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Financial Accounting An Integrated Statements Approach 2nd Edition Jonathan E. Duchac, James M. Reeve, Carl S. Warren - Solutions

Present value involves converting dollars received or paid in the future to their value in today’s dollars. Use your knowledge of present value and the time value of money to analyze the following scenarios.Scenario ABarry Bonds, a highly successful baseball player, has recently become a free
Giant Jumbo, Inc., is a manufacturer of recreational vehicles located in upstate New York. In recent years the company has experienced a huge spike in sales volume, but has had difficulty meeting demand because of limited manufacturing capacity. Backlogs have reached periods in excess of six
A contingent liability note from DuPont Co.’s 2003 financial statements is reproduced below.The company is also subject to contingencies pursuant to environmental laws and regulations that in the future may require the company to take further action to correct the effects on the environment of
Summary financial information is provided below for BellSouth Corp., a telecommunications company, and Belk, Inc., a general department store retailer. The financial information for these companies is similar to that of most companies in the telephone communications and department store industries,
The current assets and current liabilities for Texas Instruments Inc. for five recent years are shown as follows (in millions):1. Calculate and graph the current and quick ratios for the five comparative years. Round to two decimal places.2. Interpret yourgraph.
The Lockheed Martin Corp. and Northrop Grumman Corp. are two major defense contractors. A partial balance sheet for the end of a recent fiscal year is shown as follows (in millions):The interest expense, income tax expense, and net income (before unusual items) were as follows for both
The ratio of total liabilities to total assets for the 12 largest bank holding companies for a recent year are shown in the table below. The average ratio of total liabilities to total assets for the group is 91.1%. This means that the average debt held by these banks is over 91% of their total
One reason that PepsiCo, Inc., purchased Quaker Oats in 2001 was to acquire the rights to its sports drink, Gatorade. However, Gatorade is under increasing pressure from its competitors, including Coca-Cola’s Powerade. As a result, PepsiCo is initiating an aggressive advertising campaign to
Marge McMaster is a certified public accountant (CPA) and a staff assistant for Tester and Morris, a local CPA firm. The firm’s policy had been to provide a holiday bonus equal to two weeks’ salary to all employees. The firm’s new management team announced on November 25 that a bonus equal to
Several Internet services provide career guidance, classified employment ads, placement services, rÃ©sumÃ© posting, career questionnaires, and salary surveys. Select one of the following Internet sites to determine current average salary levels for one of your careeroptions:
During fiscal 2004, Georgia-Pacific Company called the following bond issuances:In groups of three or four:1. Identify the face value, coupon rate, and maturity of each of the bond issues.2. Discuss some of the potential reasons that Georgia-Pacific may have had for deciding to call these bond
Journalize the entries to record the following selected transactions:a. Sold $9,000 of merchandise on account, subject to a sales tax of 8%. The cost of the merchandise sold was $6,300.b. Paid $9,175 to the state sales tax department for taxes collected.
Superior Co., a furniture wholesaler, sells merchandise to Beta Co. on account, $11,500, terms 2/15, n/30. The cost of the merchandise sold is $6,900. Superior Co. issues a credit memorandum for $900 for merchandise returned and subsequently receives the amount due within the discount period. The
Based on the data presented in Exercise 5-28, journalize Beta Co.’s entries for (a) The purchase, (b) The return of the merchandise for credit, and (c) The payment of the invoice within the discount period.
