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Financial Accounting Reporting Analysis And Decision Making 6th Edition Shirley Carlon - Solutions
9.1 Simon Harris believes a current liability is a debt that can be expected to be paid in 1 year. Is Simon correct? Explain.
9.15 LO6 Assuming the required lease accrual was made at 31 December, the payment of the first lease payment would be recorded as follows in the books of the lessee:(a) Feb. 28 Lease payable 100 Lease expense 200 Cash 300(b) Feb. 28 Lease payable 200 Lease expense 100 Cash 300(c) Feb. 28 Lease
9.14 LO6 The entry to account for the lease payment accrual at the end of the period in the records of the lessee would be:(a) No accrual required, the transaction would be recorded on the date the lease payment was made.(b) June 30 Lease expense 100 Lease payable 100(c) Dec. 31 Lease expense 100
9.13 Which of the following is not true in relation to leases? LO5(a) An operating lease is where the lessee effectively retains the risks and rewards of owning an asset.(b) An operating lease is where the lessor effectively retains the risks and rewards of owning an asset.(c) A finance lease is
9.12 Which of the following are considered to be advantages of operating leases for the lessee? LO5(a) Access to a wide variety of non-current assets.(b) Tax deductibility of lease payments.(c) The risk of obsolescence of the non-current asset remains with the lessor.(d) All of the above.
9.11 Which of the following is true with regard to contingent liabilities? LO7(a) Can be measured reliably.(b) Are recognised in the statement of financial position.(c) Are disclosed in the notes to the financial statements.(d) Are based on a past transaction or event.
9.10 LO9 Adelaide Boats Ltd had current liabilities of $5 million, non-current liabilities of $10 million and total assets of $20 million. What is Adelaide Boats Ltd’s debt to total assets ratio?(a) 1.3:1.(b) 0.5:1.(c) 0.75:1.(d) 0.25:1.
9.9 LO9 In a recent year Kennedy Ltd had profit after tax of $150 000, interest expense of $30 000, and tax expense of $20 000. What was Kennedy Ltd’s times interest earned for the year?(a) 5.00.(b) 4.00.(c) 6.67.(d) 7.50.
9.8 LO3 Gester Ltd redeems its $100 000 face value debentures at 105 on 31 January, following the payment of half-yearly interest. The carrying amount of the debentures at the redemption date is $100 000.The entry to record the redemption will include a:(a) credit of $5000 to gain on redemption of
9.7 LO3 Karson Ltd issues 10-year unsecured notes with a maturity value of $200 000. If the notes are issued at a premium, this indicates that:(a) the face value exceeds the amount received.(b) the issue price exceeds the face value.(c) the contractual interest rate and the market interest rate are
9.6 Which of the following is not a measure of liquidity? LO9(a) Debt to total assets ratio.(b) Working capital.(c) Current ratio.(d) Quick ratio.
9.5 An obligation for long service leave payable 6 years from now is recognised as: LO3(a) a contingent liability.(b) a non-current provision.(c) a current provision.(d) none of the above; it is not recognised.
9.4 LO2 Amounts deducted from employees’ wages but not yet paid to a third party are recognised as:(a) an asset.(b) an expense.(c) a liability.(d) none of the above; they are not recognised.
9.3 Which of the following would not be included in the numerator of the quick ratio? LO9(a) Inventory.(b) Cash.(c) Short-term investments.(d) Accounts receivable.
9.2 Which of the following is not a current liability? LO1(a) Allowance for doubtful debts.(b) Revenue received in advance.(c) Current portion of long-term debt.(d) Payroll deduction not yet remitted.
9.1 To be classified as a current liability, a debt must be expected to be paid: LO1(a) within 1 year.(b) within the operating cycle.(c) within 2 years.(d) either (a) or (b).
9.9 evaluate an entity’s liquidity and solvency.
