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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

Express the partial comparative income statements that follow as commonsize statements, and comment on the changes from 20x6 to 20x7. (Round computations to one decimal place.) Davis Company Partial
Partial comparative balance sheet and income statement information for Allen Company is as follows:In 20x6, the year-end balances for Accounts Receivable and Inventory were $32,400 and $51,200,
Diamond Tuxedo Rental has been in business for four years. Because the company has recently had a cash flow problem, management wonders whether there is a problem with receivables or inventories.
Barr Company had total assets of $320,000 in 20x5, $340,000 in 20x6, and$380,000 in 20x7. Its debt to equity ratio was .67 times in all three years. In 20x6, Barr had net income of $38,556 on
An investor is considering investing in the long-term bonds and common stock of Companies M and N. Both firms operate in the same industry.Both also pay a dividend per share of $8 and have a yield of
Using the data below from the financial statements of Braugh, Inc., compute the company’s cash flow yield, cash flows to sales, cash flows to assets, and free cash flow. (Round computations to one
Sanborn Corporation’s condensed comparative income statements for 20x8 and 20x7 appear below. The corporation’s condensed comparative balance sheets for 20x8 and 20x7 appear on the next
Data for Sanborn Corporation in 20x8 and 20x7 follow. These data should be used in conjunction with the data in P 1.Selected balances at the end of 20x6 were accounts receivable (net), $206,800;
Ginger Adair is considering an investment in the common stock of a chain of retail department stores. She has narrowed her choice to two retail companies, Lewis Corporation and Ramsey Corporation,
Benson Corporation, a clothing retailer, engaged in the transactions listed in the first column of the table below. Opposite each transaction is a ratio and space to mark the effect of each
In a dramatic move, Standard & Poor’s Ratings Group, the large financial company that evaluates the riskiness of companies’ debt, downgraded its rating of General Motors and Ford Motor Co. debt
Refer to Exhibit 1, which shows the segment information of Goodyear Tire& Rubber Company. In what business segments does Goodyear operate?What is the relative size of its business segments in terms
Refer to Exhibit 2, which contains the PepsiCo Inc. listing from Mergent’s Handbook of Dividend Achievers. Assume that an investor has asked you to assess PepsiCo’s recent history and prospects.
H. J. Heinz Company is a global company engaged in several lines of business, including food service, infant foods, condiments, pet foods, and weightcontrol food products. Below is a five-year
Apple a Day, Inc., and Unforgettable Edibles, Inc. are food catering businesses that operate in the same metropolitan area. Their customers include Fortune 500 companies, regional firms, and
Using data from the CVS Corporation annual report in the Supplement to Chapter 1, conduct a comprehensive ratio analysis that compares the company’s performance in 2004 and 2003. If you have
Refer to the annual report of CVS Corporation and the financial statements of Southwest Airlines Co. in the Supplement to Chapter 1. Prepare a table for the following key financial performance
Executive compensation is often based on meeting certain targets for revenue growth, earnings, earnings per share, return on assets, or other performance measures. But what if performance is not
Go to the website for Moody’s Investors Service. Click on “ratings,” which will show revisions of debt ratings issued by Moody’s in the past few days.Choose a rating that has been upgraded or
Divide into groups. Assume your group is analyzing the fate of the larger airlines, such as United and American. You have the following information:a. Between 1999 and now, the long-term debt,
Ratio analysis enables one to compare the performance of companies whose financial statements are presented in different currencies. Selected data from 2004 for two large pharmaceutical
Murray Corporation began investing in trading securities in 20x6. At the end of 20x6, it had the following trading portfolio:Prepare the necessary year-end adjusting entry on December 31 and the
On December 31, 20x6, the market value of Rapid Tech Company’s portfolio of long-term available-for-sale securities was $640,000. The cost of these securities was $570,000. Prepare the entry to
Assume that on December 31, 20x7, the cost of Rapid Tech Company’s portfolio of long-term available-for-sale securities was $1,280,000 and that its market value was $1,200,000. Prepare the entry to
Blanco Company owns 30 percent of Heaton Company. In 20x6, Heaton Company earned $60,000 and paid $40,000 in dividends. Prepare entries in journal form for Blanco Company’s records on December 31
