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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

A consumer products company reported a 6.8 percent increase in sales from 2003 to 2004. Sales in 2003 were $20,917. In 2004, the company reported cost of goods sold in the amount of S9.330. What was
Compute the return on equity ratio for 2004 given the following data:LO1 Net income Stockholders' equity Total assets Interest expense 2004 $ 185,000 1.000.000 2.400.000 40.000 2003 $ 160.000
Compute the financial leverage percentage for 2004 given the following data:LO1 Return on equity Return on assets Profit margin 2004 2003 22% 24% 8 6 12 10
A manufacturer reported an inventor) turnover ratio of 8.6 during 2003. During 2004. management Introduced a new inventor) control system thai was expected to reduce average imenton levelsb) 25
Scruggs Company reported total assets of $ 1 ,200,000 and noncurrent assets of $480,000. The company also reported a current ratio of 1.5. What amount of current liabilities did the company report?LO1
In 2003, Drago Company reported earnings per share of $8.50 when its stock was selling for $212.50.In 2004, its earnings increased by 20 percent. If all other relationships remain constant, what is
An Internet company earned $5 per share and paid dividends of $2 per share. The company reported a dividend yield of 5 percent. What was the price of the stock?
Lexis Corporation is considering changing its inventory method from FIFO to LIFO and wants to determine the impact on selected accounting ratios. In general, what impact would you expect on the
Match each ratio or percentage with its computation by entering the appropriate letters in the blanks. Ratios or Percentages 1. Profit margin 2. Inventory turnover ratio 3. Average collection period
Walgreens is one of the fastest-growing retailers in the United States. It claims to lead the chain drugstore industry in sales and profits. Complete component percentage analysis on the company's
Current assets totaled $54,000, and the current ratio was 1.8. Assume that the following transactions were completed: (1) purchased merchandise for $6,000 on short-term credit and (2) purchased a
Sunbeam is a leading designer, manufacturer, and marketer of branded consumer products, including Mr. Coffee, Osterizer, First Alert, and Coleman camping gear. Recently, the company has experienced
Procter & Gamble is a multinational corporation that manufactures and markets many products that are probably in your home. Last year, sales for the company were $38, 1 25 (all amounts in
Motorola is a global leader in providing integrated communications and electronic solutions for businesses.Its financial statements reported the following at year-end (in millions):Required:Compute
Dollar General Corporation operates general merchandise stores that feature quality merchandise at low prices to meet the needs of middle-, low-, and fixed-income families. All stores are located in
Sales for the year were $600,000, of which one-half was on credit. The average gross margin rate was 40 percent on sales. Account balances follow:Required:Compute the turnover for the accounts
Current assets totaled $500,000, the current ratio was 2.0, and the company uses the periodic inventory method. Assume that the following transactions were completed: (1) sold $12,000 in merchandise
Cintas designs, manufactures, and implements corporate identity uniform programs that it rents or sells to customers throughout the United States and Canada. The company's stock is traded on the
The following selected financial data pertain to tour unidentified companies:This financial information pertains to the following companies:a. Travel agencyc. Meat packerb. Hoteld. Drug company
The following selected financial data pertain to four unidentified companies:This financial information pertains to the following companies:a. Cable TV companyb. Grocery store Required:Match each
The selected financial data shown below pertain to four unidentified companies.This financial information pertains to the following companies:a. Full-line department storeb. Wholesale fish company
The comparative financial statements prepared at December 3 1 . 2004. for Goldfish Company showed the following summarized data:Required: 1. Complete the following columns for each item in the
Use the data given in PI 4-1 for Goldfish Company.Required: 1. Present component percentages for 2004 only. 2. Respond to the following for 2004:a. What was the average percentage markup on sales?b.
Use the data in PI 4-1 for Goldfish Company. Assume a stock price of $28 per share. Compute appropriate ratios and explain the meaning of each.LO1
Sears, Roebuck and JCPenney are two giants of the retail industry. Both offer full lines of moderately priced merchandise. Annual sales for Sears total $41 billion. JCPenney is somewhat smaller with
The price/earnings ratio provides important information concerning the stock market's assessment of the growth potential of a business. The following are price/earnings ratios for selected companies
The 2004 financial statements tor Armstrong and Blair companies are summarized here:The companies are in the same line of business and are direct competitors in a large metropolitan area.Both have
Lands' End is a direct merchant offering traditionally styled casual clothing and accessories through catalogs and the Internet. The following information was reported in a recent annual statement.
