Describe quasi-reorganization.
> Differentiate between horizontal and vertical analysis. Using sales as a component for each type, give an example that explains the difference.
> Sometimes manufacturing firms have only raw materials and finished goods listed on their balance sheets. This is true of Avon Products, a manufacturer of cosmetics, and it might be true of food canners also. Explain the absence of work in process.
> Refer to Exhibits 5-3, 5-4, and 5-5 to answer the following questions: a. For each of the firms illustrated, what is the single largest asset category? Does this seem typical of this type of firm? b. Which of the three firms has the largest amount in c
> The income statement of Jones Company for the year ended December 31, 2012, follows. Required a. Compute the net earnings remaining after removing nonrecurring items. b. Determine the earnings (loss) from the nonconsolidated subsidiary. c. Determine th
> In the future, we should expect few presentations of a “cumulative effect of change in accounting principle.” Comment.
> Why are unusual or infrequent items disclosed before tax?
> A health food distributor selling wholesale dairy products and vitamins decides to discontinue the division that sells vitamins. How should this discontinuance be classified on the income statement?
> Which of the following would be classified as extraordinary? a. Selling expense b. Interest expense c. Gain on the sale of marketable securities d. Loss from flood e. Income tax expense f. Loss from prohibition of red dye g. Loss from the write-do
> What are extraordinary items? How are they shown on the income statement? Why are they shown in that manner?
> Review the consolidated income statement, expenses analyzed by function (Exhibit 4-12). Comment on similarities and differences to the U.S. GAAP income statement. Source International GAAP Holding Limited LAS L.10(b), Consolidred stasement of compre
> Management does not usually like to tie comprehensive income closely with the income statement. Comment.
> Comment on your ability to determine a firm’s capacity to make distributions to stockholders, using published financial statements.
> Melcher Company reported earnings per share in 2011 and 2010 of $2.00 and $1.60, respectively. In 2012, there was a 2-for-1 stock split, and the earnings per share for 2012 were reported to be $1.40. Give a three-year presentation of earnings per share (
> An income statement is a summary of revenues and expenses and gains and losses, ending with net income for a specific period of time. Indicate the two traditional formats for presenting the income statement. Which of these formats is preferable for analy
> The income statement of Tawls Company for the year ended December 31, 2012, shows the following: Required a. Compute the net earnings remaining after removing nonrecurring items. b. Determine the earnings from the nonconsolidated subsidiary. c. For th
> Describe the following items: a. Net income–noncontrolling interest b. Equity in earnings of nonconsolidated subsidiaries
> A balance sheet represents a specific date, such as “December 31,” while an income statement covers a period of time, such as “For the Year Ended December 31, 2011.” Why does this difference exist?
> List the three types of appropriated retained earnings accounts. Which of these types is most likely not a detriment to the payment of a dividend? Explain
> Explain the relationship between the income statement and the reconciliation of retained earnings.
> How does the declaration of a cash dividend affect the financial statements? How does the payment of a cash dividend affect the financial statements?
> Why is the equity in earnings of nonconsolidated subsidiaries sometimes a problem in profitability analysis? Discuss with respect to income versus cash flow.
> Give three examples of unusual or infrequent items that are disclosed separately. Why are they shown separately? Are they presented before or after tax? Why or why not?
> Review the consolidated income statement, expenses analyzed by nature (Exhibit 4-13). Comment on similarities and differences to the U.S. GAAP income statement. Answer: This represents a finer line item disclosure than under U.S. GAAP. Many of the item
> Why is net income–noncontrolling interest deducted before arriving at net income?
> What is the difference in the impact on financial statements of a stock dividend versus a stock split?
> List where each of the following items may appear. Choose from (A) income statement, (B) balance sheet, or (C) reconciliation of retained earnings. a. Dividends paid b. Notes payable c. Income from noncontrolling interest d. Accrued payrolls e. Loss
> What is depreciation? Which tangible assets are depreciated, and which are not? Why?
> What types of inventory will a retailing firm have? A manufacturing firm?
> Differentiate between accounts receivable and accounts payable.
> Differentiate between marketable securities and long-term investments. What is the purpose of owning each?
> Usually, current assets are listed in a specific order, starting with cash. What is the objective of this order of listing?
> Classify the following as (CA) current asset, (IV) investments, (IA) intangible asset, or (TA) tangible asset: a. Land b. Cash c. Copyrights d. Marketable securities e. Goodwill f. Inventories g. Tools h. Prepaids i. Buildings j. Accounts receivable k. L
> Are the following balance sheet items (A) assets, (L) liabilities, or (E) stockholders’ equity? a. Cash dividends payable b. Mortgage notes payable c. Investments in stock d. Cash e. Land f. Inventory g. Unearned rent h. Marketable securities I.
> Name and describe the three major categories of balance sheet accounts.
> Describe the two types of subsequent events under GAAP.
> Assume that a city donated land to a company. What accounts would be affected by this donation, and what would be the value?
> List the statement on which each of the following items may appear. Choose from (A) income statement, (B) balance sheet, or (C) neither. a. Net income b. Cost of goods sold c. Gross profit d. Retained earnings e. Paid-in capital in excess of par f.
> Describe donated capital
> Describe the account Accumulated Other Comprehensive Income.
> Should depreciation be recognized on a building in a year in which the cost of replacing the building rises? Explain
> Which depreciation method will result in the most depreciation over the life of an asset?
> An accelerated system of depreciation is often used for income tax purposes but not for financial reporting. Why?
> What are the three factors usually considered when computing depreciation?
> Describe depreciation, amortization, and depletion. How do they differ?
