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financial accounting for decision makers

Questions and Answers of Financial Accounting For Decision Makers

Cardinal Concrete acquired \(20 \%\) of the outstanding common stock of Edra Inc. on January 1, 1998, by paying \(\$ 1,200,000\) for 50,000 shares. Edra declared and paid an \(\$ .80\) per share cash
Here is Hi-Tech Company's portfolio of long-term available-for-sale securities at December 31, 1997:\section*{Instructions}(a) Prepare journal entries to record the transactions.(b) Post to the
The following data, presented in alphabetical order, are taken from the records of Oklahoma Corporation:\section*{Instructions}Prepare a balance sheet at December 31, 1998. Accounts payable Accounts
The following transactions related to long-term bonds occurred for Givarz Corporation:\section*{Instructions}(a) Journalize the transactions.(b) Assume that the fair value of the bonds at December
In January 1998 the management of Mead Company concludes that it has sufficient cash to permit some temporary investments in debt and stock securities. During the year these transactions occurred:At
On December 31, 1997, Karen Associates owned the following securities that are held as long-term investments. The securities are not held for influence or control over the investee.On this date the
DFM Services acquired \(30 \%\) of the outstanding common stock of BNA Company on January 1, 1998, by paying \(\$ 800,000\) for the 40,000 shares. BNA declared and paid \(\$ .20\) per share cash
The following data, presented in alphabetical order, are taken from the records of Alameda Corporation:The investment in Dodge common stock is considered to be a long-term available-for-sale
The annual report of Starbucks is presented in Appendix A.\section*{Instructions}Answer these questions:(a) What information about investments is reported in the consolidated balance sheet?(b) Based
The financial statements of Green Mountain Coffee are presented in Appendix B, following the financial statements for Starbucks in Appendix A.\section*{Instructions}(a) Based on the information in
The July 6, 1995, edition of The Wall Street Journal includes an article by Jim Carlton and David P. Hamilton entitled "Packard Bell Sells 20\% Stake to NEC for \(\$ 170\) Million; Deal Gives
Delta Air Lines, Inc., is based in Atlanta, Georgia, and is one of the world's largest air carriers. Besides carrying passengers, Delta also provides freight and mail transportation services. Delta
Xerox Corporation has a 50\% investment interest in a joint venture with the Japanese corporation Fuji, called Fuji Xerox. Xerox accounts for this investment using the equity method. The following
Citicorp is one of the largest bank holding companies in the world. In addition to making loans, it has significant trading activities. During 1993, 1994, and 1995 the company reported this income
At the beginning of the question and answer portion of the annual stockholders' meeting of Revell Corporation, stockholder Carol Finstrom asks, "Why did management sell the holdings in AHM Company at
SPS Technologies, Inc., was formed in 1903 as Standard Pressed Steel. Today the company is engaged in the design, manufacture, and marketing of high-strength mechanical fasteners, superalloys, and
Finland Corporation holds a portfolio of debt and equity investments. Although some of the securities in the portfolio have declined in value, the total value of the portfolio is greater than its
Chapperal Corporation has purchased two securities for its portfolio. The first is a stock investment in Sting Ray Corporation, one of its suppliers. Chapperal purchased \(10 \%\) of Sting Ray with
Scott Kreiter Financial Services Company holds a large portfolio of debt and stock securities as an investment. The total fair value of the portfolio at December 31, 1998, is greater than total cost,
Purpose: Bonds, similar to stocks, can be purchased by investors in an initial public offering or through a secondary market. Secondary markets can be reached via the Internet and provide users with
During the introductory phase of a company's life cycle, one would normally ex- pect to see: (a) negative cash from operations, negative cash from investing, and positive cash from financing. (b)
Net income is $132,000, accounts payable in- creased $10,000 during the year, inventory de- creased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the
Noncash charges that are added back to net in- come in determining cash provided by opera- tions under the indirect method do not include: (a) depreciation expense. (b) an increase in inventory. (c)
\(\quad\) The statement of cash flows should not be used to evaluate an entity's ability to:(a) earn net income.(b) generate future cash flows.(c) pay dividends.(d) meet obligations.
