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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

Report and interpret cash flows from financing activities, p. 667 LO1
Explain the impact of additional cash flow disclosures, p. 669 LO1
What information does the statement of cash flows report that is not reported on the other re- quired financial statements? How do investors and creditors use that information?LO1
What are the major categories of business activities reported on the statement of cash flows? De- fine each of these activities.LO1
Compare the two methods of reporting cash flows from operating activities in the statement of cash flows.LO1
Most companies use the indirect method of computing the change in cash from operating activities because of the following reason(s):a. The FASB prefers the indirect method.b. It is less costly to
If the balance in prepaid expenses increased during the year, what action should be taken on the statement of cash flows when following the indirect method, and why'!a. The change in the account
The change in cash shown in the operating section of the statement of cash flows should equal which of the following?a. net income on the income statementc. the change in accounts pa\ ableb. the
Adolph Coors Company, founded in 1873, is the third largest U.S. brewer. Its tie to the magical appeal of the Rocky Mountains is one of its most powerful trademarks. Some of the items included in its
Indicate whether each item would be added (+) or subtracted (-) in the computation of cash flow from operating activities using the indirect method. 1. Depreciation, depletion, and amortization. 2.
Lion Nathan, brewer of XXXX, Toohey's, and other well-known Australian brands, has net revenue of more than $1 billion Australian. Some of the items included in its recent annual consolidated
Lisa K. Corporation reported net income of $80,000, depreciation expense of $3,000, and cash flow from operations of $60,000. Compute the quality of income ratio. What does the ratio tell you about
Based on the following information, compute cash flows from investing activities.LO1 Cash collections from customers $800 Sale of used equipment Depreciation expense Purchase of short-term
Based on the following information, compute cash flows from financing activities.LO1 Purchase of short-term investments Dividends paid Interest paid Additional short-term borrowing from bank $ 250
Which of the following transactions qualify as noncash investing and financing activities?Purchase of equipment with short-term investments Dividends paid in cash Purchase of building with mortgage
Nike, Inc., is the best-known sports shoe, apparel, and equipment company in the world because of its association with sports legends such as Michael Jordan, teams such as the Michigan Wolverines,
Stanley Furniture Company is a Virginia-based furniture manufacturer. For each of die follow ing firstquarter transactions, indicate whether net cash inflows (outflows) from operating activities
Compaq Computer Corporation is a leading manufacturer of personal computers and servers for the business and home markets. For each of the following recent transactions, indicate whether net cash
The following information pertains to Day Company:Required:Present the Operating Activities section of the statement of cash flows for Day Company using the indirect method. Sales $80,000 Expenses
Kane Company completed its income statement and balance sheet for 2006 and provided the following information:Required: 1. Present the Operating Activities section of the statement of cash flows for
Sizzler International. Inc., operates 700 family restaurants around the world. The company's recent annual report contained the following information (in thousands):Required: 1. Based on this
A recent statement of cash flows for Colgate-Palmolive reported the following information (in millions):Required:Based on the information reported on the statement of cash flows for
A recent statement of cash flows for Apple Computer contained the following information (in thousands):Required:For each of the asset and liability accounts listed on the statement of cash flows,
Refer to the information for Kane Company in Exercise 13.7.Required: 1. Present the Operating Activities section of the statement of cash flows for Kane Company using the direct method. Assume that
Refer back to the information given for Exercise 13.8 and the following summarized income statement for Sizzler International, Inc.:Required: 1. Based on this information. compute cash flow from
A recent annual report for PepsiCo contained the following information for the period (in millions):Required: 1. Compute cash flows from operating activities for PepsiCo using the indirect method. 2.
Gibraltar Steel Corporation is a Buffalo, New York-based manufacturer of high-value-added coldrolled steel products. In a recent year, it reported the following activities:Required: 1. Based on this
A recent annual report for Pete's Brewing Company contained the following data for the three most recent years:Required: 1. Compute the capital acquisitions ratio for the three-year period in total.
AMC Entertainment is the second-largest motion picture exhibitor in the United States. The following was abstracted from the company's statement of cash flows (in thousands):Required:Determine the
During the period, English Company sold some excess equipment at a loss. The following information was collected from the company's accounting records:No new equipment was bought during the
An analysis of accounts follows:a. Purchased equipment. $20,000, and issued capital stock in full payment.b. Purchased a long-term investment for cash. S15.(KX).c. Paid cash dividend. $12,000.d. Sold
The income statement of Frank Corporation follows on the next page.Analysis of Selected 2004 Account Balances and Transactions:a. Purchased investment securities for $5,000 cash.b. Borrowed $15,000
Rocky Mountain Chocolate Factory manufactures an extensive line of premium chocolate candies for sale at its franchised and company-owned stores in malls throughout the United States. Its balance
Use the information concerning Frank Corporation provided in Problem 13-1 to fulfill the following requirement.Required:Prepare a statement of cash flows, direct method, using the schedule approach.
