Assets are listed on the balance sheet in the order of their liquidity. Explain this statement.
> How is the carrying value of a bond computed?
> How does recording accrued interest affect the accounting equation?
> If a bond is selling at 97½, how much cash will the company receive from the sale of a $1,000 bond?
> What type of transaction is the issuance of bonds by a company?
> What mechanism is used to adjust the stated interest rate to the market rate of interest?
> What are some disadvantages of issuing bonds?
> What are some advantages of issuing bonds versus borrowing from a bank?
> What is a current liability? Distinguish between a current liability and a long-term debt.
> What is the difference between classification of a note as short term or long term?
> When is warranty cost reported on the statement of cash flows?
> a. Discuss the requirements of Section 404 of the Sarbanes–Oxley Act and how it relates to COSO. b. These rules apply to what type of companies?
> What effect does recognizing future warranty obligations have on the balance sheet? On the income statement?
> What does the term warranty mean?
> What type of liabilities are not recorded on a company’s books?
> What is the difference in accounting procedures for a liability that is probable and estimable and one that is reasonably possible but not estimable?
> Are contingent liabilities recorded on a company’s books? Explain.
> List the three categories of contingent liabilities.
> What type of transaction is a cash payment to creditors? How does this type of transaction affect the accounting equation?
> What different kinds of expenditures might be included in the recorded cost of a building?
> Define amortization. What kind of assets are amortized?
> Is land a depreciable asset? Why or why not?
> The December 31, 2019, balance sheet for Burdette Corporation is presented here. These are the only accounts on Burdette’s balance sheet. Amounts indicated by question marks (?) can be calculated using the following additional information:
> When are natural resources expensed?
> Define depreciation. What kind of asset depreciates?
> What is the difference between tangible and intangible assets? Give an example of each.
> How is the book value of an asset determined?
> What is salvage value?
> John Smith mistakenly expensed the cost of a long term tangible fixed asset. Specifically, he charged the cost of a truck to a delivery expense account. How will this error affect the income statement and the balance sheet in the year in which the mistak
> Does the recognition of depreciation expense affect cash flows? Why or why not?
> What effect does the recognition of depreciation expense have on total assets? On total equity?
> What are the stages in the life cycle of a long-term operational asset?
> What is the difference between the functions of long-term operational assets and investments?
> The balance sheet for Shankland Corporation follows: Current assets…………………………………………………………$ 600,000 Long-term assets (net)……………………………………………..1,900,000 Total assets…………………………………………………………….$2,500,000 Current liabilities…………………………………………………….$ 400,000 Long
> What is the effect on the accounting equation of recognizing uncollectible accounts expense?
> What are some factors considered in estimating the amount of uncollectible accounts receivable?
> Why is it necessary to reinstate a previously written-off account receivable before the collection is recorded?
> What is the most common format for reporting accounts receivable on the balance sheet? What information does this method provide beyond showing only the net amount?
> When using the allowance method, why is uncollectible accounts expense an estimated amount?
> What are two ways in which estimating uncollectible accounts improves the accuracy of the financial statements?
> In an inflationary period, which cost flow method, FIFO or LIFO, produces the larger cash flow? Explain
> In an inflationary period, which inventory cost flow method will produce the largest amount of total assets on the balance sheet? Explain.
> What type of account is the Allowance for Doubtful Accounts?
> What types of costs do businesses avoid when they accept major credit cards as compared with handling credit sales themselves?
> On June 30, 2018, Franza Company’s total current assets were $900,000 and its total current liabilities were $360,000. On July 1, 2018, Franza issued a long-term note to a bank for $72,000 cash. Required: Round computations to one decimal point. a. Comp
> The following financial highlights were drawn from the 2014 annual reports of ExxonMobil Corporation and Apple Inc. Even so, as of December 11, 2015, Wall Street valued ExxonMobil at $310 billion and Apple at $631 billion. Divide the class into groups
> Why is it generally beneficial for a business to accept major credit cards as payment for goods and services even when the fee charged by the credit card company is substantial?
> In which section of the statement of cash flows will Big report the cash collected in Question 23?
> Assume that on July 1, 2018, Big Corp. loaned Little Corp. $12,000 for a period of one year at 6 percent interest. What amount of interest revenue will Big report for 2018? What amount of cash will Big receive upon maturity of the note?
> When is an adjusting entry for accrued interest generally recorded?
> How does the accrual of interest revenue or expense illustrate the matching concept?
