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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

Other general and administrative costs for the full year are estimated to total $590,000.
As Ms. White is preparing her pro forma income statement for the year, she receives a telephone call from the maintenance supervisor at the office. He informs Ms. White that electrical repairs to the
(ROI, RI) ABC Wholesaling sells a broad line of clothing goods to specialty retail and department stores. For 1998, the company’s Mexican Division had the following performance targets:Asset
(Decisions based on ROI, RI) Seattle Aviation evaluates the performance of its two division managers using an ROI formula. For the forthcoming period, divisional estimates of relevant measures areThe
(ROI, RI) Raddington Industries produces tool and die machinery for manufac- ■turers. The company expanded vertically in 1993 by acquiring one of its suppliers CASES of alloy steel plates, Reigis
(ROI and management incentives) The Notewon Corporation is a highly diversi¬ fied company that grants its divisional executives a significant amount of au¬ thority in operating the divisions. Each
(Providingfeedback on performance) Terry Travers is the manufacturing supervisor of the Aurora Manufacturing Company, which produces a variety of plastic prod¬ ucts. Some of these products are
(ROI and suboptimization) Northstar Offroad Company (NOC), a subsidiary of Allston Automotive, manufactures go-carts and other recreational vehicles. Fam¬ ily recreational centers that feature
Relate the cost principle to the accounting for long-lived assets. Under the cost principle, w hat amounts should be included in the acquisition cost of a long-lived asset?LO1
Distinguish betweena. Capital expenditures and revenue expenditures. How is each accounted for?b. Ordinary repairs and extraordinary repairs. How is each accounted for?LO1
The estimated useful life and residual value of a long-lived asset relate to the current owner or user rather than all potential users. Explain this statement.LO1
What is an asset impairment? How is it accounted for?LO1
When equipment is sold for more than net book value, how is the transaction recorded? For less than net book value? What is net book value?LO1
Define intangible asset. What period should be used to amortize an intangible asset with a definite life?LO1
Define goodwill. When is it appropriate to record goodwill as an intangible asset?LO1
Simon Company and Allen Company both bought a new delivery truck on January 1 . 200 1 . Both companies paid exactly the same cost, $30,000 for their respective vehicle. As of December 3 1, 2004, the
Barber, Inc., followed the practice of depreciating its building on a straight-line basis. A building was purchased in 2003 and had an estimated useful life of 20 years and a residual value
ACME, Inc., uses straight-line depreciation for all of its depreciable assets. ACME sold a used piece of machinery on December 3 1 , 2003, that it purchased on January 1 , 2002, for $ 1 0.000. The
Under what method(s) of depreciation is an asset's net book value the depreciable base (the amount to be depreciated)?a. Straight-line methodc. Declining-balance methodb. Units-of-production methodd.
What assets should be amortized using the straight-line method?a. Natural resourcesc. Intangible assets with indefinite livesb. Intangible assets with definite livesd. All of the above
A company wishes to report the highest earnings possible for financial reporting purposes. Therefore, when calculating depreciation,a. it will follow the MACRS depreciation tables prescribed by the
How many of the following statements regarding goodwill are true?Goodwill is not reported unless purchased in an exchange.Goodwill must be reviewed annually for possible impairment.Impairment of
Company X is going to retire equipment that is fully depreciated. The equipment will simply be disposed of, not sold. Which of the following statements is false?a. Total assets will not change as a
(Supplement) Thornton Industries purchased a machine for $45,000 and is depreciating it with the straight-line method over a life of 10 years, using a residual value of S3.000. At the beginning of
For each of the following Long-lived assets, ind.cate ta nature and related eoS , allocate concept. U*the following symbols: Nature L Land B Building E Equipment NR Natural resource 1 Intangible
The following information was reported by Cutter's Air Cargo Service for 2000:Compute the company's fixed asset turnover ratio for the year What can you say about Cutter's ratio when compared to
Calculate the book value of a three-year-old machine that cost $21,500, has an estimated residual value of $1,500, and has an estimated useful life of four years. The company uses straight-line
Calculate the book value of a three-year-old machine that cost $21,500, has an estimated residual value of $1,500, and has an estimated useful life of four years. The company uses
Calculate the book value of a three-year-old machine that cost $21,500, has an estimated residual value of $1,500, and has an estimated useful life of 20,000 machine hours. The company uses
As part of a major renovation at the beginning of the year, Mullins' Pharmacy, Inc., sold shelving units(store fixtures) that were 10 years old for $1,400 cash. The original cost of the shelves was
Wagner Company had the following activities for the year ended December 31. 2004: Sold land for cash at its cost of $15,000. Purchased $80,000 of equipment, paying $75,000 in cash and the rest on a
The following is a list of account titles and amounts (in millions) reported by Hasbro. Inc.. a leading manufacturer of games, toys, and interactive entertainment software for children and
You are a financial analyst charged with evaluating the asset efficiency of companies in the hotel industry.The financial statements for Hilton Hotels include the following note:Required: 1. Assume
The following data were included in a recent Apple Computer annual report:Required: 1. Compute Apple's fixed asset turnover ratio for 1994, 1996. 1998, and 2000 (the even years). 2. How might a
Sweet Company bought a building for $71,200 cash and the land on which it is located for $106,800 cash. The company paid transfer costs of $2,000. Renovation costs on the building were
Conover Company ordered a machine on January 1. 2003, at an invoice price of $20,000. On date of delivery, January 2, 2003, the company paid $8,000 on the machine, and the balance was on credit at 12
Wiater Company operates a small manufacturing facility as a supplement to its regular service activities.At the beginning of 2004. an asset account for the company showed the following
Refer to the information in E8-6.Required:Indicate the effects (accounts, amounts, and + or — ) of the following on the accounting equation: 1. The adjustment for depreciation at the end cf 2003.
