltd acquired 75 per cent of the share capital of S for £280,000 on 1 January 20X3. Goodwill arising on consolidation has been fully impaired. Details of the share capital and retained earnings of
At 1 January 20X0 H Ltd acquired 60 per cent of the share capital of S for £180,000. At that date the share capital of S consisted of 200,000 shares of 50p each. The reserves of H and S are stated
At 1 January 20X0 H Ltd acquired 80 per cent of the share capital of S for £160,000. At that date the share capital of S consisted of 100,000 equity shares of £1 each and its reserves totalled
a. Define a non-controlling interest in accordance with IFRS 10 – Consolidated Financial Statements (IASB, 2018b).b. Explain why non-controlling interests arise in consolidated financial statements
Given the circumstances in Question 33.5 above, describe how this relationship between Parhold plc and Subsid plc would affect the following at the end of the first accounting year after
Parhold plc has bought for cash of £12 million all the voting shares of Subsid plc, whose net assets have been valued at £10 million. Describe how this transaction would affect:a. The statement of
At 31 July 20X9, the statement of financial position of Winder Engineering plc showed the following position:The preference shares were originally issued at a premium of 10 per cent, and are
a. Explain the objective(s) of consolidated financial statements.b. Describe in general terms the principles of consolidation.
The summarized statement of financial position of Arbalest Ltd at 30 September 20X0 was as follows (internal accountant’s draft copy):During the year ended 30 September 20X1 the company had the
a. Explain the nature of goodwill arising on the acquisition of a subsidiary and how it is measured.b. Describe the requirements of IFRS 3 – Business Combinations (IASB, 2018a) with regard to the
The authorized and issued share capital of Forward Ltd as at 31 May 20X0 was 150,000 equity shares of £1 each, fully paid. On 1 June 20X0, the authorized share capital was increased to £225,000
Define each of the following in accordance with the Companies Act 2006, IFRS 3 – Business Combinations (IASB, 2018a) and International Financial Reporting Standard 10 – Consolidated Financial
The summarized statement of financial position for Turner plc at 31 May 20X0 was as follows:• On 1 June 20X0, 200,000 shares were offered to the public at 60p, 20p payable on application, 20p on
The following is the summarized statement of financial position of Shares Ltd as at 31 December 20X9:In order to improve the company’s liquidity and consolidate the capital position the following
The financial information below was extracted from the statement of financial position of two companies as at 30 June 20X9.Additional information1. Both companies revalued their freehold land and
Novinta plc issued 1,000,000 equity shares of £1 each at a premium of 30p. The cash payments are due as follows:On application – 45p (including 30p premium). One of the terms of the issue was that
Cara Van plc wants to issue one million £1 equity shares payable as follows:On application – 70p (including 30p premium)On allotment – 30pOn call two months after – 30pAfter publication of the
Describe the legal restrictions on the purchase and redemption of shares, including the reasons for these restrictions.
Explain the purpose of a capital redemption reserve.
From the following information prepare a manufacturing account and a statement of profit or loss for the year ended 31 December 20X4. Show clearly the prime cost, factory cost of completed
Explain the nature and purpose of: (a) A rights issue, and (b) A bonus issue of shares.
Describe the procedure relating to an issue of shares to the public where the price includes calls.
Prepare a statement of cash flows in accordance with IAS 7 using the information in Question 28.9. There was no investment income or interest paid during the year ended 31 March 20X9.Data From
Explain the difference between a receipts and payments account and an income and expenditure account.
Belfast Darts Club, though formed in 20X0, never maintained proper books of account. Their transactions, however, were always recorded through the bank account. They have two types of membership:
When a Welfare Association was formed on 1.1.20X0, the tenants of all 820 flats on University Street joined as members. The membership fee was agreed at £20 per month. Of these tenants, 560 also
The treasurer of Murray Golf Club has prepared the following receipts and payments account for the year ended 31 March 20X1:The treasurer has also supplied you with the following information:1.
The N. I. Jock United Social Club was started in 20W2 to provide facilities for Jock UnitedFootball Supporters in Northern Ireland. At 1 January 20X4 there were 400 paid-up members for 20X3 (£20 per
You have agreed to take over the role of bookkeeper for the AB sports and social club. The summarized statement of financial position on 31.12.X1 as prepared by the previous bookkeeper contained the
The treasurer of a club has given you the following account of its activities during the year ended 30 June 20X1.Additional information1. The freehold building, owned and occupied by the club, was
The Elite Bowling and Social Club prepares its annual financial statements to 31 October. The following receipts and payments account has been prepared by the treasurer:Additional information1. The
The treasurer of the Senior Social Club has prepared the following summary of the club’s receipts and payments for the year ended 30 November 20X9.On 1 December 20X8 the club owned equipment that
The secretary of the Woodland Hockey Club gives you the following summary of his cashbook for the year ended 31 May 20X1:The secretary also gives you the following information:On 31 May 20W9 the
The following are the summarized financial statements of Ingrid Ltd and Epona Ltd, two firms that operate in identical industries.Requireda. Calculate three ratios for each company showing
What is the difference between solvency and liquidity?Requireda. Calculate the gearing ratio for Bastante plc using market values.b. Explain the outcome.
Dale is in business as a sole trader. You are presented with the following summarized information relating to his business for the year to 31 October 20X9:Requireda. Based on the above information,
White and Black are sole traders. Both are wholesalers dealing in a similar range of goods. Summaries of the profit calculations and statements of financial position for the same year have been made
The following are the summarized financial statements of Alpha and Omega, two companies that operate in the same industry:Requireda. Using ratio analysis, comment on the profitability, efficiency,
Using the information provided in 29.20, assume the company faces three differing external environment scenarios: boom; steady state; and recession. Each scenario has different income potentials: if
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