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Intermediate Accounting 10th Edition Loren A Nikolai, D. Bazley and Jefferson P. Jones - Solutions

Analyzing Coca-Cola’s Income Statement and Cash Flow Statement Disclosures Review the financial statements and notes of the Coca-Cola Company in Appendix A.Required 1. Does the company use a multiple-step or a single-step format on its income statement? Explain.2. What was the net income for
The following is the adjusted trial balance for the Woodbine Circle Corporation on December 31, 2007:Other financial data for the year ended December 31, 2007: Federal Income Taxes________________________Paid on Federal Tax Deposit Form
The Century Company, a diversified manufacturing company, had four separate operating divisions engaged in the manufacture of products in each of the following areas: food products, health aids, textiles, and office equipment. Financial data for the 2 years ended December 31, 2008 and 2007 are
The following is the complete set of financial statements prepared by Oberlin Corporation:Notes to Financial Statements1. Goodwill is not being reviewed for impairment. The goodwill was €œacquired€ in 2007.2. The amount, Due to Grant, Inc., is contingent upon the outcome of a
The following are the financial statements issued by Allen Corporation for its fiscal year ended October 31, 2007:Notes to Financial Statements:1. Long-Term Lease. Under the terms of a 5-year noncancellable lease for buildings and equipment, the Company is obligated to make annual rental payments
The accountant for the Tiger Company prepared comparative income statements for 2007 and 2008 as follows:The auditor of Tiger Company reviewed the accounting records and income statements and discovered the facts described in items 1 and 2 below. All amounts incurred during 2007 and 2008 are
At the beginning of 2007, JR Company’s stockholders’ equity was as follows:Common stock, $5 par .......$35,000Additional paid-in capital ..... 49,000Retained earnings ......... 63,000During 2007, the following events and transactions occurred:1. The company earned sales revenues of $108,000. It
A list of selected items involving the cash flow activities of the Topps Company for 2007 is presented here:a. Patent amortization expense, $3,500 b. Machinery was purchased for $39,500 c. At year-end, bonds payable with a face value of $20,000 were issued for $17,000 d. Net income, $47,200 e.
The following are several items involving the cash flow activities of the Mueller Company for 2007:a. Net income, $68,000b. Increase in accounts receivable, $4,400c. Receipt from sale of common stock, $12,300d. Depreciation expense, $11,300e. Dividends paid, $24,500f. Payment for purchase of
The following are various cash flows and other information of the TrainerCompany for 2007:a. Payments of interest, $5,000 b. Depreciation expense, $22,700 c. Receipt from sale of land, $3,100 d. Payments of income taxes, $6,200 e. Beginning cash balance, $16,500 f. Decrease in receivables, $7,400
Gibb Company prepared the following balance sheet at the beginning of 2007:Additional information related to the statement of cash flows:1. The long-term bonds have a face value of $6,000 and were issued on December 31, 2007.2. The building was purchased on December 30, 2007.3. The land was sold
A friend of yours who is not an accounting major states, “I always thought that a company recognizes revenues at the time of sale. Recently, however, I heard that there are specific criteria for revenue recognition and that included in the criteria is something about realization (whatever that
The FASB states that expenses are recognized according to three principles to properly match expenses against revenues. RequiredWrite a concise report that identifies the three principles, briefly explains each, and provide examples of expenses that would be recognized under each principle.
You were requested to personally deliver your auditor’s report to the board of directors of Sebal Manufacturing Corporation and answer questions posed about the financial statements. While reading the statements, one director asked, “What are the precise meanings of the terms ‘cost,’
FASB Statement No. 144 dealt with, among other issues, reporting the results of discontinued operations. In the Statement, a section of the income statement was created and several terms were defined, including “component.” RequiredIdentify the elements of a company’s results of discontinued
APB Opinion No. 30 establishes two narrow criteria that must be met in order for an event or transaction to be classified as an extraordinary item.Required1. Identify and explain each criterion.2. Develop examples of events that might be extraordinary to one company but not extraordinary to
Morgan Company grows various crops and then processes them for sale to retailers. In the latter part of this year, Morgan had a large portion of its crops destroyed by a hail storm. Morgan has incurred substantial costs in raising the crops destroyed by the hail storm. Severe damage from hail
Lynn Company sells a component of its business in the middle of the year. On the date of sale, the net proceeds received were less than the aggregate book value of the component’s net assets. The component was operating at a loss from the beginning of the year. In addition, Lynn had one of its
The president of a company, which is being audited for the first time, is concerned about all the unnecessary financial information the company is being required to disclose, and says, “We have always prepared only a balance sheet and an income statement. Surely these are enough. The only
At the beginning of 1995, the Hill family organized the Hill Corporation and issued 8,000 shares of stock to family members for $20 per share. During 1998, it issued an additional 1,600 shares of stock for $25 per share to family members. The 9,600 shares were held by the family until the
Generally accepted accounting principles require the use of accruals and deferrals in the determination of income.Required1. Explain how accrual accounting affects the determination of a company’s income. Include in your discussion what constitutes an accrual and a deferral, and give appropriate
It is the end of 2007, and, as an accountant for Newell Company, you are preparing its 2007 financial statements. On December 29, 2007, the management of Newell decided to sell one of its major divisions, subject to some legal work that is expected to be completed during the first week in April
Situation During 2007, one of the customers of Klote Company declared bankruptcy. This customer had been a major purchaser of Klote’s products and had owed $40,000 on account to Klote (a material portion of its receivables) at the time of bankruptcy. As a result of the bankruptcy, Klote had to
Situation The Kelly Company, a small corporation, is preparing its 2007 financial statements. At the end of 2007, the company purchased a building for $100,000, paying $20,000 as a down payment and signing an $80,000 mortgage. The president of Kelly is concerned about how to report this transaction
What does efficient markets hypothesis research show and what does an “efficient capital market” mean?
In an audit report, what three opinions are expressed by the auditor?
What is an audit committee? Generally, what are its duties?
Why do investors and creditors desire financial information concerning the operating segments of a company?
Briefly describe the three alternative tests used to determine a “reportable segment.”
Briefly describe the information that a company reports in regard to the profit (or loss) and assets of each reportable segment.
What company-wide disclosures must a company make related to its operating segments?
What are interim financial statements and why are they issued?
What specific principles must a company apply to the reporting of inventories in its interim financial reports?
What principles does a company apply to the accounting for expenses not directly associated with product sales during an interim period?
Briefly explain how the accounting procedures for preparing a company’s interim reports are (a) Similar and(b) Dissimilar to those used in preparing annual reports.
List the minimum disclosures that must be made by a publicly held company in its interim financial report.
List the responsibilities of the Chief Accountant and the Division of Corporation Finance of the SEC.
What are the two SEC reports that are important to accountants?
What two types of comparisons may external users make in their financial decision making? Why is knowledge of these comparisons important to accountants?
What is horizontal analysis and how is it prepared?
What is vertical analysis and how does it differ from horizontal analysis?
What is ratio analysis and how is it used?
Briefly describe how each of the stockholder profitability ratios is computed.
Briefly describe how each of the company profitability ratios is computed.
Which financial ratios may be used to evaluate the effectiveness and efficiency of a company’s reportable operating segments?
Briefly describe how each of the liquidity ratios is computed.
Briefly describe how each of the activity ratios is computed.
Briefly describe how each of the stability ratios is computed.
Multiple Choice Questions 1. The computation of a company’s third-quarter provision for income taxes should be based on earningsa. For the quarter at an expected annual effective income tax rateb. For the quarter at the statutory ratec. To date at an expected annual effective income tax rate less
York Drug Company has two reportable operating segments, A and B. The 2007 condensed income statement for the entire company is as follows:Sales ............. $90,000Cost of goods sold ....... (50,000)Gross profit ......... $40,000Operating expenses ...... (18,000)Income before income taxes
The Wilson Diversified Company has total assets of $130,000 at the end of 2007 and the following condensed income statement for 2007:Sales ............. $90,000Operating expenses ...... (66,600)Income before income taxes .... $23,400Income tax expense ...... (7,020)Net income
Parks Conglomerate Company does business in several different industries. The following is a 2007 condensed income statement for the entire company:Parks has two major operating segments, A and B. No other operating segment contributes 10% or more of the company€™s activities. Segments A
Straub Diversified Company has five different operating segments. None of these segments makes sales to the other segments. The company has total assets of $155,000 at the end of 2007 and lists the following condensed income statement for 2007:Sales ........ $100,000Operating expenses ...
Interim Reporting Jersey Company is in the process of developing its first-quarter interim report. It has developed the following condensed trial balance as of March 31, 2007:Additional information:1. The company makes formal adjusting entries at year-end and enters the amounts in the appropriate
The Howard Corporation presented the following trial balance for the quarter ended March 31, 2007:Additional information:1. The company uses control accounts for selling expenses and for general and administrative expenses.2. The company makes formal adjusting entries at year-end and enters the
The Hill Company prepares quarterly and year-to-date interim reports. The following is its interim income statement for the quarter ended March 31, 2007:On June 30, 2007, the company accountant completed a worksheet in preparation for developing the year-to-date interim income statement. The
Farris Company is subject to income taxes at a rate of 20% on its first $50,000 of income and 35% on any income in excess of $50,000. In the process of preparing its interim reports, each quarter Farris Company uses an estimated effective income tax rate based on its estimated annual income. The
Slusher Company presents the following condensed comparative income statements for 2006, 2007, and 2008:RequiredBased on the preceding information for Slusher Company, prepare horizontal analyses for the years 2006, 2007, and 2008 using (1) A year-to-year approach and (2) A base-year-to-date
The Samuels Company presents the following condensed income statement and balance sheet information for 2007 and 2008.RequiredBased on the preceding information for Samuels Company, prepare vertical analyses of the income statements and balance sheets for 2008 and 2007. Do your analyses reveal any
The following are a condensed income statement for 2007 and a December 31, 2007 balance sheet for the Allen Company:Additional information: The corporate common stock was outstanding the entire year and is selling for $16 per share at yearend. On January 1, 2007, the inventory was $21,500, the
The Byers Company presents the following condensed income statement for 2007 and condensed December 31, 2007 balance sheet:Additional information:1. The company's common stock and preferred stock were outstanding the entire year.2. Dividends of $1.50 per share on the common stock and $6 per share
Daley, Inc. is consistently profitable. Daley’s normal financial statement relationships are as follows:I. Current ratio: 3 to 1II. Inventory turnover: 4 timesIII. Total debt/total assets ratio: 0.5 to 1In 2007, Daley was involved in the following transactions and events:1. Daley issued a
Frahm Corporation presents the following account balances, after adjustments, on December 31, 2007:The following information is also available:1. The income tax rate on all items is 30%.2. 10,000 shares of common stock have been outstanding the entire year.3. Frahm Corporation operates several
The following accounts are taken from the December 31, 2007 adjusted trial balance of the Reed Company:Additional information:1. The company had 5,000 shares of common stock outstanding the entire year.2. The income tax rate is 30% on all items.3. The Reed Company operates several divisions, two of
The Schultz Company prepares interim financial statements at the end of each quarter. The income statement presented at the end of the first quarter of 2007 is as follows:Shown next is the Schultz Company trial balance as of June 30, 2007:Additional information:1. The company uses a perpetual
The Sikyta Company prepares quarterly and year-to-date financial statements at the end of each quarter. The income statement presented at the end of the first quarter of 2007 is:Sales (net) ...........$62,000Cost of goods sold .........(37,200)Gross profit ...........$24,800Operating expenses
The Anderson Manufacturing Company, a California corporation listed on the Pacific Coast Stock Exchange, budgeted activities for 2007 as follows:Anderson has operated profitably for many years and has experienced a seasonal pattern of sales volume and production similar to the following forecasted
The Horizon Company is listed on the New York Stock Exchange. The market value of its common stock was quoted at $18 per share at both December 31, 2007 and December 31, 2006. Horizon€™s balance sheets at December 31, 2007 and December 31, 2006, and statements of income and retained
Before closing the books for the year ended December 31, 2007, Pitt Corp. prepared the following condensed trial balance:Required1. Using the multiple-step format, prepare a formal income statement for Pitt for the year ended December 31, 2007.2. Prepare a schedule to reconcile net income to
Review the financial statements and related notes of The Coca-Cola Company in Appendix A.Required1. What was the gross profit for 2004? The operating income?2. What was the net income for 2004? What were the related earnings per share amounts?3. What were the total assets on December 31, 2004? How
The following are comparative financial statements of the Cohen Company for 2006, 2007, and 2008:Additional information: Credit sales were 65% of net sales in 2007 and 60% in 2008. At the beginning of 2008, 400 shares of common stock were issued, the first sale of stock in several years.The Cohen
The Pierce Company operates a high-volume retail outlet. The following are comparative financial statements for the company:Additional data: The company has not issued any common stock for several years and the price of its common stock has remained relatively constant over that time. At the
The following are comparative financial statements of the Perez Company for 2006, 2007, and 2008:RequiredOn the basis of the given information:1. Prepare horizontal analyses for Perez Company using a base-year-to-date approach for 2006 through 2007, and 2006 through 2008.2. Prepare vertical
Comparative financial statements of the Boeckman Company for 2006 and 2007 are as follows:Additional information: The Boeckman Company is listed on the New York Stock Exchange. It issued 1,000 additional shares of common stock at the beginning of 2007. The market value of its common stock was
The Printing Company is listed on the New York Stock Exchange. The market value of its common stock was quoted at $10 per share at December 31, 2007 and 2006. Printing's balance sheet at December 31, 2007 and 2006, and statement of income and retained earnings for the years then ended are as
Meyer Company is considering being audited for the first time. Mary Thomas, its president, has asked your advice. She says: “I understand that after an audit the certified public accountant issues a report that expresses some opinions, and that one type of report is ‘unqualified.’ What
The subject of management reports has been prominent the past few years. A management report is included in the annual report to shareholders. This report should not be confused with management’s discussion and analysis of operations and financial condition that also is relatively new to the
The U.S. Securities and Exchange Commission (SEC) was created in 1934 and consists of five commissioners and a staff of approximately 1,900. The SEC professional staff is organized into four divisions and several principal offices. The primary objectives of the SEC are to support fair securities
To understand current generally accepted accounting principles with respect to accounting for and reporting on the operating segments of a company, as stated in FASB Statement No. 131, it is necessary to be familiar with certain terminology. Furthermore, central issues in reporting on operating
Interim financial reporting has become an important topic in accounting. There has been considerable discussion as to the proper method of reflecting results of operations at interim dates. Accordingly, the Accounting Principles Board issued an opinion clarifying some aspects of interim financial
Many accountants and financial analysts contend that a company should report financial data for operating segments of the enterprise. Required1. Explain what financial reporting for the operating segments of a business enterprise involves.2. Identify the reasons for requiring financial data to be
The unaudited quarterly statements of income issued by many corporations to their stockholders usually are prepared on the same basis as annual statements, the statement for each quarter reflecting the transactions of that quarter.Required1. Why do problems arise in using such quarterly statements
Refer to the financial statements and related notes of The Coca-Cola Company in Appendix A of this book.Required1. What are the company’s operating segments?2. What items are subtracted from an operating segment’s net operating revenues to determine its profit or loss?3. What does the North
It is March 2008, and you have just been hired by the Tallas Company to be its accountant. Tallas is a small corporation that does a seasonal business of selling snow removal equipment, with most of its sales to retailers occurring in the last two quarters of the calendar year. Production is
Define interest. Explain how the cost of interest is similar to the price of any merchandise item.
Discuss the following concepts of interest: simple interest, compound interest, time value of money, discount.
Distinguish between the future value of 1 and the future value of an ordinary annuity of 1.
What is the interest rate per period and the frequency of compounding per year in each of the following?a. 18% compounded semiannuallyb. 16% compounded quarterlyc. 15% compounded monthly
Distinguish between the future value of 1 and the present value of 1 and between the present value of 1 and the present value of an ordinary annuity of 1.
Distinguish between the future value of an ordinary annuity and the future value of an annuity due. Draw a time line of each.
Distinguish between the present value of an annuity due and the present value of a deferred annuity. Draw a time line of each.
Explain how to solve each of the following without tables (in each case use the quickest approach possible):a. The present value of $10,000 for four years at 10% compounded annuallyb. The present value of $5,000 for five years at 10% [start with information developed in (a)]c. The future value of
Potter wishes to deposit a sum that at 12% interest, compounded semiannually, will permit two withdrawals: $40,000 at the end of 4 years and $50,000 at the end of 10 years. Analyze the problem to determine the required deposit, stating the procedure to follow and the tables to use in developing the
The following factors are taken from the compound interest tables for the same number of time periods and/or cash flows for the same interest rate:a. 8.137249b. 50.980352c. 6.265060d. 7.142168e. 0.122892Identify each of the five compound interest table factors without reference to the tables.
Explain how to determine the converted table factor for any deferred annuity by using the present value of an ordinary annuity table.
Samuel Ames owes $20,000 to a friend. He wants to know how much he would have to pay if he paid the debt in three annual installments at the end of each year, which would include interest at 14%. Draw a time line for the problem. Indicate what table to use. Look up the table value and place in a
Starting with the given value for (1.16)10 = 4.411435, describe the fastest way to solve each of the following:a. pn = 10,i = 16%b. fn = 20,i = 16%c. F0n = 10,i = 16%d. P0n = 10,i = 16%e. F0n = 20,i = 16%
Multiple Choice QuestionsItems 1 through 4 require use of present value tables. The following are the present value factors of $1 discounted at 8% for one to five periods. Each item is based on 8% interest compounded annually from day of deposit to day of withdrawal.Present Value of $1Discounted
Using the future value tables, solve the following:Required1. What is the value on January 1, 2014 of $40,000 deposited on January 1, 2007 which accumulates interest at 12% compounded annually?2. What is the value on January 1, 2013 of $10,000 deposited on July 1, 2007 which accumulates interest
Hugh Colson deposited $20,000 in a special savings account that provides for interest at the annual rate of 12% compounded semiannually if the deposit is maintained for four years.RequiredCalculate the balance of the savings account at the end of the four-year period.

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