For each of the investments listed below, tell which of the following methods should be used for external financial reporting: (a) cost-adjusted-tomarket method, (b) equity method, (c) consolidation
Sutton Hills Corporation buys 100 percent ownership of Winter Treats Corporation for $100,000. At the time of the purchase, Winter Treats’stockholders’ equity consisted of $20,000 in common stock
Assume the same facts as in SE 6 except that Sutton Hills purchased 80 percent of Winter Treats Corporation for $80,000. After the purchase, what would be the amount, if any, of the following
Assume the same facts as in SE 6 except that the purchase of 100 percent of Winter Treats Corporation was for $120,000. After the purchase, what would be the amount, if any, of the following accounts
T Company owns 100 percent of C Company. The following are accounts from the balance sheets and income statements of both companies:What would be the combined amount of each of the above accounts on
Develop brief answers to each of the following questions:1. Where in the financial statements are investment transactions reported?2. What would cause an Allowance to Adjust Short-Term Investments to
Develop brief answers to each of the following questions:1. Under what conditions would a company have both minority interest and goodwill in a consolidation?2. Why must the financial statements of
Omar Corporation, which has begun investing in trading securities, engaged in the following transactions:Jan. 6 Purchased 7,000 shares of Quaker Oats stock, $30 per share.Feb. 15 Purchased 9,000
Fulco Corporation has the following portfolio of long-term available-forsale securities at year end, December 31, 20x2:Both the Unrealized Loss on Long-Term Investments account and the Allowance to
On January 1, Rourke Corporation purchased, as long-term investments, 8 percent of the voting stock of Taglia Corporation for $250,000 and 45 percent of the voting stock of Curry Corporation for $2
On January 1, 20xx, Orchid Corporation acquired 40 percent of the voting stock of Vose Corporation, an amount sufficient to exercise significant influence over Vose Corporation’s activities, for
Teague Corporation has the following long-term investments:1. 60 percent of the common stock of Ariel Corporation 2. 13 percent of the common stock of Copper, Inc.3. 50 percent of the nonvoting
Edson Manufacturing Company purchased 100 percent of the common stock of Liverpool Manufacturing Company for $600,000. Liverpool’s stockholders’ equity included common stock of $400,000 and
The stockholders’ equity section of Caritas Corporation’s balance sheet appeared as follows on December 31:Swanson Manufacturing Company owns 80 percent of Caritas’s voting stock and paid
On September 1, 20x6, A Company purchased 100 percent of the voting stock of B Company for $480,000 in cash. The separate condensed balance sheets immediately after the purchase were as
Arnold Company has owned 100 percent of Van Rossum Company since 20x6. The income statements of these two companies for the year ended December 31, 20x7, follow.The following is additional
Dale Company experiences heavy sales in the summer and early fall, after which time it has excess cash to invest until the next spring. On November 1, 20x6, the company invested $194,000 in U.S.
Gulf Coast Corporation is a successful oil and gas exploration business in the southwestern United States. At the beginning of 20xx, the company made investments in three companies that perform
Rylander Corporation owns 35 percent of the voting stock of Waters Corporation. The Investment account on Rylander’s books as of January 1, 20xx, was $720,000. During 20xx, Waters reported the
The balance sheets of Saba and Joseph Companies as of December 31, 20xx, appear on the next page.Assume that Saba Company purchased 100 percent of Joseph’s common stock for $700,000 immediately
In a cash transaction, Geis Company purchased 70 percent of the outstanding stock of Vogel Company for $593,600 cash on June 30, 20xx. Immediately after the acquisition, the separate balance sheets
On January 2, 20x6, the Healey Company made several long-term investments in the voting stock of various companies. It purchased 10,000 shares of Zima at $4.00 a share, 15,000 shares of Kane at $6.00
Bon Company owns 40 percent of the voting stock of Macree Company.The investment account for this company on Bon’s balance sheet had a balance of $300,000 on January 1, 20xx. During 20xx, the
The balance sheets of Cheever and Ham Companies as of December 31, 20xx, are as follows.Assume that Cheever Company purchased 100 percent of Ham’s common stock for $1,400,000 immediately prior to
During certain periods, Yang Company invests its excess cash until it is needed. During 20x6 and 20x7, Yang engaged in these transactions:20x6 Jan. 16 Invested $146,000 in 120-day U.S. Treasury bills
