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Financial Accounting 7th Edition LibbyShort - Solutions

A recent annual report for FedEx included the following note:Property and EquipmentExpenditures for major additions, improvements, flight equipment modifications, and certain equipment overhaul costs are capitalized when such costs are determined to extend the useful life of the asset or are part
At the beginning of the year, Plummer's Sports Center bought three used fitness machines from Advantage, Inc. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts.By the end of the
Best Buy Co., Inc., headquartered in Richfield, Minnesota, is one of the leading consumer electronics retailers, operating more than 1,000 stores in the United States, Europe, Canada, China, and Mexico. The following was reported in a recent annual report:Required:1. Assuming that Best Buy did not
You are a financial analyst for Ford Motor Company and have been asked to determine the impact of alternative depreciation methods. For your analysis, you have been asked to compare methods based on a machine that cost $106,000. The estimated useful life is 13 years, and the estimated residual
During 2012, Jensen Company disposed of three different assets. On January 1, 2012, prior to their disposal, the accounts reflected the following:The machines were disposed of in the following ways:(a) Machine A: Sold on January 1, 2012, for $7,200 cash.(b) Machine B: Sold on December 31, 2012, for
Singapore Airlines reported the following information in the notes to a recent annual report (in Singapore dollars):Singapore Airlines also reported the following cash flow details:Required:1. Reconstruct the information in Note 19 using T-accounts for Fixed Assets and Accumulated Depreciation:2.
During the 2011 annual accounting period, BSP Company completed the following transactions:(a) On January 1, 2011, purchased a patent for $28,000 cash (estimated useful life, seven years).(b) On January 1, 2011, purchased the assets (not detailed) of another business for $164,000 cash, including
The notes to a recent annual report from Weebok Corporation included the following:Business AcquisitionsDuring the current year, the Company acquired the assets of Sport Shoes, Inc. . . .Assume that Weebok acquired Sport Shoes on January 5, 2010. Weebok acquired the name of the company and all of
Starn Tool 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 intangibles. Facts about each intangible follow:(a) Patent. The company purchased a patent at a cash
Rungano Corporation is a global publisher of magazines, books, and music and video collections and is a leading direct mail marketer. Many direct mail marketers use high-speed Didde press equipment to print their advertisements. These presses can cost more than $1 million. Assume that Rungano owns
On June 1, 2012, the Wallace 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 following expenditures:(a) Invoice price of the machine, $60,000.(b) Freight paid by the vendor per
A recent annual report for AMERCO, the holding company for U-Haul International, Inc., included the following note:Note 3: Accounting PoliciesProperty, Plant, and EquipmentProperty, plant, and equipment are stated at cost. Interest expense incurred during the initial construction of buildings and
At the beginning of the year, Ramos Inc. bought three used machines from Santaro Corporation. The machines immediately were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts.By the end of the first year, each
The Gap, Inc., is a global specialty retailer of casual wear and personal products for women, men, children, and babies under the Gap, Banana Republic, Old Navy, Athleta, and Piperlime brands. As of January 31, 2009, the Company operated 3,149 stores across the globe, as well as online. The
During 2011, Rank Company disposed of three different assets. On January 1, 2011, prior to their disposal, the accounts reflected the following:The machines were disposed of in the following ways:a. Machine A: Sold on January 1, 2011, for $6,750 cash.b. Machine B: Sold on December 31, 2011, for
During the 2012 annual accounting period, Nguyen Corporation completed the following transactions:(a) On January 1, 2012, purchased a license for $7,200 cash (estimated useful life, four years).(b) On January 1, 2012, repaved the parking lot of the building leased from H. Lane. The cost was
Carey 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 intangibles. Facts about each intangible follow:(a) Patent. The company purchased a patent at a cash
Finding Financial InformationRefer to the financial statements of American Eagle Outfitters in Appendix B at the end of this book.Required:For each question, answer it and indicate where you located the information to answer the question. 1. How much did the company spend on property and equipment
Finding Financial InformationRefer to the financial statements of Urban Outfitters given in Appendix C at the end of this book.Required:For each question, answer it and indicate where you located the information to answer the question. 1. What method of depreciation does the company use?2. What is
Comparing Companies within an IndustryRefer to the financial statements of American Eagle Outfitters (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book.Required:1. Compute the percentage of net fixed assets to total assets for both
Broadening Financial Research Skills: Identifying Competitors in an IndustryReuters provides lists of industries and the competitors in each at www.reuters.com . Click on“Sectors and Industries,” then “All Industries,” then one of the industries listed, then “Company Ranks.” When you
