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financial accounting

Questions and Answers of Financial Accounting

The sales and cash receipts journals of Caverly Office Products include the following entries:Identify the missing information in the cash receipts journal for those transactions listed. All credit
The cash receipts journal of Silver Plastics follows:Silver's general ledger includes the following selected accounts, along with their account numbers:Number _________________
A customer account in the accounts receivable subsidiary ledger of Leger Old Company follows:Describe the three posted transactions.
Apr. 2 Purchased merchandise inventory on credit terms of 3/10, n/60 from Vanderbilt Co., $2,400. 5 Issued check no. 820 to purchase equipment for cash, $3,600. 11 Purchased merchandise inventory for
Refer to information in Exercise EB-19. Exercise EB-19. Apr. 2 Purchased merchandise inventory on credit terms of 3/10, n/60 from Vanderbilt Co., $2,400. 5 Issued check no. 820 to purchase equipment
The purchases journal of Southeastern Publishing Company follows:Requirements1. Total each column of the purchases journal.2. Open four-column ledger accounts for Merchandise Inventory (118), Office
A vendor account in the accounts payable subsidiary ledger of Frost Company follows.Describe the three posted transactions.
Assume Sparkling Springs Glass Company uses the perpetual inventory system. The general ledger of Sparkling Springs Glass Company includes the following selected accounts, along with their account
The general ledger of Shiny Lake Golf Shop includes the following selected accounts, along with their account numbers:Transactions in December that affected purchases and cash payments follow:Dec. 2
Tulsa Computer Security uses the perpetual inventory system and makes all credit sales on terms of n/30. Tulsa completed the following transactions during May:May 2 Issued invoice no. 913 for sale on
Assume Peaceful Spring Company uses the perpetual inventory system. The general ledger of Peaceful Springs Company includes the following selected accounts, along with their account numbers:Sales and
The general ledger of Finnish Lake Golf Shop includes the following selected accounts, along with their account numbers:Transactions in December that affected purchases and cash payments were as
Atlanta Computer Security uses the perpetual inventory system and makes all credit sales on terms of n/30. During March, Atlanta completed these transactions:Mar. 2 Issued invoice no. 191 for sale on
Crystal Clear Cleaning has decided that, in addition to providing cleaning services, it will sell cleaning products. Crystal Clear uses the perpetual inventory system. During December 2018, Crystal
Jun. 1 Sold merchandise inventory on account to Fran Jack, $1,220. Cost of goods, $980. Invoice no. 101.8 Sold merchandise inventory on account to Ireland Frank, $2,025. Cost of goods, $1,640.
Review your results from Short Exercise SB-4.Requirements1. Total each column of the sales journal.2. Open the following four-column accounts in the accounts receivable subsidiary ledger: Accounts
Jul. 5 Sold merchandise inventory for cash, $1,700. Cost of goods, $1,400.12 Collected interest revenue of $2,050.18 Received cash from Heidi Next, $1,200, on account. There was no discount.29
Review your results from Short Exercise SB-6.Requirements1. Total each column of the cash receipts journal.2. Open the following four-column accounts in the accounts receivable subsidiary ledger:
Oct. 1 Purchased merchandise inventory on account with credit terms of 4/10, n/30 from Mayer Co., $2,200.11 Purchased office supplies on account from Bird Co., $600. Terms were n/EOM.24 Purchased
Review your results from Short Exercise SB-8.Requirements1. Total each column of the purchases journal.2. Open the following four-column accounts in the accounts payable subsidiary ledger: Accounts
Didrikson Rubin, the auditor of Red Barn Farm Equipment, was verifying cash payments to vendors for the past several months. She noticed that several checks had been paid to a specific vendor, but
Explain the meaning of surplus units and deficit units. Provide an example of each. Which types of financial institutions do you deal with? Explain whether you are acting as a surplus unit or a
Explain why the credit crisis caused a lack of liquidity in the secondary markets for many types of debt securities. Explain how such a lack of liquidity would affect the prices of the debt
Explain why mortgage defaults during the credit crisis adversely affected financial institutions that did not originate the mortgages. What role did these institutions play in financing the mortgages?
Financial institutions are subject to regulations to ensure that they do not take excessive risk and they can safely facilitate the flow of funds through financial markets. Nevertheless, during the
European debt markets have become integrated over time, so that institutional investors (such as commercial banks) commonly purchase debt issued in other European countries. When the government of
Assume that countries A and B are of similar size, that they have similar economies, and that the government debt levels of both countries are within reasonable limits. Assume that the regulations in
Some countries do not have well established markets for debt securities or equity securities. Why do you think this can limit the development of the country, business expansion, and growth in
Different types of financial institutions commonly interact. They provide loans to each other, and take opposite positions on many different types of financial agreements, whereby one will owe the
Assume that your publicly traded company attempts to be completely transparent about its financial condition, and provides thorough information about its debt, sales, and earnings every quarter.