Which of the following ratios proratio?(a) Capital expenditure ratio(b) Cash return on sales ratio(c) Cash debt coverage ratio(d) Current cash debt coverage ratio
(a) What is a statement of cash flows?(b) Alice Weiseman maintains that the statement of cash flows is an optional financial statement. Do you agree? Explain.
Wilma Flintstone and Barny Kublestone were discussing the format of the statement of cash flows of Rock Candy Co. At the bottom of Rock Candy's statement of cash flows was a separate section entitled
The president of Aerosmith Company is puzzled. During the last year, the company experienced a net loss of \(\$ 800,000\), yet its cash increased \(\$ 300,000\) during the same period of time.
During 1998 Johnny Carson Company converted \(\$ 1,700,000\) of its total \(\$ 2,000,000\) of bonds payable into common stock. Indicate how the transaction would be reported on a statement of cash
Cindy Crawford Inc. reported sales of \(\$ 2\) million for 1998. Accounts receivable decreased \(\$ 100,000\) and accounts payable increased \(\$ 300,000\). Compute cash receipts from customers,
Give an example of one accrual-based ratio and one cash-based ratio to measure these characteristics of a company:(a) Liquidity(b) Solvency(c) Profitability
Crystal, Inc., reported net income of \(\$ 2.5\) million in 1998. Depreciation for the year was \(\$ 260,000\), accounts receivable decreased \(\$ 350,000\), and accounts payable decreased \(\$
The net income for Sterling Engineering Co. for 1998 was \(\$ 280,000\). For 1998 depreciation on plant assets was \(\$ 60,000\), and the company incurred a loss on sale of plant assets of \(\$
Each of these items must be considered in preparing a statement of cash flows for Murphy Co. for the year ended December 31, 1998. For each item, state how it should be shown in the statement of cash
The comparative balance sheet for Rolex Company shows these changes in noncash current asset accounts: accounts receivable decrease \(\$ 80,000\), prepaid expenses increase \(\$ 12,000\), and
Billy Idol Corporation has accounts receivable of \(\$ 14,000\) at January 1, 1998 and \(\$ 24,000\) at December 31, 1998. Sales revenues were \(\$ 480,000\) for the year 1998 . What is the amount of
Depeche Mode Corporation reported income taxes of \(\$ 70,000\) on its 1998 income statement and income taxes payable of \(\$ 12,000\) at December 31, 1997, and \(\$ 9,000\) at December 31, 1998.
Excel Corporation reports operating expenses of \(\$ 90,000\) excluding depreciation expense of \(\$ 15,000\) for 1998 . During the year prepaid expenses decreased \(\$ 6,600\) and accrued expenses
The T accounts for Equipment and the related Accumulated Depreciation for Cindy Trevis Company at the end of 1998 are shown here: Equipment Accumulated Depreciation Beg. bal. 80,000 Disposals 22,000
The following T account is a summary of the cash account of Anita Baker Company:What amount of net cash provided (used) by financing activities should be reported in the statement of cash
Mary Jo Corporation reported cash from operations of \(\$ 300,000\), cash used in investing of \(\$ 250,000\), and cash from financing of \(\$ 70,000\). In addition, cash spent for fixed assets
Li Eng Corporation had these transactions during 1998:(a) Purchased a machine for \(\$ 30,000\), giving a long-term note in exchange.(b) Issued \(\$ 50,000\) par value common stock for cash.(c)
Joe Pesci Company reported net income of \(\$ 195,000\) for 1998. Pesci also reported depreciation expense of \(\$ 35,000\) and a loss of \(\$ 5,000\) on the sale of equipment. The comparative
The information in the table is from the statement of cash flows for a company at four different points in time (A, B, C, and D). Negative values are presented in
The current sections of Barth Inc.'s balance sheets at December 31, 1997 and 1998, are presented here:Barth's net income for 1998 was \(\$ 122,000\). Depreciation expense was \(\$
These three accounts appear in the general ledger of Roberta Dupre Corp. during 1998:\section*{Instructions}From the postings in the accounts, indicate how the information is reported on a statement
Here is a comparative balance sheet for Oprah Winfrey Company:Additional information:1. Net income for 1998 was \(\$ 105,000\).2. Cash dividends of \(\$ 40,000\) were declared and paid.3. Bonds
An analysis of comparative balance sheets, the current year's income statement, and the general ledger accounts of Pierce Brosnan Corp. uncovered the following items. Assume all items involve cash
Kelly McGillis Company completed its first year of operations on December 31, 1998. Its initial income statement showed that Kelly McGillis had revenues of \(\$ 157,000\) and operating expenses of
The income statement for Garcia Company shows cost of goods sold \(\$ 355,000\) and operating expenses (exclusive of depreciation) \(\$ 230,000\). The comparative balance sheet for the year shows
The 1998 accounting records of Flypaper Airlines reveal these transactions and events:\section*{Instructions}Prepare the cash flows from operating activities section using the direct method. (Not all
The following information is taken from the 1998 general ledger of Joan Robinson Company:\begin{tabular}{llr}Rent & Rent expense & \(\$ 31,000\) \\& Prepaid rent, January 1 & 5,900
Presented here is information for two companies in the same industry: Rita Corporation and Les Corporation:\section*{Instructions}Using the cash-based ratios presented in this chapter, compare the
The income statement of Breckenridge Company is presented here:Additional information:1. Accounts receivable decreased \(\$ 300,000\) during the year.2. Prepaid expenses increased \(\$ 150,000\)
Data for Breckenridge Company are presented in P13-1.}\section*{Instructions}Prepare the operating activities section of the statement of cash flows using the direct method.
