Accoutning:Definition of assets,liabilities etc.

1. The best definition of assets is the
a. cash owned by the company.
b. collections of resources belonging to the company and the claims on these resources.
c. Owners' investment in the business.
d. resources belonging to a company have future benefit to the company.

2.Liabilities
a.are future economic benefits.
b.are debts and obligations.
c.possess service potential.
d.are things of value owned by a business.

3.Notes to the financial statements
a.are optional.
b.help clarify information presented in the financial statements.
c.are generally brief and few in number.
d.need not be read in detail if an unqualified opinion accompanies the financial statements.
4.The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)
a.account payable.
b.account receivable.
c.revenue.
d.expense.

5. An income statement
a.summarizes the changes in retained earnings for a specific period of time.
b.reports the changes in assets, liabilities, and stockholders' equity over a period of time.
c.reports the assets, liabilities, and stockholders' equity at a specific date.
d.presents the revenues and expenses for a specific period of time.
6. Liabilities
a.are future economic benefits.
b.are debts and obligations.
c.possess service potential.
d.are things of value owned by a business.

7.Payments to stockholders are called
a.expenses.
b.liabilities.
c.dividends.
d.distributions.

8.The discontinued operations section of the income statement refers to
a.discontinuance of a product line.
b.the income or loss on products that have been completed and sold.
c.obsolete equipment and discontinued inventory items.
d.the disposal of a significant segment of a business.

Use the following information for questions 9-10.

The following amounts were taken from the financial statements of Alien Company:
2007 2006
Current liabilities $280,000 $220,000
Long-term liabilities 800,000 600,000
Interest Expense 100,000 50,000
Income tax expense 120,000 58,000
Net income 300,000 170,000
Net cash provided by operating activity 480,000 270,000

9.The times interest earned ratio for 2007 is
a.3.0 times.
b.4.8 times.
c.4.0 times.
d.5.2 times.

10.The cash debt coverage ratio for 2007 is
a.50.5%.
b.44.4%.
c.31.6%.
d.62.5%.

Part II
Problems

11. Selected data taken from the 2006 financial statements of trading card company Bottoms Company, Inc. are as follows (in millions). 10pts

Net sales $295.9
Current liabilities, February 28, 2005 39.5
Current liabilities, February 28, 2006 47.5
Net cash provided by operating activities 23.0
Total liabilities, February 28, 2005 64.2
Total liabilities, February 28, 2006 71.2
Capital expenditures 2.6
Cash dividends 6.5

Instructions
Compute these ratios at February 20, 2006:
(a)Current cash debt coverage ratio
(b)Cash debt coverage ratio
(c)Free cash flow

Provide a brief interpretation of your results.

12.The comparative balance sheet of Stuart Company appears below: 20pt

STUART COMPANY
Comparative Balance Sheet
December 31,

Assets 2007 2006
Current assets $ 340 $280
Plant assets 675 520
Total assets $1,015 $800

Liabilities and stockholders' equity
Current liabilities $ 180 $120
Long-term debt 250 160
Common stock 325 320
Retained earnings 260 200
Total liabilities and stockholders' equity $1,015 $800

Instructions
(a)Using horizontal analysis, show the percentage change for each balance sheet item using 2006 as a base year.
(b)Using vertical analysis, prepare a common size comparative balance sheet.

13. The Brawn Company had a $400 credit balance in Allowance for Doubtful Accounts at December 31, 2007, before the current year's provision for uncollectible accounts. An aging of the accounts receivable revealed the following:
Estimated Percentage
Uncollectible
Current Accounts $140,000 1%
1-30 days past due 15,000 3%
31-60 days past due 12,000 6%
61-90 days past due 5,000 12%
Over 90 days past due 7,000 30%
Total Accounts Receivable $179,000

Instructions
a)Prepare the Estimated Uncollectible schedule for each percentage.
b)Prepare the adjusting entry on December 31, 2007, to recognize bad debts expense.

14. Sam Hill has worked for Dr. Lee Chang for several years. Sam demonstrates a loyalty that is rare among employees. He hasn't taken a vacation in the last three years. One of Sam's primary duties at the medical office is to open the mail and list the checks received. He also takes cash from patients at the cashier window as patients leave. At times it is so hectic that Sam doesn't bother with giving patients a receipt for the cash paid on their accounts. He assures them he will see to it that they receive the proper credit. When the traffic is slow in the office Sam offers to help Mary post the payments to the patients' accounts receivable. She is always happy to receive his help, because he is a very conscientious worker.

Instructions
Identify any principles of internal control that may be violated in this medical office situation.

Part III -
15. Your friend, Mark, has opened a movie theater. Mark states that he does not have time to develop and implement a system of internal controls. 10pts

a.Provide Mark with the objectives of a system of internal control.

b.Explain to Mark why he should develop a system of internal control.

16.A large stock dividend and stock split can frequently have the same effect on the market price of a corporation's stock. Explain how stock dividends and stock splits affect the market price of a corporation's stock.