Questions and Answers of Financial Accounting 6th Edition

What does the term fiscal year mean?
What are three examples of source documents that underlie business transactions?
What is the nature and purpose of a general journal?
What is an adjusting journal entry?
What is a chart of accounts? Give an example of a coding system for identifying different types of accounts.
Why is the adjusting step of the accounting cycle necessary?
What four different types of adjustments are frequently necessary at the close of an accounting period? Give examples of each type.
On January 1, Prepaid Insurance was debited with the cost of a two-year premium, $1,872. What adjusting entry should be made on January 31 before financial statements are prepared for the month?
What is a contra account? What contra account is used in reporting the book value of a depreciable asset'?
A building was acquired on January 1, 2011, at a cost of $4,000,000, and its depreciation is calculated using the straight-line method. At the end of 2015. the accumulated depreciation contra asset
The publisher of International View, a monthly magazine, received two-year subscriptions totaling $9,720 on January 1. (a) What entry should be made to record the receipt of the $9,720?(b)
Globe Travel Agency pays an employee $475 in wages each Friday for the live-day workweek ending on that day. The last Friday of January falls on January 27. What adjusting entry should he made on
The Bayou Company earns interest amounting to $360 per month on its investments. The company receives the interest every six months, on December 31 and June 30. Monthly financial statements are
Which groups of accounts are closed at the end of the accounting year?
Refer to the information in Exercise 4-35. Calculate the net cash flow from operating activities using the direct method. Show a related cash flow for each revenue and expense. Also, compute its
Refer to the income statement and comparative balance sheets for Wolff Company presented in P4-46.REQUIRED:a. Compute Wolff Company's cash flow from operating activities using the direct method. Use
Refer to the income statement and comparative balance sheets for Arctic Company presented in P4-48.Data from P4-48:REQUIRED:a. Compute Arctic Company's cash flow from operating activities using the
Selected balance sheet, income statement and cash flow statement information from Tesla, Inc. for 2017 and 2016 follows ($ thousands).a. Compute the current ratio and quick ratio for each year and
One way to increase overall profitability is to increase gross profit. This can be accomplished by raising prices and/or by reducing manufacturing costs.REQUIREDa. Will raising prices and/or reducing
Under what circumstances is it justified to include transportation costs in the value of the inventory purchased?
Why do relatively stable inventory costs reduce the importance of management's choice of an inventory costing method?
What is one explanation for increased gross profit during periods of rising inventory costs when FIFO is used?
If inventory costs are rising, which inventory costing method- first-in, first-out; last-in, first-out; or average cost-yields the (a) Lowest ending inventory?(b) Lowest net income(c) Largest
Even though it does not reflect their physical flow of goods, why might companies adopt last-in, first-out inventory costing in periods when costs are consistently rising?
Schrand Inc., a merchandiser, is requesting help in determining what costs ought to be considered as costs when incurred or treated as inventory costs, which are expensed as COGS. The costs include:
DeFond Company purchased equipment for $50,000. For each of the following sets of assumptions, prepare a depreciation schedule (all years) for this equipment assuming that DeFond uses the
In a recent annual report, Kaiser Aluminum Corporation made the following statement in reference to its inventories: "The Company recorded pretax charges of approximately $19.4 million because of a
Under what conditions would each of the inventory costing methods discussed in the chapter produce the same results?
What is inventory "shrink?" How does a company determine the amount of inventory shrink that may have occurred?
What is a LIFO reserve? How is the LIFO reserve related to unrealized holding gains?
Analysts claim that it is more difficult to forecast net income for a company that uses LIFO. Why might this be true?
LIFO liquidation may be involuntary-that is beyond the control of management. Suggest two situations that might lead to involuntary UFO liquidation.
LIFO liquidation is often discretionary. What motives might management have to liquidate LIFO inventory?
Shields Company has purchased inventories incurring the following costs: (a) The invoice amount of $500.(b) Shipping charges of $30.(c) Interest of $ 10 on the $500 borrowed to finance the
Ybarra Products began operations in 2020. During its first year, the company purchased raw materials costing $84,000 and used $63,000 of those materials in the production of its products. The
Johnson & Johnson reported the following revenue and cost of goods sold information in its 10-K report for 2017, 2016, and 2015.Compute Johnson & Johnson's gross profit margin for each year.
