Questions and Answers of Financial Accounting For MBA

The Claremont Corporation invests its excess cash in low-risk, dividend-paying equity securities until such funds are needed to support operations. At the beginning of the year, the company’s
The following financial data is taken from the annual report of The Emma Company:Explain(a) what “other comprehensive income” is and how it differs from net income,(b) what happened to the value
The 2015 annual report of Bristol-Myers Squibb (BMS) reveals that the company maintains a large investment in available-for-sale securities:Did the company’s available-for-sale securities
The 2015 annual report of Pfizer, Inc. (PFE) reveals that the company maintains a significant investment in short-term investments:During 2015, the company sold short-term investments (net of sales
The 2015 annual report of Bristol-Myers Squibb (BMS) discloses the following amounts included within “other (income)/expense” on its consolidated statement of earnings:Assume that on the
The annual report of The Arcadia Company discloses the following amounts on its consolidated statement of income:Further, on Arcadia’s consolidated balance sheet, it reports the following amounts
The balance sheet of The Miller Corporation disclosed a long-term investment inthe common shares of The Mann Corporation valued at $$350,000$ as of December 31, 2015. The investment had been
On January 1, 2014, The Miller Corporation purchased 300,000 shares of The Mayfair Corporation for $$5.7$ million. The investment represented 25 percent of The Mayfair Corporation’s outstanding
On January 2, 2015, Winstead & Company purchased 1,000,000 shares of the Secrest Company for $$32$ million. The investment represented 40 percent of the outstanding common shares of The Secrest
Starbucks Corporation and PepsiCo formed a joint venture to produce and distribute Starbucks’ bottled Frappuccino coffee drink throughout North America. Assume that the 50/50 joint venture had a
Tim Propp, CFO of Thunderbird, Inc., invested some of the firm’s excess cash in the common shares of what he thought were three undervalued securities. At year-end he reviewed how the portfolio of
Among the various responsibilities of the Chief Financial Officer (CFO) of the Amphlett Corporation was the management and oversight of the firm’s cash reserves.During the year, the CFO had
At midyear, National Steel Fabricators, Inc. purchased a 35 percent ownership interest in Keystone Consolidated, Inc. for $$40$ million. At year-end, Keystone reported an operating loss of $$6$
ABC Inc. purchased all of the outstanding common shares of XYZ Inc. for $$100$ million cash. At the time of the acquisition, the fair value of XYZ was $$80$ million. Presented below are the
Barranco, Inc., acquired all of the outstanding shares of Bemiller, Inc., by means of a share exchange valued at $$50$ million. At the time of the acquisition, the fair market value of Bemiller was
Graham Inc. acquired all of the outstanding shares of Mahoney Inc. through an exchange of common shares. The aggregate fair value of the Graham shares distributed to the Mahoney shareholders was
After an intense period of negotiation, Global Enterprises Corporation TA 2, 3 agreed to purchase all of the outstanding common shares of The Carlton Corporation. The agreed-upon price was $$294$
Aussie Steaks Inc. operates a chain of steak restaurants in the United States. On January 1, 2015, the company had $$500$ million in assets.On January 1, 2015, the company acquired 25 percent of
On January 1, 2015, Tradiciones, Inc., established Tradiciones de Mexico, a wholly-owned, self-sustaining Mexican subsidiary with assets valued at 48 million pesos. The peso (P) is the functional
Global Enterprises Corporation (GE) is a manufacturing company whose principal products are microwave ovens, refrigerators, and conventional ovens. The company had a long history of selling
The 2015 annual report of The Procter & Gamble Company (P&G is available at www.pginvestor.com. After reviewing P&G’s annual report, respond to the following questions:P&G’s consolidated balance
The consolidated financial statements of General Electric Company (GE) combine the industrial manufacturing and services businesses of GE with the financial services businesses of General Electric