9.8 prepare entries to record provisions for warranties
9.7 explain the differences between provisions, contingencies and other types of liabilities and explain how to report contingent liabilities
9.6 complete basic journal entries for accounting for leases and explain how to report leases
9.5 identify the advantages of leasing and explain the difference between an operating lease and a finance lease
9.4 prepare journal entries for loans payable by instalment and distinguish between current and non-current components of long-term debt
9.3 identify common types of non-current liabilities, such as debentures and unsecured notes, and explain how to account for them
9.2 identify common types of current liabilities and explain how to account for them
9.1 explain the differences between current and non-current liabilities
8.12 You are comparing two entities in the same industry. You have determined that Amber Ltd depreciates its PPE assets over a 30-year life, whereas Jonty Ltd depreciates its PPE assets over a 40-year life. Discuss the implications this has for comparing the results of the two entities.
8.11 What are agricultural assets?
8.10 Explain the accounting treatment for revaluation of assets.
8.9 Goodwill could be described as the value of all favourable attributes that relate to a business as a whole. What types of attributes could result in goodwill?
8.8 What are the similarities and differences between depreciation, amortisation and depletion?
8.7 How is a gain or a loss on the sale of a PPE asset calculated?
8.6 Distinguish between expenses and capital expenditures during an asset’s useful life.
8.5 Contrast the effects of the three depreciation methods explained in this chapter on annual depreciation expense.
8.4 What are the main advantages of leasing?
8.3 What impact does GST have on accounting for non-current assets?
8.2 James Knight is uncertain about how the cost principle applies to PPE assets. Explain this to James.
8.1 Identify three key decisions involving non-current assets.
8.15 LO14 In relation to evaluating non-current assets indicate which of the following statements is true.(a) The older the assets are, the better the company is performing.(b) Too high a depreciation rate will result in increased reported profits for the period.(c) The higher the asset turnover,
8.14 In relation to natural resources, indicate which of the following statements is true. LO13(a) The value of the mineral or oil deposit is reflected on the statement of financial position.(b) Similar to agricultural assets, the assets are regenerative.(c) Preproduction costs must be expensed as
8.13 In relation to agricultural assets, indicate which of the following statements is true. LO12(a) The assets include only items purchased in an external transaction.(b) The assets remain as agricultural assets until sold.(c) The assets at the end of the reporting period are measured at fair
8.12 LO4 Kant Ltd purchased a truck for $11 000 on 1 January 2018. The truck will have an estimated residual value of $1000 at the end of 5 years. If you use the units-of-production method, the balance in accumulated depreciation at 31 December 2019 can be calculated by the following formula:(a)
8.11 LO10 If an entity reports goodwill as an intangible asset on its books, what is the one thing you know with certainty?(a) The entity is a valuable company worth investing in.(b) The entity has a well-established brand name.(c) The entity purchased another business.(d) The goodwill will
8.10 Indicate which one of these statements is true. LO10(a) Since intangible assets lack physical substance, they need to be disclosed only in the notes to the financial statements.(b) Goodwill should be reported as a contra account in the equity section.(c) Totals of major classes of assets can
8.9 LO10 Pierce Ltd incurred $150 000 of research and development costs in its laboratory to develop a new product. It spent $20 000 in legal fees for a patent granted on 2 January 2019. On 31 July 2022, Pierce paid $15 000 for legal fees in a successful defence of the patent. What is the total
8.8 LO14 Which of the following measures provides an indication of how efficient an entity is in using its assets?(a) Current ratio.(b) Average useful life.(c) Average age of PPE assets.(d) Asset turnover.
8.7 Additions to PPE assets: LO5(a) are expenses.(b) increase a Repair expense account.(c) increase a Purchases account.(d) are capital expenditures.
8.6 When there is a change in estimated depreciation: LO4(a) previous depreciation should be corrected.(b) current and future years’ depreciation should be revised.(c) only future years’ depreciation should be revised.(d) none of the above.
