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financial accounting

Questions and Answers of Financial Accounting

At December 31, 2014, White Company has the following:Common Stock, $10 par, 10,000 shares authorized, 9,000 issued, 8,000 outstandingRequiredIndicate whether the following would increase, decrease,
Refer to all of the facts in Problem 11-1.RequiredDevelop a statement of stockholders’ equity for Peeler Company for 2014. The statement should start with the beginning balance of each
On January 1, 2014, Svenberg Inc.’s Stockholders’ Equity category appeared as follows:Preferred stock, $80 par value, 8%, 1,000shares issued and outstanding
At December 31, 2014, Black Company has the following:Common Stock, $10 par, 10,000 shares authorized, 9,000 issued, 8,000 outstandingPreferred Stock, $100 par, 8%, cumulative, 1,000 shares
On January 1, 2014, Frederiksen Inc.’s Stockholders’ Equity category appeared as follows: Preferred stock, $80 par value, 7%, 3,000shares issued and outstanding
Favre Company has a history of paying cash dividends on its common stock. However, the firm did not have a particularly profitable year in 2014. At the end of the year, Favre found itself without the
The Stockholders’ Equity category of Rausch Company’s balance sheet as of December 31, 2014, appeared as follows:Preferred stock, $100 par, 8%, 2,000 sharesissued and outstanding
Morris had the following transactions during 20141. Issued 2,000 shares of $10 par common stock for cash at $17 per share.2. Issued 1,000 shares of preferred stock to acquire land. The preferred
The Stockholders’ Equity category of Greenbaum Company’s balance sheet as of December 31, 2014, appeared as follows:Preferred stock, $100 par, 8%, 1,000 sharesissued and outstanding
Peeler Company was incorporated as a new business on January 1, 2012. The corporate charter approved on that date authorized the issuance of 1,000 shares of $100 par, 7% cumulative, nonparticipating
Sports Central is a sporting goods store owned by Lewis, Jamal, and Lapin in partnership. On January 1, 2017, their capital balances were as follows:Lewis, Capital$20,000Jamal, Capital50,000Lapin,
Jets Bancorp Inc. purchased a portfolio of trading securities during 20Y3. The cost and fair value of this portfolio on December 31, 20Y3, was as follows:Journalize the entry to record the adjustment
At the end of Ilhan Department Store’s fiscal year on November 30, 2014, these accounts appeared in its adjusted trial balance.Freight-In
Selected condensed data taken from a recent statement of financial position of Morino Ltd. are as follows. Morino Ltd.Statement of
Prepare journal entries to record each of the following transactions. The company records purchases using the gross method and a perpetual inventory system.Aug. 1 Purchased merchandise with an
Giant plc bought a majority shareholding in Jack Ltd, on 31 March. On that date the statements of financial position of the two companies were as follows:Required: Assume that the statement of
The statements of financial position of Jumbo plc and of Nipper plc, on the date that Jumbo plc bought the shares in Nipper plc, were as follows:Required: Assume that the statement of financial
Arnold plc owns 75 per cent of the ordinary shares of Baker plc. The outline income statements of the two companies for the year ended on 31 December are as follows:Required: Prepare the
The summary statements of financial position for Apple Limited and Pear Limited are set out below.Apple Ltd purchased 150,000 shares in Pear Ltd at a price of £1.60 per share on 30 September
Abridged financial statements for Harvest Limited and Wheat Limited as at 30 June this year are set out below. On 1 July last year Harvest Limited acquired 800,000 ordinary shares in Wheat Limited
A year ago Pod Limited bought 225,000 £1 fully paid ordinary shares of Pea Limited for a consideration of £500,000. Pea Limited€™s share capital and share premium were each the
The statements of financial position for Maxi Limited and Mini Limited are set out below.On 1 April last year, Maxi Limited bought 1,500,000 shares of Mini Limited for a total con-sideration of
The following information has been taken from the accounts of Buttons Ltd for the year ended 30 September.During the year a dividend of £120,000 was announced and paid.Required:(a) Prepare a
What problems does a user of segmental financial statements face when seeking to make comparisons between businesses?
Segmental information relating to Dali plc for the year to 31 December 2009 is shown below.Required:Analyse the performance of each of the three main business segments for the year and comment on
Segmental information relating to Turner plc for the year to 30 April 2010 is shown below.Required: Analyse the performance of each of the three main business segments for the year and com-ment
The newly appointed chairman of Vorak plc has been told that considerable tension and suspicion exists between the executive and non-executive directors on the board. The executive directors question
Why have institutional shareholders become more active in corporate governance issues in recent years?
