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Financial Accounting Information For Decisions 6th Edition Robert w Ingram, Thomas L Albright - Solutions

You are a financial manager with a medium-sized company, Kangaroo Express. The company is owned and managed by the Marsupial family. Currently, 60% of the company’s financing is composed of long-term notes, 20% is current liabilities, and the remainder consists of stock held by members of the
Given below are summary financial statements for two companies.RequiredA. Compute the debt-to-equity ratios for, and compare the capital structures of, the two companies.B. Compute and compare the return on equity, return on assets, and financial leverage factors of the two companies.C. Compute
Aitken Company needs cash. The company has several hot new products and sales are growing rapidly. The controller has just presented CEO Jim Aitken the following balance sheet updated through today, saying, â€œWeâ€™ve got to raise $90,000 cash immediately.â€The controller proposed
1. The way a company finances its assets and operating activities is itsa. capital structure.b. financial leverage.c. return on equity.d. present value.2. Honey Farms Company reported the following information.Net sales $ 85Net income 10Total assets 103Total liabilities
What do we need to know to start a business?
What is the purpose of accounting? How does accounting accomplish that purpose?
How can accounting information help investors understand risk?
How does the purpose of merchandising, manufacturing, and service companies differ? How do they each create value?
List an example of each of the following types of organization. Describe how each type of organization differs from each of the others.a. Merchandisingb. Manufacturingc. Serviced. Governmentale. Nonprofit
Sandy Dune overheard some friends from your accounting class discussing the “transformation of resources.” She is curious about what this term means and how it applies to organizations and accounting. Explain to Sandy your understanding of the transformation of resources and why it is an
Accounting is an information system that measures and reports the value created when a company transforms resources. Does an accounting system create value? If so, how? If not, why do companies have them?
Phillip invested $3,000 in a business at the beginning of the year. By the end of the year, the value of this investment had risen to $4,100. Near year-end, the business sent Phillip a check for $2,000. Describe the difference between a return on investment and a return of investment. What portion
How are effectiveness, efficiency, return on investment, and accounting interrelated? Be specific.
What is a contract, and why are contracts important for business organizations?
What is meant by risk, and why is it an important concept for decision makers to understand? What is the relationship between risk and accounting?
Your friend is puzzled that the topic of contracts has come up in your accounting class. Says he, Contracts are the business of lawyers, not accountants. Why are we studying contracts in an accounting class? Educate your friend.
Your uncle tells you that risk is to be avoided when considering potential investments. In fact, he believes the government should ban risky investments to protect the public. Do you agree with your uncle? Why or why not?
It is often said that there exists a risk-return tradeoff. That is, to obtain a higher return, one must be willing to accept higher risk. If one wishes to incur little risk, one must be willing to accept a smaller return. What evidence of this do you observe in the world around you, either in
Why do owners invest in businesses even though such an investment is more risky than investing in U.S. Savings Bonds? If you had $3,000 to invest, how would you decide whether to invest it in businesses or whether to invest it in U.S. Savings Bonds?
What is the interrelationship among the concepts of risk, moral hazard (when setting executive compensation), and generally accepted accounting principles?
How does an audit increase the credibility of financial statements?
An accounting classmate notes that adherence to GAAP is not required for managerial accounting reports. She observes, “If it’s so important for financial accounting, it seems reasonable that it would also be useful for managerial reporting.” Explain to her why it’s more important that
Assume you have a friend, Edwina Polinder, who has no knowledge of accounting. Draft a short memo to Edwina that will help her understand the purpose of accounting.DATE: (today’s date)TO: Edwina PolinderFROM: (your name)SUBJECT: Inquiry about accounting (your response)
Wilma Borrelli is a stockholder of Essex International, a major supplier of building materials. Wilma received information that Essex sustained a large loss during the most recent quarter and is expecting bigger losses during the coming quarter. How might this information affect those who contract
Match the type of organization with the characteristics and examples provided below:Type of organization:1. Merchandising (or retail) companies2. Manufacturing companies3. Service companies4. Governmental and nonprofit organizationsCharacteristics and examples:a. Provide goods or services without
Leonardo has started a small business making sundials. The following transactions occurred for the business during a recent period. How much profit did the company earn for this period?Sales to customers ...........$970Rent for the period ........... 450Supplies used during the period ......
