Chapter 1: Accounting as a Form of Communication
180. Presented below are condensed data from the financial statements of Snap Factory for 2015 and 2014. The
figures are expressed in thousands. Use this information to answer the questions that follow.
Statement A
2015
2014
Total current assets
$ 82,309
$ 80,080
Property, plant & equipment
(net of accumulated depreciation)
63,451
62,724
Investments
303
1,061
Other assets
3,438
2,606
Total assets
$149,501
$146,471
Total current liabilities
$ 33,928
$ 28,668
Long-term debt
20,491
25,676
Deferred income taxes and contingencies
4,174
5,208
Total liabilities
$ 58,593
$ 59,552
Total stockholders’ equity
90,908
86,919
Total liabilities & stockholders’ equity
$149,501
$146,471
Statement B
2015
2014
Net sales
$209,203
$174,206
Cost of sales
136,225
114,284
Gross profit
72,978
59,922
Selling, general and administrative expenses
63,895
53,520
Other income (expense)
693
(118)
Income (loss) before income taxes
9,776
6,284
Income tax expense
3,534
2,388
Net income (loss)
$ 6,242
$ 3,896
Required: How much of Snap Factory is financed by owners at the end of December of 2015?
Chapter 1: Accounting as a Form of Communication
181. The following accounting principles and assumptions are included in the conceptual framework of accounting:
Economic entity
Going concern
Cost principle
Monetary unit
Time period
For each situation in A through C below, identify which assumption or principle applies by selecting from the
list provided above, and explain why that assumption or principle applies.
A)
Global Corp. has divisions in several countries around the world. Each of these
countries has a currency different from the U.S. dollar. Global Corp. is a U.S.
company and must include the financial data of its worldwide divisions in its financial
statements.
B)
Steve and Mike operate a security business as a partnership. They are considering the
advantages of changing over to the corporate form of business.
C)
Island Pasta is a locally owned and operated fast-food business. The owners have
decided to expand into nearby cities. Expansion will require more capital, but
management doesn’t expect it will stay in business for more than a year or so
regardless if it expands or not.
standard monetary unit. In the United States, this unit is the dollar.
Economic entity. A business can take three forms. Regardless of form, however, the
unit itself is distinct from other units.
Going concern. A business is assumed to continue indefinitely to more accurately
reflect the valuation of assets and appropriately allocate costs to accounting periods.
Chapter 1: Accounting as a Form of Communication
182. Presented below are condensed data from the financial statements of Gallo Factory for 2015 and 2014. The
figures are expressed in thousands. Use this information to answer the questions that follow.
Statement A
2015
2014
Total current assets
$ 82,309
$ 80,080
Property, plant & equipment
(net of accumulated depreciation)
63,451
62,724
Investments
303
1,061
Other assets
3,438
2,606
Total assets
$149,501
$146,471
Total current liabilities
$ 33,928
$ 28,668
Long-term debt
20,491
25,676
Deferred income taxes and contingencies
4,174
5,208
Total liabilities
$ 58,593
$ 59,552
Total stockholders’ equity
90,908
86,919
Total liabilities & stockholders’ equity
$149,501
$146,471
Statement B
2015
2014
Net sales
$209,203
$174,206
Cost of sales
136,225
114,284
Gross profit
72,978
59,922
Selling, general and administrative expenses
63,895
53,520
Other income (expense)
693
(118)
Income (loss) before income taxes
9,776
6,284
Income tax expense
3,534
2,388
Net income (loss)
$ 6,242
$ 3,896
Required: How much of Gallo Factory is financed by creditors at the end of December of 2015? Evaluate the
change from 2014 to 2015.
183. What is meant by generally accepted accounting principles?
Chapter 1: Accounting as a Form of Communication
184. Discuss the four steps in the ethical decision model used by accountants. Expand the discussion to include
questions that you would ask to analyze the key elements in the situation.
185. From an ethical standpoint, if various alternatives are available to report a transaction, what are some of the
questions an accountant should ask about the alternatives?
186. Develop an ethical dilemma scenario that an accountant may face and give examples of key elements (listed
below) that should be considered when analyzing the decision:
1. Those who may benefit or be harmed
2. What potential benefits or harm could result from the situation
3. The rights or claims violated
4. The specific interests in conflict
5. The responsibilities and obligations
Match the following business forms with their characteristics below.
a. Sole proprietorship
b. Partnership
c. Corporation
Chapter 1: Accounting as a Form of Communication
187. Must file articles of incorporation with the state
188. Easy to raise large sums of money
189. Single owner
190. Need an agreement about contributions to the business
191. Usually owned and operated by the same person
192. Owned by two or more individuals
193. Control most private resources in the U.S.
194. A share of stock acts as evidence of ownership
Provided below is a list of important users of accounting information. Below the list are descriptions of a
major need of each of the various users. Fill in the blank with the one user group that is most likely to
have the need described to the right of the blank. Some user groups may be used more than once or not at
all.
a. Stockholder
b. Company management
c. Supplier
d. Banker
e. Internal Revenue Service
f. Securities and Exchange Commission
g. Labor union
195. The prospects for future dividend payments.
196. The financial status of a company issuing securities to the public for the first time.
197. The profitability of the company based upon the Internal Revenue Code.
198. The profitability of each division of the company.
Chapter 1: Accounting as a Form of Communication
199. The exact amount of profit on each product of the company.
200. The company’s profitability since the last work force contract was signed.
For each statement provided, choose the letter of the appropriate term from the list that each statement
best describes. Some terms may be used more than once, while others are not used at all.