Explain why financial markets may be less liquid if companies are not forced to provide accurate financial reports.
Describe how a country's laws can influence the degree of its financial market liquidity.
Commercial banks use some funds to purchase securities and other funds to make loans. Why are the securities more marketable than loans in the secondary market?
Distinguish between perfect and imperfect security markets. Explain why the existence of imperfect markets creates a need for financial intermediaries.
Explain the meaning of efficient markets. Why might we expect markets to be efficient most of the time? In recent years, several securities firms have been guilty of using inside information when
If barriers to international securities markets are reduced, will a country's interest rate be more or less susceptible to foreign lending and borrowing activities? Explain.
In what way could the international flow of funds cause a decline in interest rates?
What are the functions of securities firms? Many securities firms employ brokers and dealers. Distinguish between the functions of a broker and those of a dealer, and explain how each is compensated.
Why do you think securities are commonly standardized? Explain why some financial flows of funds cannot occur through the sale of standardized securities. If securities were not standardized, how
In some periods such as the credit crisis, liquidity in financial markets declines dramatically, and many surplus units no longer participate in financial markets. Yet, if the markets are efficient,
a. "The price of IBM stock will not be affected by the announcement that its earnings have increased as expected." b."The lending operations at Bank of America should benefit from strong economic
a. What are the more likely alternatives for you to borrow $70 million? b. Assuming that you decide to issue debt securities, describe the types of financial institutions that may purchase these
a. In what way is Carson a surplus unit? b. In what way is Carson a deficit unit? c. How might finance companies facilitate Carson's expansion? d. How might commercial banks facilitate Carson's
Explain the primary use of funds for commercial banks versus savings institutions.
Compare the main sources and uses of funds for finance companies, insurance companies, and pension funds.
What is the function of a mutual fund? Why are mutual funds popular among investors? How does a money market mutual fund differ from a stock or bond mutual fund?
Explain how the privatization of companies in Europe can lead to the development of new securities markets.
Classify the types of financial institutions mentioned in this chapter as either depository or nondepository. Explain the general difference between depository and nondepository institution sources
Look in a recent business periodical for news about a recent financial transaction that involves two financial institutions. For this transaction, determine the following: a. How will each
Integrate the roles of accounting, regulations, and financial market participation. That is, explain how financial market participants rely on accounting, and why regulatory oversight of the
Explain why interest rates changed as they did over the past year.
Why do forecasts of interest rates differ among experts?
How might expectations of higher global oil prices affect the demand for loanable funds, the supply of loanable funds, and interest rates in the United States? Will this affect the interest rates of
Why might you expect interest rate movements of various industrialized countries to be more highly correlated in recent years than in earlier years?
War tends to cause significant reactions in financial markets. Why might a war in the Middle East place upward pressure on U.S. interest rates? Why might some investors expect a war like this to
Offer an argument for why the terrorist attack on the United States on September 11, 2001 could have placed downward pressure on U.S. interest rates. Offer an argument for why that attack could have
Jayhawk Forecasting Services analyzed several factors that could affect interest rates in the future. Most factors were expected to place downward pressure on interest rates. Jayhawk also expected
The interest rate on a one-year loan can be decomposed into a one-year risk-free (free from default risk) component and a risk premium that reflects the potential for default on the loan in that
Consider the prevailing conditions for inflation (including oil prices), the economy, the budget deficit, and the Fed's monetary policy that could affect interest rates. Based on these conditions, do
When economic crises in countries are due to a weak economy, local interest rates tend to be very low. However, if the crisis was caused by an unusually high rate of inflation, interest rates tend to
Explain what is meant by interest elasticity. Would you expect federal government demand for loanable funds to be more or less interest-elastic than household demand for loanable funds? Why?
During the credit crisis, U.S. interest rates were extremely low, which enabled businesses to borrow at a low cost. Holding other factors constant, this should result in a higher number of feasible
Offer an argument for why a political regime that favors a large government will cause interest rates to be higher. Offer at least one example of why a political regime that favors a large government
Consider a period in which stock prices are very high, such that investors begin to think that stocks are overvalued and their valuations are very uncertain. If investors decide to move their money
Use the loanable funds framework to explain how European economic conditions might affect U.S. interest rates.
If the federal government planned to expand the space program, how might this affect interest rates?
Should increasing money supply growth place upward or downward pressure on interest rates?