Jaguar Inc.’s perpetual inventory records indicate that $584,000 of merchandise should be on hand on July 31, 2007. The physical inventory indicates that $560,000 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Jaguar Inc. for the year ended July
Following are descriptions of two independent situations that involve inventory misstatements.1. Ending merchandise inventory is overstated by $20,000 on December 31, 2006. Ending merchandise inventory is correct on December 31, 2007.2. Ending merchandise inventory is understated by $13,000 on
Following are descriptions of two independent situations that involve inventory misstatements.1. Ending merchandise inventory is overstated by $7,500 on December 31, 2006. Ending merchandise inventory is overstated by $10,000 on December 31, 2007.2. Ending merchandise inventory is understated by
Merchandise of $65,000 was ordered on December 26, 2006, FOB destination, and was received on December 30, 2006. The invoice from the vendor was not received until January 7, 2007, and the related accounts payable journal entry was not recorded until January 7, 2007. However, since the merchandise
Merchandise of $38,000 was ordered on December 29, 2006, FOB shipping point. The vendor paid the shipping charges of $1,000 as an accommodation to the buyer. The invoice from the vendor was not received until January 3, 2007, and the related accounts payable journal entry was not recorded until
Staples, Inc., operates a chain of office supply stores throughout the United States. For 2004 and 2003, Staples reported (in thousands) the following operating data:a. Compute the percent of gross profit and operating income to net sales. Round to one decimal place.b. Based upon (a), comment on
For the fiscal year, sales were $3,570,000, sales discounts were $320,000, sales returns and allowances were $240,000, and the cost of merchandise sold was $2,142,000. What was the amount of net sales and gross profit?
The following selected accounts and their current balances appear in the ledger of Sombrero Co. for the fiscal year ended November 30, 2006:Instructions1. Prepare a multiple-step income statement.2. Prepare a retained earnings statement.3. Prepare a report form of balance sheet, assuming that the
Selected accounts and related amounts for Sombrero Co. for the fiscal year ended March 30, 2006, are presented in Problem 5-1A.Instructions1. Prepare a single-step income statement.2. Prepare a retained earnings statement.
The following selected transactions were completed by Interstate Supplies Co., which sells irrigation supplies primarily to wholesalers and occasionally to retail customers:Mar. 1 Sold merchandise on account to Babcock Co., $7,500, terms FOB shipping point, n/eom. The cost of the merchandise sold
The following selected transactions were completed by Petunia Co. during August of the current year:Aug. 1 Purchased merchandise from Fisher Co., $8,500, terms FOB shipping point, 2/10, n/eom. Prepaid transportation costs of $250 were added to the invoice.5 Purchased merchandise from Byrd Co.,
The following were selected from among the transactions completed by Ingress Company during January of the current year:Jan. 3 Purchased merchandise on account from Pynn Co., $10,400, terms FOB shipping point, 2/10, n/30, with prepaid transportation costs of $320 added to the invoice.5 Purchased
The following selected transactions were completed during June between Schnaps Company and Brandy Company:June 2 Schnaps Company sold merchandise on account to Brandy Company, $14,000, terms FOB shipping point, 2/10, n/30. Schnaps Company paid transportation costs of $350, which were added to the
For the year ending December 31, 2007, Chippendale Systems Inc. reported net income of $48,320 and paid dividends of $14,400. Comparative balance sheets as of December 31, 2007 and 2006 are as follows:Instructions1. Prepare a statement of cash flows, using the indirect method.2. Why is depreciation
The following selected accounts and their current balances appear in the ledger of Sciatic Co. for the fiscal year ended July 31, 2006:Instructions1. Prepare a multiple-step income statement.2. Prepare a retained earnings statement.3. Prepare a report form of balance sheet, assuming that the
Penguin Office Equipment Co. has a fleet of automobiles and trucks for use by salespersons and for delivery of office supplies and equipment. Sioux City Auto Sales Co. has automobiles and trucks for sale. Under what caption would the automobiles and trucks be reported on the balance sheet of (a)
Selected accounts and related amounts for Sciatic Co. for the fiscal year ended July 31, 2006, are presented in Alternate Problem 5-1B.Instructions1. Prepare a single-step income statement.2. Prepare a retained earnings statement.