Stonewall Company was organized on January 1, 2003. During the year ended December 31, 2003, the company provided the following data:Analysis of Selected Accounts and Transactions:a. Sold 3,000
Ellington Company is developing its 2004 annual report. The following information is provided:Other Information:a. Sold long-term investment at book value. $3,200. Purchased fixed assets by issuing
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,
Scottish & Newcastle serves up Courage by the pint. The U.K.'s largest brewer, it makes a number of popular beers, including Courage, John Smith's, Newcastle, and McEwan's. It also makes licensed
As a team, select an industry to analyze (industry lists can be found at www.marketguide.com/mgi/Y.html and www.hoovers.com; click on companies and industries). Each team member should acquire the
Differentiate secured bonds from unsecured bonds.LO1
Differentiate among the stated and effective rates of interest on a bond (a) sold at par. (b) sold at a discount, and (c) sold at a premium.LO1
Which of the following is not an advantage of issuing bonds when compared to issuing additional shares of stock in order to obtain additional capital?a. Stockholders maintain proportionate ownership
Which of the following does not impact the calculation of the cash interest payments to be made to bondholders?a. par value of the bondb. coupon rate of interestc. market rate of interestd. the
Which account would not be included in the debt-to-equity ratio calculation?a. Unearned Revenueb. Retained Earnings LO1
Which of the following is false when a bond is issued at a premium?a. The bond will issue for an amount above its par value.b. "Bonds payable" will be credited for the par value of the bond.c.
When the issuing corporation has the right to terminate the relationship with the bondholder early and repay the amount borrowed ahead of schedule, we say that the bond isa. convertibleb. securedc.
To determine whether a bond will be sold at a premium, discount, or at face value, one must know which of the following pairs of information?a. the par value and the coupon rate on the date the bonds
Which of the following would not appear in the Financing section of the statement of cash flows?a. cash interest payments to bondholdersb. principal repayments to bondholdersc. amounts borrowed from
When using the effective interest method of amortization, the book value of the bonds changes by what amount on each interest payment date?a. interest expenseb. cash interest paymentc. amortizationd.
Coopers Company plans to issue $500,000, 10-year, 10 percent bonds. Interest is payable semiannually each June 30 and December 3 1 . All of the bonds will be sold on January 1, 2003. Determine the
Waterhouse Company plans to issue $300,000, 10-year, 10 percent bonds. Interest is payable semiannually each June 30 and December 31. All of the bonds will be sold on January 1, 2003. Determine the
Price Company issued S500.000. 10-year, 8 percent bonds on January 1, 2003. The bonds sold for$545,000. Interest is payable semiannually each June 30 and December 3 1 . Record the sale of the bonds
IDS Company issued SI,000,000. 10-year, 8 percent bonds on January 1. 2003. The bonds sold for SI,070.000. Interest is payable semiannually each June 30 and December 31. Record the sale of the bonds
Garland Company issued $600,000, 10-year, 10 percent bonds on January 1. 2003. The bonds sold for$580,000. Interest is payable semiannually each June 30 and December 31. Record the sale of the bonds
Hopkins Company issued $800,000, 10-year. 10 percent bonds on January 1. 2003. The bonds sold for$753,000. Interest is payable semiannually each June 30 and December 31. Record the sale of the bonds
Lennar Homes is a nationwide builder of new homes that has constructed more than 140.000 singlefamily residences since its founding in 1954. The company is currently traded on the New York Stock
Grocery Corporation sold a $250,000, 1 1 percent bond issue on January 1, 2003, at a market rate of 8 percent. The bonds were dated January 1 , 2003, with interest to be paid each December 3 1 ; they
The annual report of Apple Computer, Inc., contained the following note:LO1 Long-Term Debt On February 10, 1994, the Company issued $300 million aggregate principal amount of its 6.5% unsecured
After reading this note, one student asked why Apple didn't simply sell the notes for an effective yield of 6.5 percent and avoid having to account for a very small discount over the next 10 years.
The balance sheet for Carnival Cruise Lines includes "zero coupon convertible subordinated notes."In your own words, explain the features of this debt. The balance sheet does not report a premium or
As this book was being written, the business press reported the following information concerning bonds issued by AT&T:Explain the meaning of the reported information. If you bought AT&T bonds
A recent Walt Disney annual report contained the following note:Required: 1. Describe how this bond would be reported on the balance sheet. 2. Explain why management borrowed money in this manner.
