Mastering the Basics of Financial Statement Interpretation

Published: 11 months ago

Mastering the Basics of Financial Statement Interpretation

14. 41. Which of the following is not a result of following a well-designed budgeting process?...

41. Which of the following is not a result of following a well-designed budgeting process? 

A. Improved decision-making processes.

B. Improved performance evaluations.

C. Improved coordination of business activities.

D. Assurance of future profits.

E. All of these are benefits of effective budgeting.

42. Which of the following is a benefit derived from budgeting? 

A. Budgeting focuses management's attention on the future.

B. Budgeting provides coordination of departments.

C. Budgeting provides a basis for evaluating performance.

D. Budgeting provides motivation for managers and employees.

E. All of these.

43. Which of the following statements about budgeting is false? 

A. Budgeting is an aid to planning and control.

B. Budgets create standards for performance evaluation.

C. Budgets help coordinate the activities of the entire organization.

D. Budgeting forces managers to think ahead and formalize long-range objectives.

E. The master budget should only be prepared by top management.

44. A budget is best described as: 

A. A formal statement of a company's future plans usually expressed in monetary terms.

B. A master control device.

C. An informal statement of company's future plans usually expressed in monetary terms.

D. The most crucial component of a company's evaluation process.

E. The minimum acceptable performance level.

45. The overall coordinating activity of the budget process is the responsibility of the: 

A. Chief Accounting Officer.

B. Chief Executive Officer (CEO).

C. Chief Financial Officer (CFO).

D. Budget Committee.

E. Board of Directors.

46. The set of periodic budgets that are prepared and periodically revised in the practice of continuous budgeting are called: 

A. Production budgets.

B. Sales budgets.

C. Cash budgets.

D. Rolling budgets.

E. Capital expenditures budgets.

47. Guidance for preparing a master budget is usually the responsibility of: 

A. The company CEO.

B. The marketing department.

C. A budget committee.

D. The chief financial officer.

E. Lower level management.

48. The most useful budget figures are developed: 

A. From the "top-down".

B. From the "bottom-up" following a participatory process.

C. Solely by the budget committee.

D. By the CEO.

E. After the accounting period has begun.

49. The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called: 

A. Participatory budgeting.

B. Capital budgeting.

C. Balanced budgeting.

D. Continuous budgeting.

E. Primary budgeting.

50. The usual budget period is: 

A. An annual period of 250 working days.

B. A monthly period separated into daily budgets.

C. A quarterly period separated into weekly budgets.

D. An annual period separated into weekly budgets.

E. An annual period separated into quarterly and monthly budgets.

15. PR 7-5b Bank reconciliation and entries Sunshine Interiors deposits all cash receipts each...

PR 7-5b Bank reconciliation and entries

Sunshine Interiors deposits all cash receipts each Wednesday and Friday in a night deposi- tory, after banking hours. The data required to reconcile the bank statement as of July 31

have been taken from various documents and records and are reproduced as follows. The

sources of the data are printed in capital letters. All checks were written for payments on account.

CHECKS WRITTEN:

Number and amount of each check issued in  July:

16. Brothers Mike and Tim Hargen began operations of their tool and die shop (H & H Tool, Inc.) o...

Brothers Mike and Tim Hargen began operations of their tool and die shop (H & H Tool, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, follows:

Transactions during 2017 follow:

Borrowed $24,000 cash on a 5-year, 10 percent note payable, dated March 1, 2017.

Purchased land for a future building site on March 15, 2017; paid cash, $13,000.

Earned $231,000 in revenue. Transactions dated August 30, 2017 , including $51,000 on credit and the rest in cash.

Sold 4,000 additional shares of capital stock for cash at $1 market value per share on January 1, 2017.

Incurred $118,000 in remaining expenses for 2017, invoices dated October 15, 2017, including $22,000 on credit and the rest paid in cash.

Collected accounts receivables on November 10, 2017, $36,000.

Purchased other assets on November 15, 2017, $13,000 cash.

Purchased supplies on account for future use on December 1, 2017, $25,000.

Paid accounts payable on December 15, 2017, $24,000.

Signed a three-year $31,000 service contract on December 17, 2017 to start February 1, 2018.

Declared and paid cash dividends on December 20, 2017, $23,000.

Data for adjusting entries:

Supplies counted on December 31, 2017, $16,000.

Depreciation for the year on the equipment, $12,000.

Interest accrued on notes payable (to be computed).

Wages earned by employees since the December 24 payroll but not yet paid, $15,000.

Income tax expense, $11,000, payable in 2018.

