会计专业英语教程第四版课后参考答案

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1

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Chapter1answers

1.Trueorfalse

1.1T

1.2F

1.3T

1.4F

1.5F

1.6T

1.7T

1.8F

2.Shortanswerquestions

2.1Theassetmeetsthefollowingconditionsshallbeclassifiedascurrentassets:

(1)Itisexpectedtoberealized,soldorconsumedwithinanormalbusinesscycle;

(2)Itisheldmainlyfortrading;

(3)Itisexpectedtoberealizedwithinoneyearasofthebalancesheetdate(includingoneyear,thesamebelow);

(4)Itiscashorcashequivalent,whichissubjecttonolimitwhenitisusedtoexchangeotherassetsortopayofftheliabilitiesasofthebalancesheetdate.

Theliabilitythatcanmeetthefollowingconditionsshallbeclassifiedascurrentliabilities:

(1)Itisexpectedtoberepaidwithinanormalbusinesscycle;

(2)Itisheldmainlyfortrading;

(3)Itshallberepaidatmaturitywithinoneyearasofthebalancesheetdate;

(4)Itisanassetforwhichtheenterprisedoesnothaveanunconditionalrighttodelaypaymentmorethanoneyearafterthebalancesheetdate.

2.2Owner’sequitymaincontainthefollowinginformation:

(1)paid-incapital(sharecapital);

(2)capitalreserves(includingsharepremiumorcapitalpremium,othercapitalreserves);

(3)othercomprehensiveincome;

(4)surplusreserves;

(5)undistributedprofits.

2.3Corporatesocialresponsibilityreportisasummaryofenterprises'ideas,strategies,methodsandmethodstofulfilltheirsocialresponsibility,directandindirectimpactsoftheirbusinessactivitiesontheeconomy,environment,societyandotherfields.

ManagementreportisareportafterevaluatetheeffectivenessofthedesignandimplementationofInternalcontrolsofanenterprisebasedonthecriteriaofInternalControleffectivenessevaluation.

Chapter2answers

1.Trueorfalse

1.1F

1.2F

1.3T

1.4F

1.5T

1.6T

1.7T

1.8F

1.9T

1.10T

2.Shortanswerquestions

2.1Bothstockholdersandcreditorsusefinancialstatementanalysisto(1)predicttheirexpectedreturnsand(2)assesstherisksassociatedwiththosereturns.

2.2Theanalysisoffinancialdataemploysvarioustechniquestoemphasizethecomparativeandrelativesignificanceofthedatapresentedandtoevaluatethepositionofthefirm.Threecommonlyusedtoolsareasfollowing.

Horizontalanalysisevaluatesaseriesoffinancialstatementdataoveraperiodoftime.

Verticalanalysisevaluatesfinancialstatementdatabyexpressingeachiteminafinancialstatementasapercentofabaseamount.

Ratioanalysisexpressestherelationshipamongselecteditemsoffinancialstatementdata.

2.3Forusersoffinancialstatementstodetermine“earningpower”orregularincome,the“irregular”itemsareseparatelyidentifiedontheincomestatement.Threetypesof“irregular”itemsarereported:

1.Discontinuedoperations.

2.Extraordinaryitems.

3.Changesinaccountingprinciple.

2.4Whentwoconditionsaremet(1)managementcanshowthatthenewprincipleispreferabletotheoldprinciple,and(2)theeffectsofthechangeareclearlydisclosedintheincomestatement.

2.5(1)Financialstatementscontainnumerousestimates.

(2)Traditionalfinancialstatementsarebasedoncost.

(3)Companiesvaryinthegenerallyacceptedaccountingprinciplestheyuse.

(4)Fiscalyear-enddatamaynotbetypicaloffthefinancialconditionduringtheyear.

(5)Diversificationwithinaglobalenvironmentalsolimitstheusefulnessoffinancialanalysis.

3.Problemsolving

(a) Current=1.45:1($160,000$110,000)

(b) Acid-test=0.77:1($85,000$110,000)

4.Casestudy

(a) Creditsales

Receivablesturnover = —————————————

Averageaccountsreceivable

= $5,110,000÷$700,000

= 7.3times

365days

Averagecollectionperiod = ——————————

Receivablesturnover

= 365÷7.3times

= 50days

(b) Inventoryturnover=Costofgoodssold÷Averageinventory

Firstcalculateendinginventory.

