财务会计英语版课后答案.doc

Chapter 1Page 81.Classify following items as either an expense (E),a revenue(R),an asset(A),or a liability(L);Cash, buildings, salaries of the sales force, $5 owed to a company for work performed, Mortgage to a bank, sales. Answer: CashA BuildingsA Salaries of the sales forceE $5 owedL Mortgage to a bankL SalesR2. Classify each of the following as n operating (O), bank (I) , or financing (F) in a statement of cash flows; Wage paid to workers, Cash received form a bank in the form of a mortgage, cash dividends paid to a supplier of inventory, Cash paid to purchase a new machine. Answer: Wage paidO Cash of mortgage- F Cash dividends paid - F Cash paid to supplier of inventoryO Cash paid to purchase a machineIPage111. List several economic decisions that rely on accounting information.Answer:Whether to grant a loan How much to pay for a share of common stock. Whether to grant a rate increase to an electric utilityHow much in damages the loser of a lawsuit must payHow much of a bonus to pay a plant managerWhether to enter a new market2. Why do financial statements have footnotes, and what kinds of information might you find in them?Answer:Financial statements have footnotes because financial disclosure is a complex business. The notes tell us some of the specifics about the company environment , what accounting methods the company has used, what the accounting numbers might be if alternative methods had been used, and some of the major contingencies that are not formally included in the statement proper.Page 201. Describe the process of setting accounting standards. What are the roles of all the parties you mention?Answer:The FASB, a private, not-for-profit organization ,sets GAAP in the U.S. It publicly declares an agenda, promulgates Exposure Drafts of proposed standards, holds open meetings, and invites input from interested parties. The FASB has been delegated this authority by the SEC, a government agency with legal authority to determine GAAP.2. Think of an example, like the executive compensation example in the chapter, where incentives might exist to bias accounting numbers one way or another.Answer:There are other examples, but here is one that is different. A taxpayer has incentives to bias reported income downward in order to minimize income tax payments. However, it is important to understand that tax accounting rules are different from GAAP, and this book is about GAAP. Chapter 14 covers GAAP for taxes in more detail. Other examples include:An entrepreneur seeking a loan from a bank or funding from a venture capitalist might have incentives to bias accounting numbers to look favorable.A firm that is subject to scrutiny for earning excess profits(e.g.,an oil company）might have incentives to bias accounting numbers to look less favorable.A utility subject to rate regulation might have an incentive to bias accounting numbers to look less favorable in order to gain more generous increases in its rates. (At this writing, there is a rather severe controversy about whether electric utilities in California are genuinely in financial difficulty and should be allowed to continue to impose large rate increase.)Chapter 2Page 381 Define assets, liabilities, and equities.Gave an example of each. How are assets valued? How are liabilities valued? Answer: An asset is a probable future economic benefit obtained orcontrolled by an entity as a result of a past transaction. Cashmarketable securities, accounts receivable, inventories, prepaid expenses, patents, copyrights, trademarks, and property, plant and equipment are all examples of assets. A liability is a probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of a past transaction or event. Accounts payable, accrued liabilities, unearned revenues, warranties, and bonds payable are all examples of liabilities.Accounting valuation of assets uses several different methods, including market value, expected realizable value, lower of cost or market, present value of future cash flows, and historical cost. Accounting valuation of liabilities is the expected amount that will be paid, perhaps adjusted for the time value of money.2. Explain what is meant by the entity concept.Answer:The entity is the person or organization about which accountings financial history is being written. 3 .A company signs a ten-year employee contract with a vice president. The salary is $500000 per year, guaranteed. Is this contract an asset? Would it appear on the balance sheet? Explain.Answer:The rights conveyed by the contrat may be an asset from an economic point of view, but they are not an asset under GAAP. The contract would not appear on the balance sheet as an asset, because GAAP does not record executory contracts, which are contracts that require future performance form both parties. That is ,GAAP views the contract as determining what services will be provided, no asset is recognized under GAAP.(Neither is a liability for payment recognized until services have been performed.)4 .A company purchased a parcel of land 10 years ago at a cost of $300000.The land has recently been appraised at $900000. At what value is the land carried in the balance sheet? How does the appraisal affect the carrying value in the balance sheet?Answer:The land is on the balance sheet at its historical cost of $300000.The carrying value of the land is unaffected by the appraisal.Page 421、Define debit and credit .What kind of balance ,debit or credit ,would you expect to find in the inventory T-account？