a. Capital stock
b. Asset
c. Owners’ equity
d. Time period
e. Dividends
f. Economic entity concept
g. Expense
h. Retained earnings
i. Cost principle
j. Creditor
k. Liability
l. Revenue
m. Going concern
n. Monetary unit
o. Corporation
201. The portion of owner’s equity that represents the net income less any dividends paid over the life of the entity.
202. The owners’ claims on the assets of an entity.
203. A distribution of the net income of a business to its owners.
204. The sale of goods or the performance of services.
205. A category on the balance sheet to indicate the owners’ direct investment in a corporation.
206. The cost of doing business that results from the process of generating revenues.
207. A future benefit.
208. An artificial segment on the calendar used as a basis for preparing financial statements.
Chapter 1: Accounting as a Form of Communication
209. The assumption that an entity is not in the process of liquidation and that it will continue indefinitely.
210. The principle or rule that specifies the amount recorded for an asset upon acquisition.
211. An entity that lends a company money with the expectation of repayment.
212. Claims of the creditors against the assets of a company.
Several items from the financial statements of Standard Tires are listed below. Use the following answer
choices to identify the type of account for each item listed. Place your answers in the space provided.
a. Assets
b. Liabilities
c. Revenues
d. Expenses
e. Owners’ equity
213. Property, plant, and equipment
214. Sale of tires
215. Accounts payable
216. Interest income
217. Selling expenses
218. Accounts receivable
219. Capital stock
220. Long-term debt
221. Cash
222. Retained earnings
Chapter 1: Accounting as a Form of Communication
223. Inventories
Three organizations important to accounting are listed below. Select the organization that most closely
achieves the role described.
a. American Institute of Certified Public Accountants (AICPA)
b. Financial Accounting Standards Board (FASB)
c. Securities and Exchange Commission (SEC)
224. Issues financial accounting concepts that are used as a guide to accounting standard setting.
225. Has the ultimate authority to set accounting standards, but has allowed the profession to do so.
226. Prepares and grades the Uniform CPA Examination.
227. An agency of the federal government.
228. Is a professional organization of certified public accountants.
229. Primarily responsible for setting accounting standards today.
230. Requires that publicly traded companies file annual and quarterly financial statements on a timely basis.
231. Since there is a lack of a profit motive in nonbusiness entities, they do not need information provided by an
accounting system.
a. True
b. False
232. Drew Mellow, owner of Mellow’s Melodies, also owns a personal residence that costs $400,000. The market value
of his residence is $600,000. During preparation of the financial statements for Mellow’s Melodies, the accounting
concept most relevant to the presentation of Drew’s home is:
a. monetary unit.
b. a going concern entity.
c. the economic entity concept.
d. the time period assumption.
Chapter 1: Accounting as a Form of Communication
233. Which of the following statements is true regarding a bond?
a. A bond is a certificate that acts as evidence of ownership in a corporation.
b. A bond is a certificate that represents a corporation’s promise to repay a certain amount of money and interest
in the future.
c. If you buy a bond from a company, you are borrowing money from the company.
d. Bondholders receive dividends semiannually.
234. All of the following are the types of activities that businesses engage in except:
a. financing activities.
b. investing activities.
c. operating activities.
d. organizational activities.
235. Which of the following represents the proper order of the financial decision framework?
a. Analyze the information, formulate the question, gather information from financial statements, monitor your
decision, make the decision.
b. Formulate the question, Analyze the information, gather information from financial statements, monitor your
decision, make the decision.
c. Formulate the question, Gather information from financial statements, Analyze the information, Make the
decision, Monitor your decision
d. Analyze the information, monitor your decision, make the decision, formulate the question, gather information
from financial statements.
236. Which one of the following items does not accurately describe stockholders‘ equity?
a. Stockholders‘ equity is created when a company issues stock to an investor.
b. Total stockholders’ equity should be equal to Assets in an publicly held entity.
c. Stockholders‘ equity represents amounts contributed by the owners to the company.
d. As owners of shares in a corporation, stockholders have claims on the assets of a business when it is profitable.
237. Sawyer Corporation purchased land in 2009 for $490,000. In 2015, it purchased a nearly identical parcel of land
for $660,000. In its 2015 balance sheet, Sawyer valued these two parcels of land at a combined value of
$1,320,000. By reporting the land in this manner, Sawyer Corporation has violated which of the following?
a. Going concern assumption
b. Cost principle
c. Monetary unit measure
d. Time Period assumption
Chapter 1: Accounting as a Form of Communication
238. Which one of the following best describes the external auditor’s report?
a. The external auditor’s report is an opinion.
b. The external auditor’s report is a statement of fact.
c. The external auditor’s report must comply with both FASB and IASB standards.
d. The firms that provide external audit reports are restricted to 20 partners, based on authoritative standards
issued by the PCAOB.
239. For each of the following, explain a transaction that will have the following stated effects on the accounting
equation elements.
A) Increase one asset, decrease one asset, and increase a liability.
B) Increase an asset and increase stockholders’ equity.
C) Decrease an asset and decrease a liability.
D) Increase an asset and increase a liability.
E) Increase one asset and decrease another asset.
Chapter 1: Accounting as a Form of Communication
240. Calvin Corp. was organized on January 1 to operate a taxi service. For each of the following business activities,
please indicate whether it is a financing (F), investing (I) or operating (O) activity.
A. Issued shares of stock to each of the five owners.
B. Purchased five automobiles to use as taxis.
C. Paid the first month’s rent for a garage.
D. Obtained a loan from the bank.
E. Received cash from a customer for a 10–mile taxi ride.
F. Paid the drivers wages for the first week.
G. Purchased a fueling station to install at the garage (includes a 500 gallon tank).
H. Declared and paid cash dividends to the owners after the first month’s operations.
I. Paid cash to repair the brakes on one of the taxis.
J. Bought land for a future taxi office.