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business
financial reporting and analysis

Questions and Answers of Financial Reporting and Analysis

Use a balance sheet equation to show how each of the following events would be treated under 1. the cash basis of accounting and 2. the accrual basis of accounting.a. Ordered airline tickets, hotel
Assume that you inherit $10,000, which according to the terms of the bequest must be invested in a single company. After much research, you find two attractive alternatives: The Salt Company and The
Ascertain the missing items (A-L) in the following independent situations. (Note:You do not have to find the answers in any particular sequence. See the previous assignment for an explanation of how
Ascertain the missing items (A-L) in the following independent situations. (Note:You do not have to find the answers in any particular sequence.)1 23 Assets, January 1 $ 5,000 E I Assets, December 31
Susan’s Shoe Shop opened on January 1. The following transactions took place during the first month:1.Deposited $30,000 in the firm’s checking account.2.Purchased shoes, boots, socks, and other
(Note: Increase owners’ equity capital account.)Requireda. Use the basic accounting equation to show the effects of the transactions and any necessary accruals during Susan’s first year of
Susan’s Sweets, a candy shop, opened on January 1, 1999, with the following transactions:1,Susan deposited $100,000 in cash on January 1, 1999, and began business as a sole proprietorship.2,Susan
The following account balances are shown on November 30, 1999, for the Clever Bookstore:Cash $ 8,000 Accounts payable $ 4,000 Accounts receivable 9,000 Salaries payable 2,000 Inventory 60,000 Notes
The accounting firm Seaver & Co. prepares its own financial statements at the end of each year. Based on the following information, prepare any adjustments that are needed for the accounting records
Jane Goodrum established a sole proprietorship to sell and service personal computers. Use the balance sheet equation to analyze the effects of the following transactions:a. Invested $50,000 in the
Identify the effects of the following events on the first year’s income statement and balance sheet:a. A company paid a $2,000 bill for a fire insurance policy that covers the current year and the
Record the following business transactions in the basic accounting equation.Use column headings for Cash, Accounts Receivable, Land, Accounts Payable, Unearned revenue, Notes Payable, Invested
Ascertain the missing items (A, B, and C) in the following situation: p-968
Find the missing elements in the following (independent) cases: p-968
John Hasty opened his bakery on March 1, 1999, as a sole proprietor. The following transactions took place at the beginning of March:1, Deposited $10,000 into a checking account in the name of the
The Western Fittings Corporation began business on July 1, 1999. The following transactions occurred during its first six months:1, Three individuals each invested $30,000 in exchange for capital
R & RTravel entered into the following transactions. Which of these transactions or events should be recorded in R & R’s accounting process? Explain your answer.a. Obtained a bank loan.b. Repaid a
A professional baseball player signs a contract for next season to play for the Colorado Rockies. The contract includes payment terms of $7,000,000 over the next two years. The player receives an
Use pluses and minuses (or NA for not applicable) to show how the following events should be analyzed using the accounting equation under 1. the cash basis of accounting and 2. the accrual basis of
Identify which of the following events should be reported on financial statements under 1. the cash basis of accounting, 2. the accrual basis of accounting, 3. both methods, or 4. neither
Indicate the effects [(1) increase, (2) decrease, (0) no effect] on the accounting equation from the following transactions: p-968a. Owner invested cash in the business.b. Performed services for
Define owners’ equity. How does this differ from retained earnings? How can one firm’s asset be another firm’s equity? p-968
Define an asset. Define a liability. How can one firm’s asset be another firm’s liability? p-968
Define accrual accounting. Contrast accrual accounting with cash basis accounting. p-968
Indicate whether each of the following statements concerning possible organization structures is true or false. If a statement is false, indicate why it is false.a. A corporation and its investors
Indicate whether each of the following statements concerning possible organization structures is true or false. If a statement is false, indicate why.a. A sole proprietorship and its owner are
Identify two forms of business organizations and list a major advantage and disadvantage of each. p-968
Executory contracts.a. Discuss the concept of an executory contract. Why might a firm sign such a contract?b. How should such a contract be recorded in the firm’s financial statements? p-968
Using the definition of assets in this chapter, describe why each of the following items should not be listed as an asset on the firm’s balance sheet:a. Favorable locationb. Skilled employeesc.
