1. Three individuals are planning to form a new business. What are the five major types of entities that they can use to operate their business? 2. Assume that you are the controller of a corporation. Some members of the board of directors have asked you how the firm can have a large balance in the Retained Earnings account but no cash with which to pay dividends. Explain. 3. A corporation’s balance sheet shows Retained Earnings Appropriated for Plant Expansion with a balance of $2,000,000. Does this mean that the corporation has set aside $2,000,000 in cash to expand its plant? Why would management want to establish such an account? 4. Trump Corporation’s $50 par-value stock has a market price of $250 per share. As a result of the high price per share, finding buyers for stock that existing shareholders wish to sell has become difficult. Suggest a way for management to resolve this problem. 5. Why would the management of a corporation consider using corporate funds to purchase the firms’ own outstanding stock? 6. The president of a corporation suggests to the controller that one way to convert retained earnings into permanent capital is to have a stock split. What explanation should the controller give the president? Corporate Incentives A small community called Fairview needs to increase jobs in the community. Fairview has some public land that could be developed. The city could sell this land to a private individual for $200,000. The city council decided, however, to make arrangements with a national chain “superstore” to receive the land free if they would build a store in their community. The superstore must first hire from the people who live in Fairview to receive this free land. Is it ethical for the City Council to propose this gift? How would the superstore record this transaction? Statement of Shareholders’ Equity Refer to the 2018 Form 10-K (for the fiscal year ended February 3, 2019) for The Home Depot, Inc. Based on the data presented in the consolidated statements of earnings, answer the following: 1. What approximate income tax rate does the company pay? 2. Did the company record an accrual for current income tax payable for the year ended February 3, 2019? If so, on which statement did you locate this information? Dividends to Declare The board of directors has the responsibility to determine the dollar amount of dividends to be given to investors. As a group of three or four students acting as the board of directors, determine the amount of dividends to declare for your investors given the following information: (1) 100,000 shares outstanding, (2) $249,000 in net income, (3) $1,500,000 proposed future expansion, (4) $900,000 balance in Retained Earnings. Should the board approve a dividend in stock, cash, or a combination of both? Justify your answer.
> How does a note receivable differ from an account receivable?
> What is the face amount of a note? The maturity value?
> What are the requirements that must be met in order for a document to be negotiable?
> Explain a sight draft.
> Explain a cashier’s check.
> 1. Is the identification of purchases returns and allowances by department valuable to managerial control? Explain. 2. If one department consistently has a comparatively large amount of cash short in its operations, what management action might be approp
> When is a discounted note receivable considered a contingent liability?
> Explain how to compute the proceeds from discounting a note receivable.
> If a note dated February 28 has a three-month term, on what date must the note be paid?
> Explain how to record the collection of an account receivable in the same year in which it was previously written off if the allowance method of recording estimated doubtful accounts is used.
> What basic accounting concepts, assumptions, principles, or constraints support the allowance method?
> Under the allowance method, what entry is made when a specific customer’s account is deemed to be uncollectible?
> Under the allowance method, what account is credited in the adjusting entry to record estimated uncollectible accounts?
> What is meant by aging the accounts receivable?
> If a company is interested primarily in matching expenses and revenues each period, would it base its estimate of uncollectible accounts on sales (or net credit sales) or on accounts receivable? Explain.
> Suppose that the estimate of uncollectible accounts is based on credit sales and that Allowance for Doubtful Accounts has a debit balance before the adjustment is made. Explain how this situation is handled.
> 1. How can the statement of cash flows help management arrange for proper financing? 2. A corporation’s income statement shows a net income of $10,000 after income taxes for the year. Its statement of cash flows shows that its cash balance increased by $
> At December 31, 20X1, Gerald Company had accounts receivable of $1,500,000 and an allowance for doubtful accounts of $8,250. On January 1, 20X2, Gerald Company wrote off a $1,500 bad debt against the allowance for doubtful accounts. There were no other a
> Name three approaches to estimating losses from uncollectible accounts when the allowance method is used.
> List some common internal controls for accounts receivable.
> List some duties that should routinely be separated as part of the internal control procedures for accounts receivable.
> Under the direct charge-off method, what entry is made when a firm collects an account that was charged off in a prior year?
> What entry is made to record an uncollectible account under the direct charge-off method?
> Under what conditions would the direct charge-off method be appropriate?
> What are the major weaknesses of the direct charge-off method?
> Explain the direct charge-off method for recording uncollectible accounts expense.
> How is Allowance for Doubtful Accounts shown in the balance sheet?
> 1. Suppose that a vertical analysis of the income statement shows an item to be 18 percent of net sales. How would this information be used in order to make it meaningful? With what would it be compared? 2. In 2022, the cost of goods sold was 66 percent
> How is Uncollectible Accounts Expense shown on the income statement?
> Suppose that the estimate of uncollectible accounts is based on the aging of accounts receivable and that the Allowance for Uncollectible Accounts has a credit balance before the adjustment is made. Explain how this situation is handled.
> Explain the purpose of the allowance method of accounting for losses from uncollectible accounts.
> It can be argued that the cost principle is dependent on the going concern assumption. Why?
> How is the matching concept related to the accrual basis of accounting?
> Explain the qualitative characteristic of comparability.
> What is meant by the concept of neutrality in accounting?
> How will U.S. companies be affected by IFRS?
> Why is it desirable to have a set of fundamental concepts to be used in developing accounting standards and rules?
