Questions and Answers of Fundamental Financial Accounting Concepts 11th Edition

Journal entries to apply the market value method for long-term investments in securities.The following information summarizes data about the long-term minority, passive investments in securities of
Journal entries to apply the equity method of accounting for investments in securities.Wood Corporation made three long-term intercorporate investments on January 2. Data relating to these
Journal entries to apply the equity method of accounting for investments in securities.The following information summarizes data about the minority active investments of Stebbins Corporation.Date
Journal entries under various methods of accounting for investments. Mulherin Corporation made three long-term investments on January 2. Data relating to these investments appear below.Company Hanson
Consolidation policy and principal consolidation concepts. CAR Corporation manufactures computers in the United States. It owns 75 percent of the voting stock of Charles Electronics, 80 percent of
Kquity method entries, earnings quality, and ethics. Bush Corporation acquired significant influence over Cheney Computer Company on January 2 by purchasing 20 percent o( its outstanding stock for
Equity method entries. Vogel Company is a subsidiary of Joyce Company. Joyce Company accounts for its investment in Vogel Company using the equity method on its single-company books. Present journal
Working backwards from data which has eliminated intercompany transactions.(Adapted from a problem by S. A. Zeff.) Alpha owns 100 percent of Omega and consolidates Omega in an entity called
Working backward from purchase data. (^Adapted from a problem by S. A. Zeff. I On May 1. Year 1. Homer acquired the assets and agreed to take on and pay off the liabilities of Tonga in exchange for
Financial statement effects of revaluations required by the purchase method. Bristol-Myers Corporation and Squibb, both pharmaceutical companies, agreed to merge as of January 2. Year 10.
Effect of transactions involving the market value methods on the statement of cash flows. Refer to the simplified statement of cash flows in Exhibit 4.12. Numbers appear on 1 1 of the lines in the
Effect of transactions involving the equity method on the statement of cash flows. Refer to the preceding exercise and use those instructions for the following items.a. A 40-percent-owned affiliate
Effect of errors on financial statements. Using the notation O/S (overstated), U/S (understated), or NO (no effect), indicate the effects on assets, liabilities, shareholders" equity, and net income
Journal entries and financial statement presentation of short-term securities available for sale. The following information summarizes data about Dostal Corporation's marketable securities held as
Journal entries and financial statement presentation of long-term securities available for sale. The following information summarizes data about Rice Corporation's investments in equity securities
Reconstructing transactions involving short-term securities available for sale. The financial statements of Zeff Corporation reveal the following information with respect to Securities Available for
Analysis of financial statement disclosures for securities available for sale. Exhibit 11.11 reproduces data about the marketable equity securities held as securities available for sale for Sunshine
Effect of various methods of accounting for marketable equity securities. Information related to marketable equity securities of Callahan Corporation appears below. s Security Dividends Market
Analysis of financial statement disclosures related to marketable securities and quality of earnings. Citibank reports the following information relating to its marketable securities classified as
Journal entries for various methods of accounting for intercorporate investments.Rockwell Corporation acquired, as long-term investments, shares of common stock of Company R, Company S, and Company T
Effect of intercorporate investment policies on financial statements. Coca-Cola Company(Coke) and PepsiCo (Pepsi) dominate the soft drink industry in the United States and maintain leading market
Review the terms and concepts listed above in Key Terms and Concepts.
What is interest?
Rather than pay you $1,000 a month for the next 20 years, the person who injured you in an automobile accident is willing to pay a single amount now to settle your claim for injuries.Would you rather
The perpetuity with growth formula involves several assumptions. Which one seems least plau- sible?SHORT EXERCISES Short exercises 10 through 15 involve calculations of present and future value for
Mr. Altgeldt has $5,000 to invest. He wants to know how much it will amount to if he invests it at the following rates:a. 6 percent per year for 21 years h. 8 percent per year for 33 years
Mme. Barefield wishes to have $150,000 at the end of 8 years. How much must she invest today to accomplish this purpose if the interest rate isa. 6 percent per year?b. 8 percent per year?
