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ACCT Financial:
pg 15-18 Exercises 2, 15, 16 (chapter 1)
Question 2
2 Calculate equity LO3
A company reports assets of $10 000 and liabilities of $6000.
Assets = Liabilities + Equity
Equity = 4000
Question 3
3 Identify accounting principles LO2, 3
Each of the following statements is an application of the revenue recognition
principle, the matching principle, or the cost principle.
a. A company records Equipment for the purchase price of $10 000 although
the suggested retail price was $13 000.
Cost principle
c A company pays $6000 for insurance but uses only $4000 during the
period. Therefore, it records only $4000 as
revenue recognition principle
Question 15
The following qualitative characteristics of accounting were discussed in the chapter:
Consistency
Relevance
Understandability
Comparability
Conservatism
Materiality
Reliability
d The ability to compare and contrast the financial activities of the same company over a period of time.
e The threshold over which an item begins to affect decision making.
f The way in which accountants deal with uncertainty.
Question 16
The Harbour Group had the following situations during the year:
a Inventory with a cost of $186 400 is reported at its market value of $235 600.
b Harbour added four additional weeks to its fiscal year so that it could make its income look stronger.
Past years were 52 weeks.
c Harbour's CEO purchased a yacht for personal use and charged it to the company.
d Revenues of $25 000 earned in the prior year were recorded in the current year.
In each situation, identify the assumption or principle that has been violated and discuss how Harbour
should have handled the situation.
pg 37 Exercises 1, 5, 8 (chapter 2)
Question 1
1. Sole Proprietorship- The most common form of business
2. Managements discussion and analysis- A report that attests to the fair presentation of a
companys financial statements
3. Notes to the financial statements- Information following the financial statements that provides
additional information and disclosures
4. Partnership- A form of business in which multiple entities join together
5. Auditors report- A form of business that is established by filing proper forms with ASIC
6. Company or corporation- Analysis of a companys financial activities that focuses on results of
operations, ability to pay debts and expansion plans.
Question 5
Horizontal analysis is a method of analyzing a companys account balences over time and is useful in
identifying trends in a company over time.
- Percentage change in account balance = (current year balance prior year balance) / Prior year
balance
Vertical analysis is a method of comparing a companys account balences within one year. This tells us
how significant certain accounts are.
- For I/S = Account Balance / Net Sales or Revenue
- For B/S = Account Balance / Total assets
Question 8
current asset, noncurrent asset, intangible asset, current liability, contributed capital, or retained
earnings.
Question 23
ACCT Financial:
pg 59-60 Exercises 9, 15 (chapter 3)
pg 61-62 Problems 21, 22 (chapter 3)