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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

What is the present value of 10 equal payments of $15,000. with an interest rate of 10 percent'1 LO1
As a result of a slowdown in operations. Mercantile Stores is offering to empkn ees « bo have been terminated a severance package of $100,000 cash; another $100,000 to be paid in one year: and an
You plan to retire in 20 years. Is it better for you to save $25,000 a year for the last It) years before retirement or $15,000 for each of the 20 years? You are able to earn 10 percent interest on
You want a retirement fund of $500,000 when you retire in 20 years. You are able to earn 10 percent on your investments. How much should you deposit each year to build the retirement fund that you
Flair Corporation is preparing its 2004 balance sheet. The company records show the following related amounts at the end of the accounting period, December 31, 2004:Required: 1. Compute (a) working
Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Dayton Hudson is one of America's largest general merchandise retailers. Each
Using the data from the previous exercise, complete the following requirements.Required: 1. Determine the financial statement effects for each of the following: (a) issuance of the note on November
McLoyd Company completed the salary and wage payroll for March 2003. The payroll provided the following details:Required: 1. Give the journal entry to record the payroll for March including employee
Town Lake Company has completed the payroll for January 2004. reflecting the following data:Required: 1. What amount of additional labor expense to the company was due to tax laws? What was the
Bryant Company sells a wide range of goods through two retail stores operated in adjoining cities. Most purchases of goods for resale are on invoices. Occasionally, a short-term note payable is used
The annual report for Ford Motor Company contained the following information:Required:Should Ford report a liability for these benefits on its balance sheet? Explain. Postretirement Health Care and
The comparative income statements of Martin Corporation at December 31, 2004, showed the following summarized pretax data:Included in the 2004 data is a $2,800 expense that was deductible only in the
The comparative income statement for Chung Corporation at the end of December 3 1 , 2004, provided the following summarized pretax data:Included in the 2004 data is a S5.000 revenue that was taxable
The annual report for Colgate-Palmolive contains the following information (in millions):Income Taxes Differences between accounting for financial statement purposes and accounting for tax purposes
Carnival Cruise Lines provides exotic vacations on board luxurious passenger ships. In 1998. the company moved its offices and included the following note in its current annual report:Required:Based
On January 1. 2003. Wesley Company completed the following transactions (assume an 11 percent annual interest rale):a. Deposited $ 1 2.000 in Fund A.b. Established Fund Bb) agreeing to make si\
On January 1, 2003, Alan King decided to deposit an amount in a savings account that will provide$80,000 four years later to send his son to college. The savings account will earn 8 percent, which
On each December 3 1 . you plan to deposit $2,000 in a savings account. The account will earn 9 percent annual interest, which will be added to the fund balance at year-end. The first deposit will be
On January 1, 2003. you plan to take a trip around the world upon graduation four years from now.Your grandmother wants to deposit sufficient funds for this trip in a savings account for you. On the
You have the chance to purchase the royalty interest in an oil well. Your best estimate is that the net royalty income will average $25,000 per year for five years. There will be no residual value at
Curb Company completed the following transactions during 2004. The annual accounting period ends December 3 1 , 2004.Required: 1. Prepare journal entries for each of these transactions. 2. Prepare
Using data from the previous problem, complete the following requirements.Required: 1. For each transaction (including adjusting entries) listed in the previous problem, indicate the effects(e.g.,
During 2004. Riverside Company completed the following two transactions. The annual accounting period ends December 3 1a. Paid and recorded wages of $130,000 during 2004: however, at the end of
Using the data from the previous exercise, complete the following requirements.Required: 1. Determine the financial statement effects for each of the following: (a) the adjusting entry required on
Polaroid designs, manufactures, and markets products primarily in instant image recording. Its annual report contained the following note: 1. Assume that estimated warranty costs for 2003 were $2
For each of the following transactions, determine whether cash flows from operating activities will increase, decrease, or remain the same:a. Purchased merchandise on credit.b. Paid an account
PepsiCo, Inc., is a $25 billion company in the beverage, snack food, and restaurant businesses. PepsiCo's annual report included the following note:As a result of this reclassification. PepsiCo's
At December 3 1 . 2003, the records of Pearson Corporation provided the following information:a. Income tax rate, 30 percent. Assume that 85 percent is paid in the year incurred.b. Taxable income
On January 1, 2003, Plymouth Company completed the following transactions (use an 8 percent annual interest rate for all transactions):a. Deposited $50,000 in a debt retirement fund. Interest will be
After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, wellknown magazine subscription company. It has arrived with the good news that you are the big
