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Financial Accounting 7th Edition LibbyShort - Solutions

Youngstown 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 following ratios: profit margin, fixed asset turnover ratio, current ratio, and quick ratio?
The following selected financial data pertain to four unidentified companies:This financial information pertains to the following companies:a. Retail fur storeb. Advertising agencyc. Wholesale candy companyd. Car manufacturerRequired:Match each company with its financialinformation.
The following selected financial data pertain to four unidentified companies:This financial information pertains to the following companies:a. Travel agencyb. Hotelc. Meat packerd. Drug companyRequired:Match each company with its financialinformation.
The following selected financial data pertain to four unidentified companies:This financial information pertains to the following companies:a. Cable TV companyb. Grocery storec. Accounting firmd. Retail jewelry storeRequired:Match each company with its financialinformation.
The following selected financial data pertain to four unidentified companies:This financial information pertains to the following companies:a. Full-line department storeb. Wholesale fish companyc. Automobile dealer (both new and used cars)d. RestaurantRequired:Match each company with its
Match each ratio or percentage with itscomputation.
Lowe€™s is a leading retailer in the home improvement field. Complete the component percentage analysis on the company€™s income statement that follows. Discuss any insights provided by thisanalysis.
Current assets totaled $54,000 and the current ratio was 1.5. Assume that the following transactions were completed: (1) Purchased merchandise for $7,000 on short-term credit and(2) Purchased a delivery truck for $12,000, paid $3,000 cash, and signed a two-year interest-bearing note for the
The Bombay Company, Inc., markets a line of proprietary home furnishings that includes large furniture, occasional furniture, wall decor, and decorative accessories that are timeless, classic, and traditional in their styling. Bombay operates through a network of retail locations throughout the
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 $76,476 (all amounts in millions). The annual report did not disclose the amount of credit sales, so we will assume that 90 percent of
Texas Instruments is a global leader in the semiconductor business, providing products to the world’s most innovative electronics companies. Its financial statements reported the following at year-end (in millions):Total assets ............ $13,930Total debt (average 8% interest) ... 2,570Net
Current assets totaled $100,000 and the current ratio was 1.5. Assume that the following transactions were completed: (1) Paid $6,000 for merchandise purchased on short-term credit, (2) Purchased a delivery truck for $11,000 cash, (3) Wrote off a bad account receivable for $3,000, and (4) Paid
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 the United States, predominantly in small towns in 24 midwestern and southeastern states. In a
Sales for the year were $1,000,000, half of which were on credit. The average gross profit rate was 50 percent on sales. Account balances follow: Beginning EndingAccounts receivable (net) $45,000 $60,000Inventory
Current assets for London Corporation totaled $410,000 and the current ratio was 2.0. Assume that the following transactions were completed: (1) Sold $11,000 in merchandise on short-term credit, (2) Declared but did not pay dividends of $50,000, (3) Paid prepaid rent in the amount of $12,000, (4)
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 NASDAQ and has provided investors with significant returns over the past few years. Selected
You have the opportunity to invest $10,000 in one of two companies from a single industry. The only information you have follows. The word high refers to the top third of the industry; average is the middle third; low is the bottom third. Which company would you select? Write a brief paper
You have the opportunity to invest $10,000 in one of two companies from a single industry. The only information you have is shown here. The word high refers to the top third of the industry; average is the middle third; low is the bottom third. Which company would you select? Write a brief paper
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 as of the date this book was written. Match the company with its ratio and explain how you made
Sears, Roebuck and JCPenney are two giants of the retail industry. Both offer full lines of moderately priced merchandise. Annual sales for Sears total $53 billion. JCPenney is smaller, with $20 billion in revenues. Compare the two companies as a potential investment based on the followingratios:
The 2012 financial statements for the Price and Waterhouse companies are summarized here:The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately 10 years, and each has had steady growth. The management of each
The comparative financial statements prepared at December 31, 2012, for Prince Company showed the following summarized data:*One-third was credit sales.â€ During 2012, cash dividends amounting to $3,000 were declared and paid.Required:1. Complete the following columns for each item in the
Use the data given in P14-6 for Prince Company.Required:1. Present component percentages for 2012 only.2. Respond to the following for 2012:a. What was the average percentage markup on sales?b. What was the average income tax rate?c. Compute the profit margin. Was it a good or poor indicator of
Use the 2012 data in P14-6 for Prince Company. Assume a stock price of $28 per share. Compute the appropriate ratios.