Using Financial Reports: Analyzing the Age of AssetsIn its recent annual report, Sysco Corporation noted it “is the largest North American distributor of food and related products primarily to the foodservice ‘food-away-from-home’ industry. We provide products and related services to
Cain Company operates in both the beverage and entertainment industries. In June 2006, Cain purchased Good Time, Inc., which produces and distributes motion picture, television, and home video products and recorded music; publishes books; and operates theme parks and retail stores. The purchase
A recent annual report for Eastman Kodak reported that the cost of property, plant, and equipment at the end of the current year was $6,805 million. At the end of the previous year, it had been $7,327 million. During the current year, the company bought $254 million worth of new equipment. The
Hess Corporation is a global energy company that explores, produces, refines, and markets crude oil and natural gas. The capitalization of interest associated with self-constructed assets was discussed in this chapter. A recent annual report for Hess Corporation disclosed the following information
Assume you work as a staff member in a large accounting department for a multinational public company. Your job requires you to review documents relating to the company's equipment purchases. Upon verifying that purchases are properly approved, you prepare journal entries to record the equipment
You are a financial analyst charged with evaluating the asset efficiency of companies in the hotel industry. Recent financial statements for Marriott include the following note:8. Property and EquipmentWe record property and equipment at cost, including interest and real estate taxes incurred
Complete the requirements for each of the following independent cases:Case A. Dr Pepper Snapple Group, Inc., is a leading integrated brand owner, bottler, and distributor of nonalcoholic beverages in the United States, Canada, and Mexico. Key brands include Dr. Pepper, Snapple, 7-UP, Mott's juices,
Explain the difference between a short-term investment and a long-term investment.
Explain the difference in accounting methods used for passive investments, investments in which the investor can exert significant influence, and investments in which the investor has control over another entity.
Explain how bonds held to maturity are reported on the balance sheet.
Explain the application of the cost principle to the purchase of capital stock in another company.
Under the fair value method, when and how does the investor company measure revenue?
Under the equity method, why does the investor company measure revenue on a proportionate basis when income is reported by the affiliate company rather than when dividends are declared?
Under the equity method, dividends received from the affiliate company are not recorded as revenue. To record dividends as revenue involves double counting. Explain.
When one company acquires control of another, how are the acquired company’s assets and liabilities recorded?
What is goodwill?
(Multiple choice)1. Company X owns 40 percent of Company Y and exercises significant influence over the management of Company Y. Therefore, Company X uses what method of accounting for reporting its ownership of stock in Company Y?a. The amortized cost method.b. The equity method.c. The fair value
Match the following. Answers may be used more than once:Measurement MethodA. Amortized costB. Equity methodC. Purchase method and consolidationD. Fair value method___ 1. Less than 20 percent ownership.___ 2. Current fair value.___ 3. More than 50 percent ownership.___ 4. At least 20 percent but not
Ceiling Company purchased $1,300,000, 8 percent bonds issued by Melissa Company on January 1, 2011. The purchase price of the bonds was $1,350,000. Interest is payable semiannually each June 30 and December 31. Record the purchase of the bonds on January 1, 2011.
During 2011, Yale Company acquired some of the 50,000 outstanding shares of the common stock, par $12, of Carol Corporation as available-for-sale investments. The accounting period for both companies ends December 31. Give the journal entries for each of the following transactions that occurred
Using the data in M12-3, assume that Yale Company purchased the voting stock of Carol Corporation for the trading securities portfolio instead of the available-for-sale securities portfolio. Give the journal entries for each of the transactions listed.
Using the following categories, indicate the effects of the transactions listed in M12-3 assuming the securities are available for sale. Use + for increase and ˆ’ for decrease and indicate theamounts.
Using the following categories, indicate the effects of the transactions listed in M12-3 assuming the securities are trading securities. Use + for increase and ˆ’ for decrease and indicate theamounts.
On January 1, 2011, PurchaseAgent.com acquired 30 percent (1,200,000 shares) of the common stock of E-Transaction Corporation. The accounting period for both companies ends December 31. Give the journal entries for each of the following transactions that occurred during 2011 for
Using the following categories, indicate the effects of the transactions listed in M12-7. Use + for increase and ˆ’ for decrease and indicate theamounts.
England Textile Company acquired Belgium Fabric Company for $660,000 cash when Belgium’s only assets, property and equipment, had a book value of $660,000 and a fair value of $750,000. England also assumed Belgium’s bonds payable of $175,000. After the merger, Belgium would cease to exist as a
N.M.S. Company held securities available for sale and reported the following information at the end of each year:Compute the economic return from investing ratio for 2012, 2013, and 2014. What do the results suggest about N.M.S.Company?