The following selected transactions were completed by Holistic Supply Co., which sells office supplies primarily to wholesalers and occasionally to retail customers:Aug. 2 Sold merchandise on account to Runyan Co., $12,800, terms FOB destination, 2/10, n/30. The cost of merchandise sold was
The following selected transactions were completed by Daffodil Company during March of the current year:Mar. 1 Purchased merchandise from Fastow Co., $16,000, terms FOB destination, n/30.3 Purchased merchandise from Moss Co., $9,000, terms FOB shipping point, 2/10, n/eom. Prepaid transportation
The following were selected from among the transactions completed by Girder Company during November of the current year:Nov. 3 Purchased merchandise on account from Whiting Co., $20,000, terms FOB destination, 2/10, n/30.4 Sold merchandise for cash, $7,100. The cost of the merchandise sold was
The following selected transactions were completed during March between Snyder Company and Brooks Co.:Mar. 1 Snyder Company sold merchandise on account to Brooks Co., $12,750, terms FOB destination, 2/15, n/eom. The cost of the merchandise sold was $6,000.2 Snyder Company paid transportation costs
For the year ending December 31, 2007, Guru Systems Inc. reported net income of $241,600 and paid dividends of $72,000. Comparative balance sheets as of December 31, 2007 and 2006, are as follows:Instructions1. Prepare a statement of cash flows, using the indirect method.2. Under the indirect
Federated Department Stores, Inc., is one of the leading operators of full-line department stores in the United States, operating under the names Bloomingdale€™s, The Bon Marche, Burdines, Goldsmith€™s, Lazarus, Macy€™s, and Rich€™s. The following operating
Nordstrom, Inc., is a fashion specialty retailer offering a wide selection of high-quality apparel, shoes, and accessories for women, men, and children in the United States through 150 stores located in 27 states. The following operating data (in thousands) were taken from 10K filings with the
Target Corporation is a general merchandise discount retailer. Target has 1,304 stores located in 47 states. The following operating data (in millions) were taken from 10K filings with the Securities and Exchange Commission:1. Compute gross profit as a percent of net sales for each year. Round to
Using the data provided in Cases 5–2 and 5–3, compare the operating performances of Nordstrom and Target.
Following are descriptions of two independent situations that involve inventory misstatements.Saunders CorporationOn December 30, 2006, Saunders Corporation sold merchandise that cost $63,000 for $112,500, FOB shipping point. During the morning of December 31, 2006, the merchandise was counted as
Two major consumer electronics retailers are Best Buy and Circuit City Stores, Inc. Recent fiscal year-end income statements for both companies for a three-year period shown below and at the top of page 260.1. Prepare a graph displaying the years 2002, 2003, and 2004 on the x-axis and the gross
On December 1, 2006, Cardinal Company, a garden retailer, purchased $20,000 of corn seed, terms 2/10, n/30, from Iowa Farm Co. Even though the discount period had expired, Sandi Kurtz subtracted the discount of $400 when she processed the documents for payment on December 15, 2006. Discuss whether
The Video Store Co. is owned and operated by Todd Shovic. The following is an excerpt from a conversation between Todd Shovic and Susan Mastin, the chief accountant for The Video Store. Todd: Susan, I’ve got a question about this recent balance sheet.Susan: Sure, what’s your question?Todd:
The following is an excerpt from a conversation between Brad Hass and Terry Mann. Brad is debating whether to buy a stereo system from Radiant Sound, a locally owned electronics store, or Audio Pro Electronics, a mail-order electronics company.Brad: Terry, I don’t know what to do about buying my
Your sister operates Callender Parts Company, a mail-order boat parts distributorship that is in its third year of operation. The following income statement was recently prepared for the year ended March 31, 2006:Your sister is considering a proposal to increase net income by offering sales
a. Does recognizing depreciation in the accounts provide a special cash fund for the replacement of fixed assets? Explain.b. Describe the nature of depreciation as the term is used in accounting.
Name the three factors that need to be considered in determining the amount of periodic depreciation.
a. Why is an accelerated depreciation method often used for income tax purposes?b. What is the Modified Accelerated Cost Recovery System (MACRS), and under what conditions is it used?