Taber Company has just prepared the following comparative annual financial statements for 2004:Required (round percentage and ratios to two decimal places): 1. For 2004, compute the tests of (a)
The following information was contained in the annual financial statements of Pine Company, which started business January 1, 2003 (assume account balances only in Cash and Capital Stock on this
Coke and Pepsi are well-known international brands. Coca-Cola sells more than $13 billion worth of coca_Cola beverages each year while annual sales of Pepsi products exceed $22 billion. Compare the
The 2004 financial statements for Rand and Tand companies are summarized here:These two companies are in the same line of business and in the same state but in different cities. Each company has been
La-Z Boy manufactures and sells furniture including its popular reclining chair. Annual revenues exceed$2 billion. The following information was reported in a recent annual statement. Compute the
Refer to the financial statements of American Eagle Outfitters given in Appendix B on page 749. or open file AEOS.pdf in the Annual Report Cases directory on the student CD-ROM. From the list of
Refer to the financial statements of Abercrombie & Fitch given in Appendix C on page 788, or open file ANF.pdf in the Annual Report Cases directory on the student CD-ROM. From the list of ratios
Refer to the financial statements of American Eagle Outfitters given in Appendix B, Abercrombie &Fitch given in Appendix C, and the Industry Ratio Report given in Appendix D at the end of this book
In this chapter, we discussed the ROE profit driver (or DuPont model). Using that framework, find the missing amount in each case that follows:Case 1: ROE is 10 percent, net income is $200,000; asset
In this chapter, we discussed the importance of analyzing financial results based on an understanding of the company's business strategy. Using the ROE model, we illustrated how different strategies
An important source of information for most investors is the analyst report published by all large investment firms. A professional analyst report* for Home Depot is available on the
Speedy Company uses the sum-of-years' -digits method to depreciate its property, plant, and equipment, and Turtle Company uses the straight-line method. Both companies use 175 percent
Three commonly used measures of liquidity are the current ratio, the quick ratio, and working capital.For each of the following transactions, determine whether the measure will increase, decrease, or
Almost Short Company requested a sizable loan from First Federal Bank to acquire a large tract of land for future expansion. Almost Short reported current assets of $1,900,000 ($430,000 in cash) and
As a team, select an industry to analyze. Each team member should acquire the annual report or 10-K for one publicly traded company in the industry, with each member selecting a different company.
Explain the difference between a short-term investment and a long-term investment.LO1
What is goodwill?LO1
What is a parent-subsidiary relationship?LO1
Company A purchases 10 percent of Company X and intends to hold the stock for at least five years. At the end of the current year, how would Company A's investment in Company X be re- ported on
Dividends received from a stock that is reported as a Security Available for Sale in the long-term asset section of the balance sheet are reported as which of the following?a. an increase to cash and
Realized gains and losses are recorded on the income statement for which of the following trans- actions in trading securities and available-for-sale securities?a. when adjusting a trading security
When recording dividends received from a stock investment accounted for using the equity method, which of the following statements is true?a. Total assets are increased and net income is increased.b.
When using the equity method of accounting, when is revenue recorded on the books of the in- vestor company?a. when the market value of the investee stock increasesb. when a dividend is received from
Which of the following items is reported in the Investing Section of the statement of cash flows when a stock investment is sold?a. the subtraction of a resulting gain on the saleb. the addition of a
Match the following. Answers may be used more than once:LO1 Measurement Method A. Market value method B. Equity method C. Consolidation D. Unamortized cost - More than 50 percent ownership Bonds held
Wall Company purchased $1,000,000. 8 percent bonds issued by Janice Company on January 1. 2003.The purchase price of the bonds was $1,070,000. Interest is payable semiannually each June 30 and
During 2004. Princeton Company acquired some of the 50,000 outstanding shares of the common slock, par $10, of Cox Corporation as trading securities. The accounting period for both companies ends
Using the following categories, indicate the effects of the transactions listed in Ml 2-3. Use + for increase and — for decrease and indicate the amounts. BALANCE SHEET Transaction 1ssets
Using the following categories, indicate the effects of the transactions listed in Ml 2-4. Use + for increase and - for decrease and indicate the amounts.LO1 BALANCE SHEET Transaction Assets
On January 1. 2003, Ubuy.com acquired 25 percent ( 10,000 shares) of the common stock of E-Net Corporation. The accounting period for both companies ends December 31. Give the journal entries for
Using the following categories, indicate the effects of the transactions listed in M12-7. Use + for increase and - for decrease and indicate the accounts affected and the amounts.LO1 BALANCE SHEET
Philadelphia Textile Company acquired Boston Fabric Company for $600,000 cash when Boston's only assets, property and equipment, had a book value of $590,000 and a market value of
MAD Company reported the following information at the end of each year:Compute return on assets for 2004, 2005, and 2006. What do the results suggest about MAD Company?LO1 Year Net Income Total
Disney owns theme parks, movie studios, television and radio stations, newspapers, and television networks, including ABC and ESPN. Its balance sheet recently reported goodwill in the amount of S16
Sears. Roebuck & Co. is perhaps best known for its mall-based retail stores that sell apparel, home, and automotive products. The company does more than S41 billion in sales each year.Assume that as
Company A purchased a certain number of Company B's outstanding voting shares at S18 per share as a long-term investment. Company B had outstanding 20.000 shares of S10 par value stock. Complete the