8.5 LO4 An entity would minimise its depreciation expense in the first year of owning an asset if it used:(a) a high estimated life, a high residual value, and diminishing-balance depreciation.(b) a low estimated life, a high residual value, and straight-line depreciation.(c) a high estimated life,
8.4 LO4 Cuso Ltd purchased equipment on 1 January 2018 at a total invoice cost of $440 000 (including GST of 10%). The equipment has an estimated residual value of $20 000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at 31 December 2020 if the
8.3 Depreciation is a process of: LO3(a) valuation.(b) cost allocation.(c) cash accumulation.(d) appraisal.
8.2 LO2 Harrington Ltd recently leased a number of trucks from Andre Ltd. In inspecting the books of Harrington Ltd, you notice that the trucks have not been recorded as assets on its statement of financial position. From this you can conclude that Harrington Ltd is accounting for this transaction
8.1 Corrieten Ltd purchased equipment and these costs were incurred: LO2 Cash price $18 000 Delivery costs 1 200 Insurance during transit 300 Installation and testing 500 Total costs $20 000 What amount should be recorded as the cost of the equipment?(a) $18 000.(b) $19 500.(c) $19 200.(d) $20 000.
8.14 indicate how non-current assets are reported in the statement of financial position, and explain the methods of evaluating the use of non-current assets.
8.13 account for the acquisition and depletion of natural resources
8.12 explain the nature and measurement of agricultural assets
8.11 describe the common types of intangible assets
8.10 identify the basic issues related to reporting intangible assets
8.9 describe the use of an asset register
8.8 account for the disposal of property, plant and equipment assets
8.7 account for the revaluation of property, plant and equipment assets
8.6 account for asset impairments
8.5 account for subsequent expenditures
8.4 calculate depreciation using various methods and contrast the expense patterns of the methods
8.3 explain the concept of depreciation
8.2 describe how the cost principle applies to property, plant and equipment assets
8.1 explain the business context of non-current assets and the need for decision making for these assets
7.12 Jayne’s Gourmet Delivery is in its second year of operation. All sales are on credit and the business has a credit term of 30 days. You have just worked out that the receivables turnover is 8 times this year. Comment on the effectiveness of the collection policy.
7.11 Simona Ltd’s operating cycle is 1 year. How would the following receivables be classified on the statement of financial position?(a) Trade debtor account of $500 000, of which 70% is due within 1 month with the balance due in 18 months.(b) A 90-day promissory note.
7.10 Soo Eng cannot understand why the net amount of accounts receivable does not decrease when an uncollectable account is written off under the allowance method. Clarify this point for Soo Eng.
7.9 What is the difference between an account receivable and a note receivable?
7.8 (a) Identify the three activities that pertain to a petty cash fund, and indicate an internal control principle that is applicable to each activity.(b) When are journal entries required in the operation of a petty cash fund?
7.7 Johnny Harris asks your help concerning a dishonoured cheque. Explain to Johnny (a) what a dishonoured cheque is, (b) how it is treated in a bank reconciliation and (c) whether it will require an adjusting entry in the business’s records.
7.6 Describe the basic principles of cash management.
7.5 Dent Department Stores has just installed new electronic cash registers in its stores. How do cash registers improve internal control over cash receipts?
7.4 Highland Ltd owns these assets at year-end:Cash at bank—savings account $15 000 Cash on hand 1 850 GST refund due 4 000 Cheque account balance 22 000 What amount should be reported as Cash in the statement of financial position?
7.3 ‘Internal control for handling cash is concerned only with enhancing the accuracy of the accounting records.’ Do you agree? Explain.
7.2 Continue with question 7.1 above. Describe the electronic banking processes to Edward as he is setting up his business on campus.
7.1 Edward Lee is about to start a business selling smartphone accessories on campus. Explain the impact of business transactions on cash by giving examples of the transactions that involve cash at the start-up phase of the business.
