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business
principles of financial accounting
Questions and Answers of
Principles Of Financial Accounting
You employ a very inexperienced book-keeper who, since you started in business a few days ago, has recorded the following in your accounts:Required 1 Re-write the accounts as they should have been
1 Show the accounts involved in the transactions below under the main five headings of the financial statements (i.e. assets, liabilities, equity, revenue and expenses):2 Advise what accounts would
Show the general journal entries that are needed to record the following transactions of Johnson's Cleaning Services Ltd:a. The owner transferred \($2,000\) cash and a computer worth \($5,000\) to
Even though a business’s trial balance balanced, the following errors have been detected. You are required to prepare the correcting journal entries.a. A payment of \($550\) for rent was
The trial balance of Copying Specialist Service Ltd as at 31 July 20x8 was as follows:Transactions for the month of August were:Required 1 Record the above transactions in the general journal.2
Five general ledger accounts are shown below in T-account format. Describe the transactions that took place following the recording of double entries. Cash at bank $ $ (c) 760 (a) Trade creditors $ $
Below is a list of transactions for July 20x6 for Painting Jobs Done Ltd in its first month of operations:Required 1 Record all transactions in the general journal.2 Prepare a trial balance as at 31
Dixens Ltd, a wholesaler of electrical equipment, starts business on 1 January with £100,000 in cash.Required 1 Record all transactions in T-accounts.2 Prepare a profit and loss statement for the
A university graduate student has extracted the following trial balance.The amounts are correct per the ledger accounts, but entered under their incorrect headings of debit balances or credit
David Beckam, a sole trader, does not have any accounting background, but he has managed to extract the following trial balance from the books of his business as at 30 November 2009:Clearly, David is
Aston Ltd’s stock valuation excludes a number of free samples from potential customers. They would normally cost £100 and could probably be sold to Aston Ltd’s customers for £150. What is the
Madonna’s stock valuation includes certain damaged goods (clothes) at her original cost of £11,655. These could be repaired at a cost of £1,570 and sold for £12,150. What is the effect on
The following details are taken from the books of Harrison Ford Ltd:Calculate the business’s cost of goods sold Y Y Purchases 35,610 Opening stock 2,100 Returns inwards 990 Carriage outwards 2,990
Suppose a division of a computer manufacturing company has these stock records for January 20x6:Company accounting records reveal that operating expenses for January were £2,900, and sales of 310
ABC Hardware Company began 20x4 with 60,000 units of stock that cost £36,000.During 20x4, ABC purchased goods on credit for £352,500 as follows:Cash payments to suppliers totalled £330,000 during
Calculate the missing income statement amounts for each of the following companies (amounts adapted and in millions):Prepare the income statement for Asca, showing the computation of cost of goods
X Ltd, maker of DVDs and computer consumables, reported the following comparative income statement for the years ended 30 September 20x5 and 20x4:X Ltd’s directors and shareholders are pleased by
Babycare accounting year ends each 31 January. Assume you are dealing with a single Babycare store in Leamington Spa, Warwickshire and that the following transactions need to be recorded: opening
Silect Ltd, a fabric manufacturer, began March with 73 yards of fabric that cost £23 per yard. During the month, Silect made the following purchases:At 31 March the closing stock consists of 60
Pizza Place’s records include the following accounts with regards to purchases of plastic glasses as at 31 December of the current year:By 31 December the company sold 10,100 units for
