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Survey of Accounting 2nd edition Edmonds, old, Mcnair, Tsay - Solutions

On January 1, 2008, Holmes Co. borrowed cash from First City Bank by issuing an $80,000 face value, three-year term note that had a 7 percent annual interest rate. The note is to be repaid by making annual payments of $30,484 that include both interest and principal on December 31. Holmes invested
The following transactions apply to Gupta Co. for 2010, its first year of operations.1. Received $50,000 cash in exchange for issuance of common stock.2. Secured a $100,000, 10-year installment loan from First Bank. The interest rate was 6 percent and annual payments are $14,901.33.3. Purchased
Sayles Co. uses a line of credit to help finance its inventory purchases. Sayles sells ski equipment and uses the line of credit to build inventory for its peak sales months, which tend to be clustered in the winter months. Account balances at the beginning of 2010 were as follows.Cash
Hulse Company has a line of credit with Bay Bank. Hulse can borrow up to $250,000 at any time over the course of the 2010 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during 2010. Hulse agreed to pay interest
Show the effect of each of the following independent accounting events on the financial statementsusing a horizontal statements model like the following one. Use 1 for increase, 2 for decrease, and NA for not affected. The first event is recorded as an example.a. Issued a bond at face value.b. Made
Texas Instruments, Inc., claims to be €œthe world leader in digital signal processing and analog technologies, the semiconductor engines of the Internet age.€ Eastman Kodak Company manufactures Kodak film, cameras and related products. The following data were taken from the
Understanding real-world annual reportsRequiredUse the Topps Company’s annual report in Appendix B to answer the following questions.a. What was Topps’ current ratio as of February 25, 2007?b. Which of Topps’ current assets had the largest balance as of February 25, 2007?c. What percentage of
The following accounting information pertains to Adams and Hood companies at the end of 2010.Requireda. Organize the class into two sections and divide each section into groups of three to five students. Assign each of the sections one of the companies.Group Tasks(1) Identify the current assets and
In the liabilities section of its 2007 balance sheet, Wachovia Corporation reported “noninterestbearing deposits” of over $60 billion. Wachovia is a very large banking company. In the liabilities section of its 2007 balance sheet, Newmont Mining Corporation reported “reclamation and
The following information was drawn from the balance sheets of the Alberta and Ottawa Companies.Requireda. Compute the current ratio for each company.b. Which company has the greater likelihood of being able to pay its bills?c. Assuming that both companies have the same amount of total assets,
Mack Company plans to invest $50,000 in land that will produce annual rent revenue equal to 15 percent of the investment starting on January 1, 2007. The revenue will be collected in cash at the end of each year, starting December 31, 2007. Mack can obtain the cash necessary to purchase the land
Putting “yum” on people’s faces around the world is the mission of YUM Brands, Inc. Yum was spun off from PepsiCo in 1997. A spin-off occurs when a company separates its operations into two or more distinct companies. The company was originally composed of KFC, Pizza Hut, and Taco Bell and
David Sheridan was a well-respected CPA in his mid-fifties. After spending 10 years at a national accounting firm, he was hired by Global, Inc., a multinational corporation headquartered in the United States. He patiently worked his way up to the top of Global’s accounting department and in the
Many companies have a form of debt called capital leases. A capital lease is created when a company agrees to rent an asset, such as equipment or a building, for such a long time that GAAP treats the lease as if the asset were purchased using borrowed funds. A capital lease creates a liability for
What are the three major forms of business organizations? Describe each.
What is a capital investment? How does it differ from an investment in stocks or bonds?
What are three reasons that cash is worth more today than cash to be received in the future?
A dollar today is worth more than a dollar in the future. The present value of a future dollar is worth less than one dollar. Are these two statements synonymous? Explain.
Define the term return on investment. How is the return normally expressed? Give an example of a capital investment return.
How does a company establish its minimum acceptable rate of return on investments?
If you wanted to have $500,000 one year from today and desired to earn a 10 percent return, what amount would you need to invest today? Which amount has more value, the amount today or the $500,000 a year from today?
Why are present value tables frequently used to convert future values to present values?
Define the term annuity. What is one example of an annuity receipt?
How can present value “what-if” analysis be enhanced by using software programs?
Receiving $100,000 per year for five years is equivalent to investing what amount today at 14 percent? Provide a mathematical formula to solve this problem, assuming use of a present value annuity table to convert the future cash flows to their present value equivalents. Provide the expression for
Maria Espinosa borrowed $15,000 from the bank and agreed to repay the loan at 8 percent annual interest over four years, making payments of $4,529 per year. Because part of the bank’s payment from Ms. Espinosa is a recovery of the original investment, what assumption must the bank make to earn
Two investment opportunities have positive net present values. Investment A’s net present value amounts to $40,000 while B’s is only $30,000. Does this mean that A is the better investment opportunity? Explain.