Company A uses the FIFO method to cost inventory, and Company B uses the LIFO method. The two companies are exactly alike except for the difference in inventory costing methods. Costs of inventory items for both companies have been rising steadily in recent years, and each company has increased its
Hershey's is a familiar name in snacks. There's a good chance you have recently enjoyed one of its products. The company manufactures confectionery products in a variety of packaged forms and markets them under more than 50 brands. Among the principal confectionery products in the United States
You have the opportunity to invest $10,000 in one of two companies from a single industry. The only information you have is shown here. The word high refers to the top third of the industry; average is the middle third; low is the bottom third. Which company would you select? Write a brief paper
You have the opportunity to invest $10,000 in one of two companies from a single industry. The only information you have is shown here. The word high refers to the top third of the industry; average is the middle third; low is the bottom third. Which company would you select? Write a brief paper
Coke and Pepsi are well-known international brands. Coca-Cola sells more than $13 billion worth of beverages each year while annual sales of PepsiCo products exceed $22 billion. Compare the two companies as a potential investment based on the followingratios:
Winter Corporation has just completed its comparative statements for the year ended December 31, 2012. At this point, certain analytical and interpretive procedures are to be undertaken. The completed statements (summarized) are as follows:*Credit sales totaled 40 percent.**$20,000 of bonds were
Richard Company has just prepared the following comparative annual financial statements for 2012:Required (round percentages and ratios to two decimal places):1. For 2012, compute the tests of(a) Profitability,(b) Liquidity,(c) Solvency, and(d) Market.Assume that the quoted price of the stock was
The following information was contained in the annual financial statements of Cone Company, which started business January 1, 2011 (assume account balances only in Cash and Capital Stock on this date; all amounts are in thousands of dollars).Required (show computations):1. Complete the following
Dell Computers engages in the design, development, manufacture, marketing, sale, and support of various computer systems and services to customers worldwide. It offers desktop computer systems and workstations; mobility products, such as notebook computers, mobile workstations, MP3 players, and
Refer to the financial statements of American Eagle Outfitters given in Appendix B at the end of this book. Compute the following ratios for the most recent reporting year for which you have available information: return on equity, earnings per share, profit margin, current ratio, inventory
Refer to the financial statements of Urban Outfitters given in Appendix C at the end of this book.Compute the following ratios for the most recent reporting year for which you have available information: return on equity, earnings per share, profit margin, current ratio, inventory turnover, debt/
Refer to the financial statements of American Eagle (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book. Compute the following ratios for the most recent reporting year for which you have available information: return on equity,
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 turnover ratio is 5; and net sales are $1,000,000. What is the amount of average stockholders’
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 could earn high returns for investors. Assume that two companies in the same industry adopt
Barton Company requested a sizable loan from First Federal Bank to acquire a large tract of land for future expansion. Barton reported current assets of $1,900,000 ($430,000 in cash) and current liabilities of $1,075,000. First Federal denied the loan request for a number of reasons, including the
What are some of the primary items on financial statements about which creditors usually are concerned?
Why are the notes to the financial statements important to decision makers?
What is the primary purpose of comparative financial statements?
Why are statement users interested in financial summaries covering several years? What is the primary limitation of long-term summaries?
What is ratio analysis? Why is it useful?
What are component percentages? Why are they useful?
Explain the two concepts of return on investment.
What is financial leverage? How is it measured as a percentage?
Is profit margin a useful measure of profitability? Explain.
Compare and contrast the current ratio and the quick ratio.
Define long-lived assets. Why are they considered to be a “bundle of future services”?
How is the fixed asset turnover ratio computed? Explain its meaning.
What are the classifications of long-lived assets? Explain each.
Under the cost principle, what amounts should be included in the acquisition cost of a long-lived asset?
Describe the relationship between the matching principle and accounting for long-lived assets.
Distinguish betweena. Capital expenditures and revenue expenditures. How is each accounted for?b. Ordinary repairs and improvements. How is each accounted for?
Distinguish among depreciation, depletion, and amortization.
In computing depreciation, three values must be known or estimated; identify and explain the nature of each.
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.