Mr. Case plans to set aside $4,000 each year, the first payment to be made on January I. 2005, and the last on January 1. 2010. How much will he have accumulated by January 1. 2010, if the interest
Ms. Namura wants to have ¥45 million on her 65th birthday. She asks you to tell her how much she must deposit on each birthday from her 58th to 65th. inclusive, in order to receive this amount.
If Mr. Enmetti invests 90.000 on June 1 of each year from 2001 to 201 1 inclusive, how much will he have accumulated on June 1. 2012 (note that one year elapses after last payment) if the interest
Ms. Fleming has £145.000 with which she purchases an annuity on February 1, 2006. The annuity consists of six annual receipts, the first to be received on February 1. 2007. How much w ill she
In the preceding Short Exercises 10 through 15. you computed a number. To do so. first you must decide on the appropriate factor from the tables, and then you use that factor in the appropriate
Effective interest rate. State the rate per period and the number of periods in the follow ing:a. 1 2 percent per year, for 5 years, compounded annuallyb. 12 percent per year, for 5 years, compounded
Compute the future value of the following: -a. SI 00 invested for 5 years at 4 percent compounded annuallyb. S500 invested for 15 periods at 2 percent compounded once per periodc. S200 invested for 8
Mr. Grady agrees to lease a certain property for 10 years, at the following annual rental, payable in advance:Years 1 and 2— $1,000 per year Years 3 to 6— $2,000 per year Years 7 to 10— $2,500
To establish a fund that will provide a scholarship of $3,000 per year indefinitely, with the first award to occur now, how much must a donor deposit if the fund earnsa. 6 percent per period?b. 8
An old agreement obliges the state to help a rural county maintain a bridge by paying $60,000 now and every two years thereafter forever toward the expenses. The state wants to discharge its
Find the interest rate implicit in a loan of $100,000 that the borrower discharges with two annual installments of $55,307 each, paid at the end of Years 1 and 2.
A single-payment note promises to pay $140,493 in three years. The issuer exchanges the note for equipment having a fair market value of $100,000. The exchange occurs three years before the maturity
A single-payment note promises $67,280 at maturity. The issuer of the note exchanges it for land with a fair market value of $50,000. The exchange occurs two years before the maturity date on the
Finding implicit interest rates; constructing amortization schedules. Berman Company purchased a plot of land for possible future development. The land had fair market value of$86,000. Berman Company
Find equivalent annual rate offered for purchase discounts. The terms of sale "2/10.net/30" mean that the buyer can take a discount of 2 percent from gross invoke price by pay- ing the invoice within
An oil-drilling company figures that it must spend S30.000 for an initial supply of drill bits and that it must spend S 10.000 every month to replace the worn-out bits. What is the present value of
If you promise to leave S35.000 on deposit at the Dime Savings Bank for four years, the bank will give you a new large, fiat-screen Sony TV today and your S35.000 back at the end of four years. How
Mrs. Heileman occasionally drinks beer. (Guess which brand.) She consumes one case in 20 weeks. She can buy beer in disposable cans for S25.20 per case or for S24.00 per case of returnable bottles if
When General Electric Company first introduced the Lucalox ceramic, screw-in light bulb, the bulb cost three and one-half times as much as an ordinary bulb but lasted fi\e times as long. An ordinary
Oberweis Dairy switched from delivery trucks with regular gasoline engines to ones with diesel engines. The diesel trucks cost S2.000 more than the ordinary gasoline trucks but S600 per year less to
On January 1. Year 1. assume that Levi Strauss opened a new textile plant to produce synthetic fabrics. The plant is on leased land: 20 years remain on the nonrenew able lease.The cost of the plant
Finding implicit interest rates (truth-in-lending laws reduce the type of deception suggested by this problem). Friendly Loan Company advertises that it is willing to lend money for five years at the
Computation of the present value of cash flows; taxable acquisition, changing tax basis of assets. Refer to the data in the preceding problem. Assume now that the acquisition is taxable, so that the
Valuation of intangibles with perpetuity formulas. When the American Basketball Association | ABA> merged with the National Basketball Association (NBA), the owners of the ABA St.Louis Spirits agreed
(Adapted from a problem by S. Zeff.) Lexie T. Colleton is the chief financial officer of Ragazze. and one of her duties is to give advice on investment projects. Today's date is Decem- ber 3 1 . Year
(Adapted from a problem by S. Zeff.) William Marsh. CEO of Gulf Coast Manufacturing, w ishes to know which of two strategies he has chosen for acquiring an automobile has lower present value of
(Wal Mart Stores; perpetuity growth model derivation of results in Chapter 5.) Refer to the discussion on page 226 in Chapter 5. There, in estimating the value of a share of common stock of Wal-Mart
(Fast Growth Start-Up Company; valuation involving perpetuity growth model assumptions.) Fast Growth Start-Up Company (FGSUC) has a new successful internet business model.It earned $100 million of
"Firms principle' may treat depreciation on equipment either as a product cost or as a period expense, depending on the type of equipment." Explain.