On December 31. 2003, Post Company deposited in a fund the cash to pay the principal amount of a$140,000 debt due on December 31, 2006. The company will make four equal annual deposits on each
Curb Company completed the following transactions during 2004. The annual accounting period ends December 31, 2004.Required: 1. Prepare journal entries for each of these transactions. 2. Prepare all
Using data from Problem AP9-1. complete the following requirements.Required: 1. Fur each transaction (including adjusting entries) listed in the previous problem, indicate the effects(e.g.. cash + or
Puke Corporation is a national builder of homes that does more than $2 billion in business each year.Its annual report contained the following note: 1. Assume that estimated warranty costs for 2006
General Mills is a multibillion-dollar company that makes and sells products used in the kitchens of most American homes. The Company's annual report included the following note:Should General Mills
The records of Calib Corporation provided the following summarized data for 2006 and 2007:a. Income tax rate, 32 percent. Assume that income taxes payable are paid 80 percent in the current year and
On January 1, 2003, Dodge Company completed the following transactions (use a 10 percent annual interest rate for all transactions):a. Deposited $200,000 in a debt retirement fund. Interest will be
After completing a long and successful career as senior vice president for a large bank, you are preparing for retirement. After visiting the human resources office, you have found that you have
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 tile 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,
Most major airlines have frequent flyer programs that permit passengers to earn free tickets based on the number of miles they have flown. A recent Southwest Airlines annual report contained the
PepsiCo, Inc., manufactures a number of products that are part of our daily lives. Its businesses include Pepsi-Cola, Slice, Mountain Dew, and Fritos. The company's annual revenues exceed $22
Increasingly, companies are becoming sensitive to environmental issues surrounding their business operations. They recognize that some of their actions can have detrimental impacts on the environment
A recent annual report for Exxon included the following note:You are a lending officer for a large commercial bank and for comparative purposes want to compute the present values of these
In some cases, a manager can engage in transactions that improve the appearance of financial reports without affecting the underlying economic reality. In this chapter, we discussed the importance of
As a young analyst at a large mutual fund, you have found two companies that meet the basic investment criteria of the fund. One company has a very high current ratio but a relatively low amount of
liability is both probable and subject to estimate, it must be recorded on the balance sheet. The Financial Accounting Standards Board has defined probable as "the future event or events are likely
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.
Why is performance measurement important to the success of businesses today?
How are organizational missions and strategies related to performance measures?
Why is it necessary to establish benchmarks for performance measurements to be meaningful?
What roles does performance management serve in the management of an organization?
Why do firms need to track measures regarding capital market performance?
In today’s environment of world-class competition, why do organizations need to develop a culture that is accepting of change?
How do managers use information regarding performance of specific product groups and specific subunits?
In designing a performance measurement system, why should managerial re¬ wards be linked to the performance measures?
How should one decide on a basis for measuring the performance of a respon¬ sibility center?
Should performance measures be qualitative, quantitative, or both? Justify your answer.
Can the same quantitative measures of performance be used for all types of responsibility centers? If so, why; if not, why not?
How can feedback, both positive and negative, be used to improve managerial performance?
What is the traditional financial performance measure for a cost center? A rev¬ enue center?
Why is managerial manipulation of reported results an important concern in designing performance evaluation measures? Are internal or external measures more susceptible to manipulation? Explain.
Do the Statement of Cash Flows and the Cash Budget provide identical infor¬ mation on performance? Explain.
The president of Toys for Boys evaluates the performance of Annie and Andy, the divisional managers, on the basis of a variety of net income measures. Drew, the controller, informs the president that
What is the major difference between a profit center and an investment center? How does this difference create the need for a different financial performance measure in an investment center relative
What is the Du Pont model? What are its component ratios?CHAPTER 20 Measuring Short-Run Organizational Performance 949
The senior managers ofJambino’s Bakery Inc. were gathering for their monthly breakfast meeting when Mr. Jambino came in. Norm Henry, the cost account¬ ant, was overhead to say, “. . . turnover
What is residual income and how is it used to measure divisional performance? How is it similar to, and different from, the return on investment measure? How is residual income similar to, and
Identify and discuss the major weaknesses associated with use of ROI and RI as performance measures.