Assume that if the U.S. dollar strengthens, it can place downward pressure on U.S. inflation. Based on this information, how might expectations of a strong dollar affect the demand for loanable funds
What is the difference between the nominal interest rate and real interest rate? What is the logic behind the implied positive relationship between expected inflation and nominal interest rates?
Estimate the real interest rate over the last year. If financial market participants overestimate inflation in a particular period, will real interest rates be relatively high or low? Explain.
Interest rates are influenced by various factors reflecting the demand for funds and the supply of funds available in the credit markets. Write a short essay in which you identify the key factors
a. "The flight of funds from bank deposits to U.S. stocks will pressure interest rates."b. "Since Japanese interest rates have recently declined to very low levels, expect a reduction in U.S.
a. Given the preceding information, assess how the demand for and the supply of loanable funds would be affected (if at all), and predict the future direction of interest rates.b. You can obtain a
a. Explain why Carson should be very interested in future interest rate movements. b. Given Carson's expectations, do you think that the company anticipates that interest rates will increase or
Suppose the real interest rate is 6 percent and the expected inflation is 2 percent. What would you expect the nominal rate of interest to be?
Suppose that Treasury bills are currently paying 9 percent and the expected inflation is 3 percent. What is the real interest rate?
If a downward-sloping yield curve is mainly attributed to segmented markets theory, what does that suggest about the demand for and supply of funds in the short-term and long-term maturity markets?
If the segmented markets theory causes an upward-sloping yield curve, what does this imply? If markets are not completely segmented, should we dismiss the segmented markets theory as even a partial
What factors influence the shape of the yield curve? Describe how financial market participants use the yield curve.
Suppose that the Treasury decided to finance its deficit with mostly long-term funds. How could this decision affect the term structure of interest rates? If short-term and long-term markets are
If liquidity and interest rate expectations are both important for explaining the shape of a yield curve, what does a flat yield curve indicate about the market's perception of future interest rates?
Assume that the yield curves in the United States, France, and Japan are flat. If the U.S. yield curve suddenly becomes so positively sloped, do you think the yield curves in France and Japan would
Assume that (1) investors and borrowers expect that the economy will weaken and that inflation will decline, (2) investors require a small liquidity premium, and (3) markets are partially segmented
During some crises, investors shift their funds out of the stock market and into money market securities for safety, even if they do not fear rising interest rates. Explain how and why these actions
Consider how economic conditions affect the default risk premium. Do you think the default risk premium will likely increase or decrease during this semester? How do you think the yield curve will
In some countries where there is high inflation, the annual interest rate is more than 50 percent, while in other countries such as the U.S. and many European countries, the annual interest rates are
Assume that the yield curve for Treasury bonds has a slight upward slope, starting at 6% for a 10-year maturity and slowly rising to 8% for a 30-year maturity. Create a yield curve that you believe
Explain how credit rating agencies have changed their process following criticism of their ratings during the credit crisis.
Do investors in high tax brackets or those in low tax brackets benefit more from tax-exempt securities? Why? Do municipal bonds or corporate bonds offer a higher before-tax yield at a given point in
Explain how a yield curve would shift in response to a sudden expectation of rising interest rates, according to the pure expectations theory.
What is the meaning of the forward rate in the context of the term structure of interest rates? Why might forward rates consistently overestimate future interest rates? How could such a bias be
Assume there is a sudden expectation of lower interest rates in the future. What would be the effect on the shape of the yield curve? Explain.
The key components of a market interest rate are the risk-free rate and the credit risk premium. During the credit crisis, these two components changes substantially, but in different ways. The
a. "An upward-sloping yield curve persists because many investors stand ready to jump into the stock market." b. "Low-rated bond yields rose as recession fears caused a flight to quality." c. "The
a. Given the shift in the yield curve, does it appear that firms increased or decreased their demand for long-term funds over the last six months? b. Interpret what the shift in the yield curve
a. Assume that the market's expectations for the economy are similar to those of Carson. Also assume that the yield curve is primarily influenced by interest rate expectations. Would the yield curve
a. Assume that as of today, the annualized two-year interest rate is 13 percent, while the one-year interest rate is 12 percent. Use this information to estimate the one-year forward rate.b. Assume
Assume that as of today, the annualized interest rate on a three-year security is 10 percent, while the annualized interest rate on a two-year security is 7 percent. Use this information to estimate
If ti1〉ti2, what is the market consensus forecast about the one-year forward rate one year from now? Is this rate above or below today’s one-year interest rate? Explain.
You need to choose between investing in a one-year municipal bond with a 7 percent yield and a one-year corporate bond with an 11 percent yield. If your marginal federal income tax rate is 30 percent

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