A large public company wishes to improve its payroll accounting systems and is seeking out-side help to do this. The external auditors of the company are a large firm of accountants that has a
Reviewing the risk management systems within a company goes beyond the traditional role of internal audit. What changes may have to be made to the internal audit function to enable it to carry out
What are the benefits of separating the roles of chairman and chief executive?
What are the main tasks of the board of directors?
Can you think of any drawbacks in providing interim financial statements for users?
‘The value added statement simply rearranges information contained within the conventional income statement. As a result it is of little value to users.’ Discuss the validity of this statement.
‘CCA is not a method of accounting for inflation. There is really only one method and that is CPP.’ What might be the justification for such a statement?
‘Including a VAS as part of the annual financial reports will undermine their credibility.’ What might be the basis for such criticism and do you think that it is valid?
What is an associate company and what are the consequences for accounting of one company being the associate company of a group of companies?
Quite often, when an existing company wishes to start a new venture, perhaps to produce a new product or render a new service, it will form a subsidiary company as a vehicle for the new venture. Why
What does a group statement of financial position show?
When does a group relationship arise and what are its consequences for accounting?
Identify and discuss three ratios (apart from those already mentioned in the chapter) that are likely to be affected by a business overtrading.
Identify and discuss three factors (apart from those mentioned in the chapter) that might influence the level of dividend per share a company decides to pay.
What potential problems arise particularly for the external analyst from the use of statement of financial position figures in the calculation of financial ratios?
The financial statements for Harridges Ltd are given below for the two years ended 30 June 2009 and 2010. Harridges Limited operates a department store in the centre of a small town.Dividends were
Bradbury Ltd is a family-owned clothes manufacturer based in the south west of England. For a number of years the chairman and managing director was David Bradbury. During his period of office, sales
Two businesses operate in the same industry. One has an inventories turnover period that is longer than the industry average. The other has an inventories turnover period that is shorter than the
What potential problems arise for the external analyst from the use of statement of financial position figures in the calculation of financial ratios?
The statements of financial position of Axis plc as at 31 December 2009 and 2010 and the income statement for the year ended 31 December 2010 were as follows:During the year, plant (a non-current
What causes the profit for the year not to equal the net cash inflow?
Torrent plc€™s income statement for the year ended 31 December 2010 and the statements of financial position as at 31 December 2009 and 2010 are as follows:During 2010, the business spent
Taking each of the categories of the statement of cash flows in turn, in which direction would you normally expect the cash flow to be? Explain your answer.(a) Cash flows from operating activities(b)
What is the difference between the direct and indirect methods of deducing cash generated from operations?
How will each of the following events ultimately affect the amount of cash?(a) An increase in the level of inventories(b) A rights issue of ordinary shares(c) A bonus issue of ordinary shares(d)
The typical business outside the service sector has about 50 per cent more of its resources tied up in inventories than in cash, yet there is no call for a ‘statement of inventories flows’ to be
Professor Myddleton argues that financial reporting standards should be limited to disclosure requirements and should not impose rules on companies as to how to measure particular items in the
Manet plc had the following share capital and reserves as at 1 January 2009: £mShare capital (£0.25 ordinary shares)...........................250Share premium
What problems are likely to be encountered when preparing summary financial statements for shareholders?
What are the main methods of creative accounting?
Thor plc has the following events occur between the end of the reporting period and the date the financial statements were authorised for issue:1 The discovery that, during the reporting period, an
Why do we need accounting rules?
‘Financial reporting standards eliminate the need for accountants to make judgements and so lower their professional status.’ Do you agree?
What are accounting policies and how should they be determined?
‘Searching for an agreed framework of principles for accounting rules is likely to be a journey without an ending.’ Discuss.
When preparing financial statements for the current period, Woden plc found that it had under-stated its revenue in error by £2 million in the previous period. How should the business report this
Presented below is a draft set of simplified financial statements for Pear Limited for the year ended 30 September 2010.The following information is available:1 Depreciation has not been charged on
Iqbal Ltd started trading on 1 January 2006. During the first five years of trading, the following occurred:Required: Assume that the company paid the maximum legal dividend each year. Under
What is a preference share? Compare the main features of a preference share with those of(a) An ordinary share; and(b) Loan notes.