Soft Light Company produces specialty lamps and sells them to retail stores. During the latest year, the company sold 40,000 lamps at an average price of $70 per lamp. The production and distribution costs per lamp were $25, on average. Other costs for the year were $1,200,000 for management
Fashion Threads Company uses the following four steps to make a particular pair of cotton slacks:a. Cotton is planted, grown, harvested, and shipped to a textile manufacturer. The cost to produce the cotton associated with the slacks is $5. This amount of cotton is sold to the manufacturer for
Alexander makes professional baseball gloves by hand. He buys leather for $80 a yard. Padding costs $6 a pound; thread and other materials cost $16 for a month’s supply. He pays $500 a month rent for a small shop, and utilities average $150 a month. Shipping costs are about $4.50 per glove. In an
Mario’s Restaurant specializes in Italian food. During February, Mario’s recorded the following sales to customers and costs of doing business:Sales to customers ............$19,500Cost of food products used ......... 5,750Cost of rented building and equipment .... 4,376Cost of employee labor
The Quick Stop is a fast-food restaurant. During March, Quick Stop recorded the following sales to customers and costs of doing business:Sales to customers ...........$4,400Cost of food products used ........ 2,100Cost of rented building and equipment ... 1,250Cost of employee labor services used
Pam Lucas is a high school student who delivers papers to earn spending money. During May, she received $450 from customers in payment for their subscriptions for the month. She paid $300 for the papers she delivered. In addition, she paid $45 to her parents for use of their car to deliver the
On January 1, 2004, Alicia invested $4,000 in a savings account. At the end of January, the account balance had increased to $4,020. The balance at the end of February was $4,040.10. The balance at the end of March was $4,060.30. The increases occurred because of interest earned on the account.
Davy Crockett invested $15,000 in Mike Fink Rafting Company. At the end of the year, Crockett’s investment was worth $17,250 because of earnings during the year. Fink paid Crockett $3,000 at the end of the year. What was Crockett’s return on investment (in dollars) for the year? What was his
Flick and Flack are two companies that sell identical products. They are located in different parts of the same city. During September, Flick sold $24,000 of goods, while Flack sold $18,000. Flick’s profit was $8,000, and Flack’s profit was $2,000. Compare the efficiency and effectiveness of
Rogers and Hornsby are two companies that compete in the same market with the same product, a brand of steak sauce. The companies are the same size and sell to the same grocery retailers. Both products are sold by the retailers at the same price. During 2004, Rogers sold 500,000 bottles of its
You have a choice of investing in either of two companies, Lewis or Clark. Both companies make the same products and compete in the same markets. Over the last five years, the operating results for the two companies have been:Which company is more efficient? Which is more effective? In which
Identify each of the following as describing corporations, proprietorships, and/or partnerships.Some items have more than one answer.a. Distinct legal entity separate from its owners.b. More than one owner.c. Ownership by stockholders.d. Controlled by a board of directors.e. Legal identity changes
Yashiko Takawsa is a loan officer at a major bank. Hendrick Swindler recently applied for a small business loan for his dry cleaning company, Take ‘Em to the Cleaners. As part of the application, Swindler was asked to provide financial information about his company. The financial reports revealed
Wendy Hu is considering two new products for her office products manufacturing business. One is a laser printer. Wendy has had numerous calls for the product, which will compete with existing well-known brands. The other product is a new computer projection system that permits a presenter to
To encourage its managers to earn a profit for its stockholders, Primrose Mining Company pays a bonus to top managers if the company earns at least a 15% return on investment each year. Management prepares financial reports from which the return on investment is calculated. Should the board and the
Andy attends college on a full-time basis and works part-time for Meredith’s Garden Center. The owner, Jim Meredith, asked Andy to work late into the night to move merchandise from one warehouse to an empty warehouse located across town. Andy thought his assignment was unusual but was happy to
Betsy wants to start a business making flags. She has calculated that she will need $62,500 to start the business. The money will be used to rent a building, purchase equipment, hire workers, and begin production and sales. Betsy has $12,500 in savings she can invest in the business.RequiredA. What
Provided below are four types of organizations and a list of organizations with which you are probably familiar. Associate each organization with a type of organization.Types of organizationsMerchandising companiesManufacturing companiesService companiesGovernmental or nonprofit
