Questions & Problems for each chapter (from 1 to 10) of FSA

Q 1. 3, 4 P 1.2, 5

Q 2.12, 17, 19, 25, 27 P 2. 5, 8, 9, 10,

Q 2-12 Which of the following events, occurring subsequent to the balance sheet date,
would require a note?
a. Major fire in one of the firm’s plants
b. Increase in competitor’s advertising
c. Purchase of another company
d. Introduction of new management techniques
e. Death of the corporate treasurer

Q 2-17 What are the major sections of a statement of cash flows?

cash flows from operating activities, cash flows from investing activities, and cash flows
from financing activities.

First paragrapth on page 57

Q 2-19 What are the three major categories on a balance

sheet?

A balance sheet is a financial statement that reports a company's assets, liabilities and
shareholder equity at a specific point in time.

Q 2-25 Identify the basic accounting equation

The basic accounting equation is written as

assets = liabilities + owner's equity.

middle of page 56 or first para on page 59

The basic accounting equation forms the foundation for preparing a balance sheet and
shows the relationship that exists between assets, liabilities, and owner's equity. Assets
are what you own
Q 2-27 Define the following:

Asset, liability, and stockholders’ equity accounts are referred to as permanent accounts
because the balances in these accounts carry forward to the next accounting period.
Balances in revenue, expense, gain, loss, and dividend accounts, described as temporary
accounts, are closed to retained earnings and not carried into the next period.
a. Permanent accounts

The meaning of permanent accounts are accounts whose balances remain open at the end
of the accounting time and are carried over to the next accounting period. Such accounts
remain open throughout the business operations. The balance at the end of an accounting
period becomes the beginning balance for the next period, and is viewed on the company
or individual's balance sheets. Permanent accounts represent the worth of a company at a
specific time and are also called real accounts.

Paragrapth 4 on page 59

Ý nghĩa của tài khoản cố định là những tài khoản có số dư còn tồn tại cuối kỳ kế toán và
được kết chuyển sang kỳ kế toán tiếp theo. Các tài khoản như vậy vẫn mở trong suốt quá
trình hoạt động kinh doanh. Số dư cuối kỳ kế toán trở thành số dư đầu kỳ của kỳ tiếp theo
và được xem trên bảng cân đối kế toán của công ty hoặc cá nhân. Tài khoản vĩnh viễn đại
diện cho giá trị của một công ty tại một thời điểm cụ thể và còn được gọi là tài khoản
thực.

Examples of Permanent Accounts

Some examples of permanent accounts include assets account, liabilities account, and
the owner's equity account. Here is a detailed explanation of those examples.

b. Temporary accounts

The definition of a temporary account is an account whose balance is not carried over at
the end of every accounting year and thus begins the new year with zero balance. The
primary use of a temporary account is to show how any draws, expenses, and/or revenue
have affected an equity account. Another name for temporary accounts is a nominal
accounts. These accounts track business expenses and revenue to calculate the net loss
and net profit for a specific period.

Định nghĩa của một tài khoản tạm thời là một tài khoản mà số dư của nó không được kết
chuyển vào cuối mỗi niên độ kế toán và do đó bắt đầu năm mới với số dư bằng không.
Mục đích sử dụng chính của tài khoản tạm thời là để chỉ ra mức độ ảnh hưởng của bất kỳ
khoản rút vốn, chi phí và/hoặc doanh thu nào đối với tài khoản vốn chủ sở hữu. Một tên
khác cho tài khoản tạm thời là tài khoản danh nghĩa. Các tài khoản này theo dõi chi phí
kinh doanh và doanh thu để tính toán lỗ ròng và lợi nhuận ròng trong một khoảng thời
gian cụ thể.

Examples of Temporary Accounts

Temporary accounts are in the grouping of income statement accounts. Below is a list of
temporary accounts and a detailed explanation of their meaning.