The Walt Disney Company 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 $22 billion, which is more than 35 percent of the company’s total assets. This
Macy’s, Inc., operates over 850 Macy’s and Bloomingdale’s department stores nationwide. The company does more than $24 billion in sales each year.Assume that as part of its cash management strategy, Macy’s purchased $10 million in bonds at par for cash on July 1, 2012. The bonds pay 9
Company A purchased a certain number of Company B's outstanding voting shares at $20 per share as a long-term investment. Company B had outstanding 20,000 shares of $10 par value stock. Complete the following table relating to the measurement and reporting by Company A after acquisition of the
On June 30, 2011, Slick Books, Inc., purchased 9,000 shares of Syntax stock for $20 per share. Management recorded the stock in the securities available for sale portfolio. The following information pertains to the price per share of Syntax stock:Price12/31/2011 .... $2412/31/2012 .... 2912/31/2013
Using the data in E12-3, assume that Slick Books management purchased the Syntax stock for the trading securities portfolio instead of the securities available for sale portfolio. Prepare any journal entries that are required by the facts presented in the case.
On March 10, 2011, Patton, Inc., purchased 10,000 shares of Eisenhower stock for $48 per share. Management recorded it in the securities available for sale portfolio. The following information pertains to the price per share of Eisenhower stock:Price12/31/2011 .... $4912/31/2012 ... 3512/31/2013
Using the data in E12-5, assume that Patton management purchased the Eisenhower stock for the trading securities portfolio instead of the available-for-sale securities portfolio. Prepare any journal entries that are required by the facts presented in the case.
Gioia Company acquired some of the 65,000 shares of outstanding common stock (no par) of Tristezza Corporation during 2011 as a long-term investment. The annual accounting period for both companies ends December 31. The following transactions occurred during 2011:Jan. 10 Purchased 17,875 shares of
Interpreting the Effects of Equity Method Investments on Cash Flow from OperationsUsing the data in E12-7, 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 transactions?2. On the current
The notes to recent financial statements of Colgate-Palmolive contained the following information ( dollar amounts in millions):2. AcquisitionsOn May 1, the Company completed the purchase . . . of the outstanding shares of Tom’s of Maine, Inc., for approximately $100 plus transaction costs.
Kukenberger, Inc., reported the following in its portfolio of securities available for sale:Required:1. Determine the economic return from investing ratio for the years 2011, 2012, and 2013.2. What do your results suggest about Kukenberger's investmentportfolio?
Starbucks is a global company that provides high-quality coffee products. Assume that as part of its expansion strategy, Starbucks plans to open numerous new stores in Mexico in three years. The company has $7 million to support the expansion and has decided to invest the funds in corporate bonds
On March 1, 2011, Lightning Technology purchased 8,000 shares of Computing Services Company for $17 per share. The following information applies to the stock price of Computing Services:Price12/31/2011 .... $1512/31/2012 ..... 2112/31/2013 ..... 26Required:1. Prepare journal entries to record the
Below are selected T-accounts for the RunnerTech Company. Below are selected T-accounts for the RunnerTech Company.Required:Complete the following journal entries and answer the following questions:a. Purchased securities available for sale for cash. Prepare the journal entry.b. Received cash
During January 2011, Pareto Glass Company purchased the following securities as its long-term securities available for sale investment portfolio:D Corporation Common Stock: 11,000 shares (95,000 outstanding) at $9 per shareF Corporation Bonds: $300,000 (20-year, 8 percent) purchased at par (not to
On August 4, 2012, Glenn Corporation purchased 3,000 shares of Riley Company for $150,000. The following information applies to the stock price of Riley Company: Price12/31/2012 .... $5712/31/2013 .... 5112/31/2014
Company T had outstanding 25,000 shares of common stock, par value $10 per share. On January 1, 2011, Company P purchased some of these shares as a long-term investment at $25 per share. At the end of 2011, Company T reported the following: income, $45,000, and cash dividends declared and paid
Cruise Corporation had outstanding 100,000 shares of no-par common stock. On January 10, 2011, Dock Company purchased a block of these shares in the open market at $20 per share for long-term investment purposes. At the end of 2011, Cruise reported net income of $280,000 and cash dividends of $0.60
Below are selected T-accounts for Gauge Company.Required:Complete the following journal entries and answer the following questions:a. Purchased additional investments in affiliated companies for cash. Prepare the journal entry.b. Received cash dividends on the investments. Prepare the journal
During 2011, Bradford Company purchased some of the 90,000 shares of common stock, par $6, of Hall, Inc., as a long-term investment. The annual accounting period for each company ends December 31. The following transactions occurred during 2011:Jan. 7 Purchased 40,500 shares of Hall stock at $30
