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Financial Accounting Reporting Analysis And Decision Making 6th Edition Shirley Carlon - Solutions
12.13 LO5 Which of the following is generally not considered to be a limitation of financial statement analysis?(a) Use of ratios.(b) Use of estimates.(c) Use of cost.(d) Use of alternative accounting methods.
12.12 LO4 Silver Fern Limited reported profit $24 000; net sales $400 000; and average assets $600 000 for 2019. What is the 2019 profit margin?(a) 6%.(b) 12%.(c) 40%.(d) 200%.
12.11 Which of these is not a liquidity ratio? LO4(a) Current ratio.(b) Asset turnover.(c) Inventory turnover.(d) Receivables turnover.
12.10 Which measure is useful in evaluating the efficiency in managing inventories? LO4(a) Inventory turnover.(b) Average days in inventory.(c) Both (a) and (b).(d) None of the above.
12.9 Which measure is an evaluation of an entity’s ability to pay current liabilities? LO4(a) Quick ratio.(b) Current ratio.(c) Both (a) and (b).(d) None of the above.
12.8 The following schedule is a display of what type of analysis? LO3 Amount Percentage Current assets $200 000 25%Property, plant and equipment 600 000 75%Total assets $800 000(a) Horizontal analysis.(b) Differential analysis.(c) Vertical analysis.(d) Ratio analysis.
12.7 In vertical analysis, the base amount for depreciation expense is generally: LO3(a) net sales.(b) depreciation expense in a previous year.(c) gross profit.(d) non-current assets.
12.6 LO2 Canterbury Ltd reported net sales of $300 000, $330 000 and $360 000 in the years 2018, 2019 and 2020 respectively. If 2018 is the base year, what is the trend percentage for 2020?(a) 77%.(b) 108%.(c) 120%(d) 130%.
12.5 In horizontal analysis, each item is expressed as a percentage of the: LO2(a) profit amount.(b) equity amount.(c) total assets amount.(d) base-year amount.
12.4 Which of the following are the basic tools used in financial statement analysis? LO1(a) Horizontal analysis.(b) Vertical analysis.(c) Ratio analysis.(d) All of the above.
12.3 Comparison of data with other entities is an example of the following comparative basis: LO1(a) Intra-entity.(b) Inter-entity.(c) Industry averages.(d) Both (a) and (b).
12.2 Industry average analysis is useful to detect: LO1(a) differences between entities within an industry.(b) changes in financial relationships and significant trends within the entity.(c) differences between entities.(d) all of the above.
12.1 Intra-entity analysis is useful to detect: LO1(a) changes in financial relationships and significant trends within the entity.(b) differences between entities within an industry.(c) differences between entities.(d) all of the above.
12.5 discuss the limitations of financial statement analysis.
12.4 identify and calculate ratios and describe their purpose and use in analysing the liquidity, solvency and profitability of a business
12.3 explain and apply vertical analysis
12.2 explain and apply horizontal analysis
12.1 discuss the need for comparative analysis and identify the tools of financial statement analysis
11.10 Give an example of a cash-based ratio to measure these characteristics of an entity:(a) liquidity(b) solvency(c) profitability.
11.9 During 2018, Pencils and More Ltd purchased equipment but paid for it with the issue of 2 million$1 ordinary shares. Indicate how the transaction would be reported in a statement of cash flows, if at all.
11.8 Identify five items that form part of the reconciliation of profit and net cash provided by operating activities.
11.7 The managing director of Fancy Fashion Pty Ltd is puzzled. During the last year, the entity experienced a loss for the period of $800 000, yet its cash increased $300 000 during the same period of time. Explain to the managing director how this could occur.
11.6 Cameron’s Cars reported sales of $2 million for 2018. Accounts receivable increased $200 000 and accounts payable increased $400 000. Calculate cash receipts from customers, assuming that the receivable and payable transactions related to operations.
11.5 Contrast the advantages and disadvantages of the direct and indirect methods of reporting on cash flows from operating activities.