In the Common Stock T-account?Answer:A debit is an entry on the left side of a T-account. A credit is an entry on the right side of a T-account. We would except to find a debit balance in Inventory, and credit balances in Bonds Payable and Common Stock. The reason is the convention that increases in assets are debits and increases in liabilities and equities are credits.2、If the trial balances, it means that you have analyzed all the effects of transactions correctly. True or false？Explain.Answer: False. A balanced means that the trial balance is consistent, not necessarily correct. For example. If an arbitrary entry is made that debits Cash and credits Common Stock for an equal amount, the trial balance will balance but it will be wrong. An accounting can receipt of cash and the issuance of common stock, but it alone can not make cash or additional common shares.3Suppose Web sell leases a portion of its space to another company. Web sells accounts are debited and credited to record this transaction? Answer:Web sell would debit Cash and a liability, Rent Received in Advance, for the prepayment.Chapter 3Page 571. Define revenue and expense. How does one decide to list an item as revenue in an income statement? What is matching? Answer: Revenues are increases in net assets resulting from operations over a period of time .Expense are decreases in net assets resulting from operations over a period of time .Revenue is recognized the earnings process is substantially complete , a transaction2. Give an example not found in the text , of an expense that is paid for in cash in a prior accounting period .In a subsequent accounting period. Answer:There are many allowable responses . An example is a patent that is purchased and paid for in one year and used in next . 3. Give an example, not found in the text , of a revenue that is received in cash in a prior accounting period . In a subsequent accounting period . Answer: An example is a house painting contractor that receives payment for one-third of the contract price before beginning the painting .4. Explain why it is right to think of an asset as a cost and an expense as an expired cost . Answer:An asset is a future benefit . And there is an opportunity cost associated with not selling it for cash or exchanging it to settle Chapter 6Page 120:1. The following table lists the adjustments and has an X in the column indicating the approach:AdjustmentEstimate expense,Plug ending balanceEstimate ending balancePlug expenseBXCXDXEXFXGXHXIXJXKXM2. We first take adjustment for prepaid insurance and insurance expense. It would be easy to think of this adjustment as focusing on how much of the insurance coverage remained, as opposed to how much was used. In fact, the same type of logic could be used-computing a monthly rate for the coverage and applying that to the months reminding, instead of the months used. Now take adjustment for depreciation expense and accumulated depreciation. Estimating the value of the equipment at year end might be easy, for example, if there is a market for used equipment, or very difficult, for example, if the equipment was specially designed for Websell. Once a value estimate for the equipment at year end is obtained, depreciation expense would be the change in value over the year.Page 1231.$5000(1+0.06)10=$50001.79085=$8954.242.$5000(1+0.06/2)(102)=$5000(1+0.03)20=$50001.80611=$9030.563. $1000(1.05)3+$1000(1.05)2+$1000(1.05)1=$3310.134. ($10000.05/5)13+$1000(1+0.05/5)10+$1000(1+0.05/5)5=($1000(1.01)15)+($1000(1.01)10)+($1000(1.01)5)=$1160.97+$1104.62+$1051.01=$3316.6Page 1241.x.(1.07)3=$3000 x=$3000/(1.07)3=$2448.892. Calculate the present value at 10% of $1300 received two years from now. If that is greater than $1000, you are better off with the $1300 to be received in two years. If its present value is less that $1000, you better off with $1000 now. $1300/(1.10)2=$1074.38Therefore, you are better off receiving $1300 two years from now.Another way to do this problem is to take the future value at 10% of $1000. At the end of two years, the $1000 would compound up to:$1000(1.10)2=$1210,Which is less than you would have at that point if you took the $1300.3The most I would be willing to pay is the present value at 8% of the stream of $1000 payment:$1000/(1.08)1+$1000/(1,08)2+$1000/(1,08)3=$925.926+857.339+793.832=$ 2577.1(rounded)Chapter 8Page 1681. Aging takes the balance in accounts receivable at the end of the year, and sorts it by how long ago the transaction occurred that gave rise to that receivable. Experience has shown that “older” accounts have less likelihood of ever being collected. Percentages of likely uncollectibles for each category are applied to the totals in that category , and the results added to obtain an estimate of the allowance for uncollectibles required to value properly the estimated amount that will be collected from the accounts receivable. The bad debts expense then falls out as a “plug” in the allowance for uncollectibles. The percentage-of-sales method just estimates bad debt expense as a percent of sales, and plug the balance in the allowance account.2. Cash .118 Accounts receivable.11812/31/2003(to recognize collection of cash from companies owing service co. from 2002 sales)Allowance for doubtful accounts.7 Accounts receivable.712/31/2003(to write off accounts we know will not be collected)Accounts receivable.125 Sales revenue.12512/31/2003(to recognize revenue and to anticipate