Chapter 01 The Equity Method of Accounting for Investments Multiple Choice Questions 1. Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2008 and paid dividends of $60,000 on October 1, 2008. How much income should Gaw recognize on this investment in 2008? A.
Normally, a reconciliation is required between the proprietary fund financial statements and the business-type activities column in the government-wide financial statements. C. Statements include the Statement of Net Assets (Balance Sheet); Statement of Revenues, Expenses and Changes in Fund Net Assets: and Statement of Cash Flows. D. The Statement of Cash Flows may be prepared using either the direct or indirect methods. 7. Which of the following choices regarding the fiduciary fund financial statements is true?
Answer: $235,000 6. Corporation P owns 85 percent of Corporation S1; Corporation S1 owns 60 percent of Corporation S2; Corporation S2 owns 90 percent of S3; Corporation S3 owns 60 percent of Corporation S4 and 15 percent of Corporation S2; Corporation S4 owns 100 percent of Corporation S5. Identify the consolidated group of corporations. Answer: P, S1, S2, S3, S4, S5 7. Corporation P files a consolidated return with Corporation S. In preparing a consolidated return, their accountant finds the following: Separate taxable income (loss) P= $500,000 S= ($200,000) Capital gain (loss)
(4) Audit objectives generally determined on audit engagements. c. The general group of U.S. generally accepted auditing standards includes a requirement that (1) field work be adequately planned and supervised. (2) the auditor’s report state whether or not the financial statements conform to generally accepted accounting principles. (3) due professional care be exercised by the auditor. (4) informative disclosures in the financial statements be reasonably adequate.
DSO = Receivables / Ave. sales per day Receivables= DSO * Ave. sales per day = 20 * 20,000 Receivables= $400,000 (3-2) Debt Ratio: Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Debt ratio = 1 – (1 / Equity multiplier) Debt ratio = 1 – (1/2.5) = 1 - .40 = .60 Debt ratio = 60% (3-3) Market/Book Ratio: Winston Washers’s stock price is $75 per share. Winston has $10 billion in total assets.
The key issues addressed in the letter of transmittal include AUSTIN’S GOVERNMENT, ECONOMY AND OUTLOOK which include * General Information * Local Economy * Long-term Financial Planning * Budgetary Information * Major Initiatives * American Recovery and Reinvestment Act (ARRA) * Financial Policies * Internal Controls * Budgetary Control AWARDS ACKNOWLEDGMENTS 4. Name of auditor? Opinion expressed? Deloitte & Touche LLP, The auditors expressed an unqualified opinion. In their opinion, the financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of September 30, 2010, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Capital Budgeting Case QBR/501 Capital Budgeting Case Given two separate companies to compare I had to first crunch the numbers using the information on both companies that were proposed. The spending limit was $250,000 and I could not go over that amount. Corporation “A” had revenues equaling $100,000 in year one but increasing by 10% each year. It also had expenses of $20,000 and increasing by 15% each year. The depreciating expense is $5000 each year with a tax rate of 25% and discount rate of 10%.
General and Commercial Basis Accounting Principles Generally accepted accounting principles (GAAP) state the standard framework of guidelines for financial accounting used in any given jurisdiction; commonly known as standard accounting practice or accounting standards. These contain the rules, standards, and conventions that accountants practice in recording, summarizing and in the preparation of financial statements. Hubpages.com discusses commercial accounting, also known as profit accounting, defining that it performs mainly by profit and loss. The reporting for a profit organization is directed to the investors. ("The Principles of Commercial Accounting and Fund Accounting", 2011).
Financial accounting information is used for a.|investment decisions.| b.|regulatory measures.| c.|stewardship evaluation.| d.|all of these.| ANS: D PTS: 1 DIF: Easy OBJ: 1-1 NAT: AACSB Communication 6. Which of the following is NOT part of the financial accounting information system? a.|filing reports with the SEC| b.|reporting a large contingent liability to current and potential shareholders| c.|determining the future cashflows of a proposed flexible manufacturing system| d.|preparing GAAP financial statements| ANS: C PTS: 1 DIF: Meduim OBJ: 1-1 NAT: AACSB Reflective 7. Which of the following does NOT describe cost management system? a.|evaluation of segments or products within the firm| b.|emphasis on the future| c.|externally focused| d.|focus on effective use of
Ignoring taxes, the correct opportunity cost for this machine in capital budgeting decisions is: A. $75,000 B. $25,000 C. $20,000 D. $5,000 4. What is the amount of the operating cash flow for a firm with $500,000 profit before tax, $100,000 depreciation expense, and a 35% marginal tax rate? A.