Business Essentials 12 Global Edition Ronald J. Ebert, Ricky W. Griffin - Solutions

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What is the P/E ratio?
What is earnings per share?
What is a company's cash flow ratio?
In a period when profits are fluctuating, what effect does a company's level of gearing have on the profits available for ordinary shareholders?
Define the 'debt ratio'.
ROCE can be calculated as the product of two other ratios. What are they?
What is the usual formula for ROCE?
Apart from ratio analysis, what other information might be helpful in interpreting a company's accounts?
Furlong plc made a profit on disposals of fixed assets of £66,500 in 20X8, and of £25,200 in 20X7. At the end of 20X6 it had stocks of £58,149, debtors of£807,527 and creditors due in less than one year of £905,637. Calculate Furlong plc’s cash flow ratios for 20X7 and 20X8, and the change
Returning to the example of Furlong plc, what is the company's interest cover?(You should take the interest charge as the gross figure in the notes to the accounts.)
Which one of the following formulae correctly expresses the relationship between return on capital employed (ROCE), profit margin (PM) and asset turnover (AT)?A PM =ROCE AT B ROCE =AT PM C AT = PM × ROCE D PM =AT ROC
When adjusting profit before tax to arrive at cash generated from operating activities, a decrease in debtors is added to operating profit. Is this statement A True B False
A company has the following extract from a balance sheet.20X7 20X6£'000 £'000 Share capital 2,000 1,000 Share premium 500 –Debenture 750 1,000 What is the cash flow from financing for the year?A £1,250 inflow B £1,750 inflow C £1,750 outflow D £1,250 outflow
A company has the following information about its fixed assets.20X7 20X6£'000 £'000 Cost 750 600 Accumulated depreciation 250 150 Net book value 500 450 Plant with a net book value of £75,000 (original cost £90,000) was sold for£30,000 during the year.What is the cash flow from capital
Which of the following headings is not a classification of cash flows?A Operating activities B Financial investment C Administration D Financing
Close the book for a moment and jot down the format of the cash flow statement.
Quest Ltd has operating profit for the year to 31 December 20X6 of £850, after charging £650 for depreciation and making a profit on disposal of a car of£120.The balance sheets for the years shows the following entries.20X6 20X5 Stock 586 763 Trade debtors 1,021 589 Trade creditors 443 1,431
In the published accounts of XYZ Co, the profit for the period is £3,500,000.The balance of retained profits at the beginning of the year is £500,000. If dividends of £2,500,000 were paid, what is the closing balance of retained profit?A £4,000,000 B £1,500,000 C £500,000 D £1,000,000
How is a bank overdraft classified in the balance sheet?A Fixed asset B Current asset C Current liability D Long-term liability
Which of the following items are fixed assets?(i) Land(ii) Machinery(iii) Bank loan(iv) Stock A (i) only B (i) and (ii)C (i), (ii) and (iii)D (ii), (iii) and (iv)
Managers' salaries are appropriations of profit.A True B False
According to the Companies Act 2006, private limited companies have to produce their accounts within what period?A Within six months of the balance sheet date B Within nine months of the balance sheet date
A company issues 50,000 £1 shares at a price of £1.25 per share. How much should be credited to the share premium account?A £50,000 B £12,500 C £62,500 D £60,000
What are the differences between debentures and share capital?
What are the differences between ordinary shares and preference shares?
What is the difference between issued capital and called-up capital?
What is the meaning of limited liability?A Shareholders are responsible for the company's debts.B Shareholders are responsible only for the amount unpaid on their shares.
A company has authorised share capital of 1,000,000 50p ordinary shares and an issued share capital of 800,000 50p ordinary shares. If an ordinary dividend of 5% is declared, what is the amount payable to shareholders?A £50,000 B £20,000 C £40,000 D £25,000
AB Ltd issues 5,000 50p shares for £6,000. At how much will share capital and share premium be shown in the balance sheet?Share capital Share premium A £5,000 £1,000 B £1,000 £5,000 C £3,500 £3,500 D £2,500 £3,500
What are the ledger entries needed to record the issue of 200,000 £1 ordinary shares at a premium of 30p and paid for in full by cheque?