> How does a company recognize, in an informal or a formal way, that it has guaranteed commitments to future contributions to an ESOP to meet debt-service requirements?
> What are some possible disadvantages of an employee stock ownership plan?
> Why are commercial lending institutions, insurance companies, and mutual funds willing to grant loans to an employee stock ownership plan at favorable rates?
> You were recently hired as the assistant treasurer for Victor, Inc. Yesterday, the treasurer was injured in a bicycle accident and is now hospitalized, unconscious. Your boss, Mr. Fernandez, just informed you that the financial statements are due today.
> Describe employee stock ownership plans (ESOPs).
> For level 3 valuation (fair value), the company must include the valuation technique used to measure fair value, a reconciliation of the changes in fair value during the period, and a related discussion. Why the related discussion?
> With fair value the firm selects the highest appropriate level for valuation. Why the direction to select the highest appropriate level of valuation?
> Describe fair value as it relates to assets and liabilities.
> What is redeemable preferred stock? Why should it be included with debt for purposes of financial statement analysis?
> Describe the item Unrealized Decline in Market Value of Noncurrent Equity Investments.
> When would no controlling interest be presented on a balance sheet?
> How is an unconsolidated subsidiary presented on a balance sheet?
> A firm, with no opening inventory, buys 10 units at $6 each during the period. In which accounts might the $60 appear on the financial statements?
> The following information applies to Bowling Green Metals Corporation for the year ended December 31, 2012: Total revenues from regular operations …………………………………..$832,000 Total expenses from regular operations ……………………………………..776,000 Extraordinary gain,
> What is treasury stock? Why is it deducted from stockholders’ equity?
> Many assets are presented at historical cost. Why does this accounting principle cause difficulties in financial statement analysis?
> To be conservative, how should no controlling interest on the balance sheet be handled for primary analysis?
> A rental agency collects rent in advance. Why is the rent collected treated as a liability?
> Classify each of the following as a (CA) current asset, (NA) noncurrent asset, (CL) current liability, (NL) noncurrent liability, or (E) equity account. Choose the best or most frequently used classification. a. Supplies b. Notes receivable c. Unearned s
> Explain how the issuance of a convertible bond can be a very attractive means of raising common equity funds.
> A bond carries a stated rate of interest of 6% and par of $1,000. It matures in 20 years. It is sold at 83 (83% of $1,000, or $830). a. Under normal conditions, why would the bond sell at less than par? b. How would the discount be disclosed on the sta
> For reporting purposes, management prefers higher profits; for tax purposes, lower taxable income is desired. To meet these goals, firms often use different methods of depreciation for tax and reporting purposes. Which depreciation method is best for rep
> DeLand Company owns 100% of Little Florida, Inc. Will DeLand Company show a noncontrolling interest on its balance sheet? Would the answer change if it owned only 60%? Will there ever be a case in which the subsidiary, Little Florida, is not consolidated
> Describe the account Unrealized Exchange Gains or Losses.
> At the end of 2012, vandals destroyed your financial records. Fortunately, the controller had kept certain statistical data related to the income statement, as follows: a. Cost of goods sold was $2 million. b. Administrative expenses were 20% of the co
> Explain these preferred stock characteristics: a. Accumulation of dividends b. Participation in excess of stated dividend rate c. Convertibility into common stock d. Callability by the corporation e. Preference in liquidation
> Consolidation rules are similar between countries. Comment.
> Describe how a company could be required to consolidate another company in which it has no or minor voting stock.
> Indicate the two approaches to presenting consolidated statements.
> Private companies are not under Sarbanes-Oxley. Why do some private companies follow the law?
> Under Sarbanes-Oxley, management must include what report with the audited statements?
> Under Sarbanes-Oxley, the auditing firm will include which two reports with the audited statements? (Note: These two reports can be combined into one report.)
> Why is the COSO report on internal control systems important under requirements of the Sarbanes-Oxley Act?
> Describe the Tredway Commission.
> Where must a company’s code of ethics be made available?
> The income statement of Rawl Company for the year ended December 31, 2012, shows the following: Net sales ………………………………………………………………………………$360,000 Cost of sales…………………………………………………………………………… 190,000 Gross profit…………………………………………………………………………….. 170,000 Sellin
> What is the basic guideline for consolidation?
> Consolidated statements may be issued to show financial position as it would appear if two or more companies were one entity. What is the objective of these statements?
> Describe the purchase method of accounting for a business combination.
> Considering the EMH, how could abnormal returns be achieved?
> Considering the EMH, it is best if financial disclosure is made in the body of the financial statements. Comment.
> Why would the use of insider information be of concern if the market is efficient?
> Identify the usual forms of a business entity and describe the ownership characteristic of each.
> Describe the filing deadline for Form 10-K.
> Why aren’t all transactions recorded in the general journal?
> Why are adjusting entries necessary?
> The following items are from Taperline Corporation on December 31, 2012. Assume a flat 40% corporate tax rate on all items, including the casualty loss. Sales …………………………………………. $670,000 Rentalincome…..…………………………………..3,600 Gain on the sale of fixed assets
> A typical accrual recognition for salaries is as follows: Salaries Expense $1,000 (increase) Salaries Payable 1,000 (increase) Explain how the matching concept applies in this situation.
> Define the following: a. Permanent accounts b. Temporary accounts
> What is the relationship between the accounting equation and the double-entry system of recording transactions?
> Identify the basic accounting equation.
> What is the relationship between ethics and law?
> Describe the relationship between the terms ethics and morals.
> Where do we find a description of a firm’s accounting policies?
> Why should notes to financial statements be reviewed?
> Can cash dividends be paid from retained earnings? Comment.