11.4 (a) What are the phases of the life cycle of an entity?(b) What effect does each phase have on the amounts reported in a statement of cash flows?
11.3 Why is it important to disclose certain non-cash transactions? How should they be disclosed?
11.2 Distinguish among the three activities reported in the statement of cash flows.
11.1 What questions about cash are answered by the statement of cash flows?
11.15 Which of the following provides a useful comparison with the profit margin? LO5(a) Capital expenditure ratio.(b) Cash return on sales ratio.(c) Cash debt coverage.(d) Current cash debt coverage.
11.14 Free cash flow provides an indication of a company’s ability to: LO5(a) generate profit.(b) generate cash to pay dividends.(c) generate cash to expand investment.(d) both (b) and (c).
11.13 The statement of cash flows should not be used to evaluate an entity’s ability to: LO5(a) earn profit.(b) generate future cash flows.(c) pay dividends.(d) meet obligations.
11.12 During the growth phase of an entity’s life cycle, you would normally expect to see: LO4(a) negative cash from operations, positive cash from investing, and positive cash from financing.(b) negative cash from operations, negative cash from investing, and positive cash from financing.(c)
11.11 During the introductory phase of an entity’s life cycle, one would normally expect to see: LO4(a) negative cash from operations, negative cash from investing, and positive cash from financing.(b) negative cash from operations, positive cash from investing, and positive cash from
11.10 LO3 Non-cash charges that are added back to profit in determining cash provided by operations under the indirect method do not include:(a) depreciation expense.(b) an increase in inventory.(c) amortisation expense.(d) loss on sale of equipment.
11.9 LO3 Profit is $132 000, accounts payable increased $10 000 during the year, inventory decreased $6000 during the year, and accounts receivable increased $12 000 during the year. Using the indirect method, what is net cash provided by operations?(a) $104 000.(b) $116 000.(c) $124 000.(d) $136
11.8 LO3 Which of the following items is reported on a statement of cash flows prepared using the direct method?(a) Bad debts expense.(b) Increase in accounts receivable.(c) Depreciation expense.(d) Cash payments to suppliers.
11.7 LO3 The beginning balance in accounts receivable is $44 000, the ending balance is $42 000, and sales during the period are $129 000. What are cash receipts from customers, assuming no bad debts or discounts allowed?(a) $127 000.(b) $129 000.(c) $131 000.(d) $141 000.
11.6 Which is an example of a cash flow from a financing activity? LO2(a) Receipt of cash from sale of land.(b) Issue of debt for cash.(c) Purchase of equipment for cash.(d) None of the above.
11.5 Cash dividends paid to shareholders are classified on the statement of cash flows as: LO2(a) operating activities.(b) investing activities.(c) a combination of (a) and (b).(d) financing activities.
11.4 Which is an example of a cash flow from an investing activity? LO2(a) Receipt of cash from the issue of debentures.(b) Payment of dividends.(c) Receipt of cash from the sale of equipment.(d) Payment of cash to suppliers for inventory.
11.3 Which is an example of a cash flow from an operating activity? LO2(a) Payment of wages.(b) Receipt of cash from the issue of shares.(c) Payment of cash dividends to the company’s shareholders.(d) None of the above.
11.2 Which of the following is not a non-cash activity? LO2(a) Issue of shares to purchase assets.(b) Issue of debt to purchase assets.(c) Payment of cash dividends.(d) Exchange of property, plant and equipment.
11.1 Which of the following is incorrect about the statement of cash flows? LO1(a) It is the third basic financial statement.(b) It provides information about cash receipts and cash payments of an entity during a period.(c) It reconciles the ending cash account balance to the balance as per the
11.5 use the statement of cash flows to evaluate an entity.
11.4 explain the impact of the product life cycle on an entity’s cash flows
11.3 prepare a statement of cash flows
11.2 distinguish among operating, investing and financing activities
11.1 indicate the main purpose of the statement of cash flows
10.15 Amber is a shareholder of Southern Ferns Ltd. The company’s return on ordinary shareholders’equity increased in 2019, but Amber received less dividends. Explain to Amber how this can occur.
