ACCT 115 Chapter 7: Accounting Chapter 7

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8 Mar 2016

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Financial assets cash & assets easily and directly convertible into known amounts of cash (ex. cash, short-term investments, marketable securities, and receivables) Financial assets are shown in the balance sheet at their current values. Net realizable value estimated collectible amount of accounts receivable (appears in the balance sheet) Three methods for measuring the current value of financial assets: Line of credit the bank agreed in advance to lend the company any amount of money up to a specific limit. Cash management planning, controlling, and accounting for cash transactions and cash balances. Bank reconciliation a schedule explaining any differences between the balance shown in the bank statement and the balance shown in the depositor"s accounting records. Accounting for marketable securities: purchase of investments. Credit to cash: receipt of dividends or interest revenue. Credit to either interest revenue or dividend revenue: sale of investments. Calculate difference between cost basis and sale proceeds. Credit to marketable securities & gain on sale of investments.

Related Questions

Read the 2015 annual report of Air France â KLM and answer the 20 questions asked regarding the accounting issues. Link is provided below:

http://www.airfranceklm.com/sites/default/files/publications/afkl_registration_doc_2015.pdf

1. Air France-KLM reports âConsolidated statement of recognized income and expensesâ for the year ended December 31, 2015. If this statement was a U.S. GAAP statement, what would be the title of this statement?

a. Consolidated statement of total net income

b. Consolidated statement of other comprehensive income

c. Consolidated statement of comprehensive income

d. Consolidated statement of recognized net income

2. What method does Air France-KLM use for the Statement of Cash Flows?

a. Indirect method

b. Direct method

c. Gross method

d. Net method

3. The basic and diluted earnings per share for the year ended December 31, 2015, indicates that Air France-KLM has:

a. no convertible debts.

b. some dilutive securities.

c. no preferred stocks.

d. some treasury stocks.

4. What method is used to account for investments in companies over which Air France-KLM can âexercise significant influence on financial and operating policy decisions?â

a. Cost method

b. Liability method

c. Equity method

d. Fair value method

5. Sale of passenger tickets is accounted for at the time of ticket sale as:

a. Sales revenue

b. Deferred revenue

c. Contingent asset

d. No recognition

6. How does Air France account for business combination costs other than those related to the issuance of debt or equity securities?

a. Expensed as incurred

b. Capitalized as incurred

c. Included in goodwill

d. Used to offset fair value of the acquisition

7. Which of the following is not an âaccumulated other comprehensive incomeâ item among those reported in the âreserves and retained earningsâ in the 2015 consolidated balance sheet of Air France-KLM?

a. Available for sale securities reserves.

b. Derivatives reserves.

c. Legal reserves.

d. Pension defined benefits reserves.

8. What is the carrying amount of investments in debt and equity securities that are classified as available-for-sale?

a. Fair value Cost

b. Amortized cost

c. Lower of cost or market

9. Inventories are carried at:

a. The lower of the first-in-first-out cost or net realizable value.

b. The first-in-first-out cost.

c. The lower of the weighted-average cost or net realizable value.

d. The weighted-average cost.

10. Air France-KLM classifies its frequent flyer programs as:

a. Noncurrent liability

b. Current liability

c. Current asset

d. Other debt

11. The followings are included in Air France-KLMâs intangible assets, except for:

a. Trademarks

b. Leased aircraft

c. Customer relationships

d. Slots for takeoff and landing

12. Air France-KLM reports bank overdrafts as:

a. A contra account to cash and cash equivalents.

b. A current liability.

c. An expense.

d. A bank deposits in transit.

13. Which method does Air France-KLM use to record depreciation expense for its flight equipment?

a. The activity-based method.

b. The sum-of-yearsâ-digit method.

c. The straight-line method.

d. The group method.

14. Which accounting standards does Air France-KLM use?

a. U.S. GAAP

b. French GAAP

c. Netherlands GAAP

d. International Financial Reporting Standards

15. As of December 31, 2015, what assets are held for sale?

a. Land

b. Aircraft

c. Equipment

d. Buildings

16. Which of the following is included in âincome from operating activitiesâ but not in âincome from current operations?

a. Sale of aircraft equipment

b. Research and development costs

c. Bad debt expense

d. Interest revenue

17. Which of the following is not true about accounting treatment for the overhaul cost of major airframe and engine?

a. The cost is treated as separate asset component.

b. The cost is capitalized.

c. The cost is depreciated over the remaining useful life.

d. The cost is expensed as incurred.