Through hard work and careful saving, Hans and his family have $152,000 to start a small specialty foods business. The family estimates sales to customers will be about $4,500 per month during the first year. On the average, expected costs per month are budgeted as follows:Wages for occasional
You are considering opening a shop in a nearby mall that will sell specialty T-shirts. T-shirts, containing designs and words selected by customers, will be produced for customers on order. You will need to borrow $25,000 to begin operations. A local bank has agreed to consider a loan and has asked
T. Edison owns her own business and had the following activity during September. She earned $2,600 from royalties on inventions. She consumed resources as follows: $525 for rent, $300 for clerical salaries, $124 for legal services, $100 for office supplies, $90 for utilities, $70 for fuel, and $200
Betsy started Betsy’s Flag Co. on September 1. During September, Betsy consumed the following resources:Rent ............$ 625Utilities ........... 250Supplies ..........3,000Repairs ............1,500Fabric ...........8,750Wages ..........2,500Business license ...... 500Betsy created resources by
The chief financial officer (CFO) of Flash Bulb and Seed Company has prepared the following projections for the month of August.Although Flash Bulb and Seed Company predicts a loss for August, the CFO is confident that sales will increase in the future.RequiredA. Why is it important that the CFO
John invested $250,000 into a business that earned a profit of $2,250 during the past month as shown below. John believes the business will earn an annual profit equal to twelve times the monthly profit. Assume John wants to take $20,000 from the business each year for his personal use.RequiredA.
Below are three independent situations.A. Larry, Ulysses, and Irene are three college student friends planning to set up a summer business at a nearby resort to sell T-shirts, souvenirs, and novelties to tourists. While they have no assets (to speak of) of their own, Larry’s uncle has agreed to
Mary Jackson is graduating with a degree in business administration. She has scheduled interviews with a variety of companies. Mary found the following diagram in the packet of information provided by one of the companies:RequiredA. Is Mary interviewing with a proprietorship, partnership, or
Sonny Beam established Solar Supply Corporation earlier in the current year. To obtain resources, he contributed $5,000 of his savings to the company, had the company borrow $8,000 from his mother, sold shares of company stock to friends totaling $10,000, and obtained a $25,000 bank loan. The
Nancy and Mauro are reviewing the information given below for different reasons. Nancy is a bank loan officer who has received a 2-year, $50,000 loan application from both firms. Mauro is an independently wealthy investor who is considering investing $50,000 in a company. The information below is
Assume you are the credit manager for a manufacturing company that sells its products to retail businesses. One of your company€™s sales representatives has been working hard to establish business relationships with two different retailers. Both businesses are interested in marketing your
Taylor Grey is the sales manager of an electronics manufacturing company. His annual bonus is based on profits earned by the company. On December 30, Taylor is inquiring about the status of a very large order that he would like to include in the year-end profit figures. Unfortunately, a production
Assume you have inherited a sum of money from a distant relative and are looking for good investment opportunities. You are considering investing in one of two companies, Wonderworks or Hoffstetter€™s. Both companies are retailing organizations that have earned profits during the month of
In its 2001 annual report, Qwest Communications International Inc. (“Qwest”) stated that because of an SEC investigation, it couldn’t guarantee that it would not have to restate its earnings (to make them consistent with GAAP). A restatement could wipe out more than $500 million of earnings,
You are the manager of a retail electronics store. Recently, you purchased 200 What-A-Sound portable CD players from a wholesaler in a going-out-of-business sale. These units cost you $80 each, about half of the normal cost of other brands that you sell for $260. You expected to sell these units at
You manage an auto service store. One of your major services is brake replacement. You purchase replacement parts at an average cost of $30 per set. Each set contains parts for four wheels and will repair one car. You charge an average of $100 per car for replacing worn brakes, including an average
Millie and Milo Wermz are the owners and managers of a small bookstore, The Book Wermz, near a college campus. The store specializes in rare and out-of-print books. During September 2004, the company sold $40,000 of books. The books cost the company $28,000. The cost of other resources used during
Multiple-Choice Questions1. The basic purpose of accounting is to:a. Minimize the amount of taxes a company has to pay.b. Permit an organization to keep track of its economic activities.c. Report the largest amount of earnings to stockholders.d. Reduce the amount of risk experienced by investors.2.