Dixens Ltd reported the following data (adapted in billions):Assume that in early 2009, an error was discovered which involved the closing stock for 2006 being overstated by €1 billion and the
Fraser Department Stores Ltd operates a number of department stores in the United Kingdom. Assume that the company’s accounting year ends each 31 January.The store in London had an opening stock in
Assume the H.A. Rod store in London began July with 50 (thousand) goods that cost £19.00 each. The sale price of each of these goods was £36.00. During July, H.A. Rod completed the following
Trade Cars Ltd had opening stock in February of 150 car wheels that cost £77.00 each.During February, the garage made the following purchases:Trade Cars Ltd’s closing balance consists of 214
The records of Fordie Car Manufacturer Ltd include the following for a line of car exhausts at 31 March of the current year:The sales revenue generated during the year is £11,200.Required 1 Prepare
The extract profit and loss account of Air Control Specialists Ltd is as follows (in millions):Assume that in early 2009 it was discovered that the closing stock for 2006 was understated by £50
UK Airways Ltd is nearing the end of its first year of operations. The company made stock purchases of £745,000 during the year, as follows:Sales for the year are 5,500 units for £1,500,000 of
Assume a Parda factory outlet store began August 20x9 with 65 units of goods that cost £140 each. The sale price of these units was £270. During August, the store completed the following inventory
Accounting records for The Best Pie Ltd include the following information for the year ended 31. December 20x8 (amounts in thousands):Required 1 Journalise The Best Pie Ltd’s stock transactions
You have found a source which can supply you with popular movies on DVDs at £2.50 each (normal retail price £7.99 and upwards). As a student, and being inexperienced, you see an opportunity of
Established less than 50 years ago, Honda Motor Co. Ltd. of Japan is a leading international manufacturer of automobiles and the largest manufacturer of motorcycles in the world. As a Japanese
Each contributed \($50,000\) cash to start the business and received 4,000 shares of capital. The store completed its first year of operations on December 31, 2011. On that date, the following
On January 1, 2013, three individuals organized West Company as a corporation. Each individual invested \(\$ 10,000\) cash in the business. On December 31, 2013, they prepared a list of resources
A company has total assets of \(\$ 500,000\) and noncurrent assets of \(\$ 400,000\). Current liabilities are \(\$ 40,000\). What is the current ratio?a. 12.5b. 10.0c. 2.5d. Cannot be determined
Positive financial leverage indicatesa. Positive cash flow from financing activities.b. A debt-to-equity ratio higher than 1 .c. A rate of return on assets exceeding the interest rate on debt.d. A
If a potential investor is analyzing three companies in the same industry and wishes to invest in only one, which ratio is least likely to affect the investor's decision?a. Quick ratio.b. Earnings
A company has quick assets of \(\$ 300,000\) and current liabilities of \(\$ 150,000\). The company purchased \(\$ 50,000\) in inventory on credit. After the purchase, the quick ratio would bea.
Annual interest expense for a single bond issue continues to increase over the life of the bonds. Which of the following explains this?a. The market rate of interest has increased since the bonds
When using the effective-interest method of amortization, interest expense reported in the income statement is impacted by thea. Par value of the bonds.b. Coupon rate of interest stated in the bond
Katz Corporation has issued 400,000 shares of common stock and holds 20,000 shares in treasury. The charter authorized the issuance of 500,000 shares. The company has declared and paid a dividend of
A company issued 100,000 shares of common stock with a par value of \(\$ 1\) per share. The stock sold for \(\$ 20\) per share. By what amount does stockholders' equity increase?a. \(\$ 100,000\)c.
What is goodwill?