BeginningInventory $482,000

+Purchases 4,146,000

–CostofGoodsSold (4,088,000)*

EndingInventory $540,000

*Sincethegrossprofitratiois20%,thecostofgoodssoldratiois80%.

80%×$5,110,000(netsales)=$4,088,000.

EndingInventory=$540,000(perabove)

AverageInventory=($482,000+$540,000)÷2=$511,000

InventoryTurnover=$4,088,000÷$511,000=8times

DaystoSell=365days÷8times=45.6days

(c)Netincome

Returnoncommonstockholders'equity=Averagecommonstockholders'equity

=$490,000÷$3,500,000=14%

Chapter3answers

1.Trueorfalse

1.1T

1.2T

1.3T

1.4T

1.5F

1.6F

1.7F

1.8T

1.9T

1.10F

2.Shortanswerquestions

2.1Accountingmaybedescribedastheprocessofidentifying,measuring,recording,andcommunicatingeconomicinformationtopermitinformedjudgmentsanddecisionsbyusersofthatinformation.

2.2Thesimplestanswertothisquestionisthatfinancialaccountingprovidesinformationformanagerstouseinoperatingthebusiness.Inaddition,financialaccountingprovidesinformationtootherstakeholderstouseinassessingtheeconomicperformanceandtheconditionofthebusiness.

2.3Asetoffinancialstatementsconsistsoffourrelatedaccountingreportsthatsummarizeinafewpagesthefinancialresources,obligations,profitability,andcashtransactionsofabusiness.Acompletesetoffinancialstatementsincludes:Abalancesheet,anincomestatement,astatementofowners’equityandastatementofcashflow.

2.4Usingcash-basisaccounting,incomeandexpensesarerecognizedonlywhencashisreceivedorpaidout.Usingaccrual-basisaccounting,receivablesandpayablesarerecognizedwhenasaleisagreedto,eventhoughnocashhasbeenreceivedorpaidoutasyet.

2.5Costprinciple.Statesthatassetsshouldberecordedattheircost.Costisthevalueexchangedatthetimesomethingisacquired.

Revenuerecognitionprinciple.Dictatesthatrevenueberecognizedintheaccountingperiodinwhichitisearned.

MatchingPrinciple.Oncetheeconomiclifeofabusinesshasbeendividedintoartificialtimeperiods,therevenuerecognitionandmatchingprinciplescanbeapplied.

Fulldisclosureprinciple.Requiresthatcircumstancesandeventsthatmakeadifferencetofinancialstatementusersbedisclosed.

3.Problemsolving

A

L

OE

(a)

+

+

(b)

+

+

(c)

-

-

(d)

+

+

(e)

-

-

(f)

+,-

(g)

-

-

(h)

+

+

(i)

-

-

(j)

+,-

(k)

-

-

(l)

-

-

(m)

+

-

(n)

-

-

(o)

+,-

4.Casestudy

Omitted

Chapter4answers

1.Trueorfalse

1.1T

1.2F

1.3F

1.4T

1.5F

1.6T

1.7T

1.8F

1.9T

1.10T

2.Shortanswerquestions

2.1Cashequivalentsareshort-term,highlyliquidinvestmentsorotherassetsthatreadilyconvertibletocashandsufficientlyclosetothereduedate.Therearefivetypesofcashequivalents:Treasurybills,commercialpaper,marketablesecurities,moneymarketfunds,andshort-termgovernmentbonds.

2.2Abankreconciliationisareportexplaininganydifferencesbetweenthebalanceaccordingtoadepositor'srecordsandthebalanceonthecompany'sbankstatement.Thereconciliationprocedureexaminesthedifferencesbasedontheinformationavailabletothecompanyandadjustsforthedifferences.Italsoservesasaformatforthediscoveryandcorrectionoferrors.

