Business Performance

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Understanding Accounting Concepts and Business Performance Evaluation

1. The principle or assumption dictating that efforts (expenses) be matched with accomplishments (revenues) is called? Matching Principle

2. One of the following statements about the accrual basis of accounting is false. That statement is: Expense is recorded before the sales has been carried out.

3. In periods of rising prices, LIFO will produce following effect on net income:

1. Lower ending inventory and lower income

4. Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a current replacement cost of $80 each. What is the ending inventory under lower of cost or market?200*80=16000,

5. Atlantis Company's ending inventory is understated $4,000. The effects of this error on the current year's cost of goods sold and net income, respectively, are understated(overstated)/overstated(understate).

6. When there is a change in estimated depreciation when is correction made?

Current and future

7. For 2007, FP Ltd had net income of Rs1,000,000. At 1January 2007, there were 1,000,000 shares outstanding. On 1July 2007, the company issued 100,000 new shares for Rs20 per share. The company paid Rs200, 000 in dividends to common shareholders. What is FP Ltd’s basic earnings per share for 2007?

8. CSI Ltd had 1,000,000 average shares outstanding during all of 2007. During 2007, CSI also had 10,000 options outstanding with exercise prices of Rs10 each. The average stock price of CSI during 2007 was Rs15. For purposes of computing diluted earnings per share, how many shares would be used in the denominator?

9. Nutmeg, Inc. uses the LIFO method to account for inventory. During years in which inventory unit costs are generally rising and in which the company purchases more inventory than it sells to customers. What is the impact on gross profit compared with FIFO method?

10. SC Ltd reported 2007 sales (Rs in millions) of Rs2,157 and cost of goods sold of Rs1,827. Inventories at year-end 2007 and 2006, respectively, were Rs553and Rs562.The company uses the LIFO method for inventory valuation and discloses that if the FIFO inventory valuation method had been used, inventories would have been Rs63.3 million and Rs56.8 million higher in 2007 and 2006, respectively. Compared to the inventory turnover ratio reported, if SC Ltd had exclusively used the FIFO method its inventory turnover ratio would have been closest to?

11. You are comparing the property and equipment disclosures for three airline companies, as summarized in the following table: You find that the average fleet age is lowest for which company | |Airline A |Airline B |Airline C | |Historical cost, aircraft |$17,239 |£23,584 |€45,266 | |Accumulated depreciation, aircraft |6,584 |13,654 |21,745 | |Net cost, aircraft |10,655 |9,930 |23,521 | |Annual depreciation expense |575 |786 |1,509 |

12. When an asset is considered impaired?

13. How is change in accounting estimate reported?

14. Impact when in the early years of an asset's life, compared to a firm using straight-line depreciation, a firm uses the double-declining balance depreciation method.

15. What is comparison of a company's financial results to other peer companies for the same time period called?

16. In order to assess a company's ability to fulfill its long-term obligations, which ratios would an analyst most likely examine

17. Which ratio would a company most likely use to measure its ability to meet short-term obligations?

18. John Chan is interested in assessing both the...
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