2.99 See Answer

Question: Answer the following multiple-choice questions: a.


Answer the following multiple-choice questions:
a. The following relate to Owens data in 2012. What is the ending inventory?
Purchases …………………………..$580,000
Beginning inventory……………. 80,000
Purchase returns ………………….8,000
Sales …………………………………..900,000
Cost of goods sold………………. 520,000
1. $150,000
2. $132,000
3. $152,000
4. $170,000
5. $142,000
b. Changes in account balances of Gross Flowers during 2012 were as follows:
Increase
Assets …………………………………….$400,000
Liabilities ………………………………….150,000
Capital stock …………………………….120,000
Additional paid-in capital…………. 110,000
b. Assuming there were no charges to retained earnings other than dividends of $20,000, the net income (loss) for 2012 was
1. $(20,000).
2. $(40,000).
3. $20,000.
4. $40,000.
5. $60,000.
c. Which of the following would be classified as an extraordinary item on the income statement?
1. Loss on disposal of a segment of business.
2. Cumulative effect of a change in accounting principle.
3. A sale of fixed assets.
4. An error correction that relates to a prior year.
5. A loss from a flood in a location that would not be expected to flood.
d. Net income–noncontrolling interest comes from which of the following situations?
1. A company has been consolidated with our income statement, and our company owns less than 100% of the other company.
2. A company has been consolidated with our income statement, and our company owns 100% of the other company.
3. Our company owns less than 100% of another company, and the statements are not consolidated.
4. Our company owns 100% of another company, and the statements are not consolidated.
5. None of the above.
e. Which of the following will not be disclosed in retained earnings?
1. Declaration of a stock dividend
2. Adjustment for an error of the current period
3. Adjustment for an error of a prior period
4. Net income
5. Net loss
f. Bell Company has 2 million shares of common stock with par of $10. Additional paid in capital totals $15 million, and retained earnings is $15 million. The directors declare a 5% stock dividend when the market value is $10. The reduction of retained earnings as a result of the declaration will be
1. $0.
2. $1 million.
3. $800,000.
4. $600,000.
5. None of the above.
g. The stockholders’ equity of Gaffney Company at November 30, 2012, is presented below.
Common stock, par value $5, authorized ……………………….200,000
shares, 100,000 shares issued and outstanding………………. $500,000
Paid-in capital in excess of par……………………………………….. 100,000
Retained earnings…………………………………………………………. 300,000
$900,000
On December 1, 2012, the board of directors of Gaffney Company declared a 5% stock dividend, to be distributed on December 20. The market price of the common stock was $10 on December 1 and $12 on December 20. What is the amount of the change to retained earnings as a result of the declaration and distribution of this stock dividend?
1. $0
2. $40,000
3. $50,000
4. $60,000
5. None of the above.
h. Schroeder Company had 200,000 shares of common stock outstanding with a $2 par value and retained earnings of $90,000. In 2010, earnings per share were $0.50. In 2011, the company split the stock 2 for 1. Which of the following would result from the stock split?
1. Retained earnings will decrease as a result of the stock split.
2. A total of 400,000 shares of common stock will be outstanding.
3. The par value would become $4 par.
4. Retained earnings will increase as a result of the stock split.
5. None of the above.
i. Which of the following is not a category within accumulated other comprehensive income?
1. Foreign currency translation adjustments.
2. Unrealized holding gains and losses on available-for-sale marketable securities.
3. Changes to stockholders’ equity resulting from additional minimum pension liability.
4. Unrealized gains and losses from derivative instruments.
5. Extraordinary item.


> Speculate on why the disclosure of the concentrations of credit risk is potentially important to the users of financial reports.

> Indicate why comparing firms for postretirement benefits other than pensions can be difficult.

> There is a chance that a company may be in a position to have large sums transferred from the pension fund to the company. Comment.

> Comment on the implications of relying on a greater proportion of short-term debt in relation to long-term debt.

