Intermediate Accounting Question And Answers Homework Help
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1.The current asset section of the Excalibur Tire Company’s balance sheet consists of cash, marketable securities, accounts receivable and inventories. The December 31, 2011, balance sheet revealed the following:
Total assets $2,800,000
Current ratio 2.25
Acid-test ratio 1.2
Debt to equity ratio 1.8
Determine the following 2011 balance sheet items:
1. Current Assets
2. Shareholders’ Equity
3. Noncurrent Assets
4. Long-term Liabilities
2.Most decisions made by management impact the ratios analysts use to evaluate performance. Indicate (by letter) whether each of the actions listed below will immediately increase (I), decrease (D) or have no effect (N) on the ratios shown. Assume each ratio is less than 1.0 before the action is taken.
|Action||Current Ratio||Acid – Test|
|Debt to |
|1. Issuance of long-term bonds|
|2. Issuance of short-term notes|
|3. Payment of accounts payable|
|4. Purchase of inventory on account|
|5. Purchase of inventory for cash|
|6. Purchase of equipment with a|
|7. Retirement of bonds|
|8. Sale of common stock|
|9. Write-off of obsolete inventory|
|10. Purchase of short-term investment for cash|
|11. Decision to refinance on a long-term basis some currently maturing debt|
3.You are a new staff accountant with a large regional CPA firm, participating in your first audit. You recall from your auditing class that CPAs often use ratios to test the reasonableness of accounting numbers provided by client. Since ratios reflect the relationships among various account balances, if it is assumed that prior relationships still hold, prior years’ ratios can be used to estimate what current balances should approximate. However you never actually performed this kind of analysis until now. The CPA in charge of the audit of Covington Pike Corporation brings you the list of ratios shown below and tells you these reflect the relationships maintained by Covington Pike in recent years.
Profit margin on sales = 5%
Return on assets = 7.5%
Gross profit margin = 40%
Inventory turnover ratio = 6 times
Receivables turnover ratio = 25
Acid-test ratio = .9 .
Current ratio = 2 to 1
Return on shareholders’ equity = 10%
Debt to equity ratio = 1/3
Times interest earned ratio = 12 times
Jotted in the margins are the following notes:
• Net income $15,000
• Only one short-term note ($5,000); all other current liabilities are trade accounts
• Property, plant, and equipment are the only noncurrent assets
• Bonds payable are the only noncurrent liabilities
• The effective interest rate on short-term notes and bonds is 8%
• No investment securities
• Cash balance totals $ 15,000
You are requested to approximate the current year’s balances in the form of a balance sheet and income statement, to the extent the information allows. Accompany those financial statements with the calculations you use to estimate each amount reported.
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4.The following summary transactions occurred during 2011 for Bluebonnet Bakers:
Cash Received from:
Customers $ 380,000
Interest on note receivable 6,000
Principal on note receivable 50,000
Sale of investments 30,000
Proceeds from note payable 100,000
Cash paid for:
Purchase of inventory $ 160,000
Interest on note payable 5,000
Purchase of equipment 85,000
Salaries to employees 90,000
Principal on note payable 25,000
Payment of dividends to shareholders 20,000
The balance of cash and cash equivalents at the beginning of 2011 was $17,000.
Prepare a statement of cash flows for 2011 for Bluebonnet Bakers. Use the direct method for reporting operating activities.
5.The following transactions occurred during March 2011 for the Wainwright Corporation. The company owns and operates a wholesale warehouse. [These are the same transactions analyzed in Exercise 2-1, when we determined their effect on elements of the accounting equation.]
1. Issued 30,000 shares of capital stock in exchange for $300,000 in cash.
2. Purchased equipment at a cost of $40,000. $10,000 cash was paid and a note payable was signed for the balance owed.
3. Purchased inventory on account at a cost of $90,000. The company uses the perpetual inventory system.
4. Credit sales for the month totaled $120,000. The cost of the goods sold was $70,000.
5. Paid $5,000 in rent on the warehouse building for the month of March.
6. Paid $6,000 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2011.
7. Paid $70,000 on account for the merchandise purchased in 3.
8. Collected $55,000 from customers on account.
9. Recorded depreciation expense of $1,000 for the month on the equipment.
1. Analyze each transaction and classify each as a financing, investing and/or operating activity (a transaction can represent more than one type of activity). In doing so, also indicate the cash effect of each, if any. If there is no cash effect, simply place a check mark (V) in the appropriate column(s). Example:
|1. $ 300,000|
2. Prepare a statement of cash flows, using the direct method to present cash flows from operating activities. Assume the cash balance at the beginning of the month was $40.000.
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