An accrual is an expense charged against profit for a period, even though it has not yet been paid or invoiced.A True B False
What is the correct double entry for an electricity prepayment of £500?A Debit: prepayment £500 Credit: expense £500 B Debit: expense £500 Credit: prepayment £500
If a business has paid rent of £1,000 for the year to 31 March 20X9, what is the prepayment in the accounts for the year to 31 December 20X8?A £250 B £750
Electricity paid during the year is £14,000. There was an opening accrual b/d of£500. A bill for the quarter ended 31 January 20X7 was £900. What is the electricity charge in the profit and loss for the year ended 31 December 20X6?A £14,000 B £14,100 C £13,900 D £14,400
How is the cost of goods sold calculated?A Opening stock + purchases + closing stock B Opening stock + closing stock – purchases C Opening stock + purchases – closing stock D Closing stock + purchases – closing stock
The Batley Print Shop rents a photocopying machine from a supplier for which it makes a quarterly payment as follows:(a) three months rental in advance;(b) a further charge of 2 pence per copy made during the quarter just ended.The rental agreement began on 1 August 20X4 and the first six quarterly
What is the double entry to record an irrecoverable debt written off?A Debit: expenses Credit: debtors B Debit: debtors Credit: expenses
If a debtors allowance is increased, what is the effect on the profit and loss account?A Reduction in expenses B Increase in expenses
An allowance for debtors of 2% is required. Debtors at the period end are£200,000 and the allowable for debtors brought forward from the previous period is £2,000. What movement on the allowance is required this year?A Increase by £4,000 B Decrease by £4,000 C Increase by £2,000 D Decrease by
Irrecoverable debts are £5,000. Debtors at the year end are £120,000. If an allowance for debtors of 5% is required, what is the entry for irrecoverable debts expense in the profit and loss account?A £5,000 B £11,000 C £6,000 D £10,750
An irrecoverable debt arises in which of the following situations?A A customer pays part of the account B An invoice is in dispute C The customer goes bankrupt D The invoice is not yet due for payment
What are the most likely situations when the NRV of stock fall below cost?
Why is stock not valued at expected selling price?
An item of stock was purchased for £10. However, due to a fall in demand, its selling price will be only £8. In addition further costs will be incurred prior to sale of £1. What is the net realisable value?A £7 B £8 C £10 D £11
What is 'continuous' stocktaking?
A business has the following transactions for its product R.Year 1 Opening stock: nil Buys 10 units at £300 per unit Buys 12 units at £250 per unit Sells 8 units at £400 per unit Buys 6 units at £200 per unit Sells 12 units at £400 per unit Year 2 Buys 10 units at £200 per unit Sells 5 units
From the following figures, calculate the figure for stock valuation item by item.So have we now solved the problem of how a business should value its stocks? It seems that all the business has to do is to choose the lower of cost and net realisable value. This is true as far as it goes, but there
A fixed asset (cost £10,000, depreciation £7,500) is scrapped for £3,500. The profit and loss account will include A A loss on disposal £1,000 B A profit on disposal £1,000 C A loss on disposal of £3,500 D A profit on disposal £3,500
Give two common depreciation methods.
What is an asset's net book value?A Its cost less annual depreciation B Its cost less accumulated depreciation C Its net realisable value D Its replacement value
Which of the following statements regarding depreciation is correct?A All fixed assets must be depreciated.B Straight line depreciation is the most appropriate method of depreciation.C The amount of deprecation charged each year decreases over time.D Depreciation charges must be based upon the
A business purchased a machine on 1 July 20X1 for £39,000. The machine had an estimated residual value of £3,000 and a life of eight years. The machine was sold for £18,600 on 31 December 20X4. To make the sale, the business had to incur dismantling costs and costs of transporting the machine to
A lorry bought for a business cost £17,000. It is expected to last for five years and then be sold for scrap proceeds of £2,000.Required Work out the depreciation to be charged each year under:(a) The straight line method(b) The reducing balance method using a rate of 35%
State whether each of the following items should be classified as 'capital' or'revenue' expenditure or income for the purpose of preparing the profit and loss account and the balance sheet of a business.(a) The purchase of premises on a 100-year lease (leasehold premises).(b) The annual
The balance on an expense account will go to the P & L ledger account.However, the balance on a liability account is written off to capital.Is this statement correct?A Yes B No
In a period, sales are £140,000, purchases £75,000 and other expenses£25,000. What is the figure for net profit to be transferred to the capital account?A £40,000 B £65,000 C £75,000 D £140,000
A trial balance may still balance if some of the balances are wrong.Is this statement correct?A Yes B No
What is the purpose of a trial balance?
Alpha has the following opening balances on its ledger accounts.£Fixtures 5,000 Debtors 2,000 Bank account 1,000 Loan 3,000(a) What is the figure for total assets?A £6,000 B £5,000 C £8,000 D £3,000(b) What is the figure for capital?A £6,000 B £5,000 C £8,000 D £3,000
What is the double entry to record a credit sale of £500 to A?A Debit debtors £500, credit sales £500 B Debit sales ledger (A’s account) £500, credit sales £500 5 Name one reason for making a journal entry.
What is the double entry to record a purchase of office chairs for £1,000?A Debit fixed assets £1,000, credit cash £1,000 B Debit cash £1,000, credit purchases £1,000
What is the double entry to record a credit sale of £50?A Debit cash £50, credit sales £50 B Debit debtors £50, credit sales £50 C Debit sales £50, credit debtors £50 D Debit sales £50, credit cash £50
What is the double entry to record a cash sale of £50?