Dorn Corporation bought a machine at the beginning of the year at a cost of S6.400. The estimated useful life was four years, and the residual value was $800. Assume that the estimated productive
The annual report tor Eastman Kodak contained the following note:Required: 1. Explain the term historical cost. What is the meaning of '"provision for depreciation"? 2. Why do you think the company
The annual report for Federal Express Corporation includes the following information:Required:Explain why Federal Express uses different methods of depreciation for financial reporting and tax
Torge Company bought a machine for $65,000 cash. The estimated useful life was five years, and the estimated residual value was $5,000. Assume that the estimated useful life in productive units is
Sunglass Hut International is the world's largest specialty retailer of sunglasses with stores located in a wide variety of high-traffic shopping and tourist destinations. The following note and data
Federal Express is the world's leading express-distribution company. In addition to the world's largest fleet of all-cargo aircraft, the company has more than 53,700 ground vehicles that pick up and
Refer to the information in E8-13.Required: 1. Using the following structure, indicate the effects (accounts, amounts, and + or — ) for the disposal of the truck assuming thata. The sales price was
On January 1 , 2004. the records of Pastuf Corporation showed the following regarding a truck:On December 3 1 , 2004. the delivery truck was a total loss as the result of an accident.Required: 1.
Freeport-McMoran is a natural resources company involved in the exploration, development, and extraction of natural resources. Annual revenues exceed $1 billion. Assume that in February 2003,
Kreiser Company had three intangible assets at the end of 2004 (end of the accounting year):a. A patent purchased from J. Miller on January 1 . 2004, for a cash cost of $5,640. Miller had registered
Starbucks Coffee Company is a rapidly expanding retailer of specialty coffee with more than 2,600 company-operated stores in 35 states. Assume that Starbucks planned to open a new store on
You are considering investing the cash gifts you received for graduation in various stocks. You have received several annual reports of major companies.Required:For each of the following, indicate
Refer to E8-6.Required:Give the adjusting entry that should be made at the end of 2004 for depreciation of the manufacturing equipment, assuming no change in the original estimated life or residual
Refer to E8-6.Required:Using the following format, indicate the effects (accounts, amounts, and + or — ) of the adjustment for depreciation of the manufacturing equipment, assuming no change in the
At the end of the annual accounting period. December 31. 2003. Shafer Company's records reflected the following for Machine A:During January 2004. the machine was renovated at a cost of SI 1.000. As
Todd Company owns the office building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows:During January of this year, on the
On January 2, 2003, Blumkin Company bought a machine for use in operations. The machine has an estimated useful life of eight years and an estimated residual value of $1,500. The company provided the
Refer to the information in P8- 1.Required: 1. What are the classifications of long-lived assets? Explain their differences. 2. Record the purchase on January 2 and the subsequent payment on January
A recent annual report for Federal Express included the following note:Assume that Federal Express made extensive repairs on an existing building and added a new wing.The building is a garage and
At the beginning of the year. Montgomery Company bought three used machines from Hosey. Inc.The machines immediately were overhauled, installed, and started operating. The machines were
Kl \ Stores Corporation, headquartered in Dayton. Ohio, is one of the nation's leading consumer electronics retailers operating more than 262 stores in 37 states. The following is a note from a
You are a financial analyst for General Motors Corporation and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods
During 2003, Jensen Company disposed of three different assets. On January 1. 2003. prior to their disposal, the accounts reflected the following:The machines were disposed of in the following
Singapore Airlines reported the following information in the notes to a recent annual report (in Singapore dollars):Required: 1. Reconstruct the information in Note 13 into T-accounts for Fixed
During the 2005 annual accounting period, Terwilliger Company completed the following transactions:a. On January 1, 2005. purchased a patent for $19,600 cash (estimated useful life, seven years).b.
