Questions and Answers of Fundamentals Of Financial Accounting 7th Edition

Explain what the following accounting terms mean:a. Cost principleb. Conservatism
Blockbuster, Inc., is the world's leading provider of rentable DVDs and videogames. Blockbuster estimates that 64 percent of the U.S. population lives within a 10-minute drive of a Blockbuster store.
Jessica Pothier opened FunFlatables on June 1, 2010. The company rents out moon walks and inflatable slides for parties and corporate events. The company also has obtained the use of an abandoned ice
What is a contra-asset? Give an example of one.
The following information was reported in the December 31, 2007, financial statements of Southwest Airlines, Inc. (listed alphabetically, amounts in millions). Accounts Payable $1,731 Accounts
Home Realty, Incorporated, has been operating for three years and is owned by three investors. J. Doe owns 60 percent of the total outstanding stock of 9,000 shares and is the managing executive in
Refer to the information in E7-2.Required:For each item (a)–(d), prepare the journal entry to correct the balances presently reported. If a journal entry is not required, indicate so.Data From
Which of the following is not a name for a specific type of inventory?a. Finished goods.b. Merchandise inventory.c. Raw materialsd. Goods available for sale.
Which of the following correctly expresses the cost of goods sold equation, as used in a periodic system?a. BI + CGS − P = EIb. BI + P − EI = CGSc. BI + P − CGS = EId. BI + EI − P = CGS
A New York bridal dress designer that makes high-end custom wedding dresses and needs to know the exact cost of each dress most likely uses which inventory costing method?a. FIFOb. LIFOc. Weighted
If costs are rising, which of the following will be true?a. The cost of goods sold will be greater if LIFO is used rather than weighted average.b. The cost of ending inventory will be greater if FIFO
Which inventory method provides a better matching of current costs with sales revenue on the income statement but also results in older values being reported for inventory on the balance sheet?a.
An increasing inventory turnover ratioa. Indicates a longer time span between the ordering and receiving of inventory.b. Indicates a shorter time span between the ordering and receiving of
You plan to retire in 20 years. Use the time value of money tables to calculate whether it is better for you to save $25,000 a year for the last 10 years before retirement or $15,000 for each of the
Define accounting.
1. How much inventory does the company hold on January 29, 2017? Does this represent an increase or decrease in comparison to the prior year?a. $11,809, which is a decreaseb. $11,809, which is an
The inventory costing method selected by a company can affecta. The balance sheet.b. The income statement.c. The statement of retained earnings.d. All of the above.
Refer to the financial information in S6-5Required:Analyze the financial information to identify three observations that lead to concerns that the inventory will need to be written down to comply
During fiscal 2014, BlackBerry Limited wrote down its BB10 smartphone inventory by approximately $1,700,000,000 because its cost exceeded its net realizable value. Show the effects of this adjustment
When a company using the allowance method writes off a specific customer’s account receivable from the accounting system, how many of the following are true?• Total stockholders’ equity remains
A company wishes to report the highest earnings possible according to GAAP. Therefore, when calculating depreciation for financial reporting purposes,a. It will follow the MACRS depreciation rates
Golden Corporation declared and paid $3,000 of cash dividends during the current year ended December 31. Its financial statements also reported the following summarized data:Required:1. Complete the
Which of the following regarding the lower of cost or market/net realizable value rule for inventory are true?i. When the value of inventory increases above the original cost of inventory shown in
In which of the following situations is an LCM/NRV write-down most likely required?a. Increasing inventory turnover ratio, decreasing gross profit percentage.b. Decreasing inventory turnover ratio,
Pinnacle Plus declared and paid a cash dividend of $6,600 in the current year. Its comparative financial statements, prepared at December 31, reported the following summarized information:Required:1.
Tiger Audio declared and paid a cash dividend of $5,525 in the current year. Its comparative financial statements, prepared at December 31, reported the following summarized information:Required:1.
Which of the following ratios is not used to analyze profitability?a. Net profit margin ratio.b. Gross profit percentage.c. Current ratio.d. Return on equity.
Use the data given in PB13-1 for Tiger Audio.Required:1. Compute the gross profit percentage in the current and previous years. Are the current year results better, or worse, than those for the
Looking back over the last few years, it is clear that Nicole Mackisey has accomplished a lot running her business, Nicole’s Getaway Spa (NGS). Nicole is curious about her company’s performance
How is a year-over-year percentage calculated?
Use the information in E13-3 to complete the following requirement.Required:Compute the times interest earned ratios for 2016 and 2015. In your opinion, does Computer Tycoon generate sufficient net
Given the following ratios for four companies, which company is least likely to experience problems paying its current liabilities promptly? Current Ratlo Recelvables Turnover Ratlo а. 1.2 7.0 b.
A decrease in Selling and Administrative Expenses would directly impact what ratio?a. Fixed asset turnover ratio.b. Times interest earned.c. Current ratio.d. Gross profit percentage.
Which of the following accounting concepts do accountants and auditors assess by using financial analyses?a. Time period.b. Separate entity.c. Full disclosure.d. Going-concern assumption.