2.3Thenetmethodassumesthatafirmwilltakeallcashdiscountsofferedforpromptpayment.Anydiscountsmissedarerecordedinadiscountslostaccount.Discountslostisconsideredtobeanoperatingexpense,andtobearecordofpresumedinefficienciesinmanagingcash(ofcourse,furtheranalysismayrevealthatthediscountslostreflectpurchasediscountsatunfavorableterms).Thenetmethodofaccountingforpurchasesisusedtoassistintheinternalcontrolfunction.

2.4Accountsreceivablearisefromcreditsalestocustomers.Accountsreceivablearereportedattheirrealizablevalue,whichistheirtotalamountlessanestimatefortheamountofuncollectibleaccounts.Accountsreceivablearealsorecordedintoanaccountsreceivablesubsidiaryledgerthatseparatelylistsamountsowedbyindividualcustomers.

2.5Acompany'sreceivablesarenormallyconvertedtocashasthecustomerspayofftheiraccounts.However,thereareatleastthreeoptionsavailabletoacompanythatwishestoconvertitsreceivablesbeforetheyareatleastdue.Firstacompanycansellthereceivablestoafactor.Second,acompanycanuseitsreceivablesascollateralforaloan.Third,acompanycandiscountthereceivablestoabankinreturnforcash.

3.Problemsolving

Year1:($49,000/$285,000)x365=63days

Year2:($85,000/$575,000)x365=54days

Thedecreaseof9daysmeansthatthiscompanyhasimproveditsmanagementofreceivablesanditsliquidityposition.

4.Casestudy

OnDecember31,ofthecurrentyear,acompany'sunadjustedtrialbalancerevealedthefollowing:Accountsreceivableof$185,600;SalesRevenueof$1,280,000;(75%wereoncredit),andAllowanceforDoubtfulAccountsof$1,600(creditbalance).

Chapter5answers

1.Trueorfalse

1.1F

1.2T

1.3T

1.4T

1.5F

1.6F

1.7F

1.8T

1.9T

1.10T

2.Shortanswerquestions

2.1Merchandiseinventoryconsistsofgoodsownedbyacompanyandheldforresale.Threespecialcasesinvolvingownershipdecisionsaregoodsintransit,consignedgoods,anddamagedgoods.Goodsintransitareincludedintheinventoryofthecompanythatownsthegoods.Consignedgoodsareincludedintheinventoryoftheconsignor.Damagedgoodsarevaluedatnetrealizablevalue.

2.2Thespecificidentificationmethodexactlyidentifiesthecostsoftheinventoryitemssold.Theweightedaveragemethodsmoothsoutchangesincostsby"averaging"inventorycosts.However,LIFOandFIFOprovidedifferentamountsinperiodsofrisingorfallingcosts.Forexample,inperiodsofrisingcosts,LIFOprovidesalowerincomeandthuslowertaxes.Inperiodsoffallingcosts,LIFOprovidesahigherincomeandthushighertaxes.FIFOcalculationsprovidebothhigherincomeandtaxesinperiodsofrisingcostsandlowerincomeandtaxesinperiodsofdecliningcosts.

2.3Aninventoryerrorcausesmisstatementsincostofgoodsold,grossprofit,netincome,currentassets,andequity.Italsocausesmisstatementsinthenextperiod'scostofgoodssoldandnetincome.However,theinventoryerrorissaidtobeself-correctingbecausetheerrorinthefirstperiodisoffsetbytheerrorinthesecondperiod

2.4Amerchandiser'sabilitytopayitsshorttermobligationsdepends,amongotherfactors,onhowquicklyitsellsitsmerchandiseinventory.Theinventoryturnoverratiorevealshowmanytimesacompanyturnsover(sells)itsinventoryduringaperiod.Alowratiocomparedtocompetitorssuggeststhecompanymaybeholdingmoreinventorythannecessarytosupportitssalesvolume.Ontheotherhand,aratiothatistoohighcomparedtocompetitorsmaysuggestthattheinventorylevelistoolowandcustomersmayhavetobackordermerchandise.

Thedays'salesininventoryratiohelpstobetterinterpretinventoryturnover.Itcanbeinterpretedasthenumberofdaysonecansellfrominventoryifnonewitemsarepurchased,andcanbeviewedasameasureofthebufferagainstout-of-stockinventory.