Environmental Housing Company designs and builds log homes. It purchases logs and other building materials from other companies. The logs are cut to the dimensions called for in a design and shipped to the customers building site with other materials for assembly. Environmental Housing employs
How do we know how well our business is doing?
Joan Hoyt is considering opening a small retail store to sell knives and other kitchen utensils. She has a small amount of money to invest and wants to maintain as much control over the business as she can. She has asked you to help her decide how to finance her business. Describe the primary
Hardly Moving and Storage Corporation needs an additional $1,000,000 in financing to build new facilities. How might Hardly get the money? What issues should company management consider in deciding on the type of financing to use?
Jerrilyn has invested $5,000 in shares of the stock of Ambitious Enterprises, Inc. From the corporation’s perspective, was this a financing activity, an investing activity, or an operating activity? Why?
Discuss the effect on the accounting equation if a company accurately reports its assets, yet understates its liabilities.
Explain why the accounting equation must balance after each transaction.
Is purchasing merchandise inventory considered an investing or operating activity? Explain.
If owners contribute resources to a company, Owners’ Equity increases. If a company records Sales Revenue, Owner’s Equity also increases. How are Contributed Capital and Sales Revenue dissimilar?
While reviewing a company’s balance sheet, John observed the Retained Earnings account with a balance of $850,000. “Wow,” he thought. “That’s a lot of cash!” Has John correctly interpreted the company’s financial information? Explain.
Assume you are reviewing a balance sheet that has assets listed on the left side and liabilities and owners’ equity on the right side. What question or questions can you answer by looking at the information on the left side of the balance sheet? What question or questions can you answer by
What types of information are reported, respectively, on the balance sheet, income statement, and the statement of cash flows? Be specific.
A balance sheet identifies assets and claims to assets. Typically, who has claims on a company’s assets?
Both the income statement and the statement of cash flows provide information about operating activities during a fiscal period. Why are both statements included in a company’s financial report? How can decision makers use information in each statement?
Why are account balances summarized into financial statements? Why don’t companies simply distribute a list of year-end account balances?
Leonetta Garcetti owns and manages a large construction company. This morning she is faced with the following issues.1. The office manager just submitted his resignation and the search for a replacement must be organized.2. A loan officer from the company’s bank just phoned saying that the
For each of the following items, identify which part of the transformation process is involved. Use F to indicate a financing activity, I to indicate an investing activity, or O to indicate an operating activity.a. ____New manufacturing equipment was purchased for installation in the factory.b.
Identify each transaction in E2-4 as financing, investing, or operating.
Perez Company had the following selected transactions during the month of May. Show how the financial effects of each transaction would be recorded using the following format. The first transaction has been completed as an example.Juanita Perez invested $10,000 in the company on May 1.May 5 Sold
Identify each transaction in E2-6 as financing, investing, or operating.
