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financial accounting information for decisions

Questions and Answers of Financial Accounting Information For Decisions

What are the three types of computer software costs for a company that designs software for sale, and how does the company account for them? lop1
What is goodwill, and what is it frequently called on a company’s balance sheet? lop1
What is amortization expense, and how is it generally computed? lop1
What is depletion expense, and how is it computed under the units-of-production method? lop1
The Young Outdoor Clothing company owned the following assets at the end of its ac- counting period:(a) Land on which it had built a warehouse(b) Land on which it is planning to build a new store two
Hawkins Publishing Company acquired a new copying machine. The machine had a con- tract price of $6,000 and was purchased on terms of 2/10, n/30. The bill was paid within 10 days. The sales tax rate
Jackson Company purchased a milling machine on January |, 2000 for $60,000. The ma- chine had an expected life of 10 years and a residual value of $2,000.Required: (1) Compute the depreciation for
On January |, 2000, Desmond Photo Developing Company purchased a machine for printing pictures. The cost of the machine was $80,000, and the estimated life and resid- ual value are five years and
The Mingus Ice Cream Company purchased a delivery truck on January |, 2000 for $40,000. The company expected the truck to be driven for 100,000 miles and then sold for $6,000 at the end of 2003. The
The Tatum Tax Service Company purchased a computer system on January |, 2000 for$50,000. The company expected the computer system to be used for four years and have a residual value of
The Prentiss Poster Company purchased a printing machine for $18,000 on April 2, 2000. The company estimated the life and residual value of the machine as four years and $2,000, respectively. The
The Paul Cleaning Company purchased an industrial cleaning machine on January iE 2000 for $60,000. The machine had an expected life of five years, a residual value of zero, and a life of three years
The following events occurred for a company during the year:(a) Installed a solar energy collector in a warehouse(b) Installed a hydraulic lift door in a delivery truck(c) Put a new roof on a
The Brooks Legal Services Company paid for the following items with cash during 2000:(a) Installation of energy-efficient windows in offices, $8,500(b) Overhaul of machine to extend its original life
On December 31, 2000, Franklin Company has an asset that is impaired. The machine cost $100,000 on January |, 1997, and has accumulated depreciation of $40,000 at the end of 2000.The company
Brown Hydraulic Engineering Company owns a machine that originally cost $25,000. The accumulated depreciation account now has a balance of $18,000.Required: Using T-accounts, prepare entries to
The Snowdon Mining Company purchased a machine for $80,000 on January |, 1997.The company depreciates the asset using the straight-line method over five years to a zero residual value. On December
Scafell Die Cutting Company owns a machine that originally cost $70,000 and currently has accumulated depreciation of $52,000. The company trades in the machine to a dealer on a new model, which has
The Everest Sweater Company reports the following items in its financial statements for 2000 and 2001.2000 2001 ee Bs ek Sales $67,000 $73,000 Sales returns 2,000 3,000 Property, plant, and equipment
The Larsone Company uses the straight-line method with no residual value to depreci- ate its property, plant, and equipment. On its 2000 income statement, Larsone reported depreciation expense of
The Noyce Company was involved in the following transactions: (a) Purchased a patent from another company(b) Developed a design for a new type of machine for use in its production process (c)
The Nevis Company owns the following intangible assets: (a) A new patent purchased for $34,000(b) A copyright purchased for $16,000(c) A trademark purchased for $35,000(d) A franchise purchased for
The Skiddaw Company purchased land for $11 million in 2000. The company expects to be able to mine | million tons of molybdenum from this land over the next 20 years, at which time the residual value
The Bonnington Company purchased a coal mine for $1.4 million in 2000. The company expected to be able to mine 500,000 tons of coal from this mine over the next 10 years, after which it expected to
Coltrane Corporation is a newly formed company and has purchased a building, office equipment, a machine to be used in production, and three company cars. The company is considering which
Ten years ago, Davis Corporation purchased some equipment for $200,000. The company is depreciating the equipment on a straight-line basis and is now about to replace it. The income tax rate has been