2.5Theretailmethodisgenerallyusedtoprepareinterimstatements.Itusesthecosttoretailratiotogiveanestimatedendinginventoryatcost.Thegrossprofitmethodistypicallyusedtoreconstructthevalueoflost,stolen,ordestroyedinventory.Itusesthe(historical)grossprofitratiotoestimatecostofgoodssoldandthevalueofendinginventory.

3.Problemsolving

(a)

(b)

4.Casestudy

a.LCM,appliedtoinventoryasawhole=$3,680

b.LCM,appliedseparatelytoeachproduct=$3,470

Chapter6answers

1.Trueorfalse

1.1F

1.2F

1.3T

1.4F

1.5F

1.6T

1.7F

1.8T

1.9T

1.10T

2.Shortanswerquestions

2.1Thecostofplantandequipmentincludesallexpendituresreasonableandnecessaryinacquiringanassetandplacingitinapositionandconditionforuseintheoperationofthebusiness.Onlyreasonableandnecessaryexpendituresshouldbeincluded.

2.2Depreciation,asthetermisusedinaccounting,istheallocationofthecostofatangibleplantassettoexpenseintheperiodsinwhichservicesarereceivedfromtheasset.Inshort,thebasicpurposeofdepreciationistoachievethematchingprinciple—thatis,tooffsettherevenueofanaccountingperiodwiththecostsofthegoodsandservicesbeingconsumedintheefforttogeneratethatrevenue.

2.3Thetermaccelerateddepreciationmeansrecognitionofrelativelylargeamountsofdepreciationintheearlyyearsofuseandreducedamountsinthelateryears.Thisisconsistentwiththebasicaccountingconceptofmatchingcostswithrelatedrevenue.Accelerateddepreciationmethodshavebeenwidelyusedinincometaxreturnsbecausetheyreducethecurrentyear’staxburdenbyrecognizingarelativelylargeamountofdepreciationexpense.

2.4(1)theexpectedlifeoftheasset;(2)theexpectedusefullifeofanotherassetthatisrelatedtothelifeoftheintangibleasset,suchasthemineralrightsthatrelatetoadepletingasset;(3)anylegal,regulatory,orcontractualprovisionsthatenablerenewalorextensionoftheasset’slegalorcontractuallifewithoutsubstantialeconomiccost;(4)theeffectsofobsolescence,demand,competition,andothereconomicfactors;and(5)thelevelofmaintenancecostsrequiredtoobtaintheexpectedfuturecashflowsfromtheasset.

2.5Acompanymustreviewitsgoodwillforimpairmentwhenevereventsorchangesincircumstanceoccurthatwouldmore-likely-than-notreducethefairvalueofthegoodwillbelowitscarryingvalue.Companiesarerequiredtoreviewthevalueofgoodwillontheirfinancialstatementsatleastonceayearandrecordanyimpairments.

3.Problemsolving

20X4 July 1 ComputerEquipment 2,700

Cash 2,700

Nov.3 RepairsExpense 140

Cash 140

Dec.31 DepreciationExpense 275

AccumulatedDepreciation 275

[($2,700–$500)÷4×1/2]

20X5 Dec.31 DepreciationExpense 550

AccumulatedDepreciation($2,200÷4) 550

20X6 Jan.1 ComputerEquipment 500

Cash 500

4.Casestudy

Omitted

Chapter7answers

1.Trueorfalse

1.1T

1.2F

1.3F

1.4T

1.5T

1.6T

1.7F

1.8T

1.9F

1.10T

2.Shortanswerquestions

2.1Forpurposesofvaluationandreportingatafinancialstatementdate,debtandstockinvestmentsareclassifiedintothreecategoriesofsecurities:

Tradingsecuritiesaresecuritiesboughtandheldprimarilyforsaleintheneartermtogenerateincomeonshort-termpricedifferences.

Available-for-salesecuritiesaresecuritiesthatmaybesoldinthefuture.

Held-to-maturitysecuritiesaredebtsecuritiesthattheinvestorhastheintentandabilitytoholdtomaturity.

2.2Corporationspurchaseinvestmentsindebtorstocksecuritiesgenerallyforoneofthreereasons.First,acorporationmayhaveexcesscashthatitdoesnotneedfortheimmediatepurchaseofoperationassets.Second,somecompaniessuchasbanks,purchaseinvestmentstogenerateearningsfrominvestmentincome.Third,somecompaniesinvestforstrategicpurposes.