What type of depreciation expense pattern is used under each of the following methods and when is its use appropriate?a. The straight-line method.b. The units-of-production method.c. The double-declining-balance method.
Over what period should an addition to an existing long-lived asset be depreciated? Explain.
What is asset impairment? How is it accounted for?
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?
Define intangible asset. What period should be used to amortize an intangible asset with a definite life?
Define goodwill. When is it appropriate to record goodwill as an intangible asset?
Why is depreciation expense added to net income (indirect method) on the statement of cash flows?
(Multiple Choice Question)1. Miga Company and Porter Company both bought a new delivery truck on January 1, 2008. Both companies paid exactly the same cost, $30,000, for their respective vehicles. As of December 31, 2011, the net book value of Miga’s truck was less than Porter Company’s net
For each of the following long-lived assets, indicate its nature and the related cost allocation concept. Use the following symbols:Nature Cost Allocation ConceptL Land DR DepreciationB Building DP DepletionE Equipment A AmortizationNR Natural resource NO No cost allocationI
The following information was reported by Kramer’s Air Cargo Service for 2008:Net fixed assets (beginning of year) ...... $1,900,000Net fixed assets (end of year) ........ 2,300,000Net sales for the year ............. 3,300,000Net income for the year ............ 1,600,000Compute the company’s
For each of the following items, enter the correct letter to the left to show the type of expenditure. Use thefollowing:
Calculate the book value of a three-year-old machine that has a cost of $31,000, an estimated residual value of $1,000, and an estimated useful life of five years. The company uses straight-line depreciation.
Calculate the book value of a three-year-old machine that has a cost of $45,000, an estimated residual value of $5,000, and an estimated useful life of four years. The company uses double-declining-balance depreciation. Round to the nearest dollar.
Calculate the book value of a three-year-old machine that has a cost of $21,000, has an estimated residual value of $1,000 and an estimated useful life of 40,000 machine hours. The company uses units-of production depreciation and ran the machine 3,200 hours in year 1; 7,050 hours in year 2; and
For each of the following scenarios, indicate whether an asset has been impaired (Y for yes and N for no) and, if so, the amount of loss that should berecorded.
As part of a major renovation at the beginning of the year, Scheffer’s Pharmacy, Inc., sold shelving units (store fixtures) that were 10 years old for $1,800 cash. The original cost of the shelves was $6,000 and they had been depreciated on a straight-line basis over an estimated useful life of
Elizabeth Pie Company has been in business for 50 years and has developed a large group of loyal restaurant customers. Giant Bakery Inc. has made an offer to buy Elizabeth Pie Company for $5,000,000. The book value of Elizabeth Pie’s recorded assets and liabilities on the date of the offer is
Wexler Company had the following activities for the year ended December 31, 2012: Sold land that cost $18,000 for $18,000 cash; purchased $181,000 of equipment, paying $156,000 in cash and signing a note payable for the rest; and recorded $5,500 in depreciation expense for the year. Net income for
The following is a list of account titles and amounts (dollars in millions) from a recent annual report of Hasbro, Inc., a leading manufacturer of games, toys, and interactive entertainment software for children and families:Required:Prepare the asset section of the balance sheet for Hasbro, Inc.,
The following data were included in a recent Apple Inc. annual report ($ in millions):Required:1. Compute Apple's fixed asset turnover ratio for 2007, 2008, and 2009.2. How might a financial analyst interpret theresults?
K-Delta Company bought a building for $71,000 cash and the land on which it was located for $107,000 cash. The company paid transfer costs of $9,000 ($3,000 for the building and $6,000 for the land). Renovation costs on the building were $23,000.Required:1. Give the journal entry to record the
Ashkar Company ordered a machine on January 1, 2012, at an invoice price of $21,000. On the date of delivery, January 2, 2012, the company paid $6,000 on the machine, with the balance on credit at 10 percent interest. On January 3, 2012, it paid $1,000 for freight on the machine. On January 5,
Nasoff Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2011, an asset account for the company showed the following balances:Manufacturing equipment ........ $100,000Accumulated depreciation through 2010 ... 54,000During 2011,
Determining Financial Statement Effects of Depreciation and Repairs (Straight-Line Depreciation) Refer to the information in E8-5.Required:Indicate the effects (accounts, amounts, and + or −) of the following on the accounting equation.Date Assets = Liabilities + Stockholders’ Equity1.