A company revised the estimated useful lives of its fixed assets, which resulted in an increase in the remaining lives of several assets. Does GAAP permit the company to include, as income of the current period, the cumulative effect of the changes, which reduces the depreciation expense of past
Cristy Fleming owns and operates Quesenberry Print Co. During February, Quesenberry Print Co. incurred the following costs in acquiring two printing presses. One printing press was new, and the other was used by a business that recently filed for bankruptcy.Costs related to the new printing press
A company has developed a tract of land into a ski resort. The company has cut the trees, cleared and graded the land and hills, and constructed ski lifts.(a) Should the tree cutting, land clearing, and grading costs of constructing the ski slopes be debited to the land account? (b) If such costs
Alligator Delivery Company acquired an adjacent lot to construct a new warehouse, paying $35,000 and giving a short-term note for $125,000. Legal fees paid were $1,100, delinquent taxes assumed were $12,500, and fees paid to remove an old building from the land were $18,000. Materials salvaged from
Ball-Peen Metal Casting Co. reported $859,600 for equipment and $317,500 for accumulated depreciation—equipment on its balance sheet. Does this mean (a) That the replacement cost of the equipment is $859,600 and (b) That $317,500 is set aside in a special fund for the replacement of the
Hicks Co. incurred the following costs related to trucks and vans used in operating its delivery service:1. Removed a two-way radio from one of the trucks and installed a new radio with a greater range of communication.2. Overhauled the engine on one of the trucks that had been purchased three
Felix Little owns and operates Big Sky Transport Co. During the past year, Felix incurred the following costs related to his 18-wheel truck.1. Replaced a headlight that had burned out.2. Removed the old CB radio and replaced it with a newer model with a greater range.3. Replaced a shock absorber
Jacobs Company owned a warehouse that had an expected remaining life of 30 years and a book value of $360,000 on January 1, 2008. The company added a sprinkler system to its warehouse to provide fire prevention. The sprinkler system cost $34,000 to install on January 8, 2008. The salvage value of
Dale’s Winning Edge, Inc., purchased and installed an alarm system for its retail store on January 1, 1999, at a cost of $50,000. The alarm system was estimated to have a 10-year life with no residual value. On January 1, 2006, the alarm system was enhanced with wireless monitors.The new monitors
Northeast Railroad Company overhauled a diesel motor on one of its railroad engines at a cost of $110,000 on June 30, 2006. The engine was purchased on January 1, 2000, for $280,000, with an estimated original useful life of 20,000 hours and a residual value of $50,000. As of June 30, 2006, the
On October 1, 2007, Tri-State Power Company added transmission lines costing $25,000 to improve transmission capacity on a transmission system having a book value of $90,000. The transmission system has 25 years of estimated remaining life with a $5,000 residual value on October 1.In addition, on
Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage, assuming that the residual value of the fixed asset is to be ignored: (a) 20 years, (b) 25 years, (c) 40 years, (d) 4 years, (e) 5 years, (f) 10 years, (g) 50 years.
A refrigerator used by a meat processor has a cost of $312,000, an estimated residual value of $42,000, and an estimated useful life of 15 years. What is the amount of the annual depreciation computed by the straight-line method?
A diesel-powered generator with a cost of $345,000 and estimated residual value of $18,000 is expected to have a useful operating life of 75,000 hours. During July, the generator was operated 1,250 hours. Determine the depreciation for the month using the units-of-production method.
