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Using Financial Accounting Information The Alternative to Debits and Credits 7th Edition Gary A. Porter, Curtis L. Norton - Solutions
How does owners’ equity fit into the accounting equation?
What are the two distinct elements of owners’ equity in a corporation? Define each element.
What is the purpose of a balance sheet?
How should a balance sheet be dated: as of a particular day or for a particular period of time? Explain your answer.
What does the term cost principle mean?
What is the purpose of an income statement?
How should an income statement be dated: as of a particular day or for a particular period of time? Explain your answer.
Rogers Corporation starts the year with a Retained Earnings balance of $55,000. Net income for the year is $27,000. The ending balance in Retained Earnings is $70,000. What was the amount of dividends for the year?
Evaluate the following statement: Companies based in the United States can choose whether to follow the standards of the FASB or those of the IASB since the rules of the two groups have converged.
What are some of the most important provisions in the Sarbanes-Oxley Act?
Evaluate the following statement: The auditors are in the best position to evaluate a company because they have prepared the financial statements.
What is the relationship between the cost principle and the going concern assumption?
Why does inflation present a challenge to the accountant? Relate your answer to the monetary unit assumption.
What is meant by the term generally accepted accounting principles?
What role has the Securities and Exchange Commission played in setting accounting standards? Contrast its role with that played by the Financial Accounting Standards Board.
What does it mean when you own a share of stock in a company rather than one of its bonds?
Assume that you are starting a new business. In which type of business activity will you engage first? Identify the order in which the remaining two activities will occur.
Users of Accounting Information List three examples of external users of accounting information.
The Accounting Equation and the Balance Sheet State the accounting equation. What two distinct parts make up stockholders’ equity?
What monetary unit is used to prepare financial statements for companies in the United States? For companies in Japan?
The Role of Auditors Do a company’s external auditors prepare the company’s financial statements? Explain.
Making Ethical Decisions List the four steps that can help a person make ethical decisions.
Braxton Corp. was organized on January 1, 2010, to operate a limousines service to and from the airport. For each of the following business activities, indicate whether it is a financing (F), investing (I), or operating (O) activity. ________1 . Issued shares of stock to each of the four owners.
Users of Accounting Information and Their Needs Listed below are a number of the important users of accounting information. Following the list are descriptions of a major need of each of these various users. Fill in each blank with the one user group that is most likely to have the need described.
For each of the following independent cases, fill in the blank with the appropriate dollar amount.
Ginger Enterprises began the year with total assets of $500,000 and total liabilities of $250,000. Using this information and the accounting equation, answer each of the following independent questions. 1. What was the amount of Ginger’s owners’ equity at the beginning of the year?2. If
Using the accounting equation, answer each of the following independent questions. 1. Burlin Company starts the year with $100,000 in assets and $80,000 in liabilities. Net income for the year is $25,000, and no dividends are paid. How much is owners’ equity at the end of the year?2. Chapman Inc.
The following amounts are available from the records of Coaches and Carriages Inc. at the end of the years indicated:Required1. Compute the changes in Coaches and Carriages€™ owners€™ equity during 2009 and 2010.2. Compute the amount of Coaches and Carriages€™ net
The Accounting Equation For each of the following cases, fill in the blank with the appropriate dollar amount.
Classification of Financial Statement Items Classify each of the following items according to (1) Whether it belongs on the income statement (IS) or balance sheet (BS) and (2) Whether it is a revenue (R), expense (E), asset (A), liability (L), or stockholders€™ equity (SE) item.
Carnival Corporation & plc is one of the largest cruise companies in the world with such well-known brands as Carnival Cruise Lines, Holland America Line, and Princess Cruises. Classify each of the following items found in the company€™s 2008 annual report according to (1) whether it
The following information is available from the records of Prestige Landscape Design Inc. at the end of the 2010 calendar year:RequiredUse the previous information to answer the following questions.1. What is Prestige's net income for the year ended December 31, 2010?2. What is Prestige's Retained
Ace Corporation has been in business for many years. Retained earnings on January 1, 2010, is $235,800. The following information is available for the first two months of 2010:RequiredPrepare a statement of retained earnings for the month ended February 28,2010.
The following basic accounting principles and assumptions were discussed in the chapter: Economic entity Monetary unit Cost principle Going concern Time period Fill in each of the blanks with the accounting principle or assumption that is relevant to the situation described. ____________________1.