Reebok International is a leading worldwide designer, marketer, and distributor of sport, fitness, and lifestyle products, including footwear and apparel. The notes to a recent annual report from
Fearn Company has five different intangible assets to be accounted for and reported on the financial statements. The management is concerned about the amortization of the cost of each of these
Reader's Digest is a global publisher of magazines, books, and music and \ ideo collections, and is one of the world's leading direct mail marketers. Many direct mail marketers use high-speed Didde
On June 1, 2002. the Wilbur Corp. bought a machine for use in operations. The machine has an estimated useful life of six years and an estimated residual value of $2,000. The company provided the
Refer to the information in AP8-1.Required: 1. What are the classifications of long-lived assets? Explain their differences. 2. Record the purchase on July 1 and the subsequent payment on September
A recent annual report for AMERCO. the holding company for U-Haul International, Inc., included the following note:AMERCO subsidiaries own property, plant, and equipment that are utilized in the
At the beginning of the year, Morgan Inc. bought three used machines from Abruzzo Corporation.The machines immediately were overhauled, installed, and started operating. The machines were different;
Lechters, Inc.. and its subsidiaries is a specialty retailer of primarih brand-name basic and decorath e housewares. As of January 30. 2001. the Company operated 325 stores in 36 state- and the
During 2003, Kosik Company disposed of three different assets. On January 1 , 2003, prior to their disposal, the accounts reflected the following:The machines were disposed of in the following
During the 2004 annual accounting period, Chu Corporation completed the following transactions:o. On January 1, 2004, purchased a license for $7,200 cash (estimated useful life, three years).b. On
Norton Corporation has five different intangible assets to be accounted for and reported on the financial statements. The management is concerned about the amortization of the cost of each of these
Refer to the financial statements and accompanying notes of American Eagle Outfitters given in Appendix B at the end of this book, or open file AEOS.pdf in the Annual Report Cases director} on the
Refer to the financial statements and accompanying notes 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
Refer to the financial statements of American Eagle Outfitters given in Appendix B and Abercrombie& Fitch given in Appendix C, and the Industry Ratio Report given in Appendix D at the end of this
MarketGuide provides lists of industries and the competitors in each at \ ww.marketguide.com/mgi/INDUSTRY/INDUSTRY.html.Required:Using your web browser, contact MarketGuide and identify three
The October 5, 1998. edition of Business Week includes the article, "Earnings Hocus-Pocus."* You can access the article on the Libby/Libby/Short website at www.mhhe.com/libby4e.Required:Read pages 1
A note to a recent annual report for Black & Decker contained the following information (in thousands of dollars):Depreciation expense (in thousands of dollars) charged to operations was $99,234
A recent annual report for The Coca-Cola Company contained the following note:Required: 1. What is the range of expected lives for buildings and improvements? 2. Explain why Coca-Cola depreciates the
The Seagram Company Ltd.. with headquarters in Montreal. Quebec. Canada, operates in both the beverage and entertainment industries. Seagram produces well-known spirits and wines. In June 1995,
A recent annual report for Eastman Kodak reported that the balance of property, plant, and equipment at the end of the current year was $16,774 million. At the end of the previous year, it had been
Diageo is a major international company located in London. A recent annual report contained the following information concerning its accounting policies.Required:Compare accounting for fixed assets
The capitalization of interest associated with self-constructed assets w as discussed in this chapter. A recent annual report for Amerada Hess Corporation disclosed the following information
An annual report for Ford Motor Company included the following information:Required: 1. What was the stated reason for the change in method? What other factors do you think management considered when
Define goods available for sale. How does it differ from cost of goods sold?LO1
Define beginning inventory and ending inventory.LO1
Explain how income can be manipulated when the specific identification inventory costing method is used.LO1
Contrast the effects of LIFO versus FIFO on cash outflow and inflow.LO1
How many of the following statements are true regarding Cost of Goods Sold? Cost of goods sold represents the cost that a company incurred to purchase or produce inven- tory in the current period.
The inventory costing method selected by a company will affecta. the balance sheet.b. the income statement.c. the statement of retained earnings.d. all of the above.LO1
Which of the following is not a component of the cost of inventory?a. administrative overheadb. direct laborc. raw materialsd. factory overhead LO1
Each period, the cost of goods available for sale is allocated betweena. assets and liabilities.c. assets and revenues.b. assets and expenses.d. expenses and liabilities.
A New York bridal dress designer who makes high-end custom wedding dresses most likely uses which inventory costing method?a. FIFOc. Weighted averageb. LIFO d? Specific identification
How many of the following regarding the lower of cost or market rule for inventory are true?The lower of cost or market rule is an example of the historical cost principle.When the replacement cost
Which inventory method provides a better matching of current costs with sales revenue on the income statement and outdated values for inventory on the balance sheet?a. FIFOc. LIFOb. weighted
Which of the following is false regarding a perpetual inventory system?a. Physical counts are not needed since records are maintained on a transaction-by-transaction basis.b. The balance in the
Match the type of inventory with the type of business in the following matrix:LO1 Type of Inventory Merchandise Finished goods Work in process Raw materials TYPE OF BUSINESS Merchandising
Elite Apparel purchased 80 new shirts and recorded a total cost of $3,140 determined as follows:Required:Make the needed corrections in this calculation. Give the journal entry(ies) to record this

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