Describe each part of the basic accounting equation. Identify one example of each item or term in this equation and describe why it fits in that particular category. p-968
Explain the differences between the balance sheets of sole proprietorships and those of corporations. p-968
Distinguish between the accrual basis and the cash basis of accounting. p-968
Describe the relationship between the balance sheet and the income statement. p-968
Prepare simple balance sheets and income statements. p-968
Use the basic accounting equation to analyze transactions. p-968
Describe revenues and expenses. p-968
Explain why the balance sheet must balance. p-968
Define the terms assets, liabilities, and owners’ equity. p-968
Refer to Reebok’s financial statements in Appendix E. Review the balance sheet to determine how and where contingencies were reported.Requireda. Read Note 17. Identify and discuss any unusual
In 1995, Sundstrand Corporation decided to, among other things, shut down and dispose of its Lima, Ohio manufacturing facility. The company recognized the costs associated with this decision as
Locate the most recent set of financial statements for the companies listed below. You may use either the 10-K available at EDGAR (www.sec.gov/edaux/searches.htm) or the annual report available at
Identify three major types of noncurrent assets: (1) property, plant, and equipment; (2) intangible assets; and (3) natural resources. P-968
Explain why most business firms pay their accounts payable within the discount period. As a manager, in what circumstance might you decide to pay after the discount period has expired? LOP9
Use the accounting equation to show the effects of each of the following transactions on the firm’s balance sheet:1. Borrowed $20,000 cash from First Bank and signed an interest-bearing 120-day
Companies in different industries naturally use different assets in daily operations. The differences are reflected in both type and amount of long-term tangible assets. Locate, from 10-Ks on file
For each of the following companies, locate the most recent 10-K available using the EDGAR database (www.sec.gov/edaux/searches.htm): Walt Disney Corp., Schering Plough, Oncogene Science, Chicago
Locate the most recent set of financial statements for the computer manufacturers listed below. You may use either the 10-K available at EDGAR(www.sec.gov/edaux/searches.htm) or the annual report
The following data for Pfizer and Eli Lilly have been excerpted from the SEC’s EDGAR database:NONCURRENT ASSETS 303 Integration of Concepts Pfizer (excerpts from balance sheet and income statement)
The following income statements for SOS Staffing Services, Inc. were extracted from the SEC’s EDGAR database (see next page)SOS Staffing Services, Inc.Consolidated Statements of Income Fiscal Years
The president of your company clearly wants to report as large a net income number as possible. Part of your responsibility as the controller is to determine if certain expenditures should be
Locate the 10-K filing for the following companies from EDGAR (www.sec.gov/edaux/searches.htm). Read the Notes to the Financial Statements sections where the following current liabilities are
Locate the most recent set of financial statements for the companies listed below. Use the 10-K available on the SEC’s EDGAR database (www.sec.gov/edaux/searches.htm) or the annual report available
Review the following notes provided by an oil company in its annual report and identify any unusual terms. Compare and contrast its commitments and contingencies. Also identify the types of business
The following excerpts from their notes on commitments and contingencies were reported by three different companies:PolyGram N.V.PolyGram has extensive international operations and is subject to a
The following summary data (thousands of dollars) are available for Hilary’s LoTech Health Care Concern:2000 2001 Total liabilities $ 3,500 $ 4,600 Warranty obligations (unrecorded) 750 850
Engineering Group, Inc., is a major British international engineering firm with the following liabilities shown on its 1999 balance sheet (shown in millions of pounds):Loans and other borrowings
Cabot Corporation is principally involved in the manufacture of carbon black and other specialty chemicals. Its 1994 financial statements have an accrued liability for environmental proceedings
Tyler Corporation is a diversified company that provides goods and services through three major operating subsidiaries: (1) a retailer of auto parts and supplies; (2) a marketer of products for
Oncogene Science, Inc., is a biopharmaceutical company involved in developing innovative products for the diagnosis and treatment of cancer, cardiovascular disease, and a number of other important
Polygram is an international entertainment company, which has published such hits as Billy Ray Cyrus’ Achy Breaky Heart. Polygram is headquartered in Amsterdam. It lists the following current
Hiram’s Hi-Tech Industries assembles specialized electronic interfaces that are used in hand-held computers and communications devices (PDAs). Hiram’s has had significant warranty claims on its
Seagull Designs does not report any warranty costs in its income statement, nor does it report any warranty obligations in its balance sheet. Seagull reports only the following four types of costs
Locate the most recent set of financial statements for the regional telecommunications companies listed below. You may use either the 10-K available at EDGAR (www.sec.gov/edaux/searches.htm) or the
Becky’s Courier Service is a one-person, one-bicycle operation. Becky’s only capital equipment is a highly specialized, custom-designed mountain bike that can be used throughout the urban
Sigma Designs is a diversified graphic systems corporation. Its statement of cash flows is summarized as follows:Sigma Designs, Inc.Statement of Cash Flows For the Years Ended January 31, 1995 and
Assume that you are the manager of a small firm that has an intangible asset valued at $10 million. You believe that the firm’s earnings prospects are quite favorable during the next five years.
Refer to Wendy’s financial statements in Appendix D. Review the financial statements to determine how and where any disposals of fixed assets were reported.Also identify how and where any gains or
Refer to Wendy’s financial statements in Appendix D. Review the balance sheet to determine how and where fixed assets and the associated accumulated depreciation were reported.Requireda. Read all
Refer to Reebok’s financial statements in Appendix E. Review the balance sheet to determine how and where fixed assets and the associated accumulated depreciation were reported.Requireda. Read
Bishop Corporation had the following intangible assets on December 31, 1999:1. A patent was acquired from another company on January 1, 1999, for$25,000. The patent had been registered with the U.S.
