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Financial Accounting Problems

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Condensed financial data for West Corporation are given below.

Comparative Balance Sheet
December 31

2003 2002
Cash $ 78,000 $ 20,000
Accounts receivable 39,000 27,000
Inventory 100,000 115,000
Land 720,000 650,000
Equipment 488,000 458,000
Accumulated depreciation (45,000) (20,000)
Total assets $1,380,000 $1,250,000

Liabilities and Stockholders' Equity
Accounts payable $ 52,000 $ 12,000
Accrued expenses payable 21,000 24,000
Bonds payable 575,000 575,000
Common stock 674,000 604,000
Retained earnings 58,000 35,000
Total liabilities and stockholders' equity $1,380,000 $1,250,000

Additional information for 2003:
1. A cash dividend of $15,000 was declared and paid during the year.
2. Additional equipment was purchased for cash.
3. Land was acquired by issuing common stock.

Direct Method
Condensed financial data and additional information for West Corporation are given on the previous page. The income statement for 2000 is as follows:

Income Statement
For the Year Ended December 31, 2003

Sales $300,000
Cost of goods sold 120,000
Gross profit $180,000
Operating expenses $75,000
Interest expense 50,000 125,000
Income before income taxes 55,000
Income tax expense 17,000
Net income $ 38,000

Additional information:
1. Operating expenses include depreciation expense.
2. Accounts payable pertain to purchases of merchandise.
3. Accrued expenses payable pertain to operating expenses exclusive of depreciation.
Instructions: Prepare a statement of cash flows using the direct method

II Instructions: Designate the best answer for each of the following questions

____ . Bonds payable are converted into common stock. In recording the conversion
a. additional paid-in capital is not recognized.
b. the current market prices of the bonds and common stock are ignored.
c. the carrying value of the bonds is ignored.
d. a gain or loss on conversion may be recognized.

____ . Pryor Corporation issued 4,000 shares of $10 par value common stock in exchange for a truck. The truck had a fair market value of $75,000. The entry to record this transaction includes a credit to Paid-in Capital in Excess of Par for
a. $75,000.
b. $20,000.
c. $35,000.
d. $40,000.

____ Moller Manufacturing declared a 10% stock dividend when it had 250,000 shares of $3 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to
a. Retained Earnings of $75,000.
b. Paid-in Capital in Excess of Par for $225,000.
c. Common Stock for $75,000.
d. Common Stock Dividends Distributable for $300,000.

____ . Glaser Company paid $36,000 to buy 3,000 shares of its $5 par value common stock for the treasury. The stock was originally sold for $27,000. The entry to record the purchase includes a
a. debit to Treasury Stock for $27,000.
b. credit to Treasury Stock for $15,000.
c. debit to Treasury Stock for $36,000.
d. credit to Common Stock for $27,000.

____ . Cindy's Cookie Shop reported equipment at $240,000 and $48,000 accumulated depreciation on its December 31, 2002, balance sheet. During 2003 they purchased equipment costing $40,000 and sold equipment costing $10,000 (book value $7,200) for $2,000. On December 31, 2003, net equipment was $174,800. Using the indirect method, Cindy would report depreciation expense on its statement of cash flows for 2003 of
a. $95,200.
b. $54,400.
c. $47,200.
d. $50,000.

____ Short-term liquidity ratios include the
a. profit margin ratio.
b. payout ratio.
c. debt to total assets ratio.
d. acid-test ratio.

____ . Parker Paint reported sales of $600,000, total assets of $300,000, total stockholders' equity of $160,000, current assets of $100,000, current liabilities of $40,000, and cash of $24,000. In a common size balance sheet, cash would be shown as
a. 60%.
b. 8%.
c. 24%.
d. 4%.

____ . The use of common size financial statements is an example of
a. ratio analysis.
b. vertical analysis.
c. liquidity analysis.
d. horizontal analysis


Solution Summary

The solution includes word and excel files that address some financial accounting problems related to cash flow statements, ratio calculations, calculation of depreciation expense and more.