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business
principles financial accounting
Financial Accounting 9th Edition Dr Carl S. Warren, Dr James M. Reeve, Philip E. Fess - Solutions
22.3 Earnings per share is widely used, but it is a limited and potentially misleading figure.’ Discuss.
22.4 What is measured by the price/earnings ratio? How accurate or reliable do you think this measure is?
22.5 Obtain a copy of a published company report and prepare a report on its results, using the ratios covered in Chapters 21 and 22, for discussion in class.
22.6 ‘Ratio analysis can, I suppose, be of some use, but there are so many limitations in the use of this method that 1 doubt if it is worth bothering.’ Discuss this statement.
22.1 Cope Co. Ltd and Poole Ltd are two companies in the same industry. Their financial state¬ ments for the year ended 31 March 20X3 are summarised below.Balance sheets Cope Poole££££Called-up share capital 400,000 600,000 Profit and loss account 220,000 221,000£620,000£821,000 Fixed assets
22.2 The following are the summarised balance sheets as at 31 December 20X1 and profit and loss accounts for the year ended on that date, of two competing companies in the same industry.Gold Ltd Underwood Ltd£000£000£000£000 Fixed assets Freehold land and buildings 183 365 Plant and machinery,
22.3 Expansion Ltd has raised additional funds by issuing a debenture of £1,600,000 at 10 per cent per annum in order to expand the business. The additional cash was received on 1 July 20X4.The financial statements of the company for the years ended 30 June 20X4 and 20X5 are summarised
22.4 Given the following financial statements, historical ratios, and industry averages calculate the Zeta Company’s financial ratios for the most recent year. Analyse its overall financial situation from both a time series and a cross-sectional viewpoint. Your analysis should cover the firm’s
22.5 The following statistics relate to a company:%%Equity capital employed:Fixed assets 20 Ordinary share capital 10 Stock 30 Share premium account 5Debtors 30 Retained earnings 25 Cash 20 40*Debentures 20*Current liabilities 40 100 100 Debenture interest= £40,000 Stock turnover= 6*Debtors’
22.6 A Ltd and B Ltd are two companies both in the same line of business. The financial state ments of both companies for the year ended 31 December 20X1 are summarised below.Profit and loss accounts A Ltd B Ltd£000£000£000£000 Sales 3,600 4,350 Cost of goods sold 2,700 3,480 Gross profit 900
22.7 Net current assets 1,035 110 2,235 1,070 10% Debenture loan—300 2,235 770£000£000 Share capital and reserves Issued share capital 1,500 500 Reserves 735 270 2,235 770 Required:Using the above information, calculate appropriate ratios and comment on the performance and financial position of
To whom do you think financial accounting is most useful? Explain why and give examples.
Explain what is meant by ‘planning and control’ and discuss the role of accounting in this context.
Raul, a farm owner, used to employ a farm manager, but when he saw the financial state¬ ments for the last year, Raul dismissed the manager. Assuming that Raul is a rational person, explain in which ways his action in dismissing the manager shows planning and control.
Tick the answer which you consider to be correct.(a) In accounting, if we give credit to someone it means that(i) we think that they have done a good job;(ii) we know that they have money in the bank;(iii) they will be allowed to pay later for goods or services already supplied;(iv) we think they
Jack and Jill own a bucket which cost them £5. The bucket has not yet been used. They also have £3 in cash. (Ignore any other assets which they might have.) They have decided to go into business buying and selling water. They estimate that the bucket will last for 10,000 journeys to the well to
5.1 Explain the main differences between accrual accounting and cash accounting.
5.2 Explain what is meant by realisation and matching.
5.3 We have said that accrual accounting gives rise to most of the difficulties in accounting. Why do you think this is so?