Prepare journal entries for transactions (a) through (k).

Prepare the adjusting entries for transactions (l) through (p)

Post the journal entries for transactions (a) through (k) and adjusting entries for transactions (l) through (p) to the respective T-Accounts.

Prepare an income statement (including earnings per share), statement of stockholders’ equity, and balance sheet.

Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect. (List cash outflows as negative amounts. For transactions with no effect, choose "NE".)

Prepare the closing entry on December 31, 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. After recording this closing entry, post the entry to the General Ledger in Part (3).)

Compute the current ratio for 2017. (Round your answer to 2 decimal places.)

Compute the total asset turnover ratio for 2017.

Compute the net profit margin ratio for 2017.

17. Big Oaks, a large campground in Vermont, adjusts its accounts monthly and closes its accounts...

Big Oaks, a large campground in Vermont, adjusts its accounts monthly and closes its accounts annually on December 31. Most guests of the campground pay at the time they check out, and the amounts collected are credited to Camper Revenue. The following information is available as a source for preparing the adjusting entries at December 31:

1.    Big Oaks invests some of its excess cash in certificates of deposit (CDs) with its local bank. Accrued interest revenue on its CDs at December 31 is $425. None of the interest has yet been received. (Debit Interest Receivable.)

2.    An eight-month bank loan in the amount of $12,000 had been obtained on October 1. Interest is to be computed at an annual rate of 8 percent and is payable when the loan becomes due.

3.    Depreciation on buildings owned by the campground is based on a 20-year life. The original cost of the buildings was $720,000. The Accumulated Depreciation: Buildings account has a credit balance of $160,000 at December 31, prior to the adjusting entry process. The straight- line method of depreciation is used.

4.    Management signed an agreement to let Girl Scouts from Easton, Connecticut, use the camp- ground in June of next year. The agreement specifies that the Girl Scouts will pay a daily rate of $15 per campsite, with a clause providing a minimum total charge of $1,200.

5.    Salaries earned by campground employees that have not yet been paid amount to $1,515.

6.    As of December 31, Big Oaks has earned $2,700 of revenue from current campers who will not be billed until they check out. (Debit Camper Revenue Receivable.)

7.    Several lakefront campsites are currently being leased on a long-term basis by a group of senior citizens. Five months’ rent of $7,500 was collected in advance and credited to Unearned Camper Revenue on November 1 of the current year.

8.    A bus to carry campers to and from town and the airport had been rented the first week of December at a daily rate of $45. At December 31, no rental payment has been made, although the campground has had use of the bus for 18 days.

9.    Unrecorded Income Taxes Expense accrued in December amounts to $6,600. This amount will not be paid until January 15.

Instructions

a.       For each of the above numbered paragraphs, prepare the necessary adjusting entry (including an explanation). If no adjusting entry is required, explain why.

b.       Four types of adjusting entries are described at the beginning of the chapter. Using these descriptions, identify the type of each adjusting entry prepared in part a above.

c.        Indicate the effects that each of the adjustments in part a will have on the following six total amounts in the campground’s financial statements for the month of December. Organize your answer in tabular form, using the column headings shown below. Use the letters I for increase, D for decrease, and NE for no effect. Adjusting entry 1 is provided as an example.

Income Statement                                                   Balance Sheet

1                                I                  NE                  I                             I                NE               I

d.       What is the amount of interest expense recognized for the entire current year on the $12,000 bank loan obtained October 1?

e.        Compute the book value of the campground’s buildings to be reported in the current year’s December 31 balance sheet. (Refer to paragraph 3.)

18. Exercise 3-13 The Welding Department of Healthy Company has the following production and manufact...

Exercise 3-13 The Welding Department of Healthy Company has the following production and manufacturing cost data for February 2017. All materials are added at the beginning of the process. Manufacturing Costs Production Data Beginning work in process Beginning work in process 14,600 units, 1/10 complete Materials $17,600 Units transferred out 55,400 14,760 $32,360 Units started Conversion costs 51,500 Materials 200, 530 Ending work in process 10,700 units, 1/5 complete Labor 67,800 52,084 Overhead Prepare a production cost report for the Welding Department for the month of February. (Round unit costs to 2 decimal places, e.g. 2.25 and all other answers to 0 decimal places, e.g. 1,225.)

19. For a manufacturing company, which of the following is an example of a period cost rather than a...

For a manufacturing company, which of the following is an example of a period cost rather than a product cost?

1. Depreciation on factory equipment.


2. Wages of salespersons.


3. Wages of machine operators.


4. Insurance on factory equipment.