Consider a publicly held company whose products you are familiar with. Some examples might include:Access the company’s public website and search for its most recent annual report. (Some companies
The 2014 financial statements of LVMH Moet Hennessey-Louis Vuitton S.A. are presented in Appendix C of this book. LVMH is a Paris-based holding company and one of the world’s largest and best-known
Williams-Sonoma, Inc., is a specialty retailer of products for the home. The retail segment of the company’s business sells products through its retail concepts: Williams-Sonoma, Pottery Barn,
Depreciation, depletion, and amortization are allocation processes that distribute the acquisition cost of an asset to the many periods of the asset’s expected useful life. Discuss how these
Johnson & Johnson discloses in its annual report that “‘costs associated with advertising are expensed in the year incurred and are included in selling, marketing and administrative expenses”
The Thunderbird Corporation was founded in 1947 on a decommissioned military installation that had been purchased from the U.S. government for a price of $$1$. Today, that same land carries a fair
Under U.S. GAAP, a company may capitalize any interest costs associated with borrowings used in the self-construction of a business asset. Any capitalized interest is added to the cost basis of the
The Tomoegawa Paper Company Ltd. (TPC) is a well-known public company headquartered in Tokyo, Japan. In TPC’s annual report, the company revealed that it had changed its method of depreciating its
McCormick & Company revealed in its annual report that it had changed the estimated useful life of certain capitalized software costs from five to eight years. Discuss the effect of this accounting
Under U.S. GAAP, research and development costs are expensed as incurred; however, in the natural resource industry, the cost of finding and developing natural resources may be capitalized to the
Under U.S. GAAP, an asset that is “impaired” should be written down in value, with an equivalent loss taken on the income statement. Discuss how you would determine whether an asset’s value was
Under U.S. GAAP, the interest cost associated with borrowings used in the self-construction of a business asset may be capitalized to the balance sheet as part of the self-constructed asset’s cost
Users of financial statements often describe depreciation expense, depletion expense, and amortization expense as “sources of operating cash flows.”Discuss the accuracy of this assertion.
On December 2, 2006, Pfizer Inc. announced that it was immediately discontinuing clinical trials of its Torcetrapib drug. Subsequent clinical results showed that patients taking the drug suffered a
Do you feel that there are any ethical issues involved when management decides to extend the depreciable life of its long-lived assets in order to increase the firm’s current net income to a level
Omar Corporation paid $$200,000$ for a tract of land that had an old gas station on it. The gas station was demolished at a cost of $$20,000$ and a new warehouse was constructed on the site at a
Keystone, Inc., replaced its truck-and-dolley system of moving invenome around its plant with a computer-controlled conveyor system. The costs associated with this equipment replacement were as
The Camelback Cement Company made the following expenditures relating to its plant and equipment:1. Overhauled several machines at an aggregate cost of $$175,000$ to improve the efficiency of the
Equipment costing $$290,000,$ with an expected scrap value of $$30,000$ and an estimated useful life of five years, was purchased on January 1, 2016. Calculate the depreciation expense for years
During 2016, The Alberta Oil & Gas Company began an exploration project in Montana. The company had paid $$500,000$ for the drilling rights on a tract of 500 acres of land.The company then spent
Equipment costing $$640,000$, with an expected useful life of twelve years and an expected salvage value of $$20,000$, was purchased at the beginning of the year. Calculate the depreciation
Swift Trucking Company purchased a long-haul tractortrailer for $$400,000$ at the beginning of the year. The expected useful life of the tractor-trailer rig was eight years or 500,000 miles.