Vail Company's income statement contained the condensed information below:\section*{Instructions}Prepare the operating activities section of the statement of cash flows using the direct method
Data for Vail Company are presented in P13-3.\section*{Instructions}Prepare the operating activities section of the statement of cash flows using the indirect method
These are the financial statements of Patrick Swayze Company:The following additional data were provided:1. Dividends declared and paid were \(\$ 5,000\).2. During the year equipment was sold for
Data for Patrick Swayze Company are presented in P13-5. Further analysis reveals the following:1. Accounts payable pertain to merchandise suppliers.2. All operating expenses except for depreciation
Condensed financial data of Fern Galenti, Inc., follow.Additional information:1. New plant assets costing \(\$ 85,000\) were purchased for cash during the year.2. Old plant assets having an original
Data for Fern Galenti, Inc., are presented in P13-7. Further analysis reveals that accounts payable pertain to merchandise creditors.\section*{Instructions}Prepare a statement of cash flows for Fern
This comparative balance sheet is for Cousin Tommy's Toy Company as of December 31:Additional information:1. Operating expenses include depreciation expense of \(\$ 42,000\) and charges from prepaid
The income statement of Tina Maria Company is presented here:Additional information:1. Accounts receivable increased \(\$ 510,000\) during the year.2. Prepaid expenses increased \(\$ 170,000\) during
Data for Tina Maria Company are presented in P13-1A.\section*{Instructions}Prepare the operating activities section of the statement of cash flows using the direct method.
The income statement of Hanalei International Inc. reported the following condensed information:Hanalei's balance sheet contained these comparative data at December 31:Hanalei has no depreciable
Data for Hanalei International Inc. are presented in P13-3A. method.\section*{Instructions}Prepare the operating activities section of the statement of cash flows using the indirect method.
Here are the financial statements of Sean Seymor Company:The following additional data were provided:1. Dividends of \(\$ 12,000\) were declared and paid.2. During the year equipment was sold for
Data for the Sean Seymor Company are presented in P13-5A. Further analysis reveals the following:1. Accounts payable pertains to merchandise creditors.2. All operating expenses except for
Condensed financial data of Norway Company follow.Additional information:1. New plant assets costing \(\$ 92,000\) were purchased for cash during the year.2. Investments were sold at cost.3. Plant
Data for Norway Company are presented in P13-7A. Further analysis reveals that accounts payable pertain to merchandise creditors.\section*{Instructions}Prepare a statement of cash flows for Norway
Presented here is the comparative balance sheet for Cortina Company at December 31:Additional information:1. Operating expenses include depreciation expense \(\$ 70,000\) and charges from prepaid
Corrieten Company purchased equipment and these costs were incurred:What amount should be recorded as the cost of the equipment?(a) \(\$ 24,000\)(c) \(\$ 25,400\)(b) \(\$ 25,200\)(d) \(\$ 25,800\)
Cuso Company purchased equipment on January 1,1997 , at a total invoice cost of \(\$ 400,000\). The equipment has an estimated salvage value of \(\$ 10,000\) and an estimated useful life of 5 years.