Kaizen Corporation issued a S500.000 bond that matures in 10 years. The bond has a stated interest rate of 10 percent. When the bond was issued, the market rate was 10 percent. The bond pa\ s
Imai Company issued a $1 million bond that matures in five \ears. The bond has a 10 percent stated rate of interest. When the bond was issued, the market rate was 8 percent. The bond pa\s interest
Thompson Corporation is planning to issue SKX).(XK). five-year, S percent bonds. Interest is payable semiannual!) each June 30 and December 31. All of the bonds will be sold on January 1. 2(X)3: they
On January 1, 2003, Seton Corporation sold a $200,000, 8 percent bond issue (9 percent market rate).The bonds were dated January 1, 2003, pay interest each December 31, and mature 10 years from
Northland Corporation had $400,000, 10-year coupon bonds outstanding on December 31, 2003 (end of the accounting period). Interest is payable each December 3 1 . The bonds were issued (sold) on
Stein Corporation issued a $1,000 bond on January 1, 2003. The bond specified an interest rate of 9 percent payable at the end of each year. The bond matures at the end of 2005. It was sold at a
Shuttle Company issued a SI 0,000, three-year, 10 percent bond on January 1. 2003. The bond interest is paid each December 3 i . The bond was sold to yield 9 percent.Required: 1. Complete a bond
A number of events over the life of a bond have effects that are reported on the statement of cash flows. For each of the following events, determine whether the event affects the statement of cash
Sikes Corporation, whose annual accounting period ends on December 3 1 , issued the following bonds:Date of bonds: January 1, 2003 Maturity amount and date: $100,000 due in 10 years (December 31.
The name Hilton is well known in the hotel industry. The Hilton annual report contained the following information concerning long-term debt:Required:Explain why there is a difference between the
Carter Corporation issued $400,000 in bonds that mature in 10 years. The bonds have a stated interest rate of 6 percent and pay interest on March 1 and September 1 . When the bonds were sold, the
Quartz Corporation sold a $500,000. 7 percent bond issue on January 1, 2003. The bonds pay interest each December 3 1 and mature 10 years from January 1 , 2003. For comparative study and analysis,
West Company issued bonds with the following provisions:The annual accounting period ends December 31. The bonds were sold on January 1, 2003. at an 8 percent market rate.Required: 1. Compute the
Berkley Corporation issued bonds and received cash in full for the issue price. The bonds were dated and issued on January 1. 2003. The stated interest rate was payable at the end of each year. The
Dektronik Corporation manufactures electrical test equipment. The company s board of directors authorized a bond issue on January 1. 2003. with the following terms:Required: 1. Compute the bond issue
Federal Express is a name synonymous with overnight delivery of important packages. The annual report for FedEx contains the following note:Required: 1. In your own words, explain the meaning of this
Quaker Oats is a well-known name at most breakfast tables. The company does more than $6 billion in sales revenue each year. The Quaker annual report contained the following information concerning
Carter Corporation issued $2,000,000 in bonds that mature in 10 years. The bonds have a stated interest rate of 8 percent and pay interest on March 1 and September 1 . When the bonds were sold on
On January 1, 2003, Delaware Corporation sold and issued $100,000, five-year, 10 percent bonds. The bond interest is payable annually each December 3 1 . Assume three separate and independent selling
United Products Corporation manufactures office equipment and supplies. The company authorized a bond issue on January 1, 2003. with the following terms:Maturity (par) value: $1,200,000 Interest: 10
AMC Entertainment, Inc., owns and operates 243 movie theaters with 1,617 screens in 22 states. On August 12, 1992, the company sold 1 1 7/8 percent bonds in the amount of $52,720,000 and used the
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. How
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
Cricket Corporation's financial statements for 2003 showed the following:Notice in these data that the company had a debt of only $20,000 compared with common stock outstanding of $200,000. A
JCPenney Company was one of the first companies to issue zero coupon bonds. It issued bonds with i lace (maturity) value of $400 million due eight years after issuance. When the bonds were sold to
Times Company issued a $100,000 bond with a stated interest rate of 8 percent. When the bond was issued, the market rate was 6 percent. The bond matures in 10 years and pays interest on December 31
In this chapter, we talked about bonds primarily from the perspective of the issuing corporation. To understand bonds, it is also necessary to develop an understanding of why investors buy bonds. An
You are working for a large mutual fund company as a financial analyst. You have been asked to review two competitive companies in the same industry. Both have similar cash flows and net income, but
As explained in the chapter, the use of debt offers shareholders the opportunity to earn higher returns, but it also creates higher risk. Different individuals have different preferences for risk and
As a team, select an industry to analyze. Each group member should acquire the annual report or 10-K for one publicly traded company in the industry, with each member selecting a different
What are the possible adverse consequences of ignoring the long-term require¬ ments of the firm?LO1
What are the benefits of a vision statement to the firm?LO1
Why should management focus on long-run performance?LO1
What criteria should managers consider in selecting nonfinancial performance measures?LO1
How does development of bases for comparison for performance measures assist managers?LO1

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