5.4 What have assets and expenses in common? How do they differ?
5.5 Discuss the statement that ‘revenue should not be recognised until it is realised’.
5.1 Malcolm s trial balance as at 30 June 20X1 was as follows:£ £Capital account as at 1 July 20X0 29,000 Creditors 21,000 Debtors 22,650 Cost of goods sold 144,000 Drawings 32,100 Sales 243,000 Stock 36,000 Vehicles 21,000 Wages expense 14,250 Sundry expenses 3,000 Rent expense 13,500 Insurance
5.2 St John is a professional man who has hitherto produced his accounts on a cash basis (i.e. revenue is recognised when the cash is actually received and expenses are recognised when they are paid).His income statement (on a cash basis)* for the year ended 30 June 20X3 is as follows:£Fees Rent
5.3 Mr Marchesi has always kept his accounts on a cash basis. His new accountant has persuaded him to change to an accruals basis. His income and expenditure account, on a cash basis, for the year ended 31 March 20X0 is as follows:£ £230,000 12,000 40,000 6,000 3,000 20,000 81,000 £149,000
5.4 Black started business at the beginning of year 1 as a bridge builder. During years 1 to 8 he completed the following contracts:Year in which the contract was completed 23 35 77 78 Contract number 12 36 45 78 Value of contract, i.e. revenue £000 800 840 1,200 100 1,600 1,500 700 1,500 He had
5.5 Towards the end of 20X0 Marcel purchased a plot of land, known as Lake Rise, on which he proposed to build, for sale, a number of houses. His architects drew up the following plan:The following estimates were made of the revenue and costs for this development:Revenue £££Detached houses Bl
5.6 After one month’s trading, Deborah’s trial balance as at 31 January 20X1 appeared as follows:Dr Cr££Bank 131,380 Capital account 150,000 Rent 12,000 Stock 8,750 Creditors 55,312 Vans 40,120 Sales 39,000 Drawings 6,000 Wages 7,500 Debtors 9,000 Cost of goods sold 29,562 244,312 244,312 The
5.7 Theodore has run a management consultancy for a few years. His trial balance at 31 December 20X2 was as follows:Dr Cr££Cash at bank 33,400 Freehold property 180,000 Capital at 1.1.X2 73,000 Long-term loan 100,000 Creditors 5,000 Debtors 38,000 Fees earned 225,000 Interest paid 9,000 Drawings
2.1 Explain why the profit figure is added to equity in the balance sheet.
2.2 Discuss the problems which may arise because drawings are not included in the profit and loss account.
2.3 A company producing and selling computer software has sent a number of its staff on train¬ ing courses near the end of the accounting period. The courses contained a number of general business matters, but also included specialised material relating to the design and production of software.
2.4 You are the owner of a small shop. Consider the following events and say whether each event has improved the prospects of the business, that is, do you believe that the event would increase the sum you would receive if you sold the business, even if only by a small amount?1. You purchase, on
2.1 You are given the following information, all of which relates to 31 December 20X1, in respect of Nina’s Dress Shop.£Stock 9,000 Creditors 6,000 Delivery van 10,000 Wages due 500 Debtors 1,000 Nina’s capital account 16,300 Prepaid rent 800 Cash pPrepare Nina’s balance sheet as at 31
2.2From the following information find x:£■ Assets at 31 December 20X1 70,000 Loss for the year ended 31 December 20X1 20,000 Owner’s equity at 1 January 20X1 60,000 Capital introduced during the year ended 31 December 20X1 10,000 Capital withdrawn during the year ended 31 December 20X1 30,000
2.3Alberta Schwartzkopf started business on 1 January 20X4 by paying £100,000 into a newly opened business bank account. Her transactions during the first two weeks of business were as follows.1. 2 Jan.2. 3 Jan.3. 4 Jan.4. 6 Jan.5. 12 Jan.6. 12 Jan.Purchased furniture for £4,000 cash.Purchased
2.4Arthur Moore commenced business on 1 October 20X2 by paying £50,000 into a newly opened business bank account. His transactions during the first three weeks of business were as follows:2 Oct. Purchased furniture for cash £5,000.4 Oct. Purchased goods for resale for cash £3,500.7 Oct.