The following financial statement information is from BRN, Inc. BRN is a global company specializing in high-tech components for the automotive, space, and computer industries.Property, plant, and
Johns Inc. purchased a canvas stretcher at a cost of $16,000 at the beginning of 1999. Johns estimated that the canvas stretcher would last four years and have no residual value. Johns decided to use
Warhol Enterprises purchased a spray painter at the beginning of 1999 at a cost of $150,000. Warhol estimated that the spray painter would last five years and have a residual value of $30,000. The
Swen and Jerry are twins who each own an ice cream company. Four years ago, they each purchased an ice cream mixer. Each mixer was identical in all respects, including the cost of $35,000. Each had
A firm purchased a computer-controlled drill press for $480,000 at the beginning of 2000. The drill press has an expected useful life of 10 years and zero residual value. Assume that the firm begins
A firm purchased computer-aided drafting and machining (CAD-CAM) equipment at the beginning of 1998 for $420,000. The machine has an expected useful life of six years and a $38,000 residual value.
Discuss the concept of recognizing a gain or loss at the time an asset is sold. Is such a gain or loss a function of good management, or is it a function of improper estimates of residual values? Why
A firm acquired a $26,000 computer, including software, with an estimated useful life of four years and an estimated residual value of $6,000. The firm’s financial vice president (CFO) is trying to
Inco Limited, headquartered in Toronto, is one of the world’s premier mining and metals companies. Its 1994 annual report contains the following note:Depreciation and Depletion Depreciation is
Beaubox, one of Europe’s leading packaging manufacturers, is headquartered in Paris. Its 1997 annual report contains the following note.Research and Development Expenditure Such expenditure is
Boudreaux Group is an international biochemical and pharmaceutical firm, headquartered in Switzerland. Its 1999 annual report includes the following(Swiss francs in millions):1999 1998 1997 Property,
Spelling Entertainment, which produces films and videos and other entertainment media, lists the following items in its 1994 annual report (dollars in thousands):1994 1993 1992 1991 Property, plant,
Pfizzel Inc. reported the following information in its property, plant, and equipment note to the 1999 financial statements (dollars in millions):1999 1998 1997 Land $ 85.2 $ 81.8 $ 71.7 Buildings
Asset write-ups are permitted in Australia. That is, when managers of an Australian firm believe that an asset’s market value has increased, they are permitted to increase the asset’s reported
Defend the statement that write-downs are an essential part of the conservative nature of accounting. Defend the notion that write-downs should be permitted whenever the firm or its accountants
Discuss the concept of write-downs, that is, writing down the value of noncurrent assets on the firm’s balance sheet. Why do write-downs provide managers with flexibility to manipulate earnings?
Estimating an asset’s residual value incorporates significant uncertainties into the financial statements. Discuss the proposition that residual values should be ignored when an asset is
Answer the following questions:a. How would land owned by a manufacturer be shown on its balance sheet?b. Would land owned by a real estate investment company perhaps have a different purpose than
Draw a freehand graph with dollars on the vertical axis and time (years) on the horizontal axis, showing the pattern of depreciation expenses that would be expected under each of the following
A firm purchased a computer-controlled drill press at the beginning of 2000 for$360,000. The drill press has an expected useful life of 10 years and a $40,000 residual value. Assume that the firm
Recognize the types of current liabilities reported on the balance sheets of most business firms. LOP9
How do restructuring costs originate? Should costs associated with restructuring activities that will be undertaken in future years be reported as liabilities? Why? LOP9
Various current liabilities reported in the balance sheet require that managers make estimates and assumptions concerning future events. Identify several such liabilities. If some of these estimates
Indicate which, if any, of the following items would be reported as a current liability:a. Advance payments from customers for services to be performed at future dates.b. Agreements signed with
Explain your agreement or disagreement with the inclusion of the following items among a firm’s current liabilities:a. Estimated future expenditures to provide warranty repairs on items sold prior
Explain why each of the following items should (or should not) be reported as liabilities in the financial statements:a. Estimated future repair and maintenance costs for equipment owned by the firm
A firm has sold one million units of a product that has a one-year warranty. Management estimates that about 5% of the units will require repairs, and the costs per repair will average about $12.
To reduce insurance costs, a firm insures its sales automobile fleet with a $1,000 deductible per vehicle (in other words, the insurance company only reimburses losses in excess of $1,000 per
At the balance sheet date, an airline’s passengers have accumulated 20 million frequent flyer miles, which could be exchanged for about 1,000 “free”domestic round-trip tickets. Similar tickets
Deltoid Health Club has received $2.5 million in prepaid annual membership fees from its members and estimates that its cost of providing services to these customers over the coming year will be $1.6

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