2.3ReportingOtherComprehensiveIncomeinthestockholders’equitysectionsservestwoimportantpurposes:(1)itreducesthevolatilityofnetincomeduetofluctuationsinfairvalue.(2)itinformsthefinancialstatementuserofthegainorlossthatwouldoccurifthesecuritiesweresoldatfairvalue.

2.4Short-terminvestmentsaresecuritiesheldbyacompanythatare(1)readilymarketable,and(2)intendedtobeconvertedintocashwithinthenextyearoroperatingcycle,whicheverislonger.Investmentsthatdonotmeetbothcriteriaareclassifiedaslong-terminvestments.

2.5Consolidatedfinancialstatementspresentthetotalassetsandliabilitiescontrolledbytheparentcompany.Theyalsopresentthetotalrevenuesandexpensesofthesubsidiarycompanies.Consolidatedstatementsarepreparedinadditiontothefinancialstatementsfortheparentandindividualsubsidiarycompanies.

3.Problemsolving

Jan.1 StockInvestments 9,720

Cash 9,720

June1 Cash(900×$.50) 450

DividendRevenue 450

Sept.15 Cash($4,300–$100) 4,200

InvestmentIncome 120

StockInvestments 4,320

[400×($9,720÷900)]

Dec.1 Cash(500×$.50) 250

DividendRevenue 250

4.Casestudy

Jan. 2 DebtInvestments 32,000

Cash 32,000

July 1 Cash($30,000×10%×1/2) 1,500

InterestRevenue 1,500

Chapter8answers

1.Trueorfalse

1.1T

1.2F

1.3T

1.4T

1.5T

1.6F

1.7T

1.8T

1.9F

1.10F

2.Shortanswerquestions

2.1Currentliabilitiesareobligationsthatmustbepaidwithinoneyearorwithintheoperatingcycle,whicheverislonger.Anotherrequirementforclassificationasacurrentliabilityistheexpectationthatthedebtwillbepaidfromcurrentassets(orthroughtherenderingofservice).Liabilitiesthatdonotmeettheseconditionsareclassifiedaslong-termliabilities.

2.2Bondsusuallyareverylong-termnotes,maturinginperhaps30or40years.Thebondsaretransferable;however,soindividualbondholdersmayselltheirbondstootherinvestorsatanytime.Mostbondscallforsemi-annualinterestpaymentstothebondholders,withinterestcomputedataspecifiedcontractratethroughoutthelifeofthebond.Thus,investorsoftendescribebondsas“fixedincome”investments.

2.3Bondspayabledifferfromcapitalstockinseveralways.First,bondspayablearealiability;thus,bondholdersarecreditorsofthecorporation,notowners.Bondholdersgenerallydonothavevotingrightsanddonotparticipateintheearningsofthecorporationbeyondreceivingcontractualinterestpayments.Next,bondinterestpaymentsarecontractualobligationsofthecorporation.Dividends,ontheotherhand,donotbecomelegalobligationsofthecorporationuntiltheyhavebeenformallydeclaredbytheboardofdirectors.Finally,bondshaveaspecificmaturingdate,uponwhichthecorporationmustredeemthebondsattheirfaceamount.Capitalstock,ontheotherhand,doesnothaveamaturingdateandmayremainoutstandingindefinitely.

2.4Aprincipaladvantageofraisingmoneybyissuingbondsinsteadofstockisthatinterestpaymentsaredeductibleindeterminingincomesubjecttocorporateincometaxes.Dividendspaidtostockholders,however,arenotdeductibleincomputingtaxableincome.

2.5Bondsaresometimesretiredbeforethematuritydate.Theprincipalreasonforretiringbondsearlyistorelievetheissuingcorporationoftheobligationtomakefutureinterestpayments.Ifinterestratesdeclinetothepointthatacorporationcanborrowataninterestratebelowthatbeingpaidonaparticularbondissue,thecorporationmaybenefitfromretiringthosebondsandissuingnewbondsatalowerinterestrate.