P 2-5
Required Answer the following multiple-choice questions:
a. The balance sheet equation can be defined as which of the following?
1. Assets + Stockholders’ Equity = Liabilities
2. Assets + Liabilities = Stockholders’ Equity
3. Assets = Liabilities - Stockholders’ Equity
4. Assets - Liabilities = Stockholders’ Equity

middle of page 56
5. None of the above
b. If assets are $40,000 and stockholders’ equity is $10,000, how much are liabilities?
1. $30,000
2. $50,000
3. $20,000
4. $60,000
5. $10,000
c. If assets are $100,000 and liabilities are $40,000, how much is stockholders’ equity?
1. $40,000
2. $50,000
3. $60,000
4. $30,000
5. $140,000
d. Which is a permanent account?
1. Revenue
2. Advertising Expense
3. Accounts Receivable
4. Dividends
5. Insurance Expense
e. Which is a temporary account?
1. Cash
2. Accounts Receivable
3. Insurance Expense
4. Accounts Payable
5. Notes Payable
f. In terms of debits and credits, which accounts have the same normal balances?
1. Dividends, retained earnings, liabilities
2. Capital stock, liabilities, expenses
3. Revenues, capital stock, expenses
4. Expenses, assets, dividends
5. Dividends, assets, liabilities

P 2-8 The following are selected accounts of Laura Gibson Company on December 31:
Permanent (P) or
Temporary (T)
Normal Balance (Dr.)
or (Cr.)
___p______
Cash
____p_____ _______dr_
Accounts Receivable
___dr_____
_____p____ _____dr____
Equipment
_____cr____
Accounts Payable
____p_____ _______cr__
Common Stock
_________
Sales
____p_____ _________
Purchases
_________
Rent Expense
_________ _________
Utility Expense
_________ _________
Selling Expense
_________
_________

P 2-9 An auditor’s report is the formal presentation of all the effort that goes into an
audit.
Below is a list of the classifications of audit opinions that can be found in an auditor’s
report
as well as a list of phrases describing the opinions.
Classifications of Audit Opinions
a. Unqualified opinion
b. Qualified opinion
c. Adverse opinion
d. Disclaimer of opinion
(continued)
Phrases
1. This opinion states that the financial statements do not present fairly the
financial position, results of operations, or cash flows of the entity, in
conformity with generally accepted accounting principles.
2. This type of report is rendered when the auditor has not performed an audit
sufficient in scope to form an opinion.
3. This opinion states that, except for the effects of the matters to which the
qualification relates, the financial statements present fairly, in all material
respects, the financial position, results of operations, and cash flows of the
entity, in conformity with generally accepted accounting principles.
4. This opinion states that the financial statements present fairly, in all material
respects, the financial position, results of operations, and cash flows of the
entity, in conformity with generally accepted accounting principles.
Required Place the appropriate letter identifying each type of opinion on the line in front
of
the statement or phrase describing the type of opinion.
P 2-10 A company prepares financial statements in order to summarize financial
information. Below are a list of financial statements and a list of descriptions.
Financial Statements
a. Balance sheet
b. Income statement
c. Statement of cash flows
d. Statement of stockholders’ equity
Descriptions
1. Details the sources and uses of cash during a specified period of time.
2. Summary of revenues and expenses and gains and losses for a specific period of time.
3. Shows the financial condition of an accounting entity as of a specific date.
4. Presents reconciliation of the beginning and ending balances of the stockholders’
equity
accounts.
Required Match each financial statement with its description.
 Chapter 3

Q 3. 2, 3, 4, 5, 6, 15, 33 P 3. 1, 2,

Q 3-2 Are the following balance sheet items (A) assets,

(L) liabilities, or (E) stockholders’ equity?
a. Cash dividends payable L
b. Mortgage notes payable L
c. Investments in stock A
d. Cash A
e. Land A
f. Inventory A
g. Unearned rent L
h. Marketable securities A
i. Patents A
j. Capital stock E
k. Retained earnings E
l. Accounts receivable A
m. Taxes payable L
n. Accounts payable L

o. Organizational costs A
p. Prepaid expenses A
q. Goodwill A
r. Tools A
s. Buildings A
Q 3-3 Classify the following as (CA) current asset, (IV) investments, (IA) intangible
asset, or (TA) tangible asset:
a. Land TA
b. Cash CA
c. Copyrights IA
d. Marketable securities CA
e. Goodwill IA
f. Inventories CA
g. Tools TA
h. Prepaids CA
i. Buildings TA
j. Accounts receivable CA - 99
k. Long-term investment in stock IA - 104
l. Machinery TA - 101
Q 3-4 Usually, current assets are listed in a specific order, starting with cash. What
is the objective of this order of listing?