Charlotte Parker is considering purchasing either Gordon Company or Rollins Company. Both companies started business five years ago, and at that time, each company purchased property, plant, and
Pfizer reported that its depreciable property and equipment at December 31, 1997 had a cost of $6,458 million (rounded) and accumulated depreciation of $2,321 million(rounded). The company uses the
Wal-Mart disclosed the following in its annual report for its fiscal year ending January 31, 1998 (in millions):January 31, 1998 1997 Property, Plant, and Equipment, at cost Land $ 4,691 $ 3,689
Eastman Kodak disclosed the following in its 1997 annual report (in millions):December 31, ee 1997 1996 eee Properties Land $ 185 $ 193 Buildings and building equipment 2,693 2,788 Machinery and
Eastman Chemical Company disclosed the following in its 1997 annual report www.eastman.com(in millions):Dec. 31, 1997 Properties at Cost Balance at beginning of year $7,530 Additions 749 Deductions
General Mills’ 1998 fiscal year annual report is included in Appendix C. Use this annual report to answer the following questions.Required: (1) Why does the company use the straight-line
PepsiCo’s disclosures of intangibles were shown in the chapter. For (2) and (3) below, assume any disposals of intangibles occurred at the end of 1997.Required: (1) Why does the company use the
What is the difference between the payback method and the average rate of return on investment method for evaluating a capital expenditure proposal?
What is a capital expenditure decision? Give three examples of capital expenditure op- portunities. lop5
When is a capital expenditure proposal acceptable to a company? lop5
What four steps must a company complete to determine whether or not a capital ex- penditure proposal is acceptable? lop5
What is the initial cost of a capital expenditure proposal? Give three examples of items included in the initial cost of purchasing a machine. lop5
Identify three forms of expected net future cash receipts. lop5
What are relevant cash flows? How are cash inflows and outflows that occurred prior to a capital expenditure decision included in relevant cash flows? lop5
Briefly discuss how depreciation expense on a machine is treated in a capital expendi- ture analysis. lop5
What is a company's cost of capital? How does it relate to the required rate of return on a capital expenditure? lop5
What is an acceptable rate of return on a capital expenditure proposal? lop5
What is meant by "the time value of money"? lop5
What is the relationship between "present value" and "compound interest"? lop5
Explain how to compute the present value of a future amount. lop5
Explain how to compute the present value of an annuity. lop5
Define the net present value of a capital expenditure proposal. Identify what amount of net present value indicates an acceptable (unacceptable) proposal. lop5
Define the payback period. Why is the payback period a poor measure for determining whether a capital expenditure proposal is acceptable? lop5
Briefly explain why the average rate of return on investment method is better than the payback method in judging whether a capital expenditure proposal is acceptable. Does your answer mean that the
What are mutually exclusive capital expenditure proposals? Give an example. lop5
Define capital rationing. Identify an investment approach that a company could use in a capital rationing situation. lop5
The following are four sets of cash flows:(a) A single $200 cash inflow at the end of year 5. (b) A series of $100 cash inflows at the end of years |, 2,3,4,and 5. (c) A cash inflow of $300 at the
The following are four sets of cash flows:(a) A single $300 cash inflow at the end of year 5. (b) A series of $200 cash inflows at the end of years |, 2, 3, 4, and 5. (c) A cash inflow of $400 at the
The following are two independent questions.(a) The Delta Company sells a new type of pecan shelling machine that it claims will save a constant amount of labor costs at a particular company each
Tom Hammond is considering investing $5,000 in a tract of farmland a group of his friends is planning to buy. His share of the expected selling price of the land after five years would be
The McKenzie Company is considering buying a machine that would increase the company’s cash receipts by $2,200 per year for five years. Operation of the machine would increase the company’s cash
Carmichael Radio Company,a distributor of radio towers and antennas, is considering buying the entire inventory of West Tower Company, which manufactures extremely large, heavy-duty towers, and which
Bowler Company is considering purchasing a packaging machine for $20,000 that will have a residual value of $100 after 10 years. It would be depreciated using the straightline method. The machine
What is a capital expenditure, and what are the four steps in a capital expenditure decision?