> What are the two most important bodies or organizations involved in developing generally accepted accounting principles in the United States?
> 1. What would cause corporate management to obtain cash by issuing bonds instead of selling stock? 2. Which type of bonds would give management greater flexibility in formulating and controlling a corporation’s financial affairs? 3. In what situations wo
> What is meant by full disclosure?
> What criteria must exist in order for revenues to be recognized by public entities for reporting periods beginning after December 15, 2017?
> What two tests must be met in order for revenues to be recognized by public entities for reporting periods beginning before December 15, 2017?
> Many current assets are not shown at historic cost in the financial statements. For example, inventories are usually shown at the “lower of cost or market.” What concepts or conventions warrant this practice?
> In recent years, there have been many charges, some of them substantiated, that large companies have manipulated business transactions and accounting records to move income from one year to another in order to change the income reported in different year
> What is the periodicity of income concept?
> How are the concepts of materiality and cost-benefit related?
> How does the materiality convention affect day-to-day accounting?
> Why is a conceptual framework necessary in developing accounting standards and rules?
> What is the purpose of the postclosing trial balance?
> What account balances or other amounts are included on two different financial statements for the period? Which statements are involved?
> What information is provided by the statement of owner’s equity?
> How do current liabilities and long-term liabilities differ?
> Give examples of some current assets that usually are classified as Current Assets on the balance sheet.
> What is the purpose of the balance sheet?
> What are operating expenses? Are financing expenses included in operating expenses?
> Which section of the income statement contains information about the purchases made during the period and the beginning and ending inventories?
> Fuji Company had a current ratio of 2.0 in 20X1 and 2.2 in 20X2. Does this signify an improvement or decline in Fuji Company’s liquidity from 20X1 to 20X2?
> Jarrett Company’s inventory turnover ratio was nine times in 20X1 and eight times in 20X2. Did Jarrett Company sell its inventory more quickly, or more slowly, in 20X2 compared to 20X1?
> What are the steps in the accounting cycle?
> 1. Anna Claire and Baker are establishing a new restaurant and discussing whether to organize as a partnership or a corporation. What are some of the most important characteristics of these two types of organizations that they should weigh in making the
> 1. After examining financial data for a monthly period, the owner of a small business expressed surprise that the firm’s cash balance had decreased during the month even though there was substantial net income. Do you think this owner i
> If the owner invests additional capital in the business during the month, how would that new investment be shown in the financial statements?
> Various adjustments made at Adams Company are listed below. Which of the adjustments would normally be reversed? a. Adjustment for accrued payroll taxes expense b. Adjustment for supplies used c. Adjustment for depreciation on the building d. Adjustment
> On December 31, Klein Company made an adjusting entry debiting Interest Receivable and crediting Interest Income for $300 of accrued interest. What reversing entry, if any, should be recorded for this item on January 1?
> What types of adjustments are reversed?
> If the totals of the adjusted trial balance Debit and Credit columns are equal, but the postclosing trial balance does not balance, what is the likely cause of the problem?
> What types of accounts, permanent or temporary, appear on the postclosing trial balance?
> Give an example of an expense that is classified as Other Expense in the income statement.
> What adjustment is made to record accrued salaries?
> What is an accrued expense? Give three examples of items that often become accrued expenses.
> What adjustment is made for depreciation on office equipment?
> 1. The owner of an accounting practice is considering establishing a partnership with two other persons to carry on the business. What are the major disadvantages of the partnership form of organization that she should consider in making her decision? 2.
> Explain the meaning of the following terms that relate to depreciation: a. Salvage value b. Depreciable base c. Useful life d. Straight-line method
> What types of assets are subject to depreciation? Give three examples of such assets.
> Why is depreciation recorded?
> Income Summary amounts are extended to which statement columns on the worksheet?
> How does the worksheet help the accountant to prepare financial statements more efficiently?
> Unearned Fees Income is classified as which type of account?
> When a specific account receivable is deemed uncollectible, it is written off by debiting __________ and crediting __________.
> What is the alternative method of handling unearned income?
> What adjustment is made to record income earned during a period?
> How is unearned income recorded when it is received?
> 1. Suggest three key procedures involving internal control of property, plant, and equipment that do not relate specifically to accounting records. 2. Suggest three key procedures involving internal control of property, plant, and equipment that relate t
> What is unearned income? Give two examples of items that would be classified as unearned income.
> What adjustment is made for accrued interest on a note receivable?
> What is accrued income? Give an example of an item that might produce accrued income.
> What is the alternative method of handling prepaid expenses?
> What adjustment is made to record expired insurance?
> How is the cost of an insurance policy recorded when the policy is purchased?
> What is a prepaid expense? Give three examples of prepaid expense items.
> What adjustment is made to record the estimated expense for uncollectible accounts?
> When must Form W-2 be issued? To whom is it sent?
> What is the purpose of Form W-3? When must it be issued? To whom is it sent?
> 1. In what special situations are inventory estimation procedures extremely useful? 2. The manager of a retail store has become concerned about the time taken to count the merchandise on hand each quarter. She argues that too much time is spent on this a
> What is the lookback period?
> What are the four taxes levied on employers?
> What is a business tax identification number?
> What is EFTPS? When is EFTPS required?
> What does “semiweekly” refer to in the Semiweekly Deposit Schedule Rule?
> What does “monthly” refer to in the Monthly Deposit Schedule Rule?