Liquidity

Paragrapth 5, page 98
Q 3-5 Differentiate between marketable securities and long-term investments. What
is the purpose of owning each?

Marketable securities are obtained to meet the immediate cash demands because they
have a high liquidity. A short-term gain is acquired through the selling of these securities.
On the other hand, long-term investments are acquired to obtain periodic returns on that
investment.

Chứng khoán có thể bán được được mua để đáp ứng nhu cầu tiền mặt ngay lập tức vì
chúng có tính thanh khoản cao. Lợi nhuận ngắn hạn có được thông qua việc bán các
chứng khoán này. Mặt khác, các khoản đầu tư dài hạn được mua lại để thu được lợi
nhuận định kỳ từ khoản đầu tư đó.

Marketable securities (also labeled short-term investments) are characterized by their

marketability at a readily determinable market price.

Long-term investments, usually stocks and bonds of other companies, are often held to
maintain a business relationship or to exercise control. Long-term investments are
different from marketable securities, where the intent is to hold for short-term profits and
to achieve liquidity.

Các khoản đầu tư dài hạn, thường là cổ phiếu và trái phiếu của các công ty khác, thường
được nắm giữ để duy trì mối quan hệ kinh doanh hoặc để thực hiện quyền kiểm soát. Đầu
tư dài hạn khác với chứng khoán có thể bán được, mục đích là nắm giữ để kiếm lợi nhuận
ngắn hạn và đạt được tính thanh khoản.
Page 99, para 1 and page 104 para 4

Q 3-6 Differentiate between accounts receivable and accounts payable

Whereas accounts payable represents money that your business owes to suppliers,
accounts receivable represents money owed to your business by customers. In addition,
accounts receivable is considered a current asset, whereas accounts payable is considered
a current liability.

Page 99 para 2

Page 111 para 3

Q 3-15 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 – CA - 101
b. Notes receivable – CA - 99
c. Unearned subscription revenue – CL - 118
d. Accounts payable – CL - 111
e. Retained earnings – E -118
f. Accounts receivable – CA - 99
g. Preferred stock – E - 120
h. Plant – NA - 96
i. Prepaid rent – CA - 101
j. Capital – E -119
k. Wages payable – CL – 111 – phải trả cnv
l. Mortgage bonds payable – NL - 113
m. Unearned interest – CA -
n. Marketable securities – (chứng khoán khả mại)
o. Paid-in capital from sale of treasury stock – E -118
p. Land – NA - 101
q. Inventories – CA - 99
r. Taxes accrued – CL - 111
s. Cash – CA - 98

Q 3-23 Describe the item Unrealized Decline in Market Value of Noncurrent Equity
Investments
101 - land

106 – para 2

Problems
P 3-1 The following information was obtained from the accounts of Airlines
International dated December 31, 2012. It is presented in alphabetical order.

$
Accounts payable
77,916

Accounts receivable 67,551

Accrued expenses 23,952

Accumulated depreciation 220,541

Allowance for doubtful accounts 248

Capital in excess of par 72,913

Cash
Common stock (par $0.50,
28,837
authorized 20,000
shares, issued 14,304 shares)

7,152

Current installments of long-term

36,875
debt

Deferred income tax liability (long

42,070
term)

Inventory 16,643

Investments and special funds 11,901

Long-term debt, less current portion 393,808

Marketable securities 10,042

Other assets 727

Prepaid expenses 3,963

Property, plant, and equipment at

809,980
cost

Retained earnings
Unearned transportation revenue
67,361
(airline tickets
expiring within one year)

6,808

Required Prepare a classified balance sheet in report form.

P 3-2 The following information was obtained from the accounts of Lukes, Inc., as of
December 31, 2012. It is presented in scrambled order.

Common stock, no par value, 10,000 shares

authorized, 5,724 shares issued $ 3,180

Retained earnings 129,950

Deferred income tax liability

24,000
(long term)

Long-term debt 99,870

Accounts payable 35,000

Buildings 75,000

Machinery and equipment 300,000

Land 11,000

Accumulated depreciation 200,000

Cash 3,000

Receivables, less allowance of

58,000
$3,000

Accrued income taxes 3,000

Inventory 54,000
Other accrued expenses 8,000

Current portion of long-term debt 7,000

Prepaid expenses 2,000

Other assets (long term) 7,000

Required Prepare a classified balance sheet in report form. For assets, use the
classifications of current assets, plant and equipment, and other assets. For liabilities, use
the classifications of current liabilities and long-term liabilities.
Chapter 4

Q 4. 1, 2, 5, 8, 9, P 4. 1 a & c, 2, 9, 10

Q 4-1 What are extraordinary items? How are they shown on the income statement? Why
are they shown in that manner?

