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introductory financial accounting for business

Questions and Answers of Introductory Financial Accounting for Business

6 Distinguish between subordinated and unsubordinated debentures.
5 Distinguish between a mortgage bond and a debenture. Which is safer?
4 “Product warranties expense should not be recognized until actual repair services are performed. Until then you don’t know which products might require warranty repairs.” Do you agree?
3 “Withholding taxes really add to employer payroll costs.” Do you agree? Explain.
2 Name and briefly describe five items that are often classified as current liabilities.
1 Distinguish between current liabilities and long-term liabilities.
78 Analyzing Financial Statements Using the Internet Go to www.intel.com to find Intel’s home page. Select Investor Relations from the bottom navigation menu. Then select Financials and Filings
77 Analyzing Starbucks’ Financial Statements Find the financial statements of Starbucks for the year ended October 2, 2011, and look at footnote 1. Depreciation and amortization expense was $523.3
76 Financial Statement Research Select two distinct industries and identify two companies in each industry. 1. Identify the depreciation methods used by each company. 2. Calculate gross and net
75 Accumulated Depreciation Form groups of at least four students (this exercise can be done as an entire class, if desired). Individual students, on their own, should select a company and find the
74 Depreciation Policies and Ethics Some companies have depreciation policies that differ substantially from the norm of their industry. For example, Cineplex Odeon (now operating as AMC Theaters in
73 Basket Purchase and Intangibles A tax newsletter stated, “When a business is sold, part of the sales price may be allocated to tangible assets and part to a ‘covenant not to compete.’ How
72 Software Development Costs Microsoft, Incorporated, is one of the largest producers of software for personal computers. Special rules apply to accounting for the costs of developing software for
71 Disposal of Equipment Lufthansa’s policy of rolling over entire fleets of aircraft in roughly 10 years—before the aircrafts have outlived their usefulness—began when seven first-generation
70 Gain on Airplane Crash A few years ago, a Delta Air Lines 727 crashed in Dallas. The crash resulted in a gain of $.11 per share for Delta. How could this happen? Consider the accounting for
69 Disposal of Property and Equipment (Alternate is 68.) Rockwell Automation is a leading provider of industrial automation power and controls. The annual report indicates that the company uses
68 Disposal of Equipment (Alternate is 69.) Suppose American Airlines acquired a new Boeing 747 airplane for $250 million. Its expected residual value was $70 million. The company’s annual report
67 Change in Service Life Suppose that a major airline extended the useful lives of its Boeing 727-100 aircraft from 16 years to 20 years. As a result, depreciation and amortization expense was
66 Meaning of Book Value Wagner Company purchased an office building 20 years ago for $1.3 million, $500,000 of which was attributable to land. The mortgage has been fully paid. The current balance
65 Nature of Research Costs Julene Pief, a distinguished scientist of international repute, had developed many successful drugs for a well-established pharmaceutical company. Having an
64 Rental Vehicles AMERCO is the holding company for U-Haul International and its subsidiaries. Footnote 3 from the annual report for fiscal year 2011 indicated: Property, plant and equipment are
63 Depreciation, Income Taxes, and Cash Flow (Alternates are 61 and 62.) Carrefour is the world’s second-largest retailer, just behind Wal-Mart. Carrefour operates more than 9,500 stores in four
62 Depreciation, Income Taxes, and Cash Flow (Alternates are 61 and 63.) The 2011 annual report of Wal-Mart, a major retailing company, listed the following property and equipment ($ in millions):
61 Depreciation, Income Tax, and Cash Flow (Alternates are 62 and 63.) Sanchez Metal Products Company had the following balances, among others, at the end of December 20X1: Cash, $300,000; Equipment,
60 Average Age of Assets Walgreens is a drugstore chain operating more than 8,200 stores in 50 states, the District of Columbia, Guam, and Puerto Rico. Walgreens typically builds rather than buys
59 Reconstruction of Plant Asset Transactions The Ford Motor Company’s footnotes included the following ($ in millions): Ford Motor Company December 31 2011 2010 Property Land, plant, equipment,