10.14 Why do some companies have low dividend payout rates?
10.13 Specialist Brewers Ltd is considering buying more equipment but is concerned that the additional debt it needs to borrow will make its liquidity and solvency ratios look bad. What options does the company have other than borrowing to buy the equipment, and how will these options affect the
10.12 List the three components of equity and give examples of transactions or events that can increase each component.
10.11 Describe the interrelationship between the statement of profit or loss, the statement of profit or loss and other comprehensive income, and the statement of changes in equity.
10.10 Button Ltd has been in operation for 3 years. All of its manufacturing equipment, which has a useful life of 10 to 12 years, has been depreciated on a straight-line basis. During the fourth year, Button Ltd changes to an accelerated depreciation method for all of its equipment.(a) Will Button
10.9 Buck Ltd purchased a machine with an expected useful life of 4 years and nil residual value. After 2 years the estimated useful life was revised to 3 years. The manager of Buck Ltd suggested that the resulting additional depreciation should be charged against retained earnings. Is this
10.8 During 2018, the accountant for Lu Ltd discovered an error in the 2017 statements. The effect of the error was to overstate an asset and understate expenses. How should the accountant correct the error in 2018?
10.7 Explain the effect of a 2-for-1 share split on the following:(a) the number of issued shares.(b) the share capital account.(c) equity.
10.6 Contrast the effects of a cash dividend and a share dividend on a company’s statement of financial position.
10.5 What conditions in Australia and in New Zealand must be met before a cash dividend is paid?
10.4 What are the basic ownership rights of ordinary shareholders?
10.3 (a) Your friend Stuart cannot understand how the characteristic of company management is both an advantage and a disadvantage. Clarify this problem for Stuart.(b) Identify and explain other disadvantages of a company.
10.2 Jie Li, a student, asks your help in understanding some characteristics of a company. Explain each of these to Jie:(a) Separate legal existence.(b) Limited liability of shareholders.(c) Transferable ownership rights.(d) Company management.
10.1 Identify three groups that use equity information in decision making and distinguish between the nature and the sources of information each group requires.
10.18 LO10 Which of the decision-making tools would you recommend for a manager choosing between debt finance and issuing shares to raise funds for an investment project?(a) Compare profit before tax for each funding alternative.(b) Choose debt finance because interest is tax deductible.(c) Choose
10.17 Which of the following directly increases return on ordinary shareholders’ equity? LO9(a) A decrease in average equity.(b) A decrease in profit available to ordinary shareholders.(c) A lower dividend payout.(d) A share split.
10.16 Which of the following increases the dividend payout? LO9(a) An increase in average equity.(b) An increase in profits, while the payout per share remains the same.(c) A decrease in profits, while the payout per share remains the same.(d) A decrease in average equity.
10.15 LO9 Duncan Ltd had the following account balances at 30 June 2018: Share capital $100 000, Retained earnings $30 000, General reserve $8000, Dividends payable $2000, and Cash $12 000. What is the total equity for Duncan Ltd at 30 June 2018?(a) $152 000.(b) $140 000.(c) $138 000.(d) $136 000.
10.14 A low return on ordinary shareholders’ equity indicates: LO9(a) shareholder confidence.(b) low profitability on shareholders’ funds.(c) low return on assets.(d) high leverage.
10.13 A low dividend payout may indicate that the company: LO9(a) generated low levels of profit.(b) paid high dividends.(c) is retaining profit to pursue a growth strategy.(d) has share capital surplus to needs.
10.12 Which of the following decreases retained earnings? LO8(a) Share dividends declared.(b) Payment of a cash dividend previously declared.(c) Transfer from reserves.(d) Profit after tax.
10.11 Which of the following is not an equity account? LO3, 8(a) Share capital.(b) Reserves.(c) Retained earnings.(d) Dividends payable.