(p165 - para 3)

Extraordinary items are events or transactions that are distinguished by their unusual
nature and infrequency of occurrence. They might include casualty losses or losses from
expropriation or prohibition. They must be shown separately, net of tax, in order that
trend analysis can be made of income before extraordinary items.

Q 4-2 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-down of inventory

(p165 - para 3)

Q 4-5 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?

(p163 - para 2 dưới lên; p164 - para 2)

It would appear that this is the disposal of a product line that is specifically separate from
the dairy products line. The disposal of the vitamin line should be identified as
discontinued operations and be presented net-of-tax after income from continuing
operations on the income statement.
Q 4-8 How does the declaration of a cash dividend affect the financial statements? How
does the payment of a cash dividend affect the financial statements?

(p168 - para 1 duoi len)

The declaration of a cash dividend reduces retained earnings and increases current
liabilities. The payment of a cash dividend reduces current liabilities and cash.

Q 4-9 What is the difference in the impact on financial statements of a stock dividend
versus a stock split?

(p170 - para 2,5)

First, a stock split is usually for a larger number of shares. Secondly, a stock dividend
reduces retained earnings and increases paid-in capital. A stock split merely increases the
shares and reduces the par value, leaving the capital stock account intact. Both require
restatement of any per share items.

P 4-1 The following information for Decher Automotives covers the year ended 2012:

Administrative expense $ 62,000

Dividend income 10,000

Income taxes $ 100,000

Interest expense 20,000

Merchandise inventory, 1/1 650,000

Merchandise inventory, 12/31 440,000

Flood loss (net of tax) 30,000

Purchases 460,000

Sales 1,000,000

Selling expenses 43,000

Required
a. Prepare a multiple-step income statement.
c. Prepare a single-step income statement.
P 4-2 The following information for Lesky Corporation covers the year ended December
31, 2012:
LESKY CORPORATION
Income Statement
For the Year Ended December 31, 2012
Revenue:

Revenues from sales $362,000

Rental income 1,000

Interest 2,400

Total revenue
Expenses: 365,400 $242,000
Cost of products sold

Selling expenses 47,000

Administrative and general

11,400
expenses

Interest expense 2,200

Federal and state income

20,300
taxes

Total expenses 322,900

Net income $ 42,500

Required Change this statement to a multiple-step format, as illustrated in this chapter.

P 4-9 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 A p157 para 2
b. Cost of goods sold A p159 para 3
c. Gross profit A p157 para 2
d. Retained earnings B p122 para 2
e. Paid-in capital in excess of par B p119 para 1
f. Sales A p159 para 2
g. Supplies expense A p157 para 3
h. Investment in G. Company B p104 para 5
i. Dividends C p168 para 1 duoi len
j. Inventory B p99 para 1 duoi len
k. Common stock B p120 para 3
l. Interest payable B p111 para 3
m. Loss from flood A p157 para 3
n. Land B p101 para 5 duoi len
o. Taxes payable B p111 para 3
p. Interest income A p157 para 3
q. Gain on sale of property A p157 para 3
r. Dividend income A p157 para 3
s. Depreciation expense A p157 para 3
t. Accounts receivable B p99 para 3 duoi len
u. Accumulated depreciation B p101 para 1 duoi len
v. Sales commissions A p157 para 3
P 4-10 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 C
b. Notes payable B – Chapter 3 – 113 – first para
c. Income from noncontrolling interest A
d. Accrued payrolls B
e. Loss on disposal of equipment A
f. Land B
g. Adjustments of prior periods C
h. Redeemable preferred stock B
i. Treasury stock B
j. Extraordinary loss A
k. Unrealized exchange gains and losses B
l. Equity in net income of affiliates A
m. Goodwill B
n. Unrealized decline in market value of equity investment B
o. Cumulative effect of change in accounting principle A
p. Common stock B
q. Cost of goods sold A
r. Supplies B
 Chapter 5
Q 5. 1, 2, 4, 6, 7, 8 P 5. 1, 3, 5, 6, 7, 8 - (e, f, g)

Q 5-1 What is a ratio? How do ratios help to alleviate the

problem of size differences among firms?