Purity Ice Cream Company bought a new ice cream maker at the beginning of the year at a cost of $10,000. The estimated useful life was four years, and the residual value was $1,000. Assume that the estimated productive life of the machine was 9,000 hours. Actual annual usage was 3,600 hours in year
Sterling Steel Inc. purchased a new stamping machine at the beginning of the year at a cost of $580,000. The estimated residual value was $60,000. Assume that the estimated useful life was five years, and the estimated productive life of the machine was 260,000 units. Actual annual production was
A recent annual report for General Motors Corporation contained the following note:Note 3. Significant Accounting PoliciesProperty, NetProperty, plant, and equipment, including internal use software, is recorded at cost. Major improvements that extend the useful life of property are capitalized.
A recent annual report for FedEx includes the following information:For financial reporting purposes, we record depreciation and amortization of property and equipment on a straight-line basis over the asset’s service life or related lease term if shorter. For income tax purposes, depreciation is
Schrade Company bought a machine for $96,000 cash. The estimated useful life was four years, and the estimated residual value was $6,000. Assume that the estimated useful life in productive units is 120,000. Units actually produced were 43,000 in year 1 and 45,000 in year 2.Required:1. Determine
In a recent 10-K report, United Parcel Service states it “is the world’s largest package delivery company, a leader in the U.S. less-than-truckload industry, and a global leader in supply chain management.” The following note and data were reported:Note 1—Summary of Accounting
FedEx is the world’s leading express-distribution company. In addition to the world’s largest fleet of allcargo aircraft, the company has more than 654 aircraft and 51,000 vehicles and trailers that pick up and deliver packages. Assume that FedEx sold a delivery truck that had been used in the
Marriott International is a worldwide operator and franchisor of hotels and related lodging facilities totaling over $1.4 billion in property and equipment. It also develops, operates, and markets time-share properties totaling nearly $2 billion. Assume that Marriott replaced furniture that had
On January 1, 2012, the records of Seward Corporation showed the following regarding a truck:Equipment (estimated residual value, $8,000) ... $18,000Accumulated depreciation (straight-line, three years) . 6,000On December 31, 2012, the delivery truck was a total loss as the result of an
Freeport-McMoRan Copper & Gold Inc., headquartered in Phoenix, Arizona, is one of the world’s largest copper, gold, and molybdenum mining and production companies, with its principal asset in natural resource reserves (approximately 102.0 billion pounds of copper, 40.0 million ounces of gold,
Trotman Company had three intangible assets at the end of 2012 (end of the accounting year):(a) Computer software and Web development technology purchased on January 1, 2011, for $70,000. The technology is expected to have a four-year useful life to the company.(b) A patent purchased from Ian
Cheshire Company had three intangible assets at the end of 2011 (end of the accounting year):(a) A copyright purchased on January 1, 2011, for a cash cost of $12,300. The copyright is expected to have a 10-year useful life to Cheshire.(b) Goodwill of $65,000 from the purchase of the Hartford
Starbucks Corporation is the leading roaster and retailer of specialty coffee, with nearly 17,000 company-operated and licensed stores worldwide. Assume that Starbucks planned to open a new store on Commonwealth Avenue near Boston University and obtained a 10-year lease starting January 1, 2012.
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 where you would locate the information in an annual report. 1. Depreciation expense.2. The detail on
(Supplement) Recording a Change in EstimateRefer to E8-5.Required:Give the adjusting entry that should be made by Nasoff Company at the end of 2011 for depreciation of the manufacturing equipment, assuming no change in the original estimated life or residual value. Show computations.
At the end of the annual accounting period, December 31, 2012, O’Connor Company’s records reflected the following for Machine A:Cost when acquired ... $30,000Accumulated depreciation . 10,200During January 2013, the machine was renovated at a cost of $15,500. As a result, the estimated life
Burbank Company owns the building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows:Cost when acquired ................. $330,000Accumulated depreciation (based on straight-line depreciation, anestimated life of 50 years, and
On January 2, 2012, Cruz Company bought a machine for use in operations. The machine has an estimated useful life of eight years and an estimated residual value of $2,600. The company provided the following expenditures:a. Invoice price of the machine, $85,000.b. Freight paid by the vendor per

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