Chapter 1recommended problems.doc
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1、Ch1: Recommended End-of-Chapter Problems E 1-1Accrual accounting Listed below are several transactions that took place during the first two years of operations for the law firm of Pete, Pete, and Roy.In addition, you learn that the company incurred utility costs of $35,000 in year one, that there we
2、re no liabilities at the end of year two, no anticipated bad debts on receivables, and that the insurance policy covers a three-year period.Required:1.Calculate the net operating cash flow for years 1 and 2.2.Prepare an income statement for each year similar to Illustration 1-2 on page 8 according t
3、o the accrual accounting model.3.Determine the amount of receivables from customers that the company would show in its year 1 and year 2 balance sheets prepared according to the accrual accounting model.LO2E 1-2Accrual accounting Listed below are several transactions that took place during the secon
4、d two years of operations for RPG Consulting.In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables,
5、 and the rent payment was for a two-year period, year 2 and year 3.Required:1.Calculate accrual net income for both years.2.Determine the amount due the advertising agency that would be shown as a liability on the RPGs balance sheet at the end of year 2. LO2E 1-8Qualitative characteristics Phase A o
6、f the joint FASB and IASB conceptual framework project stipulates the desired fundamental and enhancing qualitative characteristics of accounting information. Several constraints impede achieving these desired characteristics. Answer each of the following questions related to these characteristics a
7、nd constraints.1.Which constraint would allow a company to record the purchase of a $120 printer as an expense rather than capitalizing the printer as an asset?2.Donald Kirk, former chairman of the FASB, once noted that “ there must be public confidence that the standard-setting system is credible,
8、that selection of board members is based on merit and not the influence of special interests ” Which characteristic is implicit in Mr. Kirks statement?3.Allied Appliances, Inc., changed its revenue recognition policies. Which characteristic is jeopardized by this change?4.National Bancorp, a publicl
9、y traded company, files quarterly and annual financial statements with the SEC. Which characteristic is relevant to the timing of these periodic filings?5.In general, relevant information possesses which qualities?6.When there is agreement between a measure or description and the phenomenon it purpo
10、rts to represent, information possesses which characteristic?7.Jeff Brown is evaluating two companies for future investment potential. Jeffs task is made easier because both companies use the same accounting methods when preparing their financial statements. Which characteristic does the information
11、 Jeff will be using possess?8.A company should disclose information only if the perceived benefits of the disclosure exceed the costs of providing the information. Which constraint does this statement describe?LO6E 1-9Basic assumptions, principles, and constraints Listed below are several terms and
12、phrases associated with basic assumptions, broad accounting principles, and constraints. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.LO6 through LO8E 1-10Basic assumptions and principles Listed below are several statements that relat
13、e to financial accounting and reporting. Identify the basic assumption, broad accounting principle, or constraint that applies to each statement. 1.Jim Marley is the sole owner of Marleys Appliances. Jim borrowed $100,000 to buy a new home to be used as his personal residence. This liability was not
14、 recorded in the records of Marleys Appliances.2.Apple Computer, Inc., distributes an annual report to its shareholders.3.Hewlett-Packard Corporation depreciates machinery and equipment over their useful lives.4.Crosby Company lists land on its balance sheet at $120,000, its original purchase price,
15、 even though the land has a current fair value of $200,000.5.Honeywell Corporation records revenue when products are delivered to customers, even though the cash has not yet been received.6.Liquidation values are not normally reported in financial statements even though many companies do go out of b
16、usiness.7.IBM Corporation, a multibillion dollar company, purchased some small tools at a cost of $800. Even though the tools will be used for a number of years, the company recorded the purchase as an expense.LO6 through LO8E 1-11 Basic assumptions and principles Identify the basic assumption or br
17、oad accounting principle that was violated in each of the following situations. 1.Pastel Paint Company purchased land two years ago at a price of $250,000. Because the value of the land has appreciated to $400,000, the company has valued the land at $400,000 in its most recent balance sheet.2.Atwell
18、 Corporation has not prepared financial statements for external users for over three years.3.The Klingon Company sells farm machinery. Revenue from a large order of machinery from a new buyer was recorded the day the order was received.4.Don Smith is the sole owner of a company called Hardware City.
19、 The company recently paid a $150 utility bill for Smiths personal residence and recorded a $150 expense.5.Golden Book Company purchased a large printing machine for $1,000,000 (a material amount) and recorded the purchase as an expense.6.Ace Appliance Company is involved in a major lawsuit involvin
20、g injuries sustained by some of its employees in the manufacturing plant. The company is being sued for $2,000,000, a material amount, and is not insured. The suit was not disclosed in the most recent financial statements because no settlement had been reached.LO7 LO8E 1-12 Basic assumptions and pri
21、nciples For each of the following situations, indicate whether you agree or disagree with the financial reporting practice employed and state the basic assumption, constraint, or accounting principle that is applied (if you agree) or violated (if you disagree). 1.Wagner Corporation adjusted the valu
22、ation of all assets and liabilities to reflect changes in the purchasing power of the dollar.2.Spooner Oil Company changed its method of accounting for oil and gas exploration costs from successful efforts to full cost. No mention of the change was included in the financial statements. The change ha
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