Q 5-2 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.

Q 5-4 Differentiate between absolute and percentage

changes. Which is generally a better measure of change? Why?

P 5-1 Best Buy Co., Inc.’s consolidated balance sheets from its 2011 annual report are
presented in Exhibit 5-3.

Required

a. Using the balance sheets, prepare a vertical common-size analysis for 2011 and 2010.

Use total assets as a base.

b. Using the balance sheets, prepare a horizontal common-size analysis for 2011 and

2010. Use 2010 as the base.

c. Comment on significant trends that appear in (a) and (b)

P 5-3 The Kelly Services, Inc., and Subsidiaries balance sheets from its 2010 annual
report

are presented in Exhibit 5-4.

Required

a. Using the balance sheets, prepare a vertical common-size analysis for 2010 and 2009.

Use total assets as a base.

b. Using the balance sheets, prepare a horizontal common-size analysis for 2010 and
2009. Use 2009 as the base.

c. Comment on significant trends that appear in (a) and (b).

P 5-5

Change Analysis

Item Year 1 Year 2 Amount Percent

1 — 3,000

2 6,000 (4,000)

3 (7,000) 4,000

4 4,000 —

5 8,000 10,000

Required Determine the absolute change and the percentage for these items

P 5-6

Change Analysis

Item Year 1 Year 2 Amount Percent

1 4,000 —

2 5,000 (3,000)

3 (9,000) 2,000

4 7,000 —

5 — 15,000

Required Determine the absolute change and the percentage for these items.
Q 6-1 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 enable the
firm to generate more sales. Comment on this proposal.

Q 6-2 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
asked you to explain possible reasons why the firm is having difficulty meeting its
payroll and its accounts payable. What would you tell Mr. Jones?
Q 6-4 Define the operating cycle.

Q 6-6 List the major categories of items usually found in current assets.

Q 6-7 Rachit Company has cash that has been frozen in a bank in Cuba. Should this cash
be classified as a current asset? Discuss.

Q 6-8 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?

P 6-1 In this problem, compute the acid-test ratio as follows:

Current Assets " Inventory

Current Liabilities

Required Determine the cost of sales of a firm with the following financial data.

Current ratio 2.5

Quick ratio or acid-test 2.0

Current liabilities $400,000

Inventory turnover 3 times

v

Q 6. 6, 7, 9, 13, 27, 28, 36, 37 P 6.2, 4, 7, 8, 13, 14, 15, 23

Q 7. 1, 2, 8, 11, 13 P 7. 2, 4, 9

Q 8. 3, 5, 9, 12 P 8. 1, 5, 6

Q 8-3 If profits as a percent of sales decline, what can be said about expenses?
Expenses as a percent of sales must have increased if profits as a percent of sales
declined.

Q 8-5 The ratio return on assets has net income in the numerator and total assets in the
denominator. Explain how each part of the ratio could cause return on assets to fall?

A drop in profits or a rise in the asset base could cause a decline in the ratio. For
example, higher cost of sales could cause a decline; or, a substantial investment in fixed
assets that are not yet fully utilized could cause a decline.

T326

Q 8-9 Explain how return on assets could decline, given an increase in net profit margin.

Return on assets is a function of net profit margin and total asset turnover. Return on
assets could decline, given an increase in net profit margin, if the total asset turnover
declined sufficiently.

Q 8-12 G. Herrich Company and Thomas, Inc., are department stores. For the current
year, they reported a net income after tax of $400,000 and $600,000, respectively. Is
Thomas, Inc., a more profitable company than G. Herrich Company? Discuss

This cannot be determined based only upon the absolute measures. It is necessary to
compare these dollar figures to a base, such As investment or sales. Also, it is necessary
to know if nonrecurring items are part of the firm’s income picture.

Q 9. 2, 5, 6, 9, 13, 14 P 9. 1, 2, 3

Q 10. 1, 2, 4, 8, 14, 17 P 10. 1, 2, 11