7.17 LO10 Morgan Retailers accepted $50 000 of Citibank Visa credit card charges for inventory sold. Citibank deducts charges of 4% for its credit card use. The entry to record this transaction by Morgan Retailers will include a credit to Sales of $50 000 and a debit(s) to:(a) Cash $48 000 and
7.16 LO10 Hoffman Pty Ltd sells its goods on terms of 2/7, n/30. It has a receivables turnover of 7. What is its average collection period (days)?(a) 2555(b) 30(c) 52(d) 210
7.15 LO10 Moore Ltd had net credit sales during the year of $800 000 and cost of sales of $500 000. The balance in receivables at the beginning of the year was $100 000 and at the end of the year was$150 000. What was the receivables turnover?(a) 6.4(b) 8.0(c) 5.3(d) 4.0
7.14 LO8 Schlicht Ltd holds Osgrove Ltd’s $10 000, 120-day note. The entry made by Schlicht Ltd when the note is collected at maturity is:(a) Cash 10 000 Notes receivable 10 000(b) Cash 10 000 Accounts receivable 10 000(c) Accounts receivable 10 000 Notes receivable 10 000(d) Notes receivable 10
7.13 LO8 Tyres R Us Ltd accepts a $1400, 3-month promissory note in settlement of an account with Parton Ltd. The entry to record this transaction is:(a) Accounts receivable 1 400 Notes receivable 1 400(b) Notes receivable 1 400 Accounts receivable 1 400(c) Notes receivable 1 400 Sales 1 400(d)
7.12 Which of these statements about promissory notes is incorrect? LO7(a) The party making the promise to pay is called the issuer.(b) The party to whom payment is to be made is called the payee.(c) A promissory note is not a negotiable instrument.(d) A promissory note is more liquid than an
7.11 LO9 An analysis and ageing of the accounts receivable of Machiavelli Ltd at 31 December reveal these data:Accounts receivable $800 000 Allowance for doubtful debts per business records before adjustment (credit) 50 000 Amounts expected to become uncollectable 65 000 What is the recoverable
7.10 In 2020 Norman Pty Ltd had net credit sales of $75 000. On 1 July 2019, the allowance for doubtful debts had a credit balance of $1800. During 2020, $3000 of uncollectable accounts receivable were written off. Ageing of accounts receivable revealed that the allowance should be 8% of the
7.9 LO8 Net credit sales for the month are $800 000. The accounts receivable balance is $160 000. The allowance is calculated as 7.5% of the receivables balance using the ageing of receivables method.If the allowance for doubtful debts has a credit balance of $5000 before adjustment, what is the
7.8 LO8 Jones Pty Ltd on 15 June sells inventory on account to Bullock Ltd for $1000, terms 2/7, n/30.On 20 June Bullock Ltd returns inventory worth $300 to Jones Pty Ltd. On 21 June payment is received from Bullock Ltd for the balance due. What is the amount of cash received?(a) $700.(b) $680.(c)
7.7 LO11 A cheque is written to replenish a $100 petty cash fund when the fund contains receipts of $94 and$3 in cash. In recording the cheque:(a) Cash over and short should be debited for $3.(b) Petty cash should be debited for $94.(c) Cash should be credited for $94.(d) Petty cash should be
7.6 Which of the following ratios is an indication of the effectiveness of cash management? LO6(a) Inventory turnover ratio.(b) Gross margin ratio.(c) Cash to daily cash expenses ratio.(d) Return on assets.
7.5 Which of the following is not an effective way to manage cash? LO5(a) Invest idle cash.(b) Hold excessive inventory.(c) Speed up collection of accounts receivable.(d) Stretch payment for accounts payable.
7.4 LO4 In a bank reconciliation, when the bank statement shows a credit balance, outstanding deposits are:(a) deducted from the business records balance.(b) added to the business records balance.(c) added to the balance as per bank statement.(d) deducted from the balance as per bank statement.
7.3 The use of prenumbered cheques in disbursing cash is an application of the principle of: LO3(a) establishment of responsibility.(b) segregation of duties.(c) physical, mechanical and electronic controls.(d) documentation procedures.
7.2 LO3 Permitting only designated personnel such as cashiers to handle cash receipts is an application of the principle of:(a) segregation of duties.(b) establishment of responsibility.(c) independent internal verification.(d) rotation of duties.
7.1 Which of the following business transactions do not involve cash? LO1(a) Collecting accounts receivable.(b) Buying office supplies.(c) Paying wages to workers.(d) Accruing depreciation expense.
7.11 explain the operation of a petty cash fund.
7.10 analyse and manage receivables
7.9 describe how receivables are reported in financial statements
7.8 describe how to value receivables
7.7 identify the different types of receivables
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