Rosy Cheeks Company distributes perfumes and cosmetics. The following account changes were made in the company’s accounting records during March. For each item, describe the transaction that caused the changes. The first item has been completed as an example.a. Cash increased $18,000; Contributed
Amelio has operated a one-person law firm for many years. During the first week of February, the following events occurred in his business.Feb. 2 Collected $1,800 from a client for legal work performed.3 February’s office rent of $1,200 was paid to the landlord.4 A $300 payment was made on a loan
Identify each transaction in E2-9 as financing, investing, or operating.
Balance sheet accounts for Dale’s Delightful Florist Shoppe at the end of a recent fiscal year are listed below. Prepare a schedule demonstrating that assets = liabilities + owner’s equity for the company.Supplies Inventory ..........$ 4,150Buildings ............. 79,500Cash ...............
Harmony Cabot opened a music store in a local mall, selling CDs and tapes. She invested $80,000 in the business and borrowed $140,000 from a local bank. The following additional events occurred during April, the first month of operations:a. Paid cash for equipment costing $45,150.b. Purchased an
Chang Pottery Works began November with a Retained Earnings balance of $95,000. During November the company earned $15,000 and returned $4,000 to the owners. Prepare a schedule that reports the beginning balance, changes, and ending balance of retained earnings.
The following events occurred during December for Christmas Cookie Company:a. Purchased and consumed $60,000 of flour, sugar, and other ingredients for cookies sold.b. Paid $97,500 for December wages.c. Paid $24,000 for utilities consumed in December.d. Sold $234,000 of cookies and received
Wheatgerm Healthfoods reported the following information:Proceeds from issuance of notes payable ........$13,057Additions to plant and equipment .......... 5,379Proceeds from owners ................. 30,957Proceeds from sales of plant and equipment ...... 1,986Payments of debt .................
Darden Bottling Company has the following information available for the first six months of 2004:Cash collected from customers .............$268,000Cash paid merchandise inventory ............ 83,500Cash paid for utilities ................. 20,000Cash paid for insurance ................ 23,000Cash
Listed below are typical accounts or titles that appear on financial statements. For each item, identify the financial statement(s) on which it appears.Wages expenseCost of goods soldSales revenueMerchandise inventoryNet incomeRetained earningsContributed capitalRent expenseCashNotes payable
After six months of operation, Brother’s Lawn Service had the following revenue and expense account balances:Supplies expense .............$ 4,000Wages expense ............... 6,000Service revenue .............. 12,300Utilities expense ............. 500Rent expense ................ 1,000Prepare
On June 30, 2004, Brothers’ Lawn Service had the following account balances:Cash ................$3,000Notes payable ............. 1,000Contributed capital ........... 6,700Retained earnings ........... 800Supplies inventory ............ 500Equipment ............... 5,000Prepare a balance sheet
Surf-The-Net.com had the following events occur during October:1. Paid $5,800 for utilities.2. Made cash sales to customers that totaled $89,460. The merchandise had cost Surf-The-Net.com $60,0003. Paid $28,600 for new equipment.4. Repaid a $4,900 bank loan.5. Borrowed $65,000 from local bank.6.
Refer to the information provided in P2-1.Required Identify each transaction in P2-1 as a financing, investing, or operating activity.
Apollo Corporation reported the following accounts and balances in its financial statements:Cash .................$10,000Merchandise Inventory ......... 30,000Equipment .............. 45,000Notes Payable .............. 20,000Contributed Capital ........... 35,000Retained Earnings ...........
Refer to the information provided in P2-4.Required Identify each transaction in P2-4 as financing, investing, or operating.
Jill Jones has just established a security alarm maintenance service. She charges $20 per hour per person and is paid by check upon completion of the job. Her expenses are rather lowâ€”usually only supplies and transportation. Following are the entries to the accounting system that were made
Jacqueline owns and operates a specialty cosmetics manufacturing firm. Distribution is primarily through boutique shops in regional shopping centers, although some items are sold directly through a network of beauty consultants. Raw materials consist of various lotions, potions, fragrances, oils,

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