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Fundamental Accounting Principles

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1) Chuck McElravy owns Common Grounds Coffee House, near the campus of Manatee College. The business has cash of $2,000 and furniture that cost $8,000. Liabilities include accounts payable of $1,000 and a $6,000 note payable. How much equity does McElravy have in the business? Using the above figures, write the accounting equation of Common Grounds Coffee House.

2) Identify an outside party that would be interested in whether a liability is current or long-term. Why would this party be interested in this information?

3) Philagem, Inc. ended 2000 with net income before taxes of $218,000. The company is subject to a 40% tax rate and must pay $32,000 in preferred stock dividends before distributing any earnings on the 85,000 shares of common stock currently outstanding.

a. Calculate Philagem's 2000 earnings per share (EPS) of common stock.
b. If the firm paid common stock dividends of $0.80 per share, how many dollars would go to retained earnings?

4) Complete the 2000 balance sheet for O'Keefe Industries using the information that follows it.

Cash $ 30,000
Marketable Securities 25,000
Accounts Receivable
Total Current Assets
Net Fixed Assets

Total Assets

Liabilities and Owner's Equity
Accounts Payable $120,000
Notes Payable
Accruals 20,000
Total Current Liabilities
Long-Term Debt

Stockholder's Equity 600,000

Total Liabilities And Equity

The following financial data for 2000 is also available:

Sales totaled $1,800,000.
The gross profit margin was 25%.
Inventory turnover was 6.0.
Assume there are 360 days in the year.
The average collection period was 40 days.
The current ratio was 1.60.
The total asset turnover ratio was 1.20.
The debt ratio was 60%.

5) How does the term structure of interest rates relate to the yield curve? For a given class of similar-risk securities, what does each of the following yield curves reflect about interest rates: (a) downward sloping; (b) upward sloping; and (c) flat?

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Solution Summary

This question involves the fundamentals of accounting