3.Problemsolving

(a) June 30 BondsPayable 400,000

LossonBondRedemption 40,800

DiscountonBondsPayable 32,800

Cash 408,000

($400,000–$367,200=$32,800)

($400,000×102%=$408,000)

(b) June 30 BondsPayable 600,000

DiscountonBondsPayable 10,000

GainonBondRedemption 14,000

Cash 576,000

($600,000–$590,000=$10,000)

($600,000×96%=$576,000)

(c) Dec. 31 BondsPayable 50,000

CommonStock 20,000

Paid-inCapitalinExcessofPar 30,000

($5×80×50=$20,000)

4.Casestudy

Thealternativeeffectsonnetincomeandearningspershareareasfollows:

IssueStock IssueBonds

Incomebeforeinterestandtaxes $1,500,000 $1,500,000

Interest(10%×$2,500,000) — (250,000)

Incomebeforeincometaxes 1,500,000 1,250,000

Incometaxexpense (450,000) (375,000)

Netincome $1,050,000 $875,000

Outstandingshares 250,000 200,000

Earningspershare $4.20 $4.38

Netincomeishigheriftheequipmentisfinancedthroughtheissuanceofstock.However,earningspershareislowerbecauseoftheadditionalnumberofsharesofcommonstockthatareoutstanding.

Chapter9answers

1.Trueorfalse

1.1T

1.2F

1.3T

1.4F

1.5F

1.6T

1.7F

1.8T

1.9T

1.10F

2.Shortanswerquestions

2.1Commonstockholdersgenerallyhavetherighttovoteatstockholders'meetings,sellorotherwisedisposeoftheirstock,receivethesamedividend,ifanyoneachcommonshare,andshareinanyassetsremainingaftercreditorsarepaidwhenandifthecorporationisliquidated.Stockholdersgenerallyalsohaveapreemptiveright,whichistherighttopurchasetheirproportionalshareofanycommonstocklaterissuedbythecorporation.

2.2Stockholders'equityconsistsoftwomainparts,paid-incapitalandretainedearnings.Paid-incapitalconsistsoffundsraisedbytheissuanceofstock,eithercommonorpreferred.Paid-incapitalisthetotalamountofcashandotherassetsthecorporationreceivesinexchangeforstock.Paid-incapitalinexcessofparvaluerepresentstheamountacorporationreceivesfromissuingstockwhenthemarketvalueexceedstheparvalueofthestock.Retainedearningsisthecumulativenetincomeandlossretainedbythecorporationlessanydividendsdeclared.

2.3Theprice-earningsratioofacommonstockiscomputedbydividingthestock'smarketvaluepersharebyitsearningspershare.Theprice-earningsratiorepresentsthestockmarket'sexpectationsofacompany'sfutureperformance.SomeanalystsviewahighPE(greaterthan20to25,forinstance)ratioasanindicationthatastockisovervalued.Alowratio(lessthan5to8)mayindicatethatastockisundervalued.

2.4Dividendyieldistheratioofannualcashdividendspersharedividedbythemarketvaluepershareofstock.Theresultingdividendyieldrepresentsthepercentofcashreturninvestorsreceivefromaninvestmentinacompany'sstock.Dividendyieldcanbeusedtoidentifywhetherastockisanincomestockoragrowthstock.Companiesthatpaylargedividendsonaregularbasisareincomestocks.Companiesthatdistributelittleornocashbutusethecashtofinanceexpansionareknownasgrowthstocks.

3.Problemsolving

Bookvalueperpreferredshare:

$560,000/5,000shares=$112perpreferredshare

Bookvaluepercommonshare:

$2,550,000/150,000shares=$17percommonshare

4.Casestudy

Chapter10answers

1.Trueorfalse

1.1T

1.2F

1.3T

1.4F

1.5T

1.6T

1.7F

1.8F

1.9F

1.10T

2.Shortanswerquestions

2.1Thebasiccomponentsofincomebeginwithnetsales.Costofgoodssoldissubtractedfromnetsalestogetgrossprofit(alsocalledgrossmargin).Operatingexpensesarethensubtractedfromgrossmargintodeterminenetincome.