10.10 Retained earnings are: LO8(a) increased by cash dividends declared.(b) increased by all dividends declared.(c) decreased by transfers to reserves.(d) increased by losses after tax.
10.9 Which of the following is not part of comprehensive income? LO7(a) Prior period errors.(b) Discontinuing operations.(c) Changes in accounting estimates.(d) Dividends paid.
10.8 Which of the following is not classified as an irregular item? LO6(a) Change in accounting policy.(b) Bad debts expenses.(c) Changes in accounting estimates.(d) Prior period errors.
10.7 Which of the following is not true in relation to earning power? LO6(a) Earning power is the most likely level of profit to be obtained in the future.(b) Earning power is the extent to which this year’s profit is a good predictor of future profits.(c) Profit adjusted for irregular items is
10.6 Which of the following conditions is necessary for a company to pay cash dividends? LO5(a) Dividends must be paid from retained earnings.(b) The company must pay the cash dividend at least once a year.(c) After paying the dividend, the company must be able to pay its other debts, i.e. the
10.5 Which of these statements about share dividends is true? LO5(a) A credit entry should be made to retained earnings for the dollar amount of the shares issued.(b) A share dividend increases share capital.(c) A share dividend decreases total equity.(d) A share dividend ordinarily will increase
10.4 Entries for cash dividends reduce equity on: LO5(a) both declaration date and payment date.(b) payment date only.(c) declaration date only.(d) neither declaration date nor payment date.
10.3 A share split has the effect of: LO4(a) increasing the number of shares.(b) increasing the amount of share capital.(c) decreasing the amount of share capital.(d) increasing equity.
10.2 Which of these statements is false? LO2, 3(a) Ownership of ordinary shares gives the owner a voting right.(b) The equity section begins with share capital (contributed equity).(c) The transfer of shares between shareholders does not result in a formal accounting entry.(d) Shares can be issued
10.1 Which of these is not a major advantage of the corporate form of business organisation? LO2(a) Separate legal existence.(b) Continuous life.(c) Separation of ownership and management.(d) Limited liability of shareholders.
10.10 evaluate debt and equity as alternative sources of finance.
10.9 evaluate a company’s dividend and earnings performance from a shareholder’s perspective
10.8 identify the items that affect retained earnings
10.7 identify components of comprehensive income and changes in equity
10.6 understand the concept of earning power and indicate how irregular items are presented
10.5 prepare the entries for cash dividends and share dividends and describe the impact on equity and assets
10.4 describe the effects of share splits
10.3 record the issue of ordinary shares
10.2 identify and discuss the main characteristics of a corporation (company)
10.1 explain the business context and the importance of decision making relating to equity
9.10 Explain the difference between a finance lease and an operating lease.
9.9 Gotham Ltd has a current ratio of 1.25:1. Bruce Wayne has always been told that an entity’s current ratio should exceed 2:0. Gotham Ltd argues that its ratio is low because it has a minimal amount of inventory on hand so as to reduce operating costs. What other measures might Bruce check to
9.8 What are the main features of a mortgage loan? How should a mortgage liability be reported on the statement of financial position?
9.7 Ms Dwyer, the manager of Dwyer’s Dryers, thinks that warranty liabilities should be recognised only when the customer makes a warranty claim. Is this consistent with generally accepted accounting principles?
9.6 Explain the difference between a provision and a contingent liability.
9.5 Explain the difference between a provision and other types of liabilities recognised on the statement of financial position.
9.4 Northumbria Ltd issued a $50 000, 8%, 3-month note on 1 October. Interest is payable on 1 January.How much interest should be accrued as at 31 December in relation to the note?
9.3 Sandra Leung and Nikki Young are discussing how the market price of an unsecured note is determined.Nikki believes that the market price of a note is solely a function of the amount of the principal payment at the end of the term of a note. Is she right? Discuss.
9.2 Wellington University sold 5000 season football tickets at $50 each for its 5-game home schedule.What entries should be made (a) when the tickets are sold and (b) after each game?
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