Prior to adjustment at the end of the year, the balance in Trucks is $182,600 and the balance in Accumulated Depreciation€”Trucks is $74,950. Details of the subsidiary ledger are as follows:a. Determine the depreciation rates per mile and the amount to be credited to the accumulated
A backhoe acquired on January 5 at a cost of $84,000 has an estimated useful life of 12 years. Assuming that it will have no residual value, determine the depreciation for each of the first two years (a) By the straight-line method and (b) By the declining-balance method, using twice the
A dairy storage tank acquired at the beginning of the fiscal year at a cost of $98,500 has an estimated residual value of $7,500 and an estimated useful life of 10 years. Determine the following:(a) The amount of annual depreciation by the straight-line method and (b) The amount of depreciation for
Sandblasting equipment acquired at a cost of $54,000 has an estimated residual value of $10,800 and an estimated useful life of 12 years. It was placed in service on April 1 of the current fiscal year, which ends on December 31. Determine the depreciation for the current fiscal year and for the
A warehouse with a cost of $800,000 has an estimated residual value of $200,000, an estimated useful life of 40 years, and is depreciated by the straight-line method. (a) What is the amount of the annual depreciation?(b) What is the book value at the end of the twentieth year of use? (c) If at the
The following data were taken from recent annual reports of Interstate Bakeries Corporation (IBC). Interstate Bakeries produces, distributes, and sells fresh bakery products nationwide through supermarkets, convenience stores, and its 67 bakeries and 1,500 thrift stores.a. Compute the book value of
Metals Inc. acquired metal recycling equipment acquired on January 3, 2003, at a cost of $240,000, with an estimated useful life of 10 years, an estimated residual value of $15,000, and is depreciated by the straight-line method.a. What was the book value of the equipment at December 31, 2006, the
Equipment acquired on January 3, 2004, at a cost of $96,000, has an estimated useful life of six years and an estimated residual value of $6,000.a. What was the annual amount of depreciation for the years 2004, 2005, and 2006, using the straight-line method of depreciation?b. What was the book
Colmey Company acquired patent rights on January 3, 2004, for $472,500. The patent has a useful life equal to its legal life of 15 years. On January 5, 2007, Colmey successfully defended the patent in a lawsuit at a cost of $75,000.a. Determine the patent amortization expense for the current year
On July 1, 2005, Cumberland Products, Inc., purchased the assets of Jupiter Brands, Inc., for $12,000,000, a price reflecting a $3,200,000 goodwill premium. On December 31, 2007, Cumberland determined that the goodwill from the Jupiter acquisition was impaired and had a value of $1,000,000.a.
During the first half of 2006, Hi-Def Electronics Company spent $450,000 on research and development efforts that resulted in a new product invention. During June, Hi-Def incurred $50,000 to prepare a patent application and an additional $10,000 for legal fees associated with a patent search,
List the errors you find in the following partial balancesheet:
The following are recent excerpts from the financial statements of Sirius Satellite Radio Inc., a company delivering national satellite audio entertainment services:a. Estimate the average useful lives of depreciable property and equipment, assuming straight-line depreciation and no residual
The following financial statement note information was provided for two recent comparative years for Johnson & Johnson, one of the world€™s most comprehensive health-care products companies. Patents are a significant asset for Johnson & Johnson; thus, accumulated amortization information
Verizon Communications Inc. is a major telecommunications company in the United States. Verizon's balance sheet disclosed the following information regarding fixed assets:Verizon's revenue for 2004 was $71,283 million. The fixed asset turnover for the telecommunications industry averages 1.10.a.
Carnival Corporation, a vacation cruise line, measures the operating capacity of its business using available lower berth days (ALBDs). An ALBD is the passenger capacity assuming two passengers per room (berth) multiplied by the number of cruise days in a year. Carnival has a passenger capacity of
The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel business. The receipts are identified by an asterisk.a. Finder’s fee paid to real estate agency ................ $ 5,000b. Cost of real estate acquired as a plant
Cero Company purchased waterproofing equipment on January 2, 2005, for $214,000. The equipment was expected to have a useful life of four years, or 31,250 operating hours, and a residual value of $14,000. The equipment was used for 10,750 hours during 2005, 9,500 hours in 2006, 6,000 hours in 2007,
Caribou Company purchased tool sharpening equipment on July 1, 2005, for $194,400. The equipment was expected to have a useful life of three years, or 22,950 operating hours, and a residual value of $10,800. The equipment was used for 4,650 hours during 2005, 7,500 hours in 2006, 7,350 hours in