Dell Computer Corporation has significant investment activities. The following items are from Dell’s 2004 financial statements (in millions):Dell states that all debt and equities securities are
DreamWorks Animation makes well-known animated films like Shrek 2.Two items on the company’s 2004 balance sheet are as follows:1. What is the difference between goodwill and minority interest and
National Stores Corporation is one of the largest owners of discount appliance stores in the United States. It owns Bi-Lo Superstores and several other discount chains. It has a wholly owned finance
Jackson Christmas Tree Company’s business—the growing and selling of Christmas trees—is seasonal. By January 1, after its heavy selling season, the company has cash on hand that will not be
Refer to Note 2 of CVS Corporation’s annual report in the Supplement to Chapter 1. The company announces plans to finalize the acquisition of Eckerd Drugstores from J. C. Penney in early 2005. What
Refer to the annual report of CVS Corporation and the financial statements of Southwest Airlines Co. in the Supplement to Chapter 1. Refer to comprehensive income (loss) in each company’s statement
Refer to the discussion about insider trading in this chapter to answer the following questions:1. What does insider trading mean?2. Why do you think insider trading is illegal in the United States
Mergers and acquisitions are in the news almost every day. Go to the website for MSNBC and scan recent headlines to locate two articles related to one company purchasing or making an offer to
Microsoft, one of the most successful businesses in the history of commerce, has accumulated a large investment portfolio, which in a recent year consisted of the following (in millions):In addition,
Listed below are common terms associated with bonds:a. Bond certificate j. Coupon bondsb. Bond issue k. Callable bondsc. Bond indenture l. Convertible bondsd. Unsecured bonds m. Face interest ratee.
Abel Corporation has $10,000,000 of 10.5 percent, 20-year bonds dated June 1, 20x7, with interest payment dates of May 31 and November 30.After ten years the bonds are callable at 104, and each
Julio Corporation has $8,000,000 of 9.5 percent, 25-year bonds dated March 1, 20x7, with interest payable on February 28 and August 31. The company’s fiscal year end is February 28. It uses the
Waxman Corporation issued bonds twice during 20x7. A summary of the transactions involving the bonds follows.20x7 Jan. 1 Issued $6,000,000 of 9.9 percent, ten-year bonds dated January 1, 20x7, with
In 20x6, the Fender Corporation was authorized to issue $60,000,000 of sixyear unsecured bonds. The bonds carried a face interest rate of 9 percent, payable semiannually on June 30 and December 31.
Bassi Corporation has $8,000,000 of 9.5 percent, 25-year bonds dated May 1, 20x6, with interest payable on April 30 and October 31. The company’s fiscal year ends on December 31, and it uses the
Khan Corporation has $20,000,000 of 10.5 percent, 20-year bonds dated June 1, 20x7 with interest payment dates of May 31 and November 30. The company’s fiscal year ends November 30. It uses the
Pakesh Corporation issued bonds twice during 20x7. The transactions were as follows:20x7 Jan. 1 Issued $2,000,000 of 9.2 percent, ten-year bonds dated January 1, 20x7, with interest payable on June
Eastman Kodak, the photography company, issued a $1 billion bond issue. Even though the company’s credit rating was low, the bond issue was well received by the investment community because the
Safeway Inc. is one of the largest food and drug retailers in North America.Among its long-term liabilities was a bond due in 2004 that carried a face interest rate of 9.65 percent.14 Recently, this
During economic recessions, occupancy rates of hotels generally decline, and as a result, the hotels are forced to reduce their room prices. The impact on a hotel’s cash flows may be such that it
Amazon.com, Inc., gained renown as an online marketplace for books, records, and other products. Although the increase in its stock price was initially meteoric, only recently has the company begun
The Weiss Chemical Corporation plans to build or lease a new plant that will produce liquid fertilizer for the agricultural market. The plant is expected to cost $800,000,000 and will be located in
To answer the following questions, refer to the financial statements and the notes to the financial statements in CVS Corporation’s annual report in the Supplement to Chapter 1:1. Is it the
Refer to the annual report of CVS Corporation and the financial statements of Southwest Airlines Co. in the Supplement to Chapter 1. Calculate the debt to equity ratio and the interest coverage ratio
CellWorks Technology, Inc., a biotech company, has a $24,000,000 bond issue outstanding. The bond indenture has several restrictive provisions, including requirements that current assets exceed