On June 30, 2003. MetroMedia, Inc., purchased 10,000 shares of Mitek stock for $20 per share. Management purchased the stock for speculative purposes and recorded the stock in the trading securities
On March 10, 2004, General Solutions, Inc., purchased 5,000 shares of MicroTech stock for $50 per share. Management purchased the stock for speculative purposes and recorded it in the trading
Felicia Company acquired some of the 60,000 shares of outstanding common stock (no-par) of Nueces Corporation during 2004 as a long-term investment. The annual accounting period for both companies
Using the data in El 2-7, answer the following questions.Required: 1. On the current year cash flow statement, how would the investing section of the statement be affected by the preceding
The notes to the financial statements of Colgate-Palmolive contained the following information:Assume that the fair value of the net assets of Mennen equaled S410 million and the par value of
The annual report for DaimlerChrysler includes the statement that "intercompany accounts and transactions have been eliminated in consolidation." In your own words, explain the meaning of this
Assume that P Company acquired S Company on January 1 , 2005, for $100,000 cash. At the time, the net book value of S Company was $90,000. The market value was $96,000 with property and equipment
Starbucks is a rapidly expanding company that provides high-quality coffee products. Assume that as pan of its expansion strategy, Starbucks plans to open numerous new stores in Mexico in five
On March 1, 2003, HiTech Industries purchased 10,000 shares of Integrated Services Company for$20 per share. The following information applies to the stock price of Integrated Services: 12/31/2003
Required: 1. Prepare journal entries to record the facts in the case, assuming that HiTech purchased the shares for the trading portfolio. 2. Prepare journal entries to record the facts in the case,
During January 2004, Crystal Company purchased the following shares as a long-term investment:Required: 1. What accounting method should be used for the investment in Q common stock? R preferred
On August 4. 2002. Coffman Corporation purchased 1 .000 shares of Dittman Company for S45.000.The following information applies to the stock price of Dittman Compam :Dittman Company declares and pays
Company C had outstanding 30,000 shares of common stock, par value $10 per share. On January 1, 2003, Company D purchased some of these shares as a long-term investment at $25 per share. At the end
Ship Corporation had outstanding 100,000 shares of no-par common stock. On January 10, 2004, Shore Company purchased a block of these shares in the open market at $20 per share for long-term
During 2005. Oscar Company purchased some of the 90.000 shares of common stock, par S8. of Selma. Inc.. as a long-term investment. The annual accounting period for each company ends December 31. The
On January 4. 2004, Pronti Company acquired all of the net assets of Scott Company for SI 20.000 cash. The two companies merged with Pronti Company surviving. The balance sheets for each company
Verizon Communications Inc. was formed by the merger of Bell Atlantic Corporation and GTE Corporation.It is the largest provider of wireline and wireless communication sen ices in the United States
On January 4, 2004. Penn Company acquired all 8,000 outstanding shares of Syracuse Company for$12 cash per share. Immediately after the acquisition, the balance sheets reflected the
Blimpie International Inc. sells franchises for Blimpie Subs & Salads (offering a quick-service sub sandwich in approximately 2,000 franchise stores throughout the United States and 12 countries),
On September 15, 2004. James Media Corporation purchased 5,000 shares of Community Broadcasting Company for $30 per share. The following information applies to the stock price of Community
Packer Company purchased, as a long-term investment, some of the 200.000 shares of the outstanding common stock of Boston Corporation. The annual accounting period for each company ends December 31.
For each of the transactions in API 2-4, indicate how the operating activities and investing activities sections of the cash flow statement will be affected.LO1
On June 1, 2003, Pi Company acquired all of the net assets of Sigma Company for $120,000 cash. The two companies merged with Pi Company surviving. The balance sheets for each company prior to the
Marriott International, Inc., is a global leader in the hospitality industry with more than 2,200 operating units in 60 countries. The following information was reported in the company's 2000 annual
Refer to the financial statements of American Eagle Outfitters given in Appendix B at the end of this book, or open file AEOS.pdf in the Annual Report Cases directory on the student CD-ROM.Required:
Refer to the financial statements of Abercrombie & Fitch given in Appendix C at the end of this book, or open file ANF.pdf in the Annual Report Cases directory on the student CD-ROM.Required: 1. What
Refer to the financial statements of American Eagle Outfitters given in Appendix B, Abercrombie &Fitch given in Appendix C, and the Industry Ratio Report given in Appendix D at the end of this book,
On January 1 , 2004, Woodrow Company purchased 30 percent of the outstanding common stock of Trevor Corporation at a total cost of $560,000. Management intends to hold the stock for the long term. On
Diageo is a major international company located in London. A recent annual report contained the following information concerning its accounting policies. Acquisitions On the acquisition of a
Assume that you are on the board of directors of a company that has decided to buy 80 percent of the outstanding stock of another company within the next three or four months. The discussions have
Assume that you are a financial analyst for a large investment banking firm. You are responsible for analyzing companies in the retail sales industry. You have just learned that a large West Coast
Classify cash flow statement items as part of net cash flows from operating, investing, and financing activities, p. 647
a. Report and interpret cash flows from operating activities using the indirect method, p. 651b. Report and interpret cash flows from operating activities using the direct method, p. 657 LO1
Analyze and interpret the quality of income ratio, p. 662 LO1
Report and interpret cash flows from investing activities, p. 664 LO1
Analyze and interpret the capital acquisitions ratio, p. 666 LO1

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