What does a company include in the initial cost of a capital expenditure proposal?
What are the relevant costs of a capital expenditure proposal, and how do operating income, depreciation, and ending cash flows affect these costs?
How does a company determine the rate of return it requires on a capital expenditure proposal?
How does a company use the net present value method to evaluate a capital expenditure proposal?
What is the difference between the payback method and the average rate of return on investment method for evaluating a capital expenditure proposal?
How does a company decide which capital expenditure proposal to accept when it has proposals that accomplish the same thing, or when it cannot obtain sufficient cash to make all of its desired
Other than the purchase of a car, can you think of any personal capital expenditure decisions you have made or will make? What cash receipts and payments are related to those decisions?
Why do you think additional investments in inventory may not be necessary with a just-in-time inventory system?
Even though depreciation is not a cash flow, it affects a corporation’s income tax payments. How do you think depreciation expense would affect a corporation’s income tax payments over the life
Why do you think these four amounts are equivalent?
What do you think the present value of $10 received or paid at the end of three years is, using a 10% interest rate?
How would you compute the present value for the preceding example using Table 20-| ?
What is another way of computing the present value for Example 3?
Think of a numerical example to illustrate a project that has a short payback period but no return on the investment.
Given what you have learned about present value analysis, how do you think the aver-— aging process might lead a company to accept a proposal that has cash flows occurring late in the life of the
What additional information do you think a combination of the three methods could provide that a company would not get using the net present value method alone?
What is a capital expenditure, and what are the four steps in a capital expenditure decision?
What does a company include in the initial cost of a capital expenditure proposal?
What are the relevant costs of a capital expenditure proposal, and how do operat- ing income, depreciation, and ending cash flows affect these costs?
How does a company determine the rate of return it requires on a capital expen- diture proposai?
How does a company use the net present value method to evaluate a capital ex- penditure proposal?
How does a company decide which capital expenditure proposal to accept when it has several proposals that accomplish the same thing, or when it cannot obtain sufficient cash to make all of its
Hershey Foods’ $506 million in inventory is over 195 times greater than Rocky Mountain’s $2.6 million. Can we conclude that Hershey manufactures about 195 times the amount of candy produced by
Does the fact that a company reports inventory at its historical cost affect the usefulness of this balance sheet information? How?3==If you prepared a personal balance sheet, what would you include
Can you think of another value that might be appropriate? If you decide to use the cost, what costs in addition to the $6 cost of the shirt might you include in the cost of inventory?
To whom might the $15 selling price be relevant?
Which accounts do you think would be affected, and how would they be affected, if a company records its inventory at more than it paid for its inventory?
Whose side do you take on this discussion—the supporters or the critics of the historical cost concept? Explain your position.
Why do you think the selling company includes transportation costs on the income statement, whereas the buying company includes transportation costs on the balance sheet?
Do you think a large retail company could apply the average or the LIFO cost flow assumption under the perpetual inventory method? Why or why not?
Do you think the LIFO cost of goods sold is relevant? Why or why not?
Why do you think inventory profit is called a “holding gain”?
Do you think you pay less when you purchase a car because the manufacturer uses LIFO?
If costs are decreasing, explain how the three methods would affect a company’s in-y:ventory, cost of goods sold, and gross profit.
Would you expect Intel to use the FIFO, average, or LIFO cost flow assumption? Why?
Compute the quick and current ratios for Intel on December 27, 1997, and December 28, 1996, if the current liabilities are $6,020 million and $4,863 million for these dates respectively. How has the
What was the cost of inventory acquired in 1996 if the beginning inventory was$2,004 million?
Why do you think that Intel increased its inventory while it increased its sales in 1997, but decreased its inventory while it increased its sales in 1996, whereas its cost of goods sold divided by
Compute the inventory turnover ratio, and the inventory turnover in days, for \Intel in 1997. How do these compare with the amounts for | 996 if the inventory at the beginning of 1996 was $2,004
Why do you think that the FIFO and the average cost methods are not likely to result in materially different amounts? Do you think that the LIFO and the average cost methods are likely to differ

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