Which of the following is true regarding the economic return from investing ratio?a. This ratio is used to evaluate how efficiently a company manages its total assets.b. This ratio is used to
Lamichael Company purchased 100 percent of the outstanding voting shares of Darrell Corporation in the open market for \(\$ 200,000\) cash and Darrell was merged into Lamichael Company. On the date
Which of the following is not a component of the cost of inventory?a. Administrative overheadc. Raw materialsb. Direct labord. Factory overhead
Miga Company and Porter Company both bought a new delivery truck on January 1, 2008. Both companies paid exactly the same cost, \(\$ 30,000\), for their respective vehicles. As of December 31 , 2011
Barber, Inc., followed the practice of depreciating its building on a straight-line basis. A building was purchased in 2011 and had an estimated useful life of 25 years and a residual value of \(\$
Ryan, Inc., uses straight-line depreciation for all of its depreciable assets. Ryan sold a used piece of machinery on December 31, 2012, that it purchased on January 1, 2011, for \(\$ 10,000\). The
Under what method(s) of depreciation is an asset's net book value the depreciable base (the amount to be depreciated)?a. Straight-line methodb. Declining-balance methodc. Units-of-production
Thornton Industries purchased a machine for \(\$ 45,000\) and is depreciating it with the straight-line method over a life of 10 years, using a residual value of \(\$ 3,000\). At the beginning of the
Company \(X\) has borrowed \(\$ 100,000\) from the bank to be repaid over the next five years, with payments beginning next month. Which of the following best describes the presentation of this debt
How is working capital calculated?a. Current assets multiplied by current liabilities.b. Current assets plus current liabilities.c. Current assets minus current liabilities.d. Current assets divided
Jacobs Company borrowed 100,000 at 8 percent interest for three months. How much interest does the company owe at the end of three months?a. \(\$ 8,000\)b. \(\$ 2,000\)c. \(\$ 800\)d. \(\$ 200\)
Fred wants to save enough money each year so that he can purchase a sports car in January 2013. Fred receives a large bonus from his employer every December 31.He anticipates that the car will cost
A company has been successful in reducing the costs of its manufacturing process by relocating the factory to another locale. What effect will this factor have on the company's gross profit
You have determined that Company \(X\) estimates bad debt expense with an aging of accounts receivable schedule. Company X's estimate of uncollectible receivables resulting from the aging analysis
What is a contra-asset? Give an example of one.
Which of the following accounts would not appear in a closing entry?a. Salary Expensec. Accumulated Depreciationb. Interest Incomed. Retained Earnings
On October 1, 2011, the \(\$ 12,000\) premium on a one-year insurance policy for the building was paid and recorded as Prepaid Insurance. On December 31, 2011 (end of the accounting period), what
On June 1, 2010, Oakcrest Company signed a three-year \(\$ 100,000\) note payable with 9 percent interest. Interest is due on June 1 of each year beginning in 2011. What amount of interest expense
If a company is successful in reducing selling and administrative costs while maintaining sales volume and the sales price of its product, what is the effect on the net profit margin ratio?a. The
When expenses exceed revenues in a given period,a. Retained earnings are not impacted.b. Retained earnings are decreased.c. Retained earnings are increased.d. One cannot determine the impact on
On January 1, 2011, Anson Company started the year with a \(\$ 250,000\) credit balance in Retained Earnings and a \(\$ 300,000\) balance in Contributed Capital. During 2011, the company earned net
During 2011, CliffCo Inc. incurred operating expenses of \(\$ 200,000\), of which \(\$ 150,000\) was paid in cash; the balance will be paid in January 2012. Transaction analysis of operating expenses
Which of the following is the entry to be recorded by a law firm when it receives a \(\$ 2,000\) retainer from a new client at the initial client meeting?a. Debit to Cash, \(\$ 2,000\); credit to
You have observed that the total asset turnover ratio for a retail chain has increased steadily over the last three years. The most likely explanation is which of the following?a. Salaries for upper
This period a company collects \(\$ 100\) cash on an account receivable from a customer for a sale last period. How would the receipt of cash impact the following two financial statements this
As stated in the audit report, or Report of Independent Accountants, the primary responsibility for a company's financial statements lies witha. The owners of the company.b. Independent financial
Which of the following is not a typical note included in an annual report?a. A note describing the auditor's opinion of the management's past and future financial planning for the business.b. A note
What is a T-account? What is its purpose?
At the end of a recent year, The Gap, Inc., reported total assets of \(\$ 7,564\) million, current assets of \(\$ 4,005\) million, total liabilities of \(\$ 3,177\) million, current liabilities of
Which of the following statements are true about globalization methods?a. International licensing involves the creation of a new company that is owned by two or more firms from different countries.b.
Which of the following environmental factors can affect the cost of doing business in a foreign country? (Identify all correct answers.)a. The educational level of the workforce.b. Laws regulating
A country whose citizens are highly group oriented and who accept unequal power distributions between and within organizations would be considered:a. Individualistic and low power distance.b.