Dollar General Corporation operates general merchandise stores that feature quality merchandise at low prices to meet the needs of middle-, low-, and fixed income families in southern, eastern, and
Which of the following would not directly change the receivables turnover ratio for a company?a. Selling your inventory on credit at higher prices.b. A change in your credit policy.c. Increases in
According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2016. Let’s see
Electronic Arts is a video game company that competes with Activision Blizzard. A condensed balance sheet for Electronic Arts and a partially completed vertical analysis are presented
A condensed balance sheet for Southwest Airlines and a partially completed vertical analysis are presented below.Required:1. Complete the vertical analysis by computing each line item (a)–(c) as a
Which of the following ratios is used to analyze liquidity?a. Earnings per share.b. Debt-to-assets.c. Current ratio.d. Both b and c.
Use the information in E13-3 to complete the following requirements.Required:1. Compute the gross profit percentage for each year (rounded to one decimal place). Assuming that the change from 2015 to
A condensed income statement for Southwest Airlines and a partially completed vertical analysis follow.Required:1. Complete the vertical analysis by computing each line item (a)–(f) as a percentage
This case is available online in the Connect eBook. To complete this case, you will consider the negative effects of auditors (a) Failing to identify going-concern problems that exist (b)
Analysts use ratios toa. Compare different companies in the same industry.b. Track a company’s performance over time.c. Compare a company’s performance to industry averages.d. All of the above
Which of the following ratios incorporates stock market data?a. Inventory turnover.b. Earnings per share.c. Price/earnings ratio.d. All of the above.
A bank is least likely to use which of the following ratios when analyzing the likelihood that a borrower will pay interest and principal on its loans?a. Current ratio.b. Debt-to-assets ratio.c.
Which of the following items is reported net of related income taxes?a. Gain or loss from discontinued operations.b. Gain or loss from disposal of property, plant, and equipment.c. Interest on
Good Sports, Inc., is a private full-line sporting goods retailer. Assume one of the Good Sports stores reported current assets of $88,000 and its current ratio was 1.75, and then completed the
What is the going-concern assumption? What is a going-concern problem? What factors can contribute to such a problem?
You are saving up for a Mercedes-Benz SLR McLaren, which currently sells for nearly half a million dollars. Your plan is to deposit $15,000 at the end of each year for the next 10 years. You expect
Use present value tables to compute the present value of $500,000 to be paid in 10 years, with an interest rate of 8 percent. Round to the nearest dollar.
On January 1, you deposited $6,000 in an investment account. The account will earn 10 percent annual compound interest, which will be added to the fund balance at the end of each year.Required1. What
Assume you won the big prize of “$20 million” on a game show. This prize will be paid out in one of three ways: (1) You can receive $1 million per year for the next 20 years, (2) You
Which of the following is a characteristic of an annuity?a. An equal dollar amount each interest period.b. Interest periods of equal length.c. An equal interest rate each interest period.d. All of
Assume you bought a car using a loan that requires payments of $3,000 to be made at the end of every year for the next three years. The loan agreement indicates the annual interest rate is 6 percent.
Use present value tables to compute the present value of 10 equal payments of $15,000, with an interest rate of 10 percent. Round to the nearest dollar.
Which of the following is most likely to be an annuity?a. Monthly payments on a credit card bill.b. Monthly interest earned on a checking account.c. Monthly payments on a home mortgage.d. Monthly
On each December 31, you plan to transfer $2,000 from your checking account into an investment account. The investment account will earn 4 percent annual interest, which will be added to the account
Assume you bought a state-of-the-art entertainment system, with no payments to be made until two years from now, when you must pay $6,000. If the going rate of interest on most loans is 5 percent,
On January 1, you plan to take a trip around the world upon graduation four years from now. Your grandmother wants to deposit sufficient funds for this trip in an investment account for you. On the
Assuming the facts in question 4, what is the system’s equivalent cost if you were to pay for it today?a. $5,442b. $11,100c. $6,615d. $12,300
Which of the following statements is true?a. When the interest rate increases, the present value of a single amount decreases.b. When the number of interest periods increases, the present value of a
Which of the following describes how to calculate a bond’s issue price? Face Value Interest Payments a. Present value of single amount Future value of annuity b. Future value of single amount
If interest is compounded quarterly, rather than yearly, how do you adjust the number of years and annual interest rate when using the present value tables? Number of years Annual interest rate a.