58 Depreciation Asahi Kasei Corporation has sales nearly the equivalent of US$10 billion. The company included the following in its balance sheet for the year ended March 31, 2011 (¥ in millions):
57 Reconstruction of Plant Asset Transactions The annual report of General Mills, maker of Wheaties, Cheerios, and Betty Crocker baking products, for the year ended May 29, 2011, contained the
56 Popular Depreciation Methods The 2011 annual report of Alaska Airlines contained the following footnote: PROPERTY, EQUIPMENT, AND DEPRECIATION—Property and equipment are recorded at cost and
55 Depletion A zinc mine contains an estimated 1,250,000 tons of zinc ore. The mine cost $14.4 million. The tonnage mined during 20X1, the first year of operations, was 150,000 tons. 1. What was the
54 Computation of Impairment on Long-Lived Assets Vincent Corporation acquired an office building that it rents to a variety of small businesses. The building had an original cost of $15 million, and
53 IFRS Revaluation of Fixed Assets Bauer Corporation prepares financial statements using IFRS and has elected the revaluation method of accounting for its fixed assets. Bauer has a December 31
52 Various Intangible Assets (Alternative is 51.) Consider the following: 1. On December 31, 2012, Sony Corporation purchased a patent on some broadcasting equipment for $900,000. The patent has 16
51 Various Intangible Assets and Impairment (Alternative is 52.) Consider the following: 1. On December 29, 20X1, a publisher acquires the paperback copyright for a book by Steven King for $3
50 Gain or Loss on Disposal of Equipment—Cash Flow Implications Icarus Software Company sold five computers. It had purchased the computers 5 years ago for $120,000, and accumulated depreciation at
49 Gain or Loss on Sale of Fixed Assets Bella’s Pizza Company purchased a delivery van in early 20X1 for $55,000 and depreciated it on a straight-line basis over its useful life of 5 years.
48 Disposal of Equipment The Outpatient Clinic of Eastside Hospital acquired X-ray equipment for $29,000 with an expected useful life of 5 years and a $4,000 expected residual value. The hospital
47 Repairs and Improvements Yakima Wheat Company acquired harvesting equipment for $90,000 with an expected useful life of 5 years and a $10,000 expected residual value. Yakima Wheat used
46 Capital Expenditures Consider each of the following transactions. For each one, indicate whether it is a capital expenditure (C) or an expense in the current year (E). 1. Paid a consultant to
45 Capital Expenditures Consider the following transactions:a. Acquired building for a down payment plus a mortgage payableb. Paid delinquent real estate taxes on a building at the time of its
44 Leasehold Improvements Suppose Domino’s Pizza has a 10-year lease on space in a suburban shopping center. Near the end of the sixth year of the lease, Domino’s exercised its rights under the
43 MACRS versus Straight-Line Depreciation Durham Machinery bought special tooling equipment for $2.6 million. For financial reporting purposes, the estimated useful life is 5 years, with no residual
42 Depreciation, Income Taxes, and Cash Flow Fleck Company began business with cash and common stockholders’ equity of $150,000. The same day, December 31, 20X1, the company acquired equipment for
41 Revision of Useful Life and Residual Value Estimates Nowling Company buys a machine for $85,000 on January 1, 2012. A residual value of $5,000 and a useful life of 10 years are estimated at the
40 Accumulated Depreciation Ceradyne, Inc., reported the following items on its December 31, 2011, balance sheet ($ in thousands): Property, plant, and equipment, net $428,562 Accumulated
39 Fundamental Depreciation Policies (Alternates are 36 through 38.) Suppose the printing department of Geico Insurance acquired a new press for $360,000. The equipment’s estimated useful life is 8
38 Comparison of Popular Depreciation Methods (Alternates are 36, 37, and 39.) Port Townsend Cedar Company acquired a saw for $34,000 with an expected useful life of 5 years and a $2,000 expected
37 Units-of-Production, Straight-Line, and DDB (Alternatives are 36, 38, and 39.) Roche Bay Mining Company buys special drills for $640,000 each. Each drill can extract about 150,000 tons of ore,
36 Fundamental Depreciation Approaches (Alternates are 37 through 39.) U-Haul acquired new trucks for $1.4 million. Their estimated useful life is 4 years, and estimated residual value is $200,000.