On January 4, 2011, D’Angelo Company acquired all of the net assets (assets and liabilities) of Barato Company for $124,000 cash. The two companies merged, with D’Angelo Company surviving. On the date of acquisition, Barato’s balance sheet included the following.BaratoBalance Sheet at
Verizon Communications Inc. was formed by the merger of Bell Atlantic Corporation and GTE Corporation in 2000. It is the largest provider of wireline and wireless communication services in the United States, with a presence in over 150 other countries. The following information was reported in the
Sonic Corp. operates and franchises a chain of quick-service drive-in restaurants in most of the United States and in Mexico. Customers drive up to a canopied parking space and order food through an intercom speaker system. A carhop then delivers the food to the customer. Assume that Sonic has $15
On September 15, 2011, Hill-Nielson Corporation purchased 7,000 shares of Community Communications Company for $32 per share. The following information applies to the stock price of Community Communications:Price12/31/2011 .... $3412/31/2012 ... 2512/31/2013 ... 21Required:1. Prepare journal
During January 2011, Pentagon Company purchased 12,000 shares of the 200,000 outstanding common shares (no-par value) of Square Corporation at $25 per share. This block of stock was purchased as a long-term investment. Assume that the accounting period for each company ends December 31. Subsequent
Cardinal Company purchased, as a long-term investment, some of the 200,000 shares of the outstanding common stock of Arbor Corporation. The annual accounting period for each company ends December 31.The following transactions occurred during 2012:Jan. 10 Purchased shares of common stock of Arbor at
For each of the transactions in AP12-4, indicate how the operating activities and investing activities sections of the cash flow statement (indirect method) will be affected.
On June 1, 2011, Gamma Company acquired all of the net assets of Pi Company for $140,000 cash. The two companies merged, with Gamma Company surviving. On the date of acquisition, Pi Company’s balance sheet included the following:Balance Sheet at June 1, 2011 Pi CompanyInventory ................
Selma International, Inc., reported the following information regarding its investment portfolio in the company's 2012 annual report:Required:1. Compute the economic return from investing ratio for 2012.2. What do the results in requirement (1) suggest about SelmaInternational?
Finding Financial InformationRefer to the financial statements of American Eagle Outfitters in Appendix B at the end of this book.Required:1. What types of securities are included in the short-term investments and the long-term investments reported on the company’s balance sheet as of the end
Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book.Required:1. What is the balance in short-term and long-term marketable securities reported by the company on January 31, 2009? What types of securities are included in these accounts?2. How much cash did
On January 1, 2012, Sheena Company purchased 30 percent of the outstanding common stock of Maryn Corporation at a total cost of $660,000. Management intends to hold the stock for the long term. On the December 31, 2012, balance sheet, the investment in Maryn Corporation was $780,000, but no
Diageo is a major international company located in London, best known for its Smirnoff, Johnnie Walker, and Bailey’s brands of spirits. Its financial statements are accounted for under IFRS. A recent annual report contained the following information concerning its accounting policies.Acquired
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 convinced you that this company is an excellent investment opportunity, so you decide to buy $10,000
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 retailer has acquired a large East Coast retail chain for a price more than the net book value of the
Define liability. Differentiate between a current liability and a long-term liability.
How can external parties be informed about the liabilities of a business?
Liabilities are measured and reported at their current cash equivalent amount. Explain.
A liability is a known obligation of either a definite or an estimated amount. Explain.
Define working capital. How is it computed?
What is the quick ratio? How is it related to the classification of liabilities?
Define accrued liability. What type of entry usually reflects an accrued liability?
Define deferred revenue. Why is it a liability?
Define note payable. Differentiate between a secured and an unsecured note.
What is a contingent liability? How is a contingent liability reported?
Compute 2011 interest expense for the following note: face, $4,000; 12 percent interest; date of note, April 1, 2011.
Explain the concept of the time value of money.
Explain the basic difference between future value and present value.
If you hold a valid contract that will pay you $8,000 cash in 10 years and the going rate of interest is 10 percent, what is its present value? Show your computations.
What is an annuity?
Complete the followingschedule:
You purchased an XIT auto for $18,000 by making a $3,000 cash payment and six semi annual installment payments for the balance at 12 percent interest. Determine the amount of each payment.

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