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Financial Accounting Information For Decisions 6th Edition Robert w Ingram, Thomas L Albright - Solutions
Recent stockholders' equity statements for Microsoft are presented below.RequiredA. What was the amount of common stock and paid-in capital at June 30, 2000, 2001, and 2002?B. Does Microsoft pay dividends on common stock?C. How can you explain the increase in Common stock and paid-in capital over
ABC, Inc. has the following account balances at December 31, 2004.During the year 2004, the company issued $6,000 of new common stock.RequiredFrom this information, prepare(A) An income statement,(B) A statement of stockholders' equity, and(C) A classified balance sheet.(D) Show how the three
Today is April 1 and Dale has just received the annual report of Clam Chowder Company, in which he owns stock. Displayed below are the comparative balance sheet and income statement that have drawn his attention.After reviewing this information, Dale makes the following comments.1. I'm surprised
Far East Specialties is an import company, financed primarily by stockholders and bank loans. It imports handmade goods from Central and East Asia to the United States, where they are sold to retail stores. The company's buyers contract with small companies for goods, which the buyers ship to a
Markus O'Realius is considering the purchase of Caesar Company. The potential seller has provided Markus with a copy of the business's financial statements for the last three years. The financial statements reveal total assets of $350,000 and total liabilities of $150,000. The seller is asking
Limits, Ltd. had the following financial statements for the fiscal year ending December 31, 2004 (the statement of stockholders' equity and the statement of cash flows are not shown).RequiredThe text lists several limitations of financial statements. Using the financial statements given here,
Listed below are account balances and other data for The Book Wermz at the close of November 30, 2004. Revenue and expense account balances are for the month of November. All amounts are dollars except shares of common stock. The Book Wermz operates as a corporation.Accounts payable
Multiple-Choice Questions1. Which of the following is not a statement you would expect to find in a corporate annual report?a. Statement of financial positionb. Statement of earningsc. Statement of stockholders' equityd. Statement of accounts receivable2. The following information was reported on
Italiano Pizza Company has just completed its first month in business. The owners, Charla and Maria, had previously worked for a major pizza chain but were convinced that they could offer a better product in a better atmosphere. They knew the importance of accurate financial records and hired a
The General Mills 2002 Annual Report is reproduced in Appendix B at the end of the text.RequiredA. Answer the following questions about the General Mills Consolidated Statements of Earnings:1. General Mills recorded sales of almost $8 billion. Is this the amount of cash collected? Explain.2. Sales
How is cash flow information determined and reported to external users?
What question is the direct format of the statement of cash flows designed to answer?
If a company acquires machinery in exchange for a long-term note payable, both a financing activity and an investing activity have taken place. Explain how this is true.
If long-term assets are acquired in exchange for shares of stock, no cash is involved. Will this transaction be reported on the statement of cash flows? If not, why not? If so, how?
The direct format and indirect format relate only to the operating activities section of the statement of cash flows. Regarding the investing and financing activities sections, are they presented in a direct-type format or an indirect-type format?
Why does the cash effect of interest appear as an operating activity, rather than a financing or investing activity?
Explain why depreciation expense and amortization expense are added back to net income in the determination of cash flows from operations when the indirect format is used.
In indirect format, why is an increase in accounts receivable subtracted from net income in computing cash flow from operations?
What question is the indirect format of the statement of cash flows designed to answer? Explain.
Why would one usually expect a growing company to have negative cash flow from investing activities?
Why is it a bad sign if cash flow from operations is consistently negative?
Why is it a bad sign if cash flow from investing activities is consistently positive?
Assume a company consistently produces net cash inflow from operations. To what uses might this cash inflow be applied?
Assume a company consistently reports a net cash outflow from financing activities. What does this suggest about the company?
Upon studying its statement of cash flows, you note that over the last three years a firm has consistently reported negative cash flow from operating activities, positive cash flow from investing activities, and negative cash flow from financing activities. What does this combination of cash flows
Explain how a company can have a net loss for a fiscal period but have a net increase in cash from operating activities.
A company operating in a mature industry with few opportunities for growth or expansion will generally report negative cash flow from financing activities. Why? Where might this cash be going?