"A firm that dips into its LIFO layers and pays additional taxes in a particular year is still better off than if had used FIFO all along." Explain. Under what circumstances will the firm be worse
Identifying inventory cost inclusions. Intervest Corporation, a real estate developer, purchased a tract of land for $45().()()(). Intervest intends to develop and subdivide the land for construction
Effect of inventory valuation on net income. Selby Corporation, a commercial real estate developer, acquired a tract of land on September. Year 6 for $240,000. Forest fires on December. Year 6,
Computations involving different cost flow assumptions. Sun Health Foods purchases of vitamins during Year 10. its first year of operations, were as follows:Quantity Cost per Unit Total Cost January
Conversion from LIFO to FIFO. United States Steel Corporation reported inventories using LIFO of SI. 030 million at the beginning of Year 13. and $1,283 million at the end of Year 13.Its cost of
Separating operating margins and holding gains. During Year 8. its first year of operations.Miller Corporation purchased 10.000 units at $80 each and sold 9.000 units for $100 each. On December 31.
Income computation for a manufacturing firm. The following data relate to General Mills, a food processor, for a recent fiscal year ending May 31 (amounts in millions):June 1, Year 10 May 31, Year 11
Income computation lor a manufacturing firm. The following data relate to Dow Chemical Corporation for a single year (amounts in millions):January 1 December 31 Raw Materials Inventory $ 452 $ 373
Over sufficiently long time spans, income is cash-in less cash-out; cost basis for inventory. Duggan Company began business on January 1, Year 1. Information concerning merchandise inventories,
Effect of LIFO on financial statements over several periods. Howell Corporation commenced operations on January 2. Year 7. Its purchases and sales for the first four years of operations appear
Reconstructing financial statement data from information on effects of liquidations of LIFO layers. The inventory footnote to the annual report of Chan Company reads in part as follows:Because of
Separating operating margin from holding gains. On January 1 , the merchandise inventory of Giles Computer Store comprised 200 units acquired for $300 each. During the year, the firm acquired 2,500
Effect of inventory errors. On December 30. Year 1 . Warren Company received merchandise costing $1,000 and counted it in the December 31 listing of all items on hand. The firm included the cost of
Preparation of journal entries and income statement for a manufacturing firm. Best Furniture. Inc.. a furniture manufacturer, showed the following amounts in its inventory accounts on January 1 :Raw
Flow of manufacturing costs through the accounts. The following data related to the manufacturing activities of the Cornell Company during June:June 1 June 30 Raw Materials Inventory . .Factory
Flow of manufacturing costs through the accounts. The following data relate to the activities of Hickory Industries during April:April 1 April 30 Raw Materials Inventory $ 50,600 $ 54,400 Work-in
Detailed comparison of various choices for inventory accounting. Hartison Corporation commenced retailing operations on January 1. Year I. It made purchases of merchandise inventory during Year I and
Continuation of preceding problem introducing current cost concepts. (Do not attempt this problem until you have worked Problem 39.) Assume the same data for Hartison Corporation as given in the
Continuation of preceding problem introducing current cost concepts. (Do not attempt this problem until you have worked Problem 41.) Assume the same data for Burton Corporation as given in the
Effect of FIFO and LIFO on income statement and balance sheet. Hanover Oil Products(HOP) operates a gasoline outlet. It commenced operations on January 1. It prices its gasoline at 10 percent above
Dealing with LIFO inventory layers. (Adapted from a problem by S. A. Zeff.) The Back Store has been using a LIFO cost flow assumption for several decades. On December 3 1 , Year 30, the company's
LIFO layers influence purchasing behavior and provide opportunity for income manipulation. Wilson Company sells chemical compounds made from expensium. The company has used a LIFO inventory flow
Interpreting inventory disclosures. DuPont is a diversified chemicals company. Its annual report discloses inventories under LIFO of $4,409 million at the beginning of the year and$4,107 million at
Analyzing inventory disclosures. Eli Lilly, a pharmaceutical company, uses a LIFO cost flow assumption. Amounts taken from a recent annual report appear in Exhibit 7.16 (in millions):EXHIBIT 7.16 ELI
Ethical issuing in accounting for inventory. Managers of firms experience pressure from securities markets to achieve earnings targets each year. Discuss ethical issues in each of the following
"Finns should obtain as much financing as possible from suppliers through accounts payable because it is a free source of capital." Do you agree? Why or why not?