2.2Thegrossmarginratioiscalculatedbydividinggrossmargin(ornetsaleslesscostofgoodssold)bynetsales.Thegrossmarginratiomeasuresafirm'sprofitabilityinsellingitsinventory.Thegrossmarginmustbelargeenoughtocoveroperatingexpensesandprovidesufficientnetincometotheowner(s).

2.3Sellingexpensesincludetheexpensesofpromotingsalesbydisplayingandadvertisingmerchandise,makingsales,anddeliveringgoodstocustomers.Generalandadministrativeexpensessupportacompany'soveralloperationsandincludeexpensesrelatedtoaccounting,humanresourcemanagement,andfinancialmanagement.Someexpensescanrelatetobothareasandareallocatedbetweenthem.

2.4Theenterpriseshallrecognizetherevenuewhenthecustomerobtainscontroloftherelevantcommodity:

(1)Thepartiestothecontracthaveapprovedthecontractandpromisedtoperformtheirrespectiveobligations;

(2)Thecontractspecifiestherightsandobligationsofthepartiestothecontractrelatedtothetransferredgoodsortheprovisionoflaborservices;

(3)Thecontracthasclearpaymenttermsrelatedtothetransferredgoods;

(4)Thecontracthascommercialsubstance,thatis,fulfillingthecontractwillchangetherisk,timedistributionoramountofthecompany'sfuturecashflow;

(5)Theconsiderationthattheenterpriseisentitledtoduetothetransferofgoodstocustomersislikelytoberecovered.

2.5Revenuesarethegrossincreasesinequityfromacompany'searningsactivities.Expensesarethecostsofassetsorservicesusedtoearnrevenues.Netincomeistheexcessofrevenuesoverexpenses.

3.Problemsolving

(1)

(2)Tricohadthemorefavorableratioforeachyear.

(3)Unico'sgrossmarginratioisincreasing,whileTrico'sisdecreasing.Moreover,thesechangesappearsignificantandwarrantfurtheranalysis.

4.Casestudy

Chapter11answers

1.Trueorfalse

1.1F

1.2T

1.3F

1.4T

1.5T

1.6T

1.7F

1.8T

2.Shortanswerquestions

2.1Accountingistherecording,classifying,andsummarizingofeconomiceventsinalogicalmannerforthepurposeofprovidingfinancialinformationfordecisionmaking.Thefunctionofaccountingistoprovidecertaintypesofquantitativeinformationthatmanagementandotherscanusetomakedecisions.Inauditingaccountingdata,theconcerniswithdeterminingwhetherrecordedinformationproperlyreflectstheeconomiceventsthatoccurredduringtheaccountingperiod.

2.2(1)Afinancialstatementauditisconductedtodeterminewhethertheoverallfinancialstatements(theinformationbeingverified)arestatedinaccordancewithspecifiedcriteria.(2)Anoperationalauditisareviewofanypartofanorganization’soperatingproceduresandmethodsforthepurposeofevaluatingefficiencyandeffectiveness.(3)Thepurposeofacomplianceauditistodeterminewhethertheauditeeisfollowingspecificprocedures,rules,orregulationssetbysomehigherauthority.

2.3Auditriskisdefinedastherisktheauditormaygiveanunqualifiedopiniononmateriallymisstatedfinancialstatements.Auditriskmayleadtolawsuitsorotheractionsthatmaybecostlytotheauditor.Anincorrectauditopinionoccurswhenanauditorissues(1)aqualifiedoradverseauditopinionwhenthefinancialstatementsarefreefrommaterialmisstatement,or(2)anunqualifiedauditopinionwhenthefinancialstatementscontainmaterialmisstatements.Auditriskrefersonlytothelattersituation.

2.4(1)Physicalevidenceisevidencethattheauditorscanactuallysee.Asanexample,thebestevidenceoftheexistenceofcertainassetsistheauditors’examinationoftheassetsthemselves.(2)

Third-partyrepresentationsareavarietyofrepresentationsfromanumberofoutsideparties,suchastheclient’scustomers,vendors,financialinstitutions,andattorneys.(3)Documentaryevidenceincludeschecks,invoices,contracts,andminutesofmeetings.(4)Computationsaremadeindependentlybytheauditorstoprovethearithmeticalaccuracyof