On March 1, Laton Products (a U.S. firm) purchased manufacturing inputs from a Mexican supplier for 20,000 pesos, payable on June 1. The exchange rate for pesos on March 1 was \(\$ 0.17\). If the
On January 1, a German company purchased merchandise from a U.S. firm for \(\$ 50,000\), payable on March 1. The exchange rate for the euro on January 1 was \(\$ 1.10\). If the exchange rate
Which of the following usually is least important as a measure of short-term liquidity?a. Quick ratio.b. Debt ratio.c. Current ratio.d. Cash flows from operating activities.
In each of the past five years, the net sales of Plaza Co. have increased at about half the rate of inflation, but net income has increased at approximately twice the rate of inflation. During this
From the viewpoint of a stockholder, which of the following relationships do you consider of least significance?a. The return on assets consistently is higher than the industry average.b. The return
The following information is available from the annual report of Frixell, Inc.:Which of the following statements are correct? (More than one statement may be correct.)a. The return on equity exceeds
Hart Corporation's net income was \(\$ 400,000\) in 2010 and \(\$ 160,000\) in 2011. What percentage increase in net income must Hart achieve in 2012 to offset the decline in profits in 2011?a. \(60
If a company's current ratio declined in a year during which its quick ratio improved, which of the following is the most likely explanation?a. Inventory is increasing.b. Inventory is declining.c.
In financial statement analysis, the most difficult of the following items to predict is whether:a. The company will be liquid in six months.b. The company's market share is increasing or
The statement of cash flows is designed to assist users in assessing each of the following, except:a. The ability of a company to remain liquid.b. The major sources of cash receipts during the
Which of the following is not included in the statement of cash flows, or in a supplementary schedule accompanying the statement of cash flows?a. Disclosure of investing or financing activities that
Cash flows are grouped in the statement of cash flows into the following major categories:a. Operating activities, investing activities, and financing activities.b. Cash receipts, cash disbursements,
The following is a list of various cash payments and cash receipts:Based only on the above items, net cash flows from operating activities are:a. \(\$ 138,000\)b. \(\$ 91,000\)c. \(\$ 120,000\)d.
During the current year, two transactions were recorded in the Land account of Duke Industries. One involved a debit of \(\$ 320,000\) to the Land account; the second was a \(\$ 210,000\) credit to
Which of the following business strategies is most likely to increase the net cash flows of a software developer in the short run but reduce them over a longer term?a. Develop software that is more
The primary purpose of showing special types of events separately in the income statement is to:a. Increase earnings per share.b. Assist users of the income statement in evaluating the profitability
Which of the following situations would not be presented in a separate section of the current year's income statement of Hamilton Corporation? During the current year:a. Hamilton's Los Angeles
When a corporation has outstanding both common and preferred stock:a. Basic and diluted earnings per share are reported only if the preferred stock is cumulative.b. Earnings per share is reported for
Which of the following is (are) not true about a stock dividend?a. Total stockholders' equity does not change when a stock dividend is declared but does change when it is distributed.b. Between the
The statement of retained earnings:a. Includes prior period adjustments, cash dividends, and stock dividends.b. Indicates the amount of cash available for the payment of dividends.c. Need not be
When a business is organized as a corporation, which of the following statements is true?a. Stockholders are liable for the debts of the business in proportion to their percentage ownership of
Western Moving Corporation was organized with authorization to issue 100,000 shares of \(\$ 1\) par value common stock. Forty thousand shares were issued to Tom Morgan, the company's founder, at a
Which of the following is not a characteristic of the common stock of a large, publicly owned corporation?a. The shares may be transferred from one investor to another without disrupting the
Tri-State Electric is a profitable utility company that has increased its dividend to common stockholders every year for 42 consecutive years. Which of the following is least likely to affect the
The following information is taken from the balance sheet and related disclosures of Maxwell, Inc.:Which of the following statements is (are) true? (For this question, more than one answer may be
On December 10, 2010, Smitty Corporation reacquired 2,000 shares of its own \(\$ 5\) par value common stock at a price of \(\$ 60\) per share. In 2011,500 of the treasury shares are reissued at a
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