The following data have been extracted from the financial statements of a firm for two years, 1991 and 1992:1991 1992Assets 9,947 9,682Sales 11,035 10,377Current liabilities 4,193 3,920Non-current liabilities 3,827 3,476The asset turnover and the equity turnover for 1992 equal ________.
Answer(s): B
Total asset turnover = net sales/average total assetsTotal equity turnover = net sales/average equityThe total liabilities in 1991 = 4,193 + 3,827 = 8,020 and total liabilities in 1992 = 3,920 + 3,476 = 7,396.Therefore, using the equation,Total Assets = Total Liabilities + Total Equity,the equity in 1991 was 9,947 - 8020 = 1,927 and in 1992, it was 9,682 - 7,396 = 2,286. Thus, the average equity for 1992 equals (1,927 + 2,286)/2 = 2,107 and average assets for 1992 equal (9,682 + 9,947)/2 = 9,815.Therefore, asset turnover for 1992 = 10,377/9,815 = 1.06 and equity turnover = 10,377/2,107 = 4.93.
The two primary qualities of accounting information to make it useful for decision-making are ________.
Answer(s): D
The financial information used to make decisions should be both reliable and relevant.
A firm has entered into a long-term purchase obligation. This will allow the firm to obtain raw materials for operations at a known price over the next 6 years. This obligation must be reflected on the balance sheet as:
It is important to recognize that liabilities arise and are recognized on the balance-sheet only if the firm has consumed at least a part of the services or goods under the contract. Until then, a liability is not admitted since there is no corresponding asset or equity that has been generated (a similar principle holds for the recognition of assets). However, due to the bonding nature of the contract, it must be disclosed in footnotes along with the relevant details so that analysts can figure in the impact of all such agreements while evaluating the future health of the firm.
Sparten, Inc., a plumbing contractor, received a check for $3,000 on June 29 for services to be performed in the following fiscal month. During the July accounting period, Sparten completed all but $500 of the job. What adjusting entry needs to be made at the end of July?
When the check for was received on June 30, a liability was established for $3,000 because revenue could not be recognized until it was earned. During July, $2,500 of revenue was earned and should be recognized, along with a reduction (debit) to the Unearned Revenue account.
The following data are taken from the AlphaBeta Company's financial statements ending Dec 31, 1990:Increase in salaries payable 120Decrease in accounts payable 45Provision for bad debt 15Depreciation 90Interest paid 35Proceeds from new bonds issued 225Net Income 350Tax rate 35%What was AlphaBeta's operating cash flow in 1990?
In this case, OCF = 350 + 120 - 45 + 15 + 90 = 530. Proceeds from bond issue are part of financing cash flow, not of OCF. Note that tax rate is not relevant in the indirect method since it has already been factored into in the net income figure. Also, only non-cash items need to be adjusted.
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