Match each of the organizations listed below with the statement that most adequately describes the role of the group. Securities and Exchange Commission International Accounting Standards Board Financial Accounting Standards Board American Institute of Certified Public Accountants
Classification of Items on the Statement of Cash Flows Classify each of the following items according to the section on the statement of cash flows in which it should appear: operating (O), investing (I), or financing (F):
Users of Accounting Information and the Financial Statements Following are a number of users of accounting information and examples of questions they need answered before making decisions. Fill in each blank to indicate whether the user is most likely to find the answer by looking at the income
Refer to Kellogg’s balance sheet reproduced in the chapter. RequiredIn which of the assets would you expect Kellogg’s land to be included? What does this amount represent (i.e., cost, market value)? Why does Kellogg’s carry its land at one or the other values?
Havre Company would like to buy a building and equipment to produce a new product line. Information about Havre is more useful to some people involved in the project than to others.RequiredComplete the following chart by identifying the information listed on the left with the user€™s need
The following items are available from records of Freescia Corporation at the end of the 2010 calendar year:RequiredPrepare a balance sheet.
Dave is the president of Avon Consulting Inc. Avon began business on January 1, 2010. The company's controller is out of the country on business. Dave needs a copy of the company's balance sheet for a meeting tomorrow and asks his assistant to obtain the required information from the company's
The following list, in alphabetical order, shows the various items that regularly appear on the financial statements of Maple Park Theatres Corp. The amounts shown for balance sheet items are balances as of September 30, 2010 (with the exception of retained earnings, which is the balance on
Green Bay Corporation began business in July 2010 as a commercial fishing operation and a passenger service between islands. Shares of stock were issued to the owners in exchange for cash. Boats were purchased by making a down payment in cash and signing a note payable for the balance. Fish are
Hometown Cleaners Inc. operates a small dry-cleaning business. The company has always maintained a complete and accurate set of records. Unfortunately, the company's accountant left in a dispute with the president and took the 2010 financial statements with him. The following income statement and
PepsiCo Inc. and Subsidiaries reported the following amounts in various statements included in its 2008 annual report. (All amounts are stated in millions of dollars.)Net income for 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 5,142Cash dividends declared in 2008 . . . . . . . . . .
The Financial Accounting Standards Board requires companies to supplement their consolidated financial statements with disclosures about segments of their businesses. To comply with this standard, Time Warner Inc.’s 2008 annual report provides various disclosures for the five segments in which
Joe Hale opened a machine repair business in leased retail space, paying the first month's rent of $300 and a $1,000 security deposit with a check on his personal account. He took the tools, worth about $7,500, from his garage to the shop. He also bought some equipment to get started. The new
Billings Inc. would like to buy a franchise to provide a specialized service. Information about Billings is more useful to some people involved in the project than to others.RequiredComplete the following chart by identifying the information listed on the left with the user€™s need to
The following items are available from the records of Victor Corporation at the end of its fiscal year, July 31, 2010RequiredPrepare a balance sheet.
Pete is the president of Island Enterprises. Island Enterprises began business on January 1, 2010. The company's controller is out of the country on business. Pete needs a copy of the company's balance sheet for a meeting tomorrow and asks his assistant to obtain the required information from the
The following list, in alphabetical order, shows the various items that regularly appear on the financial statements of Sterns Audio Book Rental Corp. The amounts shown for balance sheet items are balances as of December 31, 2010 (with the exception of retained earnings, which is the balance on
Fort Worth Corporation began business in January 2010 as a commercial carpet-cleaning and drying service. Shares of stock were issued to the owners in exchange for cash. Equipment was purchased by making a down payment in cash and signing a note payable for the balance. Services are performed for
Heidi's Bakery Inc. operates a small pastry business. The company has always maintained a complete and accurate set of records. Unfortunately, the company's accountant left in a dispute with the president and took the 2010 financial statements with her. The following balance sheet and income
Brunswick Corporation reported the following amounts in various statements included in its 2008 annual report. (All amounts are stated in millions of dollars.)Net loss for 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 788.1Cash dividends declared and paid in 2008 . . . . . . . .
When bad debts are estimated, why is the balance in Allowance for Doubtful Accounts considered when the percentage of accounts receivable approach is used but not when the percentage of net credit sales approach is used?
The Financial Accounting Standards Board requires companies to supplement their consolidated financial statements with disclosures about segments of their businesses. To comply with this standard, Marriott International’s 2008 annual report provides various disclosures for the five segments in
When estimating bad debts on the basis of a percentage of accounts receivable, what is the advantage of using an aging schedule?
Millie Abrams opened a ceramic studio in leased retail space, paying the first month€™s rent of $300 and a $1,000 security deposit with a check on her personal account. She took molds and paint, worth about $7,500, from her home to the studio. She also bought a new ï¬ ring
What is the distinction between an account receivable and a note receivable?
Refer to the excerpts from Kellogg’s annual report reprinted at the back of the book and identify where each of the following users of accounting information would first look to answer their respective questions about Kellogg’s. 1. Investors: How much did the company earn for each share of
Why does the discounting of a note receivable with recourse result in a contingent liability? Should the liability be reported on the balance sheet? Explain.
Refer to the financial statements for Kellogg’s reproduced in the chapter and answer the following questions. 1. What was the company’s net income for 2008?2. State Kellogg’s financial position on January 3, 2009, in terms of the accounting equation.3. By what amount did Property, net,
On December 31, Stockton Inc. invests idle cash in two different certificates of deposit. The first is an 8%, 90-day CD, and the second has an interest rate of 9% and matures in 120 days. How is each of these CDs classified on the December 31 balance sheet?
Refer to the financial information for Kellogg’s and General Mills reproduced at the end of the book and answer the following questions.1. What was the net sales amount for each company for the most recent year? Did each company’s net sales increase or decrease from its total amount in the
Stanzel Corp. purchased 1,000 shares of IBM common stock. What will determine whether the shares are classified as current assets or noncurrent assets?
You have saved enough money to pay for your college tuition for the next three years when a high school friend comes to you with a deal. He is an artist who has spent most of the past two years drawing on the walls of old buildings. The buildings are about to be demolished, and your friend thinks
Upon graduation from MegaState University, you and your roommate decide to start your respective careers in accounting and salmon fishing in Remote, Alaska. Your career as a CPA in Remote is going well, as is your roommate’s job as a commercial fisherman. After one year in Remote, he approaches
What is the appropriate treatment of any fees or commissions paid to purchase stock in another company?
Accounting for Bad Debts Badger recorded $500,000 of net sales for the year of which 2% is estimated to be uncollectible. Identify and analyze the adjustment required at the end of the year to record bad debts.
Identification of Errors in Financial Statements and Preparation of Revised Statements Lakeside Slammers Inc. is a minor league baseball organization that has just completed its ï¬ rst season. You and three other investors organized the corporation; each put up $10,000 in cash for shares of
Accounts Receivable Turnover Hawkeye recorded sales of $240,000 for the year. Accounts receivable amounted to $40,000 at the beginning of the year and $20,000 at the end of the year. Compute the company’s accounts receivable turnover for the year.
Financial statements are the means by which accountants communicate to external users. Recent financial reporting scandals have focused attention on the accounting profession and its role in the preparation of these statements and the audits performed on the statements.Required1. Who is responsible
Accounting for Notes Receivable On November 1, 2010, Gopher issued a $50,000, 6%, 90-day promissory note. Identify and analyze the adjustment required on December 31, the end of the company’s fiscal year.
You have won a lottery! You will receive $200,000, after taxes, each year for the next five years. RequiredDescribe the process you will go through in determining how to invest your winnings. Consider at least two options and make a choice. You may consider the stock of a certain company, bonds,
Accounting for Credit Card Sales On July 20, Wolverine presents credit card drafts to its bank in the amount of $10,000; the collection charge is 4%. Identify and analyze the transaction on Wolverine’s books on July 20, the date of deposit.
You have inherited $1 million! RequiredDescribe the process you will go through in determining how to invest your inheritance. Consider at least two options and choose one. You may consider the stock of a certain company, bonds, real estate investments, bank deposits, and so on. Be specific. What
Accounting for Sale of Stock On March 5, Spartan sold stock in another company for $12,300. Spartan bought the stock on February 14 for $10,100. Identify and analyze the transaction on Spartan’s books on March 5.
Accounts Receivable on the Statement of Cash Flows Wildcat started the year with $25,000 in accounts receivable and ended the year with $40,000 in the account. Describe how information regarding the company’s accounts receivable should be reflected on its statement of cash flows, assuming use
Comparison of the Direct Write-Off and Allowance Methods of Accounting for Bad Debts In its first year of business, Rideaway Bikes has net income of $145,000, exclusive of any adjustment for bad debts expense. The president of the company has asked you to calculate net income under each of two
Allowance Method of Accounting for Bad Debts—Comparison of the Two Approaches Kandel Company had the following data available for 2010 (before making any adjustments):Accounts receivable, 12/31/10 ............$320,100Allowance for doubtful accounts ..............2,600Net credit sales, 2010
Using an Aging Schedule to Account for Bad Debts Carter Company sells on credit with terms of n/30. For the $500,000 of accounts at the end of the year that are not overdue, there is a 90% probability of collection. For the $200,000 of accounts that are less than a month past due, Carter estimates
Accounts Receivable Turnover for General Mills The 2009 annual report of General Mills (the maker of Cheerios® and Wheaties®) reported the following amounts (in millions of dollars): Net sales, for the year ended May 31, 2009 .....$14,691 .3 Receivables, May 31, 2009 ...............953.4
Notes Receivable On September 1, 2010, Dougherty Corp. accepted a six-month, 7%, $45,000 interest- bearing note from Rozelle Company in payment of an accounts receivable. Dougherty’s year-end is December 31. Rozelle paid the note and interest on the due date.Required1. Who is the maker and who is
Credit Card Sales Darlene’s Diner accepts American Express® credit cards from its customers. Darlene’s is closed on Sundays and on that day records the weekly sales and remits the credit card drafts to American Express. For the week ending on Sunday, June 12, cash sales totaled $2,430 and
Certificate of Deposit On May 31, 2010, Elmer Corp. purchased a 120-day, 9% certificate of deposit for $50,000. The CD was redeemed on September 28, 2010. Identify and analyze the transactions and any adjustments on Elmer’s books to account for:a. The purchase of the CD.b. The accrual of interest
Classification of Cash Equivalents and Investments on a Balance Sheet Classify each of the following items as a cash equivalent (CE), a short-term investment (STI), or a long-term investment (LTI).1. A 120-day certificate of deposit.2. Three hundred shares of GM common stock. The company plans on
Purchase and Sale of Bonds Starship Enterprises enters into the following transactions during 2010 and 2011:2010Jan. 1: Purchased $100,000 face value of Northern Lights Inc. bonds at face value. The newly issued bonds have an interest rate of 8% paid semiannually on June 30 and December 31. The
Investment in Stock On October 1, 2010, Chicago Corp. purchases 1,000 shares of the preferred stock of Denver Corp. for $40 per share. Chicago pays another $1,000 in commissions. On October 20, 2010, Denver declares and pays a dividend of $1 per share. Chicago sells the stock on November 5, 2010,
Investment in Stock On August 15, 2010, Cubs Corp. purchases 5,000 shares of common stock in Sox Inc. at a market price of $15 per share. In addition, Cubs pays brokerage fees of $1,000. On October 20, 2010, Cubs sells the Sox stock for $10 per share.RequiredIdentify and analyze all transactions on
Impact of Transactions Involving Receivables on Statement of Cash Flows From the following list, identify whether the change in the account balance during the year would be added to or deducted from net income when the indirect method is used to determine cash flows from operating activities:
Cash Collections—Direct Method Emily Enterprises’ comparative balance sheets included accounts receivable of $224,600 at December 31, 2009, and $205,700 at December 31, 2010. Sales reported on Emily’s 2010 income statement amounted to $2,250,000. What is the amount of cash collections that
Impact of Transactions Involving Cash, Securities, and Receivables on Statement of Cash Flows From the following list, identify each item as operating (O), investing (I), financing (F), or not separately reported on the statement of cash flows (N). Assume that the indirect method is used to
Allowance Method for Accounting for Bad Debts At the beginning of 2010, EZ Tech Company’s accounts receivable balance was $140,000 and the balance in Allowance for Doubtful Accounts was $2,350. EZ Tech’s sales in 2010 were $1,050,000, 80% of which were on credit. Collections on account during
Using an Aging Schedule to Account for Bad Debts Sparkle Jewels distributes fine stones. It sells on credit to retail jewelry stores and extends terms that require the stores to pay in 60 days. For accounts that are not overdue, Sparkle has found that there is a 95% probability of collection. For
Accounts Receivable Turnover for Coca-Cola and PepsiCo The following information was summarized from the 2008 annual report of The Coca-Cola Company: (In millions) Trade accounts receivable, less allowances of $51 and $56, respectively December 31, 2008 ........................$ 3,090 December
Credit Card Sales Gas stations sometimes sell gasoline at a lower price to customers who pay cash than to customers who use a credit card. A local gas station owner pays 2% of the sales price to the credit card company when customers pay with a credit card. The owner pays $0.75 per gallon of
Investments in Bonds and Stock Swartz Inc. enters into the following transactions during 2010: July 1: Paid $10,000 to acquire on the open market $10,000 face value of Gallatin bonds. The bonds have a stated annual interest rate of 6% with interest paid semiannually on June 30 and December 31. The
Investments in Stock Atlas Superstores occasionally finds itself with excess cash to invest and consequently entered into the following transactions during 2010:Jan. 15: Purchased 200 shares of Bassett common stock at $50 per share, plus $500 in commissions.May 23: Received dividends of $2 per
Effects of Changes in Receivable Balances on Statement of Cash Flows Stegner Inc. reported net income of $130,000 for the year ended December 31, 2010. The following items were included on Stegner€™s balance sheets at December 31, 2010 and 2009:Stegner uses the indirect method to prepare
Accounts and Notes Receivable Linus Corp. sold merchandise for $5,000 to C. Brown on May 15, 2010, with payment due in 30 days. Subsequent to this, Brown experienced cash flow problems and was unable to pay its debt. On August 10, 2010, Linus stopped trying to collect the outstanding receivable
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