For each of the following scenarios, determine the effect of the error on income in the current period and in the subsequent period. To answer these questions, rely on the inventory
An acquaintance has proposed the following business plan to you. A local company requires a consistent quantity of a commodity and is looking for a reliable supplier. You could become that reliable
Assume that Gode Company reports the following initial balance and subsequent purchase of inventory:Assume that 1,700 units are sold during 2020. Compute the cost of goods sold for 2020 and the
Geiger Corporation, a retail company, reported inventories of $1,320,000 in 2019 and $1,460,000 in 2020. The 2020 income statement reported cost of goods sold of $6,980,000.a. Compute the amount of
Bartov Corporation reports the following beginning inventory and purchases for 2020:Bartov sells 600 of these units in 2020. Compute its cost of goods sold for 2020 and the ending inventory reported
Wal-Mart Stores, Inc., and Target Corporation reported the following in their financial reports:a. Compute the 2017 and 2016 inventory turnovers for each of these two retailers.b. Discuss any changes
Penno Company reported ending inventories of $23,560,000 in 2020 and $25,790,000 in 2019. Cost of goods sold totaled $142,790,000 in 2020.a. Prepare the journal entry to record cost of goods sold.b.
The following data refer to Froning Company's ending inventory.Determine the ending inventory amount by applying the lower of cost or net realizable value rule to(a) Each item of inventory(b) The
West Marine, Inc., opened its first boating supply store in 1975. Since that time, the company has grown to be one of the largest boating supply companies in the world, with fiscal year 2014 revenues
At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $20. A summary of purchases during the current period follows:During the current period, Chen sold
Stocken Company has the following financial records for the current period:Ending inventory at the end of this period is 350 units. Compute the ending inventory and the cost of goods sold for the
Crane Company had the following inventory at December 31. 2017.a. Determine the ending inventory amount by applying the lower of cost or net realizable value rule to1. Each item of inventory.2. Each
General Motors Corporation reported the following information in its 10-K report:The company reports its inventory using the LIFO costing method during 2007 and 2008.a. At what dollar amount are
The inventory footnote from Deere & Company's 2013 10-K follows ($ millions).15. INVENTORIESA majority of inventory owned by Deere & Company and its US equipment subsidiaries are valued at
The footnote below is from the 2017 10-K report of Whole Foods Market, Inc., a Texas-based retail grocery chain.Inventories:The Company values inventories at the lower of cost or market. Cost was
The following table presents sales revenue, cost of goods sold, and inventory amounts for three specialty retailers, Tiffany & Co., Best Buy, and RH.a. Compute the gross profit margin (GPM) for
Caterpillar Inc. and Komatsu Ltd. are international manufacturers of industrial and construction equipment. Caterpillar's headquarters is in the United States, while Komatsu's headquarters is in
The current asset section of the 2017 and 2016 fiscal year end balance sheets of The Kroger Co. are presented in the accompanying table:In addition, Kroger provides the following footnote describing
The following table presents sales revenue, cost of goods sold, and inventory amounts for three computer/electronics companies, Samsung Electronics Co., Hewlett-Packard Company, and Apple
The current asset section from Seneca Foods Corporation, a low-cost producer and distributor of quality fruits and vegetables, March 31 , 2018 annual report follows:Seneca reports the following
The current assets of Exxon Mobil Corporation follow:In addition, the following note was provided in its 2017 10-K report:Inventories. Crude oil, products and merchandise inventories are carried at
Vireo Manufacturing Corp. provided the following note in its annual report for the year ended January 31, 2011:On January 31, 2011, the Company elected to change its costing method for the material
How should companies account for costs, such as maintenance or improvements, which are incurred after an asset is acquired?
What is the effect of capitalized interest on the income statement in the period that an asset is constructed? What is the effect in future periods?
Why is the recognition of depreciation expense necessary for proper expense recognition?
Why do companies use accelerated depreciation for income tax purposes, when the total depreciation taken over the asset's useful life is identical to straight-line depreciation?
How should a company treat a change in an asset's estimated useful life or residual value? Which period(s)-past, present, or future-is affected by this change?
What factors determine the gain or loss from the sale of a long-term operating asset?
When is a PPE asset considered to be impaired? How is the impairment loss determined?
What is the proper accounting treatment for research and development costs? Why are R&D costs not capitalized under GAAP?
Why are some intangible assets amortized while others are not? What is meant by an intangible asset with an " indefinite life"?
Under what circumstances should a company report goodwill in its balance sheet? What is the effect of goodwill on the income statement?