On August 4, 2018, Cappio Corporation purchased 1,000 shares of Maxwell Company for $45,000. The following information applies to the fair value of Maxwell Company:Maxwell Company declares and pays
On July 12, 2018, Rossow Corporation purchased 1,000 shares of Reimer Company for $30,000. The following information applies to the fair value of Reimer Company:Reimer Company declares and pays cash
Company A owns 40 percent of Company B and exercises significant influence over the management of Company B. Therefore, Company A uses what accounting method for reporting its ownership of stock in
On June 30, 2018, MetroMedia, Inc., purchased 10,000 shares of Mitek’s 900,000 outstanding shares of stock for $20 per share. The following information pertains to the fair value of Mitek
Bart Company had outstanding 30,000 shares of common stock, par value $10 per share. On January 1, 2018, Homer Company purchased some of these shares at $25 per share. At the end of 2018, Bart
Lisa Company had outstanding 100,000 shares of common stock. On January 10, 2018, Marg Company purchased a block of these shares in the open market at $20 per share, with the intent of holding the
Company A purchases 10 percent of Company X (a publicly traded company) to earn a return on funds it anticipates soon having to access for day-to-day operations. At the end of the current year, how
On March 10, 2018, Global Solutions, Inc., purchased 5,000 shares of Superior Technology’s 2,000,000 shares of stock for $50 per share. The following information pertains to the fair value of
Consolidated financial statements are required in which of the following situations?a. Only when a company can exert significant influence over another company.b. Only when a company has a passive
When recording dividends received from a stock investment accounted for using the equity method, which of the following statements is true?a. Total assets are increased and net income is increased.b.
When using the equity method of accounting, when is revenue recorded on the books of the investor company?a. When the fair value of the affiliate stock increases.b. When a dividend is received from
Dividends received from stock that is reported as investment in marketable equity securities in the balance sheet are reported as which of the following?a. An increase to cash and a decrease to the
Gains and losses are recorded on the income statement for which of the following transactions?a. When adjusting investments in marketable equity securities for changes in fair value.b. When adjusting
Schlumber Corp. paid $200,000 to purchase 30 percent of the stock of Schleep, Inc., this year. At the end of the year, Schleep reported net income of $50,000 and declared and paid dividends of
During the current year, Winterpeg Enterprises purchased common shares of Lakeview Development Corp. (LDC) for $200,000, received a $2,000 dividend from LDC, and saw the fair value of its investment
How would Computer Parts Corporation account for its passive investment in a company that is not publicly traded and whose fair value is not readily determinable?a. It must use the fair value
Use the financial calculator app shown in the appendix to answer MC-4. Round to the nearest dollar.Data From MC-4You plan to retire in 20 years. Use the time value of money tables to calculate
Refer to the financial statements of The Home Depot in Appendix A at the end of this book.1. Where does the company disclose the amount of its Allowance for Doubtful Accounts?a. On the income
When using the allowance method, as Bad Debt Expense is recorded,a. Total assets remain the same and stockholders’ equity remains the same.b. Total assets decrease and stockholders’ equity
Which of the following best describes the proper presentation of accounts receivable in the financial statements?a. Accounts Receivable plus the Allowance for Doubtful Accounts in the asset section
What is the effect of the write-off of uncollectible accounts (using the allowance method) on (a) Net income and (b) Net accounts receivable?
If the Allowance for Doubtful Accounts opened with a $10,000 credit balance, had write-offs of $5,000 (with no recoveries) during the period, and had a desired ending balance of $20,000 based on an
Which of the following best describes Accrued Liabilities?a. Long-term liabilities.b. Current amounts owed to suppliers of inventory.c. Expenses incurred but not paid at the end of the accounting
Xerox Corporation is the company that made the photocopier popular, but since then has grown a new business related to business process outsourcing. It recently disclosed the following information
For many years, Carefree Company has estimated Bad Debt Expense using the aging of accounts receivable method. Assuming Carefree has no write-offs or recoveries, its estimate of uncollectible
When an account receivable is “recovered”a. Total assets increase.b. Total assets decrease.c. Stockholders’ equity increases.d. None of the above.
A local phone company had a customer who rang up $300 in charges during September 2018 but did not pay. Despite reminding the customer of this balance, the company was unable to collect in October,
If a 5 percent note receivable for $100,000 is created on January 1, 2018, and it has a maturity date of December 31, 2021,a. No interest revenue will be recorded in 2018.b. The note receivable will
If the receivables turnover ratio decreased during the year,a. The days to collect also decreased.b. Receivables collections slowed down.c. Sales Revenues increased at a faster rate than Accounts
In 2016, Coca-Cola Bottling had a receivables turnover ratio of 11.5. Which of the following actions could Coca- Cola take to cause the ratio to increase?a. Pursue collections more aggressively.b.
Fraud Investigators Inc. operates a fraud detection service.Required:1. Prepare journal entries for each transaction below.a. On March 31, 10 customers were billed for detection services totaling
All else equal, if VFC incurs a 3 percent fee to factor $10,000 of its Accounts Receivable, its Net Income willa. Increase by $10,000.b. Increase by $9,700.c. Increase by $300.d. Decrease by $300.
Define long-lived assets. What are the two common categories of long-lived assets? Describe each.
Which of the following should be capitalized when a piece of production equipment is acquired for a factory?a. Sales taxb. Transportation costsc. Installation costsd. All of the above
Refer to the financial statements of The Home Depot in Appendix A at the end of this book.Required:1. What is the amount of Accumulated Depreciation and Amortization at January 29, 2017? What
When recording depreciation, which of the following statements is true?a. Total assets increase and stockholders’ equity increases.b. Total assets decrease and total liabilities increase.c. Total

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