35 Units-of-Production Depreciation Method The Rockland Transport Company has many trucks that have an estimated useful life of 200,000 miles. The company computes depreciation on a mileage basis.
34 Simple Depreciation Computations A company acquired the following assets:a. Conveyor, 5-year useful life, $48,000 cost, straight-line method, $5,000 expected residual valueb. Truck, 3-year useful
33 Journal Entries for Depreciation (Alternates are 31 and 32.) The Coca-Cola Company’s annual report for the year ended December 31, 2011, included the following ($ in millions): Property, plant,
32 Journal Entries for Depreciation (Alternates are 31 and 33.) The Alaska Airlines balance sheet dated December 31, 2011, included the following ($ in millions):Property and equipment Aircraft and
31 Journal Entries for Depreciation (Alternates are 32 and 33.) On January 1, 20X1, the Dallas Auto Parts Company acquired nine identical assembly robots for a total of $594,000 cash. The robots had
30 Basket Purchase On February 21, 20X2, Speed-Tune, an auto service chain, acquired an existing building and land for $920,000 from a local gas station that had failed. The tax assessor had placed
29 Government Equipment: Computing Acquisition Costs An office of the IRS acquired some used computer equipment. Installation costs were $10,000. Repair costs prior to use were $15,000. The
28 Computing Acquisition Costs Suppose Emory University acquired a 20-acre parcel of land immediately adjacent to its existing facilities on January 2, 2012. The land included a warehouse, parking
27 Accounting Valuation of Fixed Assets Consider two types of assets held by IBM: land purchased in 1912 when the company was known as the Computing-Tabulating-Recording Company, and machinery
26 Capital Investment and the Statement of Cash Flows Growing companies often need capital to purchase or build additional facilities. There are many potential sources of such capital. Describe how
25 Research and Development and the Recognition of Intangible Assets In the United States, most R&D expenditures are charged directly to expense. Under IFRS, companies recognize development costs as
24 Production Facilities and Depreciation A manager in a company reporting under U.S. GAAP complained about the amount of depreciation charged on the plant for which she was responsible: “The
23 How do U.S. GAAP and IFRS differ with regard to accounting for the impairment of fixed assets held for use?
22 Under IFRS, how would a company record the revaluation of fixed assets to reflect an increase in fair value?
21 “The recoverability test determines the magnitude of the impairment loss on a piece of equipment used in the manufacturing process.” Do you agree? Explain.
20 “In a basket purchase, all assets that are part of the purchase must be depreciated over the same useful lives.” Do you agree? Explain.
19 The Lawrence Company sold fixed assets with a book value of $8,000 and recorded a gain of $6,000. How should the company report this on the statement of cash flows prepared using the indirect
18 XYZ Company’s only transaction in 20X1 was the sale of a fixed asset for $20,000 cash. The only line item on the income statement was “Gain on sale of fixed assets, $5,000.”Correct the
17 “Accountants cannot capitalize improvements made to leased property by a tenant because the improvements become part of the leased property and therefore belong to the lessor.” Do you agree?
16 “We account for internally acquired patents differently than we account for externally acquired patents.” Explain the difference.
15 Name and describe four kinds of intangible assets.
14 What determines the gain or loss on the sale of fixed assets?
13 The manager of a division reported to the president of the company, “Now that our major capital improvements are finished, the division’s expenses will be much lower.” Is this really what
12 Contrast repairs and maintenance expenditures with expenditures for capital improvements or betterments.
11 “A change in the estimated useful life of a fixed asset requires restatement of depreciation expense in prior periods.” Do you agree? Explain.