18. How are financial assets accounted for if the Air France-KLM intends to sell them in the near future to realize capital gains?

a. At fair value with fair value changes recognized in the current period profit and loss

b. At fair value with fair value changes recognized as other comprehensive income

c. At cost with no recognition of fair value changes

d. At amortized cost with no recognition of fair value changes

19. Which of the following is not true about impairment test?

a. Tangible fixed assets, intangible assets, goodwill, and other assets with indefinite useful life are subject to an impairment test.

b. The impairment test is done at least once a year.

c. Recoverable value is the lower of the net realizable value and value in use.

d. The value in use is determined according to the discounted future cash flow method.

20. Which of the following is not an âother non-current income and expensesâ item?

a. Restructuring costs

b. Gains and losses on disposal of shares available for sale

c. Gains and losses on disposal of subsidiaries and affiliates

d. Gains and losses on sale of trading securities

Use the following to answer questions 26-27:

On October 12, 2006, Livingston Corporation invested $500,000 inshort-term available-for-sale marketable securities. The marketvalue of this investment was $530,000 at December 31, 2006, but hadslipped to $525,000 by December 31, 2007.

26. Refer to the above data. Infinancial statements prepared on December 31, 2006, LivingstonCorporation reports:

A) The asset Investments in Marketable Securities at $500,000 withfootnote disclosure of the market value of $530,000.

B) The asset Investments in Marketable Securities at$530,000, and a $30,000 Unrealized Holding Gain included in totalstockholders' equity.

C) The asset Investments in Marketable Securities at$530,000, and a $30,000 gain recognized in the incomestatement.

D) The asset Investments in Marketable Securities at $500,000, anda $30,000 Unrealized Holding Gain included in total stockholders'equity.

27. Refer to the above data. Assuming Livingston does not sell thisinvestment; financial statements prepared at December 31, 2007,report:

A) Investments in Marketable Securities of $500,000, reduced by a$30,000 Unrealized Holding Gain on Investments, in the assetsection of the balance sheet.

B) The asset Investments in Marketable Securities of$500,000 in the balance sheet, and a $25,000 Unrealized HoldingLoss on Investments in the income statement.

C) The asset Investments in Marketable Securities of$525,000, and a $5,000 Unrealized Holding Loss deducted from totalstockholders' equity.

D) Investment in Marketable Securities of $525,000 in the assetsection of the balance sheet, with a $25,000 Unrealized HoldingGain on Investments included in the stockholders' equitysection.

28. Anasset which costs $7,200 and has accumulated depreciation of $1,800is sold for $4,500. What amount will be recognized when the assetis sold?

A) A gain of $900

B) A loss of $900

C) A loss of $2,700

D) A gain of $2,700

29. Coca-Cola's famous name printed in distinctive typeface is anexample of:

A) A trademark.

B) A patent.

C) A copyright.

D) Goodwill.

30. CarlsonImports sold a depreciable plant asset for cash of $35,000. Theaccumulated depreciation amounted to $70,000, and a loss of $5,000was recognized on the sale. Under these circumstances, the originalcost of the asset must have been:

A) $65,000.

B) $75,000.

C) $100,000.

D) $110,000.

31. Tivoli Instrumentation solda depreciable asset for cash of $100,000. The original cost of theasset was $400,000. Tivoli recognized a gain of $15,000 on thesale. What was the amount of accumulated depreciation on the assetat the time of its sale?

A) $315,000.

B) $85,000.

C) $385,000.

D) $300,000.

32. Machinery acquired new on January 1 at a cost of $50,000 wasestimated to have a useful life of 10 years and a residual salvagevalue of $20,000. Straight-line depreciation was used. On January1, following six full years of use of the machinery, managementdecided that the estimate of useful life had been too long and thatthe machinery would have to be retired after two more years, thatis, at the end of the eighth year of service. Under this revisedestimate, the depreciation expense for the seventh year of usewould be:

A) $6,000.

B) $8,000.

C) $11,000.

D) $12,000.

33. The ability of a partner toenter into a contract on behalf of all partners is called

a. voluntary agency.

b. mutualagency.

c. unlimitedliability.

d. voluntaryassociation.

34. Which of the following doesnot result in dissolution of a partnership?

a. Admissionof a new partner

b. Sale ofpartnership assets

c. Death of apartner

e. Bankruptcyof a partner

35. Jerry and Rose have agreed toform a partnership. Accordingly Rose will invest $40,000 worth ofequipment which has a note payable of $15, 000 which thepartnership assumes, and Jerry will invest $40,000 in cash. TheRoseâs capital account balance will be.

A. $40,000

B. $25,000

C. $15,000

D. $80,000

36. One method of distributing income and losses is to give eachpartner a stated

ratio of the total income or loss.There are two partners Jerry & Rose, each making an equalcontribution to the firm (50/50). However the partnership agreementstates that distributions would be made 60% and 40% respectively.Jerry and Rose are partners of the firm which had a net income$100,000. Therefore Jerryâs share of income is:

A. $50,000

B. $40,000

C. $100,000

D. $60,000

37. After March, 2004 international standards required thatgoodwill

A) Be capitalized and amortized over 20 years or less.

B) Be capitalized and amortized over 40 years or less.

C) Be capitalized and reviewed annually and its value should beadjusted if impaired.

D) Be expensed immediately.

38. Manufacturing overhead isbest described as:

A) All manufacturing costs other than direct materials and directlabor.

B) All period costs associated with manufacturingoperations.

C) Indirect materials and indirect labor.

D) All operating expenses other than selling expenses and generaland administrative expenses.

39. Which of the followingcosts would not be considered part of the manufacturing overhead ofa furniture manufacturer?

A) The cost of compliance with federal factory safetyregulations.

B) Depreciation expense on factory equipment.

C) The cost of grease used to lubricate factoryequipment.

D) The cost of wood used in furniture construction.

scarletcaribou329

I know it's a lot but they are all small questions related to the same case so I didn't know how to split it into multiple questions. I would really appreciate the help, as I need a way to compare my answers.

Dallas & Associates Financial Statement Preparation & Analysis

You have been hired as a senior financial analyst for Dallas and Associates and you are in charge of preparing the financial statements and presenting an annual analysis at the board meeting.

Overview of Dallas & Associateâs Balance Sheet

The assets of Dallas & Associates in 2017 have both current assets and net plant and equipment. It has total assets of $ 7.5 million and net plan and equipment equals $5 million. Dallas & Associateâs only finances with $2.5 million long-term debt, $500,000 notes payable and total common equity of $3.5 million. The firm does have $400,000 accounts payable and $600,000 accruals on its balance sheet. Now assume the firmâs current assets consist entirely of cash and cash equivalence, account receivables and inventories. If it has 1.5 million cash and cash equivalents and $400,000 account receivables.

Dallas & Associates Income Statement in 2017 (dollars are in millions)

Sales	15
Operating costs excluding depreciation and amortization	5
EBITDA	10
Depreciation & Amortization	0.6
EBIT	9.4
Interest	0.4
EBT	9
Taxes (40%)	3.6
Net Income Cash Dividends	5.4 2.0

Use the above information to answer the following questions. Make sure to include the calculation steps/ formula.

Questions:

a. Prepare the balance sheet.


Total Assets	Liabilities & Shareholderâs Equity

b. What is the amount of total liabilities and equity that appears on the firmâs balance?

c. What is the amount of current assets?

d. What is the balance of current liabilities?

e. What is the amount of companyâs inventory?

f. What is the amount of total liabilities?

g. What is the amount of total debt?

h. What is the amount of total capital?

i. What is the amount of net working capital?

j. What is the amount of net operating working capital?

k. If by the end of 2017, the retained earnings of John and Jon is $2.5 million, what is the amount of paid-in capital?

l. If John & Jon decides to purchase $500,000 market securities by using its cash, how does this action would affect its current asset position?

m. As the Income of Statement shows in 2017 John & Jon actually gave out $2 million cash dividends, what is the amount of retained earnings?

n. What is the amount of operating income?

o. What are the operating margin and the profit margin?

p. What is the average length of time that John & Jon must wait after making a sale before it receives cash?

q. What is the ratio we generally use to estimate a firmâs ability to meet its annual interest payments? And calculate that ratio for John and Jon.

r. What are the fixed assets turnover ratio and the total asset turnover ratio?

s. What is the ratio of total debt to total capital?

t. What is the ratio of return on common equity?

u. Assume between 2016 and 2017, net operating working capital has increased by $500,000, calculate John & Jonâs free cash flow. (Hint: use this formula. FCF = [EBIT (1-T) +Depreciation & Amortization] â [Capital Expenditures + Change on Net Operating Working Capital])

v. Now after you present your analysis on the meeting, the CEO would like to see higher sales and a forecasted net income of $10.8 million. Assume that operating costs (excluding depreciation and amortization) are still one third of sales and that depreciation and amortization and interest expenses will increase by 10%. The tax rate which is 40%, will remain the same. What level of sales would generate $10.8 million in net income?

THANK YOU!

ACCT 115 Chapter 7: Accounting Chapter 7

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