> What is the net realizable value of receivables?
> What is accrued interest?
> What is the formula for computing interest revenue?
> What is a promissory note?
> On June 30, 2018, Franza Company’s total current assets were $900,000 and its total current liabilities were $360,000. On July 1, 2018, Franza issued a short-term note to a bank for $72,000 cash. Required: a. Compute Franza’s working capital before and
> What is an advantage of using the percent of receivables method of estimating uncollectible accounts expense?
> What is the advantage of using the allowance method of accounting for uncollectible accounts?
> How does the recovery of a previously written-off account affect the income statement when the allowance method is used? How does the recovery of a previously written-off account affect the statement of cash flows when the allowance method is used?
> What is the effect on the accounting equation of writing off an uncollectible account receivable when the allowance method is used?
> What is a fidelity bond? Explain its purpose.
> What are the attributes of a high-quality employee?
> What is meant by separation of duties? Give an illustration.
> Explain how COSO’s Enterprise Risk Management––An Integrated Framework project relates to COSO’s Internal Control––An Integrated Framework project.
> Name and comment on the three elements of the fraud triangle.
> How is an NSF check accounted for in the accounting records?
> Income statements for Burch Company for 2018 and 2019 follow: Required: Round all percentages to one decimal point. a. Perform a horizontal analysis, showing the percentage change in each income statement component between 2018 and 2019. b. Perform a v
> What is a certified check?
> What is a deposit in transit?
> What is an outstanding check?
> What is the purpose of a bank reconciliation?
> Why might a bank statement reflect a balance that is larger than the balance recorded in the depositor’s books? What could cause the bank balance to be smaller than the book balance?
> What effect does a debit memo in a bank statement have on the Cash account? What effect does a credit memo in a bank statement have on the Cash account?
> Define the term internal control.
> Why is cash more susceptible to theft or embezzlement than other assets?
> What items are considered cash?
> What is the purpose of independent verification of performance?
> Sharma Company reported the following operating results for two consecutive years: Required: Express each income statement component for each of the two years as a percentage of sales. Round percentages to one decimal point. 2018 Amount Percentage
> Why should documents (checks, invoices, receipts) be prenumbered?
> What are the purpose and importance of a procedures manual?
> What motivated Congress to pass the Sarbanes–Oxley Act (SOX) of 2002?
> Northern Merchandising Company sold inventory that cost $12,000 for $20,000 cash. How does this event affect the accounting equation? What financial statements and accounts are affected? (Assume that the perpetual inventory system is used.)
> When are period costs expensed? When are product costs expensed?
> What portion of cost of goods available for sale is shown on the balance sheet? What portion is shown on the income statement?
> How is the cost of goods available for sale determined?
> Why does the periodic inventory system impose a major disadvantage for management in accounting for lost, stolen, or damaged goods?
> What is the purpose of preparing a schedule of cost of goods sold?
> What is the difference between a product cost and a selling and administrative cost?
> Indicate the effect of each of the following transactions on (1) the current ratio, (2) working capital, (3) stockholders’ equity, (4) book value per share of common stock, and (5) retained earnings. Assume that the current ratio is greater than 1:1. a.
> Ball Co. purchased inventory with a list price of $4,000 with the terms 2/10, n/30. What amount will be added to the Merchandise Inventory account?
> Define transportation-out. Is it a product cost or a period cost for the seller?
> What is the purpose of giving a cash discount to charge customers?
> Eastern Discount Stores incurred a $5,000 cash cost. How does the accounting for this cost differ if the cash were paid for inventory versus commissions to sales personnel?
> Dyer Department Store purchased goods with the terms 2/10, n/30. What do these terms mean?
> Why would a seller grant an allowance to a buyer of his merchandise?
> Quality Cellular Co. paid $80 for freight on merchandise that it had purchased for resale to customers (transportation-in) and paid $135 for freight on merchandise delivered to customers (transportation out). The $80 payment is added to what account? Th
> Define transportation-in. Is it a product or a period cost?
> If goods are shipped FOB shipping point, which party (buyer or seller) is responsible for the shipping costs?
> Define merchandise inventory. What types of costs are included in the Merchandise Inventory account?
> Match each of the following ratios with the formula used to compute it: 1. Working capital a. Net income - Average total stockholders' equity b. Cost of goods sold - Average inventory c. Current assets – Current liabilities d. 365 - Inventory turnov
> When is revenue recognized under accrual accounting?