10 “Accelerated depreciation saves cash but shows lower net income.” Explain.
9 “Keeping two sets of books is immoral and unnecessary.” Do you agree? Explain.
8 Criticize the following statement: “Depreciation is the loss in value of a fixed asset over a given span of time.”
7 “The accounting process of depreciation is allocation, not valuation.” Explain.
6 “Accumulated depreciation is a sum of cash being accumulated for the replacement of fixed assets.” Do you agree? Explain.
5 “When an expenditure is capitalized, we credit the stockholders’ equity account.” Do you agree? Explain.
4 Many companies expense all expenditures that are less than a predetermined dollar amount. What is the justification for this policy?
3 “The cash discount on the purchase of equipment is income to the buyer during the year of acquisition.” Do you agree? Explain.
2 Distinguish among amortization, depreciation, and depletion.
1 Distinguish between tangible and intangible assets.
85 Understanding Inventory Cost Assumptions Form groups of three students each. (If there are more than three students in a group, extras can be paired up.) Each student should select or be assigned
84 Manufacturing Costs Study the appendix “Inventory in a Manufacturing Environment.” Stephen Bedford made custom T-shirts for himself and his friends for years before trying to treat it
83 Cheating on Inventories The Wall Street Journal reported, “Cheating on inventories is a common way for small businesses to chisel on their income taxes… . A New York garment maker, for
82 Inventory Shrinkage Lola, owner of Aboy Hardware Company, was concerned about her control of inventory. In December 20X7, she installed a computerized perpetual inventory system. In April, her
81 LIFO and Ethical Issues Study the appendix “Characteristics and Consequences of LIFO.” Yokohama Company is a wholesaler of musical instruments. Yokohama has used the LIFO inventory method for
80 Comparison of Gross Profit Percentages and Inventory Turnover JCPenney and Kmart (since a 2005 merger it is Sears/Kmart) are long-time competitors in the retail business, although they target
79 Year-End Purchases and LIFO Layers Study the appendix “Characteristics and Consequences of LIFO.” A company engaged in the manufacture and sale of dental supplies maintained an inventory of
78 LIFO Liquidation and Ethics Study the appendix “Characteristics and Consequences of LIFO.” A LIFO liquidation increases earnings, and management can choose to create a LIFO liquidation by
77 Inventory Errors IBM had inventories of $2.6 billion at December 31, 2011, and $2.5 billion a year earlier. 1. Suppose the beginning inventory for fiscal 2011 had been overstated by $20 million
76 LIFO Reserve Study the appendix “Characteristics and Consequences of LIFO.” Brunswick Corporation reported total inventories of $532.6 million on January 1, 2012. Some inventories were valued
75 LIFO Reserve Study the appendix “Characteristics and Consequences of LIFO.” Whirlpool Corporation reported 2011 pretax operating profit of $792 million. Footnotes to Whirlpool’s financial
74 Lower-of-Cost-or-Market (Alternate is 48.) A U.S. camera company’s annual report stated, “Inventories are stated at the lower of cost or market. The cost of most inventories in the U.S. is
73 Eroding the LIFO Base Study the appendix “Characteristics and Consequences of LIFO.” Many companies on LIFO are occasionally faced with strikes or material shortages that necessitate a
72 LIFO, FIFO, Purchase Decisions, and Earnings per Share Kansas Seed Corn Supplies, a company with 100,000 shares of common stock outstanding, had the following transactions during 20X1, its first
71 Classic Switch from LIFO to FIFO Effective January 1, 1970, Chrysler Corporation adopted the FIFO method for inventories previously valued by the LIFO method. The 1970 annual report stated,
70 Effects of Late Purchases (Alternates are 57 and 68.) Refer to the preceding problem. Suppose Texas Instruments had acquired 50 extra units @ $8 each on December 30, 2011, at a total additional

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