> A firm has a high current debt/net worth ratio in relation to prior years, competitors, and the industry. Comment on what this tentatively indicates

> The president of your firm, Lesky and Lesky, has little background in accounting. Today, he walked into your office and said, “A year ago we bought a piece of land for $100,000. This year, inflation has driven prices up by 6%, and an appraiser just told

> What portion of net worth can the federal government require a company to use to pay for pension obligations?

> Indicate the risk to a company if it withdraws from a multiemployer pension plan or if the multiemployer pension plan is terminated.

> Why is the vesting provision an important provision of a pension plan? How has the Employee Retirement Income Security Act influenced vesting periods?

> Indicate the status of pension liabilities under the Employee Retirement Income Security Act.

> One of the ratios used to indicate long-term debt-paying ability compares total liabilities to total assets. What is the intent of this ratio? How precise is this ratio in achieving its intent?

> Discuss how noncash charges for depreciation, depletion, and amortization can be used to obtain a short run view of times interest earned.

> Would you expect a telephone company to have a high debt ratio? Discuss.

> List the two approaches to examining a firm’s long-term debt-paying ability. Discuss why each of these approaches gives an important view of a firm’s ability to carry debt.

> Is profitability important to a firm’s long-term debt paying ability? Discuss.

> When examining financial statements, a note that describes contingencies should be reviewed closely for possible significant liabilities that are not disclosed on the face of the balance sheet. Comment.

> How does the concept of consistency aid in the analysis of financial statements? What type of accounting disclosure is required if this concept is not applied?

> When a firm guarantees a bank loan for a joint venture in which it participates and the joint venture is handled as an investment, then the overall potential debt position will not be obvious from the face of the balance sheet. Comment.

> Explain why deferred taxes that are disclosed as long-term liabilities may not result in actual cash outlays in the future

> Consider the accounts of bonds payable and reserve for rebuilding furnaces. Explain how one of these accounts could be considered a firm liability and the other could be considered a soft liability.

> Consider the debt ratio. Explain a position for including short-term liabilities in the debt ratio. Explain a position for excluding short-term liabilities from the debt ratio. Which of these approaches would be more conservative?

> Operating leases are not reflected on the balance sheet, but they are reflected on the income statement in the rent expense. Comment on why an interest expense figure that relates to long-term operating leases should be considered when determining a fixe

> A firm with substantial leased assets that have not been capitalized may be overstating its long-term debt paying ability. Explain.

> How should lessees account for operating leases? Capital leases? Include both income statement and balance sheet accounts.

> Why is it important to compare long-term debt ratios of a given firm with industry averages?

> Explain how the debt/equity ratio indicates the same relative long-term debt-paying ability as does the debt ratio, only in a different form.

> A company that uses a natural business year, or ends its year when business is at a peak, will tend to distort the liquidity of its receivables when end-of-year and beginning-of-year receivables are used in the computation. Explain how a company that use

> Discuss the role of each of the following in the formulation of accounting principles: a. American Institute of Certified Public Accountants b. Financial Accounting Standards Board c. Securities and Exchange Commission

> List the two computations that are used to determine the liquidity of inventory.

> List the two computations that are used to determine the liquidity of receivables.

> Arrow Company has invested funds in a supplier to help ensure a steady supply of needed materials. Would this investment be classified as a marketable security (current asset)?

> Rachit Company has cash that has been frozen in a bank in Cuba. Should this cash be classified as a current asset? Discuss.

> List the major categories of items usually found in current assets.

> Define current assets.

> Define the operating cycle.

> Why does LIFO result in a very unrealistic ending inventory figure in a period of rising prices?

> Indicate the objective of the sales to working capital ratio.

> List three situations in which the liquidity position of the firm may be better than that indicated by the liquidity ratios.

> Name the type of opinion indicated by each of the following situations: a. There is a material uncertainty. b. There was a change in accounting principle. c. There is no material scope limitation or material departure from GAAP. d. The financial stat

> Indicate the single most important factor that motivates a company to select LIFO.