collection of the receivable)If we focus on recording the bad debts expense that is associated with billings for 2003, we would record.06$125000=$7500 in bad debts expense.Bad debts expense7.5 Allowance for doubtful accounts7.512/31/2003(to record bad debt expense in anticipation of not collecting 100% of receivables)Method one: focus on the percentage of sales expected not to be collected. Allowance for doubtful accounts 12/31/03 710 12/31/027.5 12/31/03 Ending balance10.5 at 12/31/03 (10.5 is the “plug”,i.e., the number that drops out)Now we move to 2004, where events now proceed as expected .Collections are $117.5 thousand.Cash.117.5Accounts receivable117.512/31/2004(to recognize collection of cash form companies owing service co. from 2003 sales)Allowance for doubtful accounts7.5Accounts receivable.7.512/31/2004(to write off accounts we know will not be collected)Accounts receivable.125Sales revenue.12512/31/2004(to recognize revenue and to anticipate collection of the receivable)If we focus on recording the bad debts expense that is associated with billings for 2004, we would record.06$125000=$7500 in bad debts expense.Bad debts expense7.5 Allowance for doubtful accounts7.512/31/2003(to record bad debt expense in anticipation of not collecting 100% of receivables)The allowance for doubtful accounts using the peentage-of-sales method looks like this:Method one: focus on the percentage of sales expected not to be collected. Allowance for doubtful accounts 12/31/03 710 12/31/027.5 12/31/03expenseWrite-off 12/31/04 7.510.5 12/31/03balance7.5 12/31/04expense Balance at10.5 12/31/04Only the entries recording bad debt expense are different using the aging method. Instead of the above entries recording bad debt expense, we would have the following analysis: Each year, we would adjust the balance in the allowance for doubtful accounts so that the net receivable ends up at $117500. That is, we would solve $125000-X=$117500,and find that the ending balance in the allowance for doubtful accounts must be $7500.Analyzing the account, we would determine that at 12/31/2003 we must add $4500 to the allowance for doubtful accounts:Bad debts expense.4.5 Allowance for doubtful accounts.4.512/31/2004(to record bad debt expense in anticipation of not collecting 100% of receivables)At 12/31/2004, we must add $7500 to the allowance for doubtful accounts:Bad debts expense.7.5 Allowance for doubtful accounts.7.512/31/2004(to record bad debt expense in anticipation of not collecting 100% of receivables)Using aging, the allowance for doubtful accounts T-account looks like this:Method two: focus on the ending balance in the allowance for doubtful accounts. Allowance for doubtful accounts12/31/03 710 12/31/024.5 12/31/03expenseWrite-off 12/31/04 7.57.5 12/31/03balance7.5 12/31/04expense Balance at7.5 12/31/04Chapter 9Page 1831. LIFO is last-in first-out. It means that in computing ending inventory and cost of goods sold, the cost of items sold is assigned in reverse chronological order of their purchase, beginning from the most regent items purchased in a period. FIFO is first-in, first-out .It means that in computing ending inventory and cost of goods sold, the cost of items sold is assigned in chronological order of their purchase, beginning from the goods on hand at the beginning of the period. Average cost means that in computing ending inventory and cost of goods sold, the average unit cost of the beginning inventory and items purchased in a period is used to determine the cost of goods sold and remaining inventory.2. Yes, it is still a positive net present value project. In fact, its net present value is higher than when the purchase was made at$1.05 per unit, since the cash outflow is reduced but the cash inflow remains thesame. The cash outflow on 12/31/01 when purchases are at $0.95 per unit is $114.This means the net cash flow at 12/31/01 is ($4) instead of ($16),and the NPV for Widget Company is: NPV=-100-$4/1.1+$10/ (1.12) +$144/ (1.13) =$12.82First, we redo the case of FIFO. The inventory T-account is:Widget Co. Inventory Account under FIFO Flow Assumption Inventory (FIFO) 1/1/01 Beginning balance 01/1/01 Purchase(100$1) 10012/31/01 Purchase(120$0.95) 114100 Transfer to CGS(100$1)1/1/02 Balance (120$0.95) 11412/31/02 Balance (100$1.10) 11095 Transfer to CGS(100$0.95)1/1/03 Balance (20$0.95+100$1.10) 129129 Transfer to CGS(100$0.95+100$1.10)1/1/04 Balance 0 Ending inventory values can be read from the above T-account. Net incomes are:Widget Co.Net Incomes using FIFO 20012001 2003RevenuesCost of Goods Sold$110(100)$120(95)$114(129)Net Income (pretax)$10$25 $15Now we redo the case of FIFO. First, the inventory T-account is:Widget Co. Inventory Account under FIFO Flow AssumptionInventory (FIFO)1/1/01 Beginning balance 01/1/01 Purchase(100$1) 10012/31/01 Purchase(120$0.95) 11495 Transfer to CGS(100$0.95)1/1/02 Balance(20$0.95+100$1.00) 11912/31/02 Balance (100$1.00) 110100 Transfer to CGS(100$1.10)1/1/03Balance(20$0.95+100$1.00) 119119 Transfer to CGS(20$0.95+100$1.00)1/1/04 Balance 0Ending inventory values can be read from the above T-account. Net incomes are:20012001 2003RevenuesCost of Goods Sold$11095$120(95)$114(129)Net Income (pretax)$15$10 $25Page 186To calculate the market-to-book ratios and accounting returns on equity:Market-to-book Ratios under Average Cost20012002Market Value of Inventory$126.00$132.00Book Value Inventory$123.27$127.24Market Value/ Book Value 1.0221.037Accounting Rates of Return unde