The Francis W. Parker School, a private lower school, has a reporting year ending June 30. It hires teachers for a 10-month period: September of one year through June of the following year.It
If the Deer Valley Ski Association borrows SI. 000,000 by issuing, at par, 20-year. 10-percent bonds with semiannual coupons, the total interest expense over the life of the issue is S2.000.000 (= 20
Recognition of a loss contingency. While shopping in a store on July 5, Year 6, a customer slips on the floor and sustains back injuries. On January 15, Year 7, the customer sues the store for $1
Allowance method for uncollectihles and warranties. A firm estimates both uncollectible accounts and warranty repair costs using a percentage of sales. Assume that the combined Bad Debt Expense and
Computing the issue price of bonds. Compute the issue price of each of the following bonds.a. $10,000,000-face value, zero coupon bonds due in 20 years, priced on the market to yield 12 percent
Amortization schedule for bonds. Womack Company issues 10-percent semiannual coupon bonds maturing five years from the date of issue. The coupons, each dated for January 1 and July 1 of each year,
Accounting for uncollectible accounts and warranties. Hurle\ Corporation sells household appliances (for example, refrigerators, dishwashers) to customers on account. The firm also provides warrant)
Journal entries for coupons. Morrison's Cafeteria sells coupons that customers may use later to purchase meals. Each coupon book sells for S25 and has a face value of S30: that is. the customer can
Journal entries for service contracts. Abson Corporation began business on January 1. Abson sells copiers to business firms. It also sells service contracts to maintain and repair copiers for$600 per
Journal entries for estimated warranty liabilities and subsequent expenditures. A new appliance introduced by May pool Corporation carries a two-year warranty against defects. The firm estimates that
Journal entries for estimated warranty liabilities and subsequent expenditures. Global Motors Corporation offers three-year warranties against defects on the sales of its automobiles.The firm
Amortization schedule for bonds. Seward Corporation issues on January 2. Year 1. 8-percent semiannual coupon bonds maturing three years from the date of issue. The coupons, dated for January 1 and
Journal entries to account for bonds. Brooks Corporation issues $100,000 face value, 10-year bonds on January 2, Year 2. The bonds' coupons, dated June 30 and December 31 of each year, each promise 4
Allowance method for warranties; reconstructing transactions. Assume that Central Appliance sells appliances, ail for cash. It debits all acquisitions of appliances during a year to the Merchandise
Accounting for long-term bonds. The notes to the financial statements of Aggarwal Corporation for Year 4 reveal the following information with respect to long-term debt. All interest rates in this
Accounting for long-term bonds. The notes to the financial statements of Wal-Mart Stores reveal the following information with respect to long-term debt. All interest rates in this problem assume
Comparison of straight-line and effective interest methods of amortizing debt discount.IBM established IBM Credit Corporation (IBMCC) on May 1, Year 1. On July 1. Year 1.IBMCC issued $150 million of
Ethical issues of managing income and the debt-equity ratio through hond retirement.Suppose thai Quaker Oats Company issued $40 million of 5-percenl semiannual coupon bonds main years ago at par. The

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