New tire retreading equipment, acquired at a cost of $160,000 at the beginning of a fiscal year, has an estimated useful life of four years and an estimated residual value of $16,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense
The following transactions, adjusting entries, and closing entries were completed by Trailways Furniture Co. during a three-year period. All are related to the use of delivery equipment. The declining-balance method (at twice the straight-line rate) of depreciation is used.2005Jan. 2 Purchased a
Data related to the acquisition of intangible assets during the current year ended December 31 are as follows:a. Goodwill arising from acquiring a business was purchased on January 9 for $29,500,000. The goodwill is estimated to have been impaired during the year, and thus was estimated to have a
The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale ceramic business. The receipts are identified by an asterisk.a. Fee paid to attorney for title search $ 2,500b. Cost of real estate acquired as a plant site: Land
Red Tiger Company purchased waterproofing equipment on January 3, 2005, for $180,000. The equipment was expected to have a useful life of three years, or 22,320 operating hours, and a residual value of $12,600. The equipment was used for 12,500 hours during 2005, 6,000 hours in 2006, and 3,820
Rhymer Company purchased plastic laminating equipment on July 1, 2005, for $174,000. The equipment was expected to have a useful life of three years, or 14,025 operating hours, and a residual value of $5,700. The equipment was used for 2,500 hours during 2005, 5,500 hours in 2006, 4,025 hours in
New lithographic equipment, acquired at a cost of $100,000 at the beginning of a fiscal year, has an estimated useful life of five years and an estimated residual value of $8,000. The manager requested information regarding the effect of alternative methods on the amount of depreciation expense
The following transactions, adjusting entries, and closing entries were completed by Lodge Pole Pine Furniture Co. during a three-year period. All are related to the use of delivery equipment.The straight-line method of depreciation is used.2005Jan. 3 Purchased a used delivery truck for $26,500,
Data related to the acquisition of intangible assets during the current year ended December 31 are as follows:a. Governmental and legal costs of $655,200 were incurred on January 4 in obtaining a patent with an estimated economic life of 12 years.b. Goodwill arising from acquiring a business was
Micron Technology, Inc., is in the semiconductor industry. This industry requires extensive capital investments in fabrication facilities in order to maintain technological competitiveness. E. I. De Nemours DuPont & Co. is one of the leading chemical companies in the world. DuPont requires
The financial performance of the airline industry is sensitive to aircraft utilization and cost control. The industry uses a number of common measures to evaluate financial performance. Three of these are as follows:Passenger Load Factor = RPM/ASMOperating Revenue per Available Seat Mile =
The following table shows the revenues and average net fixed assets for a recent fiscal year for three different companies from three different industries: retailing, manufacturing, and communications.a. For each company, determine the fixed asset turnover ratio. Round to two decimal places.b.
The freight statistics for Burlington Northern Santa Fe Corp.'s rail operations for three years are provided from public disclosures as follows:a. Revenue ton miles is also sometimes termed gross ton miles. What is a revenue ton mile?b. How would you interpret the trend in freight revenue per
Duke Energy Corp. is an integrated energy and energy services provider that generates and distributes electricity in North Carolina and South Carolina. Operating statistics for electricity generation and sales are provided from its public reports for a recent fiscal year, as follows:Duke operated
Five Points Construction Co. specializes in building replicas of historic houses. Sharon Higgs, president of Five Points, is considering the purchase of various items of equipment on July 1, 2004, for $120,000. The equipment would have a useful life of five years and no residual value.In the past,
Lizzie Paulk, CPA, is an assistant to the controller of Insignia Co. In her spare time, Lizzie also prepares tax returns and performs general accounting services for clients. Frequently, Lizzie performs these services after her normal working hours, using Insignia Co.’s computers and laser
The following is an excerpt from a conversation between the employees of Ermine Co., Jody Terpin and Hal Graves. Jody is the accounts payable clerk, and Hal is the cashier.Jody: Hal, could I get your opinion on something?Hal: Sure, Jody.Jody: Do you know Margaret, the fixed assets clerk?Hal: I
The following is an excerpt from a conversation between the chief executive officer, Rob Rameriz, and the chief financial officer, Maurice Chandler, of Nile Group, Inc.:Rameriz (CEO): Maurice, as you know, the auditors are coming in to audit our year-end financial statements pretty soon. Do you

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