For each of the following items, indicate whether the cost should be capitalized or expensed immediately:a. Paid $1,200 for routine maintenance of machineryb. Paid $5,400 to rent equipment for two
Gaver Company sold machinery that had originally cost $75,000 for $25,000 in cash. The machinery was three years old and had been depreciated using the double-declining balance method assuming a
A delivery van costing $18,000 is expected to have a $1,500 salvage value at the end of its useful life of 5 years. Assume that the truck was purchased on January 1, 2019. Compute the depreciation
Equipment costing $130,000 is expected to have a residual value of $10,000 at the end of its six year useful life. The equipment is metered so that the number of units processed is counted. The
As part of a renovation of its showroom, O' Keefe Auto Dealership sold furniture and fixtures that were eight years old for $3,500 in cash. The assets had been purchased for $40,000 and had been
A machine costing $145,800 is purchased on May1, 2019. The machine is expected to be obsolete after three years (36 months) and, thereafter, no longer useful to the company. The estimated salvage
The following information on Siemens AG's treatment of research and development is extracted from its 2018 financial statements. Siemens AG is an integrated technology company with activities in the
The Nelson Oil Company estimated that the oil reserve that it acquired in 2019 would produce 4 million barrels of oil. The company extracted 300,000 barrels the first year, 500,000 barrels in 2020,
Texas Instruments Incorporated and Intel Corporation report the following information:a. Compute the 2018 PPE turnover for both companies. Comment on any difference you observe.b. Discuss ways in
Abbott Laboratories reports the following income statement (in partial form):including acquired in-process and collaborations R&Da. Compute the percent of net sales that Abbott Laboratories
On January 2, Haskins Company purchases a laser cutting machine for use in fabrication of a part for one of its key products. The machine cost $80,000, and its estimated useful life is five years,
On January 2, 2019, Dechow Company purchases a machine to help manufacture a part for one of its key products. The machine cost $218,700 and is estimated to have a useful life of six years, with an
Palepu Company owns and operates a delivery van that originally cost $27,200. Straight-line depreciation on the van has been recorded for three years, with a $2,000 expected salvage value at the end
Lambert Company acquired machinery costing $110,000 on January 2, 2019. At that time, Lambert estimated that the useful life of the equipment was 6 years and that the residual value would be $15,000
In January 2019, Rankine Company paid $8,500,000 for land and a building. An appraisal estimated that the land had a fair value of $2,500,000 and the building was worth $6,000,000. Rankine estimated
The property and equipment footnote from the Deere & Company balance sheet follows ($ millions):PROPERTY AND DEPRECIATION:A summary of property and equipment at October 28, 2018, in millions of
3M Company reports the following financial statement amounts in its 10-K report:a. Compute the receivables, inventory, and PPE turnover ratios for both 2018 and 2017. (Receivables turnover and
On the first day of 2019, Holthausen Company acquired the assets of Leftwich Company including several intangible assets. These include a patent on Leftwich's primary product. a device called a
R&D intensity is measured by the ratio of research and development expense to sales revenue. The following table compares the R&D intensity for various companies.a. Comment on the differences
The following footnote is from Note 8 to the 2018 10-K of Tesla, Inc.:Note &-Property, Plant and Equipment:Our property, plant and equipment, net, consisted of the following (in thousands):The
Aglent Technologies, Inc., the high-tech spin-off from Hewlett-Packard Company, reports the following operating profit for 2018 in its 10-K ($ millions):Net revenueProducts
The 2018 and 2017 income statements and balance sheets (asset section only) for Target Corporation follow, along with its footnote describing Target's accounting for property and equipment. Target's
General Mills, Inc. is a global consumer foods company. The firm manufactures and sells a wide range of branded products and is a major supplier to the foodservice and baking industries. The
Note B from the fiscal 2010 10-K report of Williams-Sonoma, Inc., (February 3, 2019) follows. Its cash flow statement reported that the company made capital expenditures of $190,102,000 during fiscal
Return on a company's net operating assets is commonly used to evaluate financial performance. One way to increase performance is to focus on operating assets.REQUIRED:Indicate how this might be done
The following information is taken from the March 31, 2018 annual report of Take-Two Interactive Software, Inc., a maker and distributor of video games. All amounts are in thousands of U.S.
In the last quarter of 2014, DreamWorks Animation SKG Inc. recorded a loss. Part of this loss was due to impairment charges. In its annual report the company stated:We are required to amortize
What does the term current Liabilities mean? What assets are usually used to settle current liabilities?
What is the justification for using the net-of-discount method to record inventory purchases when cash discounts are offered?
What is an accrual? How do accruals impact the balance sheet and the income statement?
How does issuing a bond at a premium or discount affect the bond's effective interest rate vis-a-vis the coupon (stated) rate?
What is the difference between a bond coupon rate and its market interest rate (yield)?

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