The following are financial data taken from the 2015 annual report of Pfizer, Inc:Calculate the following ratios for 2015 and 2014: intangible asset turnover, fixed asset turnover, accumulated
Herberger Oil & Gas Company paid $$10$ million for the drilling rights to a 1,000 acre tract of land near Midland, Texas. On the basis of several exploratory wells that had cost an aggregate of
Intelligencia Inc. was incorporated as a research and development company in the biotechnology industry. The company incurred the following costs relating to various intangible assets:1. During the
At the beginning of the year, The Claremont Comwae, pany purchased a 100-ton press for $$750,000$. The equipment had an estimated useful life of ten years and a salvage value of $$30,000$. The
The Miller Company purchased a new headquarters building on January 1 at a comme cost of $$40$ million. The building is expected to last 20 years, at which time its residual value is expected to be
In 2015, Autoparts Company retooled its production line in order to accommodate the required changes to auto parts for new car models. The retooling costs were capitalized to Autoparts’ balance
Global Music Enterprises, Inc., had a balance sheet loaded with intangible assets—copyrights on music, goodwill from various prior acquisitions, and internet customer lists purchased from other
During the year, Graham International made the following expenditures relating to plant, machinery, and equipment:1. Completed regularly scheduled repairs at a cost of $$250,000$.2. Overhauled
In 2015, Ottawa Oil Corporation paid $$40$ million for a partial interest in a Canadian oil field with proven reserves. The company’s share of the future production was capped at eight million
Equipment costing $$29,000$, with a scrap value of$$5,000$ was purchased on January 1, by Global Communications, Inc. The estimated useful life of the equipment was four years and it was expected
On January 1, 2015, Drummond Oil and Gas Company was about to embark on a 50-well exploration program in Texas and Louisiana. The CEO estimated that the average cost to drill a well would run
Dean Foods Company, a food and beverage company headquartered in Dallas, Texas, is one of the nation’s largest processors and direct-to-store distributors of fluid milk. Consistent with U.S. GAAP,
The ADT Corporation provides monitored electronic security, interactive home and business automation, and related monitoring services in the United States and Canada. Clients typically lease the
Mulligan Co. purchased a new machine on January 1. The following information pertains to the purchase:Requireda. Determine the capitalized cost of the new machineb. Compute annual depreciation,
The 2015 annual report of The Procter & Gamble Company (P&G) TA 2, 3, 4 is available at www.pginvestor.com. After reviewing P&G’s annual report, respond to the following questions:a. What
Consider a publicly-held company whose products you are familiar with. Some examples might include:Access the company’s public website and search for its most recent annual report. ies: Some pre al
The 2014 financial statements of LVMH Moet Hennessey-Louis Vuitton S.A.are presented in Appendix C of this book. LVMH is a Paris-based holding company and one of the world’s largest and best-known
The Arcadia Company is uncertain whether it should utilize the first-in, first-out (FIFO) method, the last-in, first-out (LIFO) method, or the weighted-average method to account for its inventory.
The Rock Creek Company has an ending inventory valuation using FIFO of $$350,000$. Had the company used LIFO the inventory would have been valued at $$320,000$. The company has determined the
Walgreens Boots Alliance, Inc. (“Walgreens”) is a global pharmacy, health and well-being company.It operates over 13,000 stores in 11 countries, generating net sales of $$103.4$ billion. The
The consistency principle stipulates that when a company begins using a given inventory valuation method (FIFO, LIFO, or the weighted-average cost method), the company should continue to use that
Although physically counting a business’s inventory is integral to the periodic system of inventory recordkeeping, it is not an explicit component of the perpetual system. Nonetheless, most
Voluntary accounting policy changes are said to be “unintended signals” about the financial health and future prospects of a firm from management to a firm’s shareholders. Discuss how and why
The lower-of-cost-or-market method (LCM) is often referred to as a “one-way street” because under LCM, ending inventory values may be written down to a lower replacement value but are never
Investment professionals frequently develop concerns that earnings management may be present when they observe that a firm has voluntarily changed its inventory valuation policy from LIFO to FIFO.