Additions to plant assets:(a) are revenue expenditures.(b) increase a Repair Expense account.(c) increase a Purchases account(d) are capital expenditures.
Pierce Company incurred \(\$ 150,000\) of research and development costs in its laboratory to develop a new product. It spent \(\$ 20,000\) in legal fees for a patent granted on January 2, 1998. On
Indicate which one of these statements is true.(a) Since intangible assets lack physical substance, they need to be disclosed only in the notes to the financial statements.(b) Goodwill should be
\(\quad\) A company would minimize its depreciation expense in the first year of owning an asset if it:(a) used a high estimated life, a high salvage value, and declining-balance depreciation.(b)
Kant Enterprises purchased a truck for \(\$ 11,000\) on January 1, 1997. The truck will have an estimated salvage value of \(\$ 1,000\) at the end of 5 years. If you use the units-of-activity method,
Susan Day is uncertain about how the cost principle applies to plant assets. Explain the principle to Susan.
What are the primary advantages of leasing?
Jamie Company acquires the land and building owned by Smitt Company. What types of costs may be incurred to make the asset ready for its intended use if Jamie Company wants to use only the land? Both
In a recent newspaper release, the president of Lawsuit Company asserted that something has to be done about depreciation. The president said, "Depreciation does not come close to accumulating the
Cecile is studying for the next accounting examination. She asks your help on two questions: (a) What is salvage value? (b) Is salvage value used in determining depreciable cost under each
Distinguish between revenue expenditures and capital expenditures during an asset's useful life.
Ewing Corporation owns a machine that is fully depreciated but is still being used. How should Ewing account for this asset and report it in the financial statements?
Heflin Company hires an accounting intern who says that intangible assets should always be amortized over their legal lives. Is the intern correct? Explain.
Bob Leno, a business major, is working on a case problem for one of his classes. In this case problem, the company needs to raise cash to market a new product it developed. Saul Cain, an engineering
- McDonald's Corporation reports total average assets of \(\$ 14.5\) billion and net sales of \(\$ 9.8\) billion. What is McDonald's asset turnover ratio?
Morgan Corporation and Fairchild Corporation both operate in the same industry. Morgan uses the straight-line method to account for depreciation, whereas Fairchild uses an accelerated method. Explain
\(\quad\) Lucille Corporation uses straight-line depreciation for financial reporting purposes but an accelerated method for tax purposes. Is it acceptable to use different methods for the two
\(\quad\) You are comparing two companies in the same industry. You have determined that Betty Corp. depreciates its plant assets over a 40 -year life, whereas Herb Corp. depreciates its plant assets
These expenditures were incurred by Gene Shumway Company in purchasing land: cash price \(\$ 50,000\); accrued taxes \(\$ 3,000\); attorney's fees \(\$ 2,500\); real estate broker's commission \(\$
Shirley Basler Company incurs these expenditures in purchasing a truck: cash price \(\$ 18,000\); accident insurance \(\$ 2,000\); sales taxes \(\$ 900\); motor vehicle license \(\$ 100\); and
On January 1, 1998, the Asler Company ledger shows Equipment \(\$ 32,000\) and Accumulated Depreciation \(\$ 12,000\). The depreciation resulted from using the straightline method with a useful life
Prepare journal entries to record these transactions: (a) Ruiz Company retires its delivery equipment, which cost \(\$ 41,000\). Accumulated depreciation is also \(\$ 41,000\) on this delivery
Wiley Company sells office equipment on September 30,1998 , for \(\$ 21,000\) cash. The office equipment originally cost \(\$ 72,000\) and as of January 1, 1998, had accumulated depreciation of \(\$
Popper Company purchases a patent for \(\$ 180,000\) on January 2, 1998. Its estimated useful life is 10 years.(a) Prepare the journal entry to record patent expense for the first year.(b) Show how
In its 1995 annual report, McDonald's Corporation reports beginning total assets of \(\$ 13.6\) billion; ending total assets of \(\$ 15.4\) billion; property, plant, and equipment (at cost) of \(\$
This information relates to plant assets, intangibles, and research and development costs at the end of 1998 for Joker Company: buildings \(\$ 800,000\); accumulated depreciation-buildings \(\$
Depreciation information for Joy Cunningham Company is given in BE9-3. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and

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