Summit Glazing operates an imprest petty cash system. The imprest amount is£150.00. At the end of the period the totals of the four analysis columns in the petty cash book were as follows.£Column 1 23.12 Column 2 6.74 Column 3 12.90 Column 4 28.50 How much cash is required to restore the imprest
See now whether you can record the ledger entries for the following transactions. Ron Knuckle set up a business selling keep fit equipment, trading under the name of Buy Your Biceps Shop. He put £7,000 of his own money into a business bank account (transaction A) and in his first period of
See if you can identify the debit and credit entries in the following transactions.(a) Bought a machine on credit from A, cost £8,000.(b) Bought goods on credit from B, cost £500.(c) Sold goods on credit to C, value £1,200.(d) Paid D (a creditor) £300.(e) Collected £180 from E, a debtor.(f)
Complete the following table relating to the transactions of a bookshop. (The first two are done for you.)(a) Purchase of books on credit(i) creditors increase CR creditors (increase in liability)(ii) purchases expense increases DR purchases (item of expense)(b) Purchase of cash register(i) own a
Before you look through the solution, can you state the formula for the business equation?
Which of the following is correct?A Capital = assets + liabilities B Capital = liabilities – assets C Capital = assets – liabilities D Capital + assets = liabilities
All petty cash claims are automatically paid from petty cash.Is this statement:A True B False
Petty cash is controlled under an imprest system. The imprest amount is £100.During a period, payments totalling £53 have been made. How much needs to be reimbursed at the end of the period to restore petty cash to the imprest account?A £100 B £53 C £47 D £50
What is the difference between the cash book and the petty cash book?
What is the purchase returns day book used to record?A Supplier's invoices B Customer's invoices C Details of goods returned to suppliers D Details of goods returned by customers
Which of the following is a source document for petty cash?A Purchase invoice B Quotation C Sales invoice D Receipt and claim form
Which of the following is not a book of prime entry?A Sales invoice B Purchase day book C Sales day book D Journal
Name four pieces of information normally shown on an invoice.
State which books of prime entry the following transactions would be entered into.(a) Your business pays A Brown (a supplier) £450.00.(b) You send D Smith (a customer) an invoice for £650.(c) Your accounts manager asks you for £12 urgently in order to buy some envelopes.(d) You receive an
Fill in the blanks.'Student Supplies Ltd sends out a …………….…………. to a credit customer in order to correct an error where a customer has been overcharged on an…………………….
Making an allowance for debtors is an example of which concept?A Accruals B Going concern C Materiality D Prudence
Suggest four possible values which might be attributed to an asset in the balance sheet of a business.
Only items which have a monetary value can be included in accounts. Which of the following is a basis of valuation?A Historical cost B Money measurement C Realisation D Business entity
What is meant by the prudence concept?
Define 'going concern'.
Which of the following assumptions are included in FRS 18?A Money measurement B Objectivity C Going concern D Business entity
Which FRS deals with accounting concepts?
Which of the following is an example of a liability?A Stock B Debtors C Plant and machinery D Loan
What are the two main financial statements drawn up by accountants?
Identify seven user groups who need accounting information.
A business entity is owned and run by Alpha, Beta and Gamma.What type of business is this an example of?A Sole trader B Partnership C Limited company D Don't know
What is financial accounting?
Would you include the following items as fixed assets?(a) A box file(b) A forklift truck(c) A small plastic display stand
Given that prudence is the main consideration, discuss under what circumstances, if any, revenue might be recognised at the following stages of a sale.(a) Goods have been acquired by the business which it confidently expects to resell very quickly.(b) A customer places a firm order for goods.(c)
Which of the following statements is particularly useful for managers?A Financial statements for the last financial year B Tax records for the past five years C Budgets for the coming financial year D Bank statements for the past year
They say that America is run by lawyers and the UK is run by accountants, but what do accountants do? Before moving on to the next section, think of any accountants you know and the kind of jobs they do.
Accounts are the financial statements produced only by a large quoted company.Is this statement correct?A Yes B No
Now, create an executive summary for your business plan. The executive summary should be brief—no more than two pages long—and should cover the following points:• The name of your business• Where your business will be located• The mission of your business• The product or service you are
Use a Web source, such as Yahoo! Finance or www.nasdaq.com, obtain the current price of Gogo stock.What has happened to the price of the stock over the last six months? What about the last two years?
If an investor had bought stock during the IPO, what would that investment be worth today?
Would you consider investing in Fogo de Chão? Why, or why not?
What are the benefits of an IPO as a source of financing?What other options did the company have?

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Business Essentials 12 Global Edition Ronald J. Ebert, Ricky W. Griffin - Solutions

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