Describe the circumstances in which use of ROI would be likely to create a suboptimization problem. Under what circumstances would use of this measure be less likely to create a suboptimization
(ROI) Lansing Industries has three autonomous divisions. Data for each division for the year 1997 follow:Compute the return on investment for each division. Segment income Asset investment DIVISION 1
(ROI) Carolina Classics has asked you to help its managers determine the ROI for the year just ended. You gather the following information: average assets invested, $1,200,000; revenues, $4,400,000;
(ROI) Your cost accounting class has been assigned a case, but the teachei only provides partial information. You have been told that a division of Texas Mills has an ROI of 12.5 percent, average
(ROT) James Clowe, a division manager of Northfield Oil, provides you with the following information regarding his division:Beginning of the year assets, $150,000 End of the year assets, $194,000
(ROI) For the most recent fiscal year, the Washington Division of Cotter Wholesaling generated an asset turnover ratio of 5 and a profit margin (as mea¬ sured by the segment margin) ratio of 4
(RI) The European Division of Global Department Stores accepted a 12 percent target ROI for 1997. The following data have been gathered for the division’s operations for 1997: average total assets,
(RI) Northwest Real Estate Management has two divisions that are operated as investment centers. Information about these divisions is shown below.a. What is the residual income of each division if
(ROI, RI) East L.A. Law, Inc. has a target rate of return of 14 percent for its Criminal Law Division. For 1998, the Criminal Law Division generated gross fees of $10,000,000 on average assets of
(Missing data) Fill in the missing numbers in the following three independent cases.33.(Missing data) Tamara Billings is doing a case for her cost accounting class for which she has only partial
(Missing data) Powder Valley Manufacturing relies on a residual income measure to evaluate the performance of certain segment managers. The target rate of return for all segments is 14 percent. One
(Investment acquisition) ABC Corporation has a target rate of return of 12 percent. C Division is analyzing a new investment that promises to generate an ROI of 20 percent, and a residual income of
(Performance measures and suboptimization) Myron Stiles is a division manager of Birmingham Rubber Products. He is presently evaluating a potential revenue¬ generating investment that has the
(Selecting performance measures) Conway Property Management provides man¬ agement services for a variety of commercial real estate development projects. The firm has recently created a new division
(Choosing performance standards) Caldwell Oil Field Services Company is a divi¬ sion of Langston Petroleum. Prior to the current year, the manager of Caldwell and corporate managers agreed to a
(Comparing performance of divisions) Training Services Ltd. has two divisions op¬ erating in the management training field. One division, Domestic, operates strictly in the United States; the other
(Performance measurement manipulation) Below are a number of transactions af¬ fecting a specific division within a multiple-division company. For each described transaction, indicate whether the
(Selecting performance criteria) The Chicago Trading and Production Company is a large, divisionalized manufacturing company. Each division is viewed as an investment center and has virtually
(Divisional profit) Conroe Division of the Southwest Fabrics Company produces and markets floor covering products to wholesalers in Texas, New Mexico, Ar¬ izona, and California. The manager of
(Cash flow) Jeri Jackson, the controller of Nevada Gaming Systems Inc., has become increasingly disillusioned with the company’s system of evaluating the performance of profit centers and their
(Statement of Cash Flows) The Wichita Grain Corporation’s controller prepared the following Statements of Cash Flows (in thousands of dollars) for the past 3 years and the budget for next year
(ROI) Larson Lumber operates a chain of lumber and hardware stores. For 1998, corporate management examined industry-level data and determined the follow¬ ing performance targets for lumber retail
(Adjusting income for ROI purposes) Sheila White manages a division of Gulf Chemical. She is evaluated on the basis ol return on investment and residual income. Near the end of November 1998, Ms.
Sales for the year are projected at 100,000 units. Each unit has a selling price of $30. Ms. White has received a purchase order front a new customer for 5,000 units. The purchase order states that
The division had a beginning inventory for the year of 500 units, each costing $10. Purchases of 99,500 units have been made steadily throughout the year, and the cost per unit has been constant at
Ms. White has just received a notice from her primary supplier that he is going out of business and is selling his remaining stock of 15,000 units for $9.00 each. Ms. White makes a note to herself to
Shipping expenses are $.50 per unit sold.
Advertising is $5,000 per month. The advertising for the division is in news¬ papers and television spots. No advertising has been discussed for December; Ms. White intends to have the sales manager
Salaries are projected through the end of the year at $700,000. This assumes that the position to be vacated by Ms. White’s personnel manager is filled on December
The personnel manager’s job pays $66,000 per year. Ms. White has an interview on Monday with an individual who appears to be a good candidate for the position.

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