The following information reflects cash flow and other activities of Better Vision Eyeglass Company for three months ended March 31, 2004.Use this information to answer the following questions:a. What was net cash flow from operating activities for the period?b. What was net cash flow from
For each of the items listed below, identify whether the item would appear on the statement of cash flows (direct format) as part of the computation of cash flow from operating activities, investing activities, financing activities, or would not appear at all. Also, indicate whether the item is
Northport Bottling Company has the following information available for the first six months of 2004.Cash collected from customers ........$268,000Cash paid to suppliers ............. 82,500Cash paid for utilities ............. 20,000Cash paid for insurance ............. 23,000Cash paid for
Bay View Company reported the following information at the end of its most recent fiscal year.Cash paid for fire insurance ..........$ 5,000Cash paid for dividends ............. 22,600Cash paid to suppliers of inventory ....... 119,850Cash paid for interest ............. 3,750Cash collected from
Eden Healthfoods reported the following information.Proceeds from issuance of long-term debt ........$13,057Additions to plant and equipment ............ 5,500Proceeds from sales of businesses ............ 30,957Proceeds from sales of plant and equipment ........ 1,986Payments of debt
All of the following statements apply to the statement of cash flows covering a given period. If a statement applies only to the direct format, write D in the space allowed. If a statement applies only to the indirect format, write I in the space allowed. If a statement applies to both formats,
Each of the items found below might appear on a statement of cash flows.For each item, indicate answers as shown.a. Would it appear on the statement of cash flows under the operating activities (O), investing activities (I), or financing activities (F) section?b. Would it appear in the direct
For each item in the following list, identify whether it would appear on the statement of cash flows (indirect format) as part of the computation of cash flow from operating activities, cash flow from investing activities, or cash flow from financing activities. Also, indicate whether the item is
Use the information provided in each of the following independent situations to answer the questions. For each situation, briefly explain the reasoning behind each of your calculations.a. Cash paid to suppliers for merchandise during a period was $37,500. Accounts payable decreased during the
Use the information provided in each of the following independent situations to answer the questions. For each situation, briefly explain the reasoning behind each of your calculations.a. Net cash flow from operations for a period was $30,000. Noncash revenues for the period were $11,000. Noncash
Changes in account balances are shown in the following chart. For each item, where appropriate, indicate the adjustment that would be made to net income in the operating cash flow section of a cash flow statement using the indirect method and the reason for the adjustment. Item a is provided as an
Martha Rosenbloom holds stock in several major corporations. Each year she receives a copy of the companies’ annual reports. She looks at the pictures, reads the discussion by management, and examines some of the primary financial statement numbers. She has a pretty good understanding of some of
Consider the pattern in following selected year-end data for Landsdowne Company.Provide an explanation for the changes over the six-year period. Year 6 is the most recent year. What difficulties do you believe the company isfacing?
Sommer Company has experienced the following results over the past three years.The price of Sommer€™s common stock has declined steadily over the three-year period. At the end of year 3, it is trading at $10 per share. Early in year 4, Bottom Fischer, who specializes in taking over poorly
Rockman Associates has reported the following selected account balances on its most recent balance sheet.Account and balance Anticipated future event and cash flowa. Accounts receivable, $12,000 $12,000 of cash should be received from customers during the next fiscal year.This will appear in
Planet Accessories Company reported the following balance sheet and income statement at year-end 2004. In addition, dividends totaling $1,000 were paid.RequiredA. Assume the company uses the direct format to prepare its statement of cash flows. What amounts would be reported on the 2004 statement
For the fiscal year just completed, Dollar Sine Enterprises had the following summary information available concerning operating activities. The company had no investing or financing activities this year.Sales of merchandise to customers on credit .........$307,400Sales of merchandise to customers
The statement of cash flows for Rowe Furniture Corporation is shown below. Based in Salem, Virginia, the firm manufactures upholstered household furniture including sofas, sofa beds, and chairs.RequiredUse the statement of cash flows to answer the following questions.A. What were Rowe€™s
A colleague is about to make a presentation to the management group regarding a $2 million capital investment proposal. She is quite sure that the management group will press her to identify a new source of financing to support the proposed investment. She shows you the operating activities section
Circuit City is the nation€™s largest retailer of brand-name consumer electronics and major appliances. Its headquarters are in Richmond, Virginia. The company€™s comparative statements of cash flows from a recent annual report are shown below.RequiredAnswer the following
Sara Lee Corporation, a food Products Company headquartered in Chicago, Illinois, recently reported the following cash flow statement.RequiredUse the information from the statement of cash flows for Sara Lee Corporation to answer the following questions.A. What was the amount of change in Sara
The operating activities section of Bernstein Company€™s cash flow statement is reported below.Required What does this information reveal about why cash flow from operations has decreased by 50% over the three-year period? Be specific and explain the basis for yourconclusions.
Best Buy Company, Inc., a retailer of consumer electronics headquartered in Minnesota, recently reported the following partial cash flow statement and income statement.(Dollars in millions)Year EndedMarch 2, 2002Cash flows from operating activitiesNet income .................$ 570Adjustments to
Summarized cash flow statements for 2001 are shown below for two computer industry firms: Intel Corporation, based in Santa Clara, California, and Apple Computer, headquartered in Cupertino, California.Required Write a short report comparing the financial performance of the two companies. In what
Interpreting Cash FlowsRequired Identify whether each of the following statements is true or false. Explain your answers. Write in complete sentences. Computations may be used as part of your explanation.A. When a company prepares a cash flow statement using the indirect method, it adds
During March, each of the following events occurred at Frolic Park, Inc.RequiredA. Identify whether each transaction is an operating, investing, or financing activity.B. For each event, identify the effect it had on March€™s net income and on March€™s cash flow from
Sheik, Speer, and Love are three companies in similar industries. Five years of summarized cash flow data are available for each firm. Year 5 is the most recent.Study the information carefully. What clues can you find in the information concerning what is (or has been) going on with each firm? Do
Embarcadero Company’s most recent statement of cash flows is shown below.RequiredUse Embarcadero’s statement of cash flows to answer the following questions.A. What was the primary source of cash inflow for the company?B. Why was the company able to report a net cash inflow from operations when
Frontera Corporation reported the following income statement and comparative balance sheet for the year ended December 31, 2004.Income Statement (for the Year Ended December 31, 2004)(In thousands)Sales revenue ...........$6,930Cost of goods sold ........ 3,660Gross profit on sales .........
Selected financial statement information is reported on the shown below for Beltway Distributors, Inc.RequiredA. Prepare a statement of cash flows (indirect format) for Beltway Distributors, assuming that all important cash flow activities are reflected in the information provided.B. Assume this
The following information is available for The Book Wermz for November, 2004. All numbers are dollar amounts.Cash balance, November 30 ............$12,307.99Cash balance, October 31 ............. 15,389.55Cash paid for debt repayment ............ 1,122.77Cash paid for dividends ...............
Multiple-Choice Questions1. The primary difference between a statement of cash flows prepared in direct format and one prepared in indirect format isa. In how net cash flow from operations is computed.b. That the indirect approach always results in higher net cash flow.c. In how net cash flow from
Alice Springs Merchandise is a retail company that sells general household products. Account balances for the company’s fiscal years ended January 31, 2004, and 2005 are provided on the shown below. Changes in balance sheet account balances also are provided. Additional information for the
How do we account for investing activities? This chapter described various types of long-term assets and how companies account for the acquisition, use, and disposal of these assets. Which assets a company invests in can be important decisions that affect the performance of the company. How do
Archer Company produces sporting goods equipment. Identify and describe briefly the types of assets Archer is likely to own and report on its financial statements.
The gross amount of property, plant, and equipment is usually different from the net amount of property, plant, and equipment. Explain the difference between the two terms and what they represent. In what way is one or the other of these terms related to book value?
Does it make sense to you that the cost of interest incurred to finance the construction of assets is included as part of the cost of the asset? Why or why not?
Do you agree that the units-of-production method always results in more rapid depreciation of an asset than does the straight-line method? Explain.
What is the difference between a capital expenditure and an operating expenditure? Explain how each is accounted for and why the treatment is different.
A friend says, “The accounting terms depletion and depreciation describe basically the same thing.” Do you agree or disagree? Why?
The term depletion expense seldom appears on income statements, even if the company is a timber grower, mine owner, or owner of oil wells. If the cost of natural resources “harvested” never shows up on the income statement under depletion expense, how is this cost accounted for? Explain your
Generally, under GAAP, market value is not used as the valuation basis for assets. Cost is used instead. For marketable securities, however, market value is frequently used. What’s different about marketable securities that makes it reasonable for this class of asset to be reported at market
Barbara is studying the annual reports of three different companies that her accounting group will use for its term project. She sees that two of the companies have made investments in the common stock of Microsoft, Inc. What bothers her is that one company has reported the investment as a current
Sometimes unrealized holding gains and losses are reported on the income statement. At other times they are reported on the balance sheet under stockholders’ equity. What causes this difference in treatment? Does this different treatment make sense to you? Why or why not?
If market value is such a good basis for reporting certain marketable securities on the balance sheet, why not use market value as the basis for reporting intangible assets?
How does goodwill arise and come to be reported on a balance sheet? How is the amount calculated? What does goodwill represent?
Five years ago, Reeco Company paid $40,000 to acquire a building site. Since then the company has abandoned its expansion plans and yesterday sold the site for $65,800 in cash. How will this transaction be reported on the company’s next cash flow statement? (Assume the indirect format is used.)
Explain how a manager can use accounting information as a means of controlling assets and ensuring their security.
Below is a list of accounts and year-end balances taken from the general ledger of Deep Drillers, Inc.*Deep Drillers owns 42% of Susanna’s common stock.Prepare the long-term asset section of the balance sheet in good form.
You are reviewing the balance sheet of Worldwide Technology, a manufacturer of assorted electronic components. You observe the following account classifications.a. Intangible assetsb. Inventoriesc. Investment in marketable securitiesd. Property, plant, and equipmente. Accounts receivableFor each
The poorly trained bookkeeper at Flowing Water Company has shown you the long-term asset section of the company’s balance sheet that he will soon distribute to stockholders. For your convenience, each item is identified with a letter. These letters will not appear in the finished
Camey Corporation purchased delivery equipment on January 1 at a cost of $300,000. The equipment is expected to have a useful life of seven years or 250,000 miles, and to have no salvage value. How much depreciation expense should be recorded during the first year using the straight-line,
Asia Company purchased a building on March 1, 1985 at a cost of $4 million. For financial reporting purposes, the building was being depreciated over 372 months at $10,000 per month. The remaining $28,000 of the cost was the estimated salvage value. The building was sold on October 31, 2004 for
Lincoln Hospital, Inc., acquired new specialized diagnostic equipment at a cost of $430,000. The equipment had an estimated useful life of eight years and an estimated residual value of $30,000. Lincoln uses the straight-line depreciation method. After five years, management determined that the
Franchesca Company recorded the following transactions during its 2004 fiscal year:a. Costs incurred for buildings under construction but not completed by year-end:Labor ..............$350,000Materials ..............675,000Utilities ...............87,000Special tools and equipment
Leslie Company sells business stationery, imprinted with a customer’s business name and address. To do this, it purchased a printing machine costing $48,000 on January 1, 2001. The machine has an expected useful life of five years and an estimated salvage value of $3,000. Leslie Company uses
Energy Company owns rights to coal reserves in several states. The rights cost the company $140 million. The reserves were expected to produce a total of 50 billion tons of coal. During the company’s 2004 fiscal year, five billion tons of coal were mined from the reserves. Prior to 2004, 30
In 1975, the Big Tree Timber Company purchased 1,000 acres of recently cut forest land for $4,500,000. It planted new seedling trees at a cost of $1,200,000. Over the years, an additional $450,000 was spent thinning and monitoring the rapidly growing forest. Commercial harvest operations began on
Hot Water Company purchased 1,000 shares of Big Pipe Company’s common stock for $24 each. It was a small investment, but Hot Water intended to hold the investment for the long term. At year-end, the total market value of the shares had increased to $27,500. Six months into the following year, Hot
Julie McBeth Company made two short-term investments in marketable securities during the current fiscal year. At year-end, the following summary information was available.a. Purchased 5% of the outstanding common shares of Duncan Company for $300,000 plus brokerage fees of $30,000.b. Purchased 2%
Isabella Company made small investments in the common stock of two companies during the current year. Isabella wishes to establish a long-term business relationship with each firm and purchased the shares as a good faith gesture. Each of the firms had millions of shares outstanding at the time.a.
Manatee Company purchased $800,000 of long-term bonds on January 1, 2004 at face value. The bonds pay interest at an 8% annual rate on each June 30 and December 31. Semiannual payments were received, as promised, on June 30, 2004, and December 31, 2004. Manatee’s fiscal year ends December 31. At
Arkansas Company purchased 20,000 shares of Mena Company’s common stock on May 15, 2002. Arkansas paid $380,000 for the stock. On September 12, 2002, Arkansas received a dividend check from Mena for $12,000. The market value of Mena’s stock on December 31, 2002 was $24 per share. On September
Dundee Enterprises purchased 100% of Newberg Company’s common stock for $200 million in cash. At the time of the purchase, the fair market value of Newberg’s assets was $350 million. The fair market value of its liabilities was $180 million. (a) Explain the meaning of goodwill. (b) Why might a
Joyful Sound Music Company purchased the net assets (i.e., assets minus liabilities) of Metrodome Company for $845,000. Metrodