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Financial Accounting Tools for Business Decision Making 5th Edition Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso - Solutions

The following is a list of activities that companies perform in relation to their receivables.1. Selling receivables to a factor.2. Reviewing company ratings in The Dun and Bradstreet Reference Book of American Business.3. Collecting information on competitors’ payment period policies.4.
The following information was taken from the 2007 financial statements of FedEx Corporation, a major global transportation/delivery company.InstructionsAnswer each of the following questions.(a) Calculate the receivables turnover ratio and the average collection period for 2007 for FedEx.(b) Is
The following ratios are available for Garcia Inc.Instructions(a) Is Garcia€™s short-term liquidity improving or deteriorating in 2010? Be specific in your answer, referring to relevant ratios.(b) Do changes in turnover ratios affect profitability? Explain.(c) Identify any steps Garcia
On March 3 Pride Appliances sells $710,000 of its receivables to American Factors Inc. American Factors Inc. assesses a service charge of 5% of the amount of receivables sold.InstructionsPrepare the entry on Pride Appliances’ books to record the sale of the receivables.
On May 10 Ritz Company sold merchandise for $6,000 and accepted the customer’s First Business Bank MasterCard. At the end of the day, the First Business Bank MasterCard receipts were deposited in the company’s bank account. First Business Bank charges a 3.5% service charge for credit card
On July 4 Linda’s Restaurant accepts a Visa card for a $200 dinner bill. Visa charges a 3% service fee.InstructionsPrepare the entry on Linda’s books related to the transaction.
Rapid Corp. significantly reduced its requirements for credit sales. As a result, sales during the current year increased dramatically. It had receivables at the beginning of the year of $35,000 and ending receivables of $195,000. Sales were $380,000.Instructions(a) Determine cash collections
Kwikdeal.com uses the allowance method to estimate uncollectible accounts receivable. The company produced the following aging of the accounts receivable at year end.Instructions(a) Calculate the total estimated bad debts based on the above information.(b) Prepare the year-end adjusting journal
At December 31, 2009, Kelso Imports reported this information on its balance sheet.Accounts receivable $600,000Less: Allowance for doubtful accounts 40,000During 2010 the company had the following transactions related to receivables.1. Sales on account
Presented below is an aging schedule for Galena CompanyAt December 31, 2009, the unadjusted balance in Allowance for Doubtful Accounts is a credit of $8,000.Instructions(a) Journalize and post the adjusting entry for bad debts at December 31, 2009. (Use T accounts.)(b) Journalize and post to the
Here is information related to Schellhamer Company for 2010.Total credit sales ......... $1,500,000Accounts receivable at December 31 .. 840,000Bad debts written off .......... 41,000Instructions(a) What amount of bad debts expense will Schellhamer Company report if it uses the direct write-off
At December 31, 2010, the trial balance of Olpe Company contained the following amounts before adjustment.Instructions(a) Prepare the adjusting entry at December 31, 2010, to record bad debts expense assuming that the aging schedule indicates that $10,800 of accounts receivable will be
On January 1, 2010, Sands Company had Accounts Receivable of $54,200 and Allowance for Doubtful Accounts of $3,700. Sands Company prepares financial statements annually and uses a perpetual inventory system. During the year the following selected transactions occurred.Jan. 5 Sold $7,000 of
The president of Space Enterprises asks if you could indicate the impact certain transactions have on the following ratios.1. Received $3,000 on cash sale. The cost of the goods sold was $1,800.2. Recorded bad debts expense of $500 using allowance method.3. Wrote off a $100 account receivable as
Lorenz Company closes its books on July 31. On June 30 the Notes Receivable account balance is $23,800. Notes Receivable includes the following.During July the following transactions were completed.July 5 Made sales of $5,100 on Lorenz credit cards.14 Made sales of $600 on Visa credit cards. The
Presented here is basic financial information (in millions) from the 2006 annual reports of Nike and Adidas.InstructionsCalculate the receivables turnover ratio and average collection period for both companies. Comment on the difference in their collectionexperiences.
The following represents selected information taken from a company€™s aging schedule to estimate uncollectible accounts receivable at year end.Instructions(a) Calculate the total estimated bad debts based on the above information.(b) Prepare the year-end adjusting journal entry to record
At December 31, 2009, Longbine Company reported this information on its balance sheet.Accounts receivable .......... $960,000Less: Allowance for doubtful accounts .... 84,000During 2010 the company had the following transactions related to receivables.1. Sales on account $3,600,0002. Sales returns
Presented here is an aging schedule for Zimmerman Company.At December 31, 2009, the unadjusted balance in Allowance for Doubtful Accounts is a credit of $11,700.Instructions(a) Journalize and post the adjusting entry for bad debts at December 31, 2009. (Use T accounts.)(b) Journalize and post to
Here is information related to Younger Company for 2010.Total credit sales ................................... $2,000,000Accounts receivable at December 31 ...... 700,000Bad debts written off ................................... 26,000Instructions(a) What amount of bad debts expense will Younger
At December 31, 2010, the trial balance of Stine Company contained the following amounts before adjustment.Instructions(a) Based on the information given, which method of accounting for bad debts is Stine Company using€”the direct write-off method or the allowance method? How can you
On January 1, 2010, Moxley Company had Accounts Receivable $154,000; Notes Receivable of $11,000; and Allowance for Doubtful Accounts of $13,200. The note receivable is from Hoelter Company. It is a 4-month, 9% note dated December 31, 2009. Moxley Company prepares financial statements annually.
The president of Ferman Enterprises Ltd., Angela Ferman, is considering the impact that certain transactions have on the company€™s receivables turnover and average collection period ratios. Prior to the following transactions, Ferman€™s receivables turnover was 6 times, and its
Brown Company closes its books on October 31. On September 30 the Notes Receivable account balance is $20,200. Notes Receivable include the following.Interest is computed using a 360-day year. During October the following transactions were completed.Oct. 7 Made sales of $4,600 on Brown credit
Presented here is basic financial information from the 2006 annual reports of Intel and Advanced Micro Devices (AMD), the two primary manufacturers of silicon chips for personal computers.InstructionsCalculate the receivables turnover ratio and average collection period for both companies.Comment
The financial statements of Hershey Foods are presented in Appendix B, following the financial statements for Tootsie Roll in Appendix A.Instructions(a) Based on the information contained in these financial statements, compute the following 2007 values for each company.(1) Receivables turnover
The September 24, 2007, issue of the Wall Street Journal includes an article by Simona Covel titled “Small Business Link: Three Approaches to Reining in Customer Debt.”InstructionsRead the article and answer the following questions.(a) Describe the steps taken by Slack & Co. Contracting Inc.,
The information below is from the 2006 financial statements and accompanying notes of The Scotts Company, a major manufacturer of lawn-care products.THE SCOTTS COMPANYNotes to the Financial StatementsNote 17. Concentrations of Credit RiskFinancial instruments which potentially subject the Company
Art World Industries, Inc., was incorporated in 1986 in Delaware, although it is located in Los Angeles. The company prints, publishes, and sells limited-edition graphics and reproductive prints in the wholesale market.The company’s balance sheet at the end of a recent year showed an allowance
Sue and Sam Fielder own Club Fab. From its inception Club Fab has sold merchandise on either a cash or credit basis, but no credit cards have been accepted. During the past several months, the Fielders have begun to question their credit-sales policies. First, they have lost some sales because of
Messtopper Corporation is a recently formed business selling the “World’s Best Doormat.” The corporation is selling doormats faster than Messtopper can make them. It has been selling the product on a credit basis, telling customers to “pay when they can.” Oddly, even though sales are
The controller of Gomez Corporation believes that the company’s yearly allowance for doubtful accounts should be 2% of net credit sales. The president of Gomez Corporation, nervous that the stockholders might expect the company to sustain its 10% growth rate, suggests that the controller increase
Posada Corporation's balance sheet at December 31, 2009, is presented below.During January 2010, the following transactions occurred. Posada uses the perpetual inventory method.Jan. 1 Posada accepted a 4-month, 12% note from Alien Company in payment of Alien's $1,000 account.3 Posada wrote off as
Explain sustainable income. What relationship does this concept have to the treatment of irregular items on the income statement?
Indicate which of the following items would be reported as an extraordinary item on Denison Corporation’s income statement.(a) Loss from damages caused by a volcano eruption.(b) Loss from the sale of short-term investments.(c) Loss attributable to a labor strike.(d) Loss caused when the Food and
McDonnell Inc. reported 2009 earnings per share of $3.26 and had no extraordinary items. In 2010 earnings per share on income before extraordinary items was $2.99, and earnings per share on net income was $3.49. Do you consider this trend to be favorable? Why or why not?
Bullock Inc. has been in operation for 3 years. And uses the FIFO method of pricing inventory. During the fourth year, Bullock changes to the average cost method for all its inventory. How will Bullock report this change?
(a) Andrea Monee believes that the analysis of financial statements is directed at two characteristics of a company: liquidity and profitability. Is Andrea correct? Explain.(b) Are short-term creditors, long-term creditors, and stockholders interested in primarily the same characteristics of a
(a) If Fassi Company had net income of $300,000 in 2009 and it experienced a 24.5% increase in net income for 2010, what is its net income for 2010?(b) If 6 cents of every dollar of Fassi’s revenue is net income in 2009, what is the dollar amount of 2009 revenue?
Ralph Massey is puzzled. His company had a profit margin of 10% in 2010. He feels that this is an indication that the company is doing well. Joan Douglas, his accountant, says that more information is needed to determine the company’s financial well-being. Who is correct? Why?
Kwik Mart, a retail store, has a receivables turnover ratio of 4.5 times. The industry average is 12.5 times. Does Kwik Mart have a collection problem with its receivables?
The return on assets for Boitano Corporation is 7.6%. During the same year Boitano’s return on common stockholders’ equity is 12.8%. What is the explanation for the difference in the two rates?
Comaneci Inc. has net income of $200,000, average shares of common stock outstanding of 50,000, and preferred dividends for the period of $20,000. What is Comaneci’s earnings per share of common stock? Sid Brey, the president of Comaneci, believes that the computed EPS of the company is high.
On June 30 Gomez Corporation discontinued its operations in Mexico. On September 1 Gomez disposed of the Mexico facility at a pretax loss of $680,000. The applicable tax rate is 25%. Show the discontinued operations section of Gomez’s income statement.
An inexperienced accountant for Osborn Corporation showed the following in Osborn’s 2010 income statement: Income before income taxes $300,000; Income tax expense $72,000; Extraordinary loss from flood (before taxes) $60,000; and Net income $168,000. The extraordinary loss and taxable income are
On January 1, 2010, Robins Inc. changed from the LIFO method of inventory pricing to the FIFO method. Explain how this change in accounting principle should be treated in the company’s financial statements.
Using these data from the comparative balance sheet of Patillo Company, perform horizontalanalysis.
Using the data presented in BE13-4 for Patillo Company, perform vertical analysis.
Net income was $500,000 in 2008, $480,000 in 2009, and $518,400 in 2010. What is the percentage of change from(a) 2008 to 2009, and(b) From 2009 to 2010? Is the change an increase or a decrease?
If Underwood Company had net income of $561,600 in 2010 and it experienced a 17% increase in net income over 2009, what was its 2009 net income?
Vertical analysis (common-size) percentages for Waubons Company€™s sales, cost of goods sold, and expenses are listed here.Did Waubons€™s net income as a percent of sales increase, decrease, or remain unchanged over the 3-year period? Provide numerical support for youranswer.
Horizontal analysis (trend analysis) percentages for Olympic Company€™s sales, cost of goods sold, and expenses are listed here.Explain whether Olympic€™s net income increased, decreased, or remained unchanged over the 3-yearperiod.
These selected condensed data are taken from recent balance sheets of Bob Evans Farms (in thousands).Compute the current ratio for each year and comment on yourresults.
The following data are taken from the financial statements of Fleetwood Company.Compute for each year (a) the receivables turnover ratio and (b) the average collection period. What conclusions about the management of accounts receivable can be drawn from these data? At the end of 2008, accounts
The following data were taken from the income statements of Bordeaux Company.Compute for each year(a) The inventory turnover ratio and(b) Days in inventory. What conclusions concerning the management of the inventory can be drawn from thesedata?
Staples, Inc. is one of the largest suppliers of office products in the United States. It had net income of $995.7 million and sales of $19,372.7 million in 2007. Its total assets were $8,397.3 million at the beginning of the year and $9,036.3 million at the end of the year. What is Staples,
McCormick Company has stockholders’ equity of $400,000 and net income of $72,000. It has a payout ratio of 25% and a return on assets ratio of 16%. How much did McCormick pay in cash dividends, and what were its average total assets?
Selected data taken from the 2006 financial statements of trading card company Topps Company, Inc. are as follows (in millions).2006Net sales for 2006 ............$326.7Current liabilities, February 25, 2006 ....41.1Current liabilities, March 3, 2007 ..........62.4Net cash provided by operating
In its draft 2010 income statement, Supply Corporation reports income before income taxes $500,000, extraordinary loss due to earthquake $150,000, income taxes $200,000 (not including irregular items), loss on disposal of discontinued music division $20,000. The income tax rate is 40%. Prepare a
Oklahoma Company has income before irregular items of $290,000 for the year ended December 31, 2010. It also has the following items (before considering income taxes): (1) An extraordinary fire loss of $50,000 and (2) A gain of $30,000 from the disposal of a division. Assume all items are subject
The Wall Street Journal routinely publishes summaries of corporate quarterly and annual earnings reports in a feature called the €œEarnings Digest.€ A typical €œdigest€ report takes the following form.(a) Includes a net charge of $26,000,000 from loss on
Here is financial information for Galenti Inc.InstructionsPrepare a schedule showing a horizontal analysis for 2010 using 2009 as the baseyear.
Operating data for Robinson Corporation are presented below.InstructionsPrepare a schedule showing a vertical analysis for 2010 and2009.
Nordstrom, Inc. operates department stores in numerous states. Selected financial statement data (in millions) for 2007 are presented below.For the year, net credit sales were $8,828 million, cost of goods sold was $5,526 million, and cash from operations was $161 million.InstructionsCompute the
Talley Incorporated had the following transactions involving current assets and current liabilities during February 2010.Feb. 3 Collected accounts receivable of $15,000.7 Purchased equipment for $20,000 cash.11 Paid $3,000 for a 3-year insurance policy.14 Paid accounts payable of $12,000.18
Selected comparative statement data for the giant bookseller Barnes & Noble are presented here. All balance sheet data are as of the end of the fiscal year (in millions).InstructionsCompute the following ratios for 2006:(a) Profit margin.(b) Asset turnover.(c) Return on assets.(d) Return on common
Here is the income statement for Swayze, Inc.SWAYZE, INC.Income StatementFor the Year Ended December 31, 2010Sales .................................$400,000Cost of goods sold ............................230,000Gross profit ..............................170,000Expenses (including $16,000 interest
Garcia Corporation experienced a fire on December 31, 2010, in which its financial records were partially destroyed. It has been able to salvage some of the records and has ascertained the following balances.Additional information:1. The inventory turnover is 4.4 times.2. The return on common
Here are comparative statement data for Blue Company and Gray Company, two competitors. All balance sheet data are as of December 31, 2010, and December 31, 2009.Instructions(a) Prepare a vertical analysis of the 2010 income statement data for Blue Company and Gray Company.(b) Comment on the
The comparative statements of McGillis Company are presented here.All sales were on account. Net cash provided by operating activities for 2010 was $220,000. Capital expenditures were $120,000, and cash dividends were $80,000.InstructionsCompute the following ratios for 2010.(a) Earnings per
Condensed balance sheet and income statement data for Breckenridge Corporation are presented here.Additional information:1. The market price of Breckenridge's common stock was $6.00, $9.00, and $7.00 for 2008, 2009, and 2010, respectively.2. You must compute dividends paid. All dividends were paid
The following financial information is for Vail Company.Additional information:1. Inventory at the beginning of 2009 was $115,000.2. Receivables (net) at the beginning of 2009 were $88,000.3. Total assets at the beginning of 2009 were $630,000.4. No common stock transactions occurred during 2009 or
Selected financial data of Target and Wal-Mart for 2006 are presented here (in millions).Instructions(a) For each company, compute the following ratios.(1) Current.(2) Receivables turnover.(3) Average collection period.(4) Inventory turnover.(5) Days in inventory.(6) Profit margin.(7) Asset
Here are comparative statement data for Clark Company and Kent Company, two competitors. All balance sheet data are as of December 31, 2010, and December 31,2009.Instructions(a) Prepare a vertical analysis of the 2010 income statement data for Clark Company and Kent Company.(b) Comment on the
The comparative statements of Flintstone Company are shown below.All sales were on account. Net cash provided by operating activities was $114,000. Capital expenditures were $47,000, and cash dividends were $55,000.InstructionsCompute the following ratios for 2010.(a) Earnings per share.(b) Return
The condensed balance sheet and income statement data for Cardinal Corporation are presented below.Additional information:1. The market price of Cardinal common stock was $5.00, $3.50, and $2.30 for 2008, 2009, and 2010, respectively.2. You must compute dividends paid. All dividends were paid in
Financial information for Hi-Tech Company is presented here.Additional information:1. Inventory at the beginning of 2009 was $350,000.2. Receivables at the beginning of 2009 were $80,000.3. Total assets at the beginning of 2009 were $1,175,000.4. No common stock transactions occurred during 2009 or
Selected financial data for Black & Decker and Snap-On Tools for 2007 are presented here (in millions).Instructions(a) For each company, compute the following ratios.(1) Current ratio.(2) Receivables turnover.(3) Average collection period.(4) Inventory turnover.(5) Days in inventory.(6) Profit
Your parents are considering investing in Tootsie Roll Industries common stock. They ask you, as an accounting expert, to make an analysis of the company for them. Fortunately, excerpts from a recent annual report of Tootsie Roll are presented in Appendix A of this textbook.Instructions(a) Make a
The financial statements of Hershey Foods are presented in Appendix B, following the financial statements for Tootsie Roll Industries in Appendix A.Instructions(a) Based on the information in the financial statements, determine each of the following for each company:(1) The percentage increase
The August 15, 2007, issue of the New York Times included an article by David Leonhardt titled “Remembering a Classic Investing Theory.”InstructionsRead the article and answer the following questions.(a) At the time of the article, what was the average P-E ratio for the Standard & Poor’s
The Coca-Cola Company and PepsiCo, Inc. provide refreshments to every corner of the world. Selected data from the 2007 consolidated financial statements for The Coca-Cola Company and for PepsiCo, Inc., are presented here (in millions).Instructions(a) Compute the following liquidity ratios for 2007
You are a loan officer for Lakeland Bank of Port Washington. Dennis Schwartz, president of D. Schwartz Corporation, has just left your office. He is interested in an 8-year loan to expand the company€™s operations. The borrowed funds would be used to purchase new equipment. As evidence of
Sam Mead is the chief executive officer of Alemeda Electronics. Mead is an expert engineer but a novice in accounting. Mead asks you, as an accounting major, to explain (a) the bases for comparison in analyzing Alemeda financial statements and (b) the limitations, if any, in financial statement
Glenda Shumway, president of RF Industries, wishes to issue a press release to bolster her company’s image and maybe even its stock price, which has been gradually falling. As controller, you have been asked to provide a list of 20 financial ratios and other operating statistics for RF
Deborah Helkamp believes a current liability is a debt that can be expected to be paid in one year. Is Deborah correct? Explain.
McFarland Company obtains $20,000 in cash by signing a 9%, 6-month, $20,000 note payable to First Bank on July 1. McFarland’s fiscal year ends on September 30. What information should be reported for the note payable in the annual financial statements?
(a) Your roommate says, “Sales taxes are reported as an expense in the income statement.” Do you agree? Explain.(b) Brenda’s Cafe has cash proceeds from sales of $8,550. This amount includes $550 of sales taxes. Give the entry to record the proceeds.
Troy University sold 9,000 season football tickets at $90 each for its five-game home schedule. What entries should be made (a) When the tickets are sold and (b) After each game?
Assume that Neer Inc. sold bonds with a face value of $100,000 for $104,000. Was the market interest rate equal to, less than, or greater than the bonds’ contractual interest rate? Explain.
Oprah and Ellen are discussing how the market price of a bond is determined. Oprah believes that the market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond. Is she right? Discuss.
Elizabeth Falcone, the chief financial officer of Hangers Inc., is considering the options available to her for financing the company’s new plant. Shortterm interest rates right now are 6%, and long-term rates are 8%. The company’s current ratio is 2.2:1. If she finances the new plant with
William Ventura says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?
The management of North Vehicle Corporation is concerned because survey data suggest that many potential customers do not buy vehicles due to quality concerns. It is considering taking the bold step of increasing the length of its warranty from the industry standard of 3 years up to an
Julio Velasquez needs a few new trucks for his business. He is considering buying the trucks but is concerned that the additional debt he will need to borrow will make his liquidity and solvency ratios look bad. What options does he have other than purchasing the trucks, and how will these options
Melton Corporation has a current ratio of 1.1. Sam has always been told that a corporation’s current ratio should exceed 2.0. Melton argues that its ratio is low because it has a minimal amount of inventory on hand so as to reduce operating costs. Melton also points out that it has significant
What criteria must be met before a contingency must be recorded as a liability? How should the contingency be disclosed if the criteria are not met? Discuss.
Explain the straight-line method of amortizing discount and premium on bonds payable. Discuss in detail.
Menza Corporation issues $200,000 of 6%, 5-year bonds on January 1, 2010, at 103. Assuming that the straight-line method is used to amortize the premium, what is the total amount of interest expense for 2010?
Lucia Ranos is discussing the advantages of the effective-interest method of bond amortization with her accounting staff. What do you think Lucia is saying?

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