The LIFO inventory reserve is a measure disclosed in a company’s footnotes and reveals the difference between the current value of a company’s ending inventory and the LIFO value of its ending
Some investment professionals refer to LIFO inventory valuation as an “earnings management” tool, suggesting that LIFO allows a company to create a hidden earnings reserve on a company’s
Riverwood International Corporation, a leading provider of paperboard, announced the following:Discuss why, and under what conditions, FIFO might enable Riverwood International to “more closely
Alleghany Technologies Incorporated disclosed in its annual report that:Discuss why a liquidation of LIFO inventory quantities would reduce a company’s cost of goods sold. Does this event indicate
The Financial Times reported that Delphi, Inc., a manufacturer of automotive parts, would take a $$100$ million write-down of its inventory to reflect reduced demand for some of its products.The
It has been argued that to be classified as a professional one must offer services to the public rather than simply be an employee of an organization. As such, most employees of an organization,
The following information was disclosed in the 2015 annual report of The Arcadia Company.Fill in the missing values. Beginning inventory. Purchase of inventory.. Inventory available for sale. Ending
The Mann Corporation began operations in 2015. Information relating to the company’s purchases of inventory and sales of products for 2015 and 2016 is presented below.Calculate the FIFO cost of
The Mann Corporation began operations in 2015. Information relating to the company’s purchases of inventory and sales of products for 2015 and 2016 is presented below.Calculate the LIFO cost of
The Mann Corporation began operations in 2015.Information relating to the company’s purchases of inventory and sales of products for 2015 and 2016 is presented below.Calculate the weighted-average
Presented below is financial data for two companies that are identical yma in every respect except that Company X uses the FIFO method to value its inventory and Company Z uses the LIFO method to
The following financial information is taken from the annual report of Intel Corporation:Using the above data, calculate the company’s inventory turnover, inventory-on-hand period, and gross profit
At year end, Riverside Corporation announced that it would change its inventory valuation method from last-in, first-out (LIFO) to first-in, first-out (FIFO). The company also disclosed that the
Exhibits 6.3, 6.4, and 6.5 in Chapter 6 present the financial results of the Arizona Ice Cream Company, Inc., using FIFO, LIFO, and the weighted-average cost method, respectively. Using this data,
The following information is taken from the annual report of the Walgreens Boots Alliance, Inc..:Walgreens uses LIFO to value its inventory. Restate the company’s financial results for 2015
The following information is taken from the annual report of The Coca-Cola Company:Using this information, calculate the accounts payable turnover ratio and the days’ payable period for 2015 and
The following information is taken from the annual report of The Claremont Corporation:The company uses the LIFO method to value its inventory. In addition, the footnotes to the company’s annual
Capstone Consolidated, Inc. is a leading manufacturer of steel products. The following inventory data relates to the firm’s production during the first quarter of 2015:At the end of the first
Consider the following inventory data for the first two months of the year for CompX International:Required1. Calculate the cost of goods sold and ending inventory for January and February under each
The following inventory data is taken from the financial records of Fernandez, Inc., a personal computer software manufacturer.Required1. Complete the following table.2. Which inventory method would
Presented below are the condensed financial statements of Global Enterprises, Inc. The company’s inventory is valued using LIFO. The company’s footnotes reveal that the LIFO reserve was as
Chemical Boost, Inc. isa manufacturer of TA5 chemical and derivative products. Presented below is select information from Chemical Boost’s recent annual cas soy report.The footnotes to the
Dominick Portet Wines Inc. began operations to import fine wines from Australia to the United States. Sales and purchase information is pZro vided below.Assume that Portet Wines uses the LIFO method
Santiago, Inc., began operations as an importer of fine Chilean wine the United States. Sales and purchase information is provided below.Santiago, Inc., uses the LIFO method of inventory valuation.
Presented below are the financial statements of two companies that are identical in every respect except the method of valuing their inventories. The method of valuing inventory is LIFO for the LIFO
Costco Wholesale Corporation operates membership warehouses. As of August 30, 2015 Costco operated 686 warehouses, with 480 in the United States.In addition, the store sells merchandise through its
The 2015 annual report of the Procter & Gamble Company (P&G) is available at www.pginvestor.com. After reviewing P&G’s annual report, respond to the following questions:a. How does P&G value its
Consider a publicly held company whose products you are familiar with. Some examples might include:Access the company’s public website and search for its most recent annual report. (Some companies
The 2014 financial statements of LVMH Moet Hennessey-Louis Vuitton S.A. are presented in Appendix C of this book. LVMH is a Paris-based holding company and one of the world’s largest and best-known
The Hilton Company sells inexpensive furniture on installment plans to customers that have poor credit.Many of the company’s customers are sometimes not able to make the required payments, forcing
The Arcadia Company bid on a multiyear contract to construct the new hockey arena for the Phoenix Coyotes.The contract required that construction begin not later than January 1, 2015, and be

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