2.5 Deborah started business on 1 January 20X0. On that day she transferred £150,000 from her personal account to a newly opened business bank account. Her transactions during January were as follows:1 Jan.2 Jan.3 Jan.4 Jan.7 Jan.11 Jan.14 Jan.21 Jan.25 Jan.28 Jan.29 Jan.Consider how the assets,
2.6 Treat each of the following transactions separately.1. On 3 November 20X3 Williams sold goods, for £7,000 cash, the cost of the goods to him being £5,000.2. He received a legacy of £2,000 which he paid into his business bank account on 7 February 20X4.3. He ordered a new van costing £9,000
2.7 Clive started business as a seller of automatic cameras on day 1 by transferring £50,000 from his private bank account to a newly opened business bank account.From the start he employed an assistant, Steve. Clive agreed to pay him £30 per day, the payments being made every three days, i.e.
Describe and illustrate income report- 1, ing under variable costing and absorp¬ tion costing.AppendixLO1
Describe and illustrate income analy- .-iL sis under variable costing and absorp¬ tion costing.AppendixLO1
Describe and illustrate management's use of variable costing and absorption costing for controlling costs, pricing products, planning production, analyz¬ ing market segments, and analyzing contribution margins.AppendixLO1
Illustrate contribution margin report- -Y ing for products, territories, and salespersons.AppendixLO1
Explain changes in contribution mar- r.> gin as a result of quantity and price factors.AppendixLO1
Describe and illustrate contribution margin reporting and analysis for service firms.AppendixLO1
Sales were $750,000, the variable cost of goods sold was $400,000, the variable selling and administra¬ tive expenses were $90,000, and fixed costs were $200,000,■ The contribution margin was;A. $60,000 C. $350,000 B. $260,000 D. none of the above AppendixLO1
During a year in which the number of units manu¬ factured exceeded the number of units sold, the in¬ come from operations reported under the absorption costing concept would be:A. larger than the income from operations reported under the variable costing concept.B. smaller than the income from
The beginning inventory consists of 6,000 units, all of which are sold during the period. The beginning inventory fixed costs are $20 per unit, and variable costs are $90 per unit. What is the difference in in¬ come from operations between variable and ab¬ sorption costing?A.Variable costing
Variable costs are $70 per unit and fixed costs are $150,000. Sales are estimated to be 10,000 units. How much would absorption costing income from operations differ between a plan to produce 10,000 units and 12,000 units?A. $150,000 greater for 12,000 units B. $150,000 less for 12,000 units C.
If actual sales totaled $800,000 for the current year (80,000 units at $10 each) and planned sales were $765,000 (85,000 units at $9 each), the difference between actual and planned sales due to the quan¬ tity factor is:A. a $50,000 increase C. a $45,000 decrease B. a $35,000 increase D. none of
What types of costs are customarily included in the cost of manufactured products under (a) the absorption costing concept and (b) the variable costing concept?AppendixLO1
Which type of manufacturing cost (direct materials, direct labor, variable factory overhead, fixed factory overhead) is included in the cost of goods manufactured under the absorption costing concept but is excluded from the cost of goods manufactured under the variable costing concept?AppendixLO1
Which of the following costs would be included in the cost of a manufactured product according to the variable costing concept: (a) direct labor, (b) deprecia¬ tion on factory building, (c) salary of factory supervisor, (d) electricity purchased 812 Chapter 19 • Profit Reporting for Management
In the following equations, based on the variable costing income statement, iden¬ tify the items designated by X:a. Net sales — X = manufacturing marginb. Manufacturing margin — X = contribution marginc. Contribution mar'gin — X = income from operations AppendixLO1
In the variable costing income statement, how are the fixed manufacturing costs reported and how are the fixed selling and'.administrative expenses reported?AppendixLO1
If the quantity of the ending inventory is larger than that of the beginning inven¬ tory, will the amount of income from operations determined by absorption ccrst- ing be more than or less than the amount deter-mined by variable costing? Explain.AppendixLO1
Since all costs of operating a business are controllable, what is the significance of the term noncontrollahle cost?AppendixLO1
Discuss how financial data prepared on the basis of variable costing can assist management in the development of short-run pricing policies.AppendixLO1
How might management analyze sales territory profitability?AppendixLO1
Why might management analyze product profitability?AppendixLO1
Explain why rewarding sales personnel on the basis of total sales might not be in the best interests of a business whose goal is to maximize profits.AppendixLO1
Discuss the two factors affecting both sales and variable costs to which a change in contribution mar'gin can be attributed.AppendixLO1
How is the quantity factor for an increase or decrease in the amount of sales computed in using contribution margin analysis?AppendixLO1
How is the unit cost factor for an increase or decrease in the amount of vari¬ able cost of goods sold computed in using contribution margin analysis?AppendixLO1
Provide examples of market segments for an entertainment company, such as AppendixLO1
Describe budgeting, its objectives, and its impact on human behavior.AppendixLO1
Describe the basic elements of the budget process, the two major types of budgeting, and the use of com- puters in budgeting.AppendixLO1
Describe the master budget for a manufacturing business.AppendixLO1
Prepare the basic income statement budgets for a manufacturing busi- ness..AppendixLO1
Prepare balance sheet budgets for a manufacturing business.AppendixLO1
A tight budget may create:A. budgetary slack B. discouragement C. a flexible budget D. a “spend it or lose it” mentality AppendixLO1
The first step of the budget process is:A. plan C. control B. direct D. feedback AppendixLO1
Static budgets are often used by:A. production departments B. administrative departments C. responsibility centers D. capital projects AppendixLO1
The total estimated sales for the coming year is 250,000 units. The estimated inventory at the be¬ginning of the year is 22,500 units, and the desired inventory at the end of the year is 30,000 units. The total production indicated in the production bud¬ get is:A. 242,500 units C. 280,000 units
Dixon Company expects $650,000 of credit sales in March and $800,000 of credit sales in April. Dixon historically collects 70% of its sales in the month of sale and 30% in the following month. How much cash does Dixon expect to collect in April?A. $800,000 C. $755,000 B. $560,000 D. $1,015,000
what are the three major ol:)jectives budgeting?AppendixLO1
What is the manager’s role in a responsibility center?AppendixLO1
Brieily describe the type of human behavior problems that might arise if budget goals are set too tightly. ^AppendixLO1
Why should all levels of management and all departments participate in prepar¬ ing and submitting budget estimates?AppendixLO1
Give an example of budgetary slack.AppendixLO1
What behavioral problems are associated with setting a budget too loo.sely?AppendixLO1
What behavioral problems are associated with establishing conflicting goals within the budget?AppendixLO1
When would a company use zero-ba.sed budgeting?AppendixLO1
Under what circumstances would a static budget be appropriate?AppendixLO1
What is the first step in preparing a ma.ster budget?AppendixLO1
Why should the production requirements set forth in the production budget be carefully coordinated with the sales budget?AppendixLO1
Why should the timing of direct materials purchases be closely coordinated with the production budget?AppendixLO1
In preparing the budget for the co.st of goods sold, what are the three budgets from which data on relevant estimates of quantities and costs are combined with data on estimated inventories?AppendixLO1
a. Discuss the purpose of the cash budget.b. If the cash for the first quarter of the fiscal year indicates excess cash at the end of each of the finst two months, how might the exce.ss cash be u.sed?AppendixLO1
How does a schedule of collections from sales a.ssi.st in preparing the cash budget?AppendixLO1
Give an example of how the capital expenditures budget affects other operating budgets.AppendixLO1
Describe the types of standards and how they are established for busi¬ nesses.AppendixLO1
Explain and illustrate how standards are used in budgeting.AppendixLO1
Calculate and interpret direct materi¬ als price and quantity variances.AppendixLO1
Calculate and interpret direct labor rate and time variances.AppendixLO1
Calculate and interpret factory over¬ head controllable and volume vari¬ ances.AppendixLO1
Journalize the entries for recording standards in the accounts and prepare an income statement that includes variances from standard.AppendixLO1
Explain how standards may be used for nonmanufacturing expenses.AppendixLO1
Explain and provide examples of non- financial performance measures.AppendixLO1
The actual and standard direct materials costs for producing a specified quantity of product are as follows:Actual: 51,000 pounds at $5.05 $257,550 Standard: 50,000 pounds at $5.00 $250,000 The direct materials price variance is:A. $50 unfavorable C. $2,550 unfavorable B. $2,500 unfavorable D.
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