Comment on the following quote:Limited companies can set a limit on the amount of debts that they will meet. They tend to have reserves of cash, as well as share capital and they can use these
How does the liability of a limited company differ from the liability of a real person, in respect of amounts owed to others?
The following is the income statement for Nikov and Co. for the year ended 31 December 2009, along with information relating to the preceding year.Required:Analyse the performance of the business for
The following is the statement of financial position of WW Associates as at 31 December 2008:During 2009, the following transactions took place:1 The owners withdrew equity in the form of cash of
The following is the statement of financial position of TT and Co. (see Self-assessment question 3.1 on page 105) at the end of its first year of trading:During 2010, the following transactions took
Singh Enterprises, which started business on 1 January 2007, has an accounting year to 31 December and uses the straight-line method of depreciation. On 1 January 2007 the business bought a machine
The following is a list of the assets and claims of Crafty Engineering Ltd at 30 June last year: £000Trade payables....................................................86Motor
‘Depreciation is a process of allocation and not valuation.’ What do you think is meant by this statement?
You have heard the following statements made. Comment critically on them.(a) ‘Equity only increases or decreases as a result of the owners putting more cash into the business or taking some
‘Although the income statement is a record of past achievement, the calculations required for certain expenses involve estimates of the future.’ What does this statement mean? Can you think of
You have been talking to someone who had read a few chapters of an accounting text some years ago. During your conversation the person made the following statements:(a) The income statement shows how
In recent years there have been attempts to place a value on the ‘human assets’ of a business in order to derive a figure that can be included on the statement of financial position. Do you think
While on holiday in Bridlington, Helen had her credit cards and purse stolen from the beach while she was swimming. She was left with only £40, which she had kept in her hotel room, but she had
What is meant by the accounting equation? How does the form of this equation differ between the two statement of financial position layouts mentioned in the chapter?
The equity of Paul’s business belongs to him because he is the sole owner of the business. Can you explain how the figure for equity by Thursday evening has arisen? You will need to look back at
‘The statement of financial position shows how much a business is worth.’ Do you agree with this statement? Explain the reasons for your response.
On Thursday, the fourth day of his business venture, Paul, the street trader in wrapping paper, bought more inventories for £53 cash. During the day he sold inventories that had cost £33 for a
An accountant prepared a statement of financial position for a business. In this statement, the equity of the owner was shown next to the liabilities. This confused the owner, who argued: ‘My
Financial accounting statements tend to reflect past events. In view of this, how can they be of any assistance to a user in making a decision when decisions, by their very nature, can only be made
What, in economic principle, should be the determinant of what accounting information is produced? Should economics be the only issue here? (Consider who are the users of accounting information.)
Identify the main users of accounting information for a university. For what purposes would different user groups need information? Is there a major difference in the ways in which accounting
What is the purpose of producing accounting information?
What is a reserve? Distinguish between a revenue reserve and a capital reserve.
Comment on the following quotes:(a) ‘Bonus shares increase the shareholders’ wealth because, after the issue, they have more shares, but each one of the same nominal value as they had
Fill in the values (a) to (f ) in the following table on the assumption that there were no opening balances involved. At end of period Relating to period Accruals/deferred Paid/Received
‘An asset is similar to an expense.’ Do you agree?
The owner of a business is confused and comes to you for help. The financial statements for the business, prepared by an accountant, for the last accounting period revealed a profit of £50,000.
What is the convention of consistency? Does this convention help users in making a more valid comparison between businesses?
The following items are classified as current liabilities on McDonald€™s consolidated statements of financial condition (or balance sheet) at December 31 (in millions):Required1.
On June 30, 2014, Rolloff Inc. borrowed $25,000 from its bank, signing a 6% note. Principal and interest are due at the end of two years.Required1. Assuming that the note earns simple interest for
On January 1, 2014, Chen Yu’s Office Supply Store plans to remodel the store and install new display cases. Chen has the following options of payment. Chen’s interest rate is 8%.a. Pay $270,000
Kathy Clark owns a small company that makes ice machines for restaurants and food-service facilities. Kathy knows a great deal about producing ice machines but is less familiar with the best terms to
On July 1, 2014, Leach Company needs exactly $103,200 in cash to pay an existing obligation. Leach has decided to borrow from State Bank, which charges 14% interest on loans. The loan will be due in

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