During economic or industry recessions, it is common to see downward revisions of bond ratings. Access Standard & Poor’s list of companies with lowered bond ratings and identify three whose names
The Wall Street Journal reported, “Financially ailing Trans World Airlines has renegotiated its agreement to sell its 40 landing and takeoff slots and three gates at O’Hare International Airport
Japanese companies have historically relied more on debt financing and are more highly leveraged than U.S. companies. For instance, NEC Corporation and Sanyo Electric Co., two large Japanese
Indicate whether each of the following actions is related to (a) managing under the corporate form of business, (b) using equity financing,(c) determining dividend policies, (d) evaluating
At the beginning of 20x6, Batson Company incurred the following startup and organization costs: (1) attorneys’ fees with a market value of$10,000, paid with 6,000 shares of $1 par value common
On June 6, Aretha Dafoe exercised her option to purchase 20,000 shares of Shalom Company $1 par value common stock at an option price of $8. The market price per share was $8 on the grant date and
Prepare the stockholders’ equity section of Fina Corporation’s balance sheet from the following accounts and balances on December 31, 20xx: Common Stock, $10 par value, 30,000 shares Balance
Tone Corporation has authorized 200,000 shares of $1 par value common stock, of which 160,000 are issued and 140,000 are outstanding. On May 15, the board of directors declared a cash dividend of
The Ferris Corporation has 2,000 shares of $100, 8 percent cumulative preferred stock outstanding and 40,000 shares of $1 par value common stock outstanding. In the company’s first three years of
Rattich Company is authorized to issue 50,000 shares of common stock.The company sold 2,500 shares at $12 per share. Prepare entries in journal form to record the sale of stock for cash under each of
Learner Corporation issued 16,000 shares of its $1 par value common stock in exchange for land that had a fair market value of $100,000. Prepare in journal form the entries necessary to record the
Prepare in journal form the entries necessary to record the following stock transactions of the Seoul Company during 20xx:Oct. 1 Purchased 2,000 shares of its own $2 par value common stock for $20
On October 28, 20xx, the Seoul Company (SE 10) retired the remaining 700 shares of treasury stock. The shares were originally
Develop brief answers to each of the following questions:1. Why are most large companies established as corporations rather than as partnerships?2. Why do many companies like to give stock options as
Develop brief answers to each of the following questions:1. Why would a company want to issue callable preferred stock?2. What arguments can you give for treating preferred stock as debt rather than
In 20x8, Rhinehart Corporation earned $4.40 per share and paid a dividend of $2.00 per share. At year end, the price of its stock was $66 per share. Calculate the dividends yield and the
The following accounts and balances are from the records of Guard Corporation on December 31, 20xx:Prepare the stockholders’ equity section for Guard Corporation’s balance sheet as of December
Indicate whether each of the following characteristics is more closely associated with common stock (C) or preferred stock (P):1. Often receives dividends at a set rate 2. Is considered the residual
Rath School Supply Corporation was organized in 20xx. It was authorized to issue 200,000 shares of no-par common stock with a stated value of $5 per share, and 40,000 shares of $100 par value, 6
Mendoza Corporation secured authorization from the state for 100,000 shares of $10 par value common stock. It has 80,000 shares issued and 70,000 shares outstanding. On June 5, the board of directors
Martin Corporation has 250,000 authorized shares of $1 par value common stock, of which 200,000 are issued, including 20,000 shares of treasury stock. On October 15, the corporation’s board of
Canterbury Corporation has 20,000 shares of its $100 par value, 7 percent cumulative preferred stock outstanding, and 100,000 shares of its $1 par value common stock outstanding. In Canterbury’s
Khandi Corporation pays dividends at the end of each year. The dividends that it paid for 20x6, 20x7, and 20x8 were $160,000, $120,000, and$360,000, respectively. Calculate the total amount of
Red Valley Company is authorized to issue 100,000 shares of common stock. On August 1, the company issued 5,000 shares at $25 per share.Prepare entries in journal form to record the issuance of stock
On July 1, 20xx, Gorlin, a new corporation, issued 40,000 shares of its common stock to finance a corporate headquarters building. The building has a fair market value of $1,200,000 and a book value

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