What criteria determine whether a project is acceptable under the net present value method?
Does the net present value method provide a measure of the rate of return on capital investments?
Which is the best capital investment evaluation technique for ranking investment opportunities?
Paul Henderson is a manager for Spark Company. He tells you that his company always maximizes profitability by accepting the investment opportunity with the highest internal rate of return. Explain to Mr. Henderson how his company may improve profitability by sometimes selecting investment
What is the relationship between desired rate of return and internal rate of return?
What typical cash inflow and outflow items are associated with capital investments?
I always go for the investment with the shortest payback period. Is this a sound strategy? Why or why not?
The payback method cannot be used if the cash inflows occur in unequal patterns. Do you agree or disagree? Explain.
What are the advantages and disadvantages associated with the unadjusted rate of return method for evaluating capital investments?
How do capital investments affect profitability?
What is a postaudit? How is it useful in capital budgeting?
Identifying cash inflows and outflowsRequiredIndicate which of the following items will result in cash inflows and which will result in cash outflows. The first one is shown as anexample.
Kade Gulliver turned 20 years old today. His grandfather established a trust fund that will pay Mr. Gulliver $60,000 on his next birthday. However, Mr. Gulliver needs money today to start his college education. His father is willing to help and has agreed to give Mr. Gulliver the present value of
Qunitana Pena expects to receive a $500,000 cash benefit when she retires five years from today. Ms. Pena’s employer has offered an early retirement incentive by agreeing to pay her $300,000 today if she agrees to retire immediately. Ms. Pena desires to earn a rate of return of 12
The dean of the School of Natural Science is trying to decide whether to purchase a copy machine to place in the lobby of the building. The machine would add to student convenience, but the dean feels compelled to earn an 8 percent return on the investment of funds. Estimates of cash inflows from
Lake Shuttle Inc. is considering investing in two new vans that are expected to generate combined cash inflows of $20,000 per year. The vans’ combined purchase price is $65,000. The expected life and salvage value of each are four years and $15,000, respectively. Lake Shuttle has an average cost
Ulger Vinson is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Ulger expects demand for the service to grow rapidly in the
Thackeray Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $45,000 and $42,000, respectively. The present value of cash inflows and outflows for the second alternative is $110,000 and $106,500, respectively.Requireda.
Parrish Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for operating expenses by $960,000 per year. The cost of the equipment is $4,639,897.92. Medina expects it to have a 10-year useful life and a zero
Perez and Soto (P&S) is a partnership that owns a small company. It is considering two alternative investment opportunities. The first investment opportunity will have a five-year useful life, will cost $7,001.31, and will generate expected cash inflows of $1,800 per year. The second investment
To open a new store, Barker Tire Company plans to invest $480,000 in equipment expected to have a four-year useful life and no salvage value. Barker expects the new store to generate annual cash revenues of $630,000 and to incur annual cash operating expenses of $390,000. Barker’s average income
Joanne Fletcher is angry with Baxter Long. He is behind schedule developing supporting material for tomorrow’s capital budget committee meeting. When she approached him about his apparent lackadaisical attitude in general and his tardiness in particular, he responded, “I don’t see why we do
Blue Jet Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $9,000,000; it will enable the company to increase its annual cash inflow by $3,000,000 per year. The plane is
Renfro Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Shaw would sell it at the end of the fifth
Sanders Painting Company is considering whether to purchase a new spray paint machine that costs $2,000. The machine is expected to save labor, increasing net income by $300 per year. The effective life of the machine is 15 years according to the manufacturer’s estimate.Requireda. Determine the
Venture Rentals can purchase a van that costs $30,000; it has an expected useful life of three years and no salvage value. Venture uses straight-line depreciation. Expected revenue is $15,000 per year.Requireda. Determine the payback period.b. Determine the unadjusted rate of return based on the
ADK Delivery is a small company that transports business packages between San Francisco and Los Angeles. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. ADK
Quentin Giordano owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Giordano to offer frozen yogurt to customers. The machine would cost $4,050 and has an expected
Sophia Sweeny, the president of Sweeny Enterprises, is considering two investment opportunities. Because of limited resources, she will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of
Parley Oram saved $200,000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently
Mullen Electronics is considering investing in manufacturing equipment expected to cost $138,000. The equipment has an estimated useful life of four years and a salvage value of $18,000. It is expected to produce incremental cash revenues of $72,000 per year. Mullen has an effective income tax rate
Jethro Alma, the chief executive officer of Alma Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $150,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the
Tapper Auto Repair Inc. is evaluating a project to purchase equipment that will not only expand the company’s capacity but also improve the quality of its repair services. The board of directors requires all capital investments to meet or exceed the minimum requirement of a 10 percent rate of
Kent Beech is reviewing his company's investment in a cement plant. The company paid $15,000,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate.
Linda and George Doggett want to replace the windows in the older house they purchased recently. The company they have talked to about doing the work claims that new windows will reduce the couple’s heating and cooling costs by around 30 percent. The Doggetts have heard from real estate agents
Espada Real Estate Investment Company (EREIC) purchases new apartment complexes, establishes a stable group of residents, and then sells the complexes to apartment management companies. The average holding time is three years. EREIC is currently investigating two alternatives.1. EREIC can purchase
Obtain Archer Daniels Midland Company’s (ADM) Form 10-K for the fiscal year ending on June 30, 2006. To obtain the Form 10-K you can use the EDGAR system following the instructions in Appendix A, or it can be found under the “Investor Relations” link on the company’s website at
Webb Publishing Company is evaluating two investment opportunities. One is to purchase an Internet company with the capacity to open new marketing channels through which Webb can sell its books. This opportunity offers a high potential for growth but involves significant risk. Indeed, losses are
Gaines Company recently initiated a postaudit program. To motivate employees to take the program seriously, Gaines established a bonus program. Managers receive a bonus equal to 10 percent of the amount by which actual net present value exceeds the projected net present value. Victor Holt, manager
How are sole proprietorships formed?
Discuss the purpose of a partnership agreement. Is such an agreement necessary for partnership formation?
What is meant by the phrase separate legal entity? To which type of business organization does it apply?
What is the purpose of the articles of incorporation? What information do they provide?
What is the function of the stock certificate?
What prompted Congress to pass the Securities Act of 1933 and the Securities Exchange Act of 1934? What is the purpose of these laws?
What are the advantages and disadvantages of the corporate form of business organization?
What is a limited liability company? Discuss its advantages and disadvantages.
How does the term double taxation apply to corporations? Give an example of double taxation.
What is the difference between contributed capital and retained earnings for a corporation?
What are the similarities and differences in the equity structure of a sole proprietorship, a partnership, and a corporation?
Why is it easier for a corporation to raise large amounts of capital than it is for a partnership?
What is the meaning of each of the following terms with respect to the corporate form of organization?(a) Legal capital(b) Par value of stock(c) Stated value of stock(d) Market value of stock(e) Book value of stock(f ) Authorized shares of stock(g) Issued stock(h) Outstanding stock(i) Treasury
What is the difference between cumulative preferred stock and noncumulative preferred stock?
What is no-par stock? How is it recorded in the accounting records?
Assume that Best Co. has issued and outstanding 1,000 shares of $100 par value, 10 percent, cumulative preferred stock. What is the dividend per share? If the preferred dividend is two years in arrears, what total amount of dividends must be paid before the common shareholders can receive any
If Best Co. issued 10,000 shares of $20 par value common stock for $30 per share, what amount is credited to the Common Stock account? What amount of cash is received?
What is the difference between par value stock and stated value stock?
Why might a company repurchase its own stock?
What effect does the purchase of treasury stock have on the equity of a company?
Assume that Day Company repurchased 1,000 of its own shares for $30 per share and sold the shares two weeks later for $35 per share. What is the amount of gain on the sale? How is it reported on the balance sheet? What type of account is treasury stock?
What is the importance of the declaration date, record date, and payment date in conjunction with corporate dividends?
What is the difference between a stock dividend and a stock split?
Why would a company choose to distribute a stock dividend instead of a cash dividend?
What is the primary reason that a company would declare a stock split?
If Best Co. had 10,000 shares of $20 par value common stock outstanding and declared a 5-for-1 stock split, how many shares would then be outstanding and what would be their par value after the split?
When a company appropriates retained earnings, does the company set aside cash for a specific use? Explain.
What is the largest source of financing for most U.S. businesses?
What is meant by equity financing? What is meant by debt financing?
What is a widely held corporation? What is a closely held corporation?
What are some reasons that a corporation might not pay dividends?
A sole proprietorship was started on January 1, 2010, when it received $80,000 cash from Derek Hughes, the owner. During 2010, the company earned $50,000 in cash revenues and paid $22,400 in cash expenses. Hughes withdrew $5,000 cash from the business during 2010.RequiredPrepare an income
Wes Poole and Ross King started the PK partnership on January 1, 2010. The business acquired $60,000 cash from Poole and $90,000 from King. During 2010, the partnership earned $56,000 in cash revenues and paid $32,000 for cash expenses. Poole withdrew $2,000 cash from the business, and King
Premo Corporation was started with the issue of 8,000 shares of $10 par common stock for cash on January 1, 2010. The stock was issued at a market price of $18 per share. During 2010, the company earned $58,000 in cash revenues and paid $39,000 for cash expenses. Also, a $4,000 cash dividend was

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