> Which inventory costing method results in the highest balance sheet amount for inventory? (Assume inflationary conditions.)

> Before computing the acid-test ratio, compute the accounts receivable turnover. Comment.

> Why could a current asset such as Net Assets of Business Held for Sale distort a firm’s liquidity, in terms of working capital or the current ratio?

> When a firm faces an inflationary condition and the LIFO inventory method is based on a periodic basis, purchases late in the year can have a substantial influence on profits. Comment.

> Does the allowance method for bad debts or the direct write-off method result in the fairest presentation of receivables on the balance sheet and the fairest matching of expenses against revenue?

> Is the profitability of the entity considered to be of major importance in determining the short-term debtpaying ability? Discuss.

> Define current liabilities.

> Define working capital.

> One of the computations used to determine the liquidity of inventory determines the inventory turnover. In this computation, usually the average inventory is determined by using the beginning-of-the-year and the end-of-theyear inventory figures, but this

> During times of inflation, which of the inventory costing methods listed below would give the most realistic valuation of inventory? Which method would give the least realistic valuation of inventory? Explain. a. LIFO b. Average c. FIFO

> The days’ sales in inventory is an estimate of the number of days that it will take to sell the current inventory. a. What is the ideal number of days’ sales in inventory? b. In general, does a company want many days’ sales in inventory? c. Can days’

> The number of days’ sales in inventory relates the amount of the ending inventory to the average daily cost of goods sold. Explain why this computation may be misleading under the following conditions: a. The company uses a natural business year for its

> Describe the difference in inventories between a firm that is a retail company and a firm that is a manufacturing concern.

> If a company has substantial cash sales and credit sales, is there any meaning to the receivable liquidity computations that are based on gross sales?

> Melcher Company uses the calendar year. Sales are at a peak during the holiday season, and T. Melcher Company extends 30-day credit terms to customers. Comment on the expected liquidity of its receivables, based on the days’ sales in receivables and the

> Would a company that uses a natural business year tend to overstate or understate the liquidity of its receivables? Explain

> A. B. Smith Company has guaranteed a $1 million bank note for Alender Company. How would this influence the liquidity ratios of A. B. Smith Company? How should this situation be considered?

> What is the reason for separating current assets from the rest of the assets found on the balance sheet?

> Jones Wholesale Company has been one of the fastest growing wholesale firms in the United States for the last five years in terms of sales and profits. The firm has maintained a current ratio above the average for the wholesale industry. Mr. Jones has as

> Answer the following multiple-choice questions: a. Which of the following items would be classified as operating revenue or expense on an income statement of a manufacturing firm? 1. Interest expense 2. Advertising expense 3. Equity income 4. Divide

> It is proposed at a stockholders’ meeting that the firm slow its rate of payments on accounts payable in order to make more funds available for operations. It is contended that this procedure will enable the firm to expand inventory, which will in turn e

> The cost of inventory at the close of the calendar year of the first year of operation is $40,000, using LIFO inventory, resulting in a profit before tax of $100,000. If the FIFO inventory would have been $50,000, what would the reported profit before ta

> List three situations in which the liquidity position of the firm may not be as good as that indicated by the liquidity ratios.

> A relatively low sale to working capital ratio is a tentative indication of an efficient use of working capital. Comment. A relatively high sale to working capital ratio is a tentative indication that the firm is undercapitalized. Comment.

> Before computing the current ratio, the accounts receivable turnover and the inventory turnover should be computed. Why?

> Would a firm with a relatively long operating cycle tend to charge a higher markup on its inventory cost than a firm with a short operating cycle? Discuss.

> Discuss why some firms have longer natural operating cycles than other firms.

> Discuss some benefits that may accrue to a firm from reducing its operating cycle. Suggest some ways that may be used to reduce a company’s operating cycle.

> In determining the short-term liquidity of a firm, the current ratio is usually considered to be a better guide than the acid-test ratio, and the acid-test ratio is considered to be a better guide than the cash ratio. Discuss when the acid-test ratio wou

> Both current assets and current liabilities are used in the computation of working capital and the current ratio, yet the current ratio is considered to be more indicative of the short-term debt-paying ability. Explain.

> The following information for Gaffney Corporation covers the year ended December 31, 2012: Required a. Will net income or comprehensive income tend to be more volatile? Comment. b. Which income figure will be used to compute earnings per share? c. Wha

> Discuss how to use working capital in analysis.

> Several comparisons can be made to determine the short-term debt-paying ability of an entity. Some of these are: a. Working capital b. Current ratio c. Acid-test ratio d. Cash ratio 1. Define each of these terms. 2. If the book figures are based on

> Explain the influence of the use of LIFO inventory on the inventory turnover.

> Some firms do not report the cost of goods sold separately on their income statements. In such a case, how should you proceed to compute days’ sales in inventory? Will this procedure produce a realistic days’ sales in inventory?

> Are managers the only users of financial reports? Discuss.

> Suppose you are comparing two firms within an industry. One is large and the other is small. Will relative or absolute numbers be of more value in each case? What kinds of statistics can help evaluate relative size?

> What is trend analysis? Can it be used for ratios? For absolute figures?

> Differentiate between absolute and percentage changes. Which is generally a better measure of change? Why?

> Brown Company earned 5.5% on sales in 2011. What further information would be needed to evaluate this result?

> What does each of the following categories of ratios attempt to measure? (a) liquidity; (b) long-term borrowing capacity; (c) profitability. Name a group of users who might be interested in each category.

> Each of the following statements represents a decision made by the accountant of Growth Industries: a. A tornado destroyed $200,000 in uninsured inventory. This loss is included in the cost of goods sold. b. Land was purchased 10 years ago for $50,000.

> What is a ratio? How do ratios help to alleviate the problem of size differences among firms?

> What source contains a comprehensive reference for products and services, company profiles, and a catalog file?

> Indicate some sources that contain an appraisal of the outlook for particular industries.

> You would like to determine the principal business affiliations of the president of a company you are analyzing. Which reference service may have this information?

> What source includes comprehensive statistics on many industries?

> Indicate some sources that contain a dividend record of payments.

> You want to know the trading activity (volume of its stock sold) for a company. Which service provides this information?

> You are considering buying the stock of a large publicly traded company. You need an opinion of timeliness of the industry and the company. Which publication could you use?

> You want to compare the progress of a given company with a composite of that company’s industry group for selected income statement and balance sheet items. Which library source will aid you?

> You want to know if there have been any reported deaths of officers of a company you are researching. What library source will aid you in your search?

> Uranium Mining Company, founded in 1982 to mine and market uranium, purchased a mine in 1983 for $900 million. It estimated that the uranium had a market value of $150 per ounce. By 2012, the market value had increased to $300 per ounce. Records for 2012

> On July 1, 2010, an initial registration statement on Form 10 was filed with the U.S. Securities and Exchange Commission (“SEC”) in connection with the Company’s separation into two independent, publi

> a. What is the SIC number? How can it aid in the search of a company, industry, or product? b. What is the NAICS number? How can it aid in the search of a company, industry, or product?

> Using The Department of Commerce Financial Report discussion in the text, answer the following: a. Could we determine the percentage of total sales income after income taxes that a particular firm had in relation to the total industry sales? Explain. b.

> Answer the following concerning the Almanac of Business and Industrial Financial Ratios: a. This service presents statistics for how many size categories of firms? b. Indicate some of the industries covered by this service.

> You want profile information on the president of a company. Which reference book should be consulted?

> Using these results for a given ratio, compute the median, upper quartile, and lower quartile. 14%, 13.5%, 13%, 11.8%, 10.5%, 9.5%, 9.3%, 9%, 7%

> Differentiate between the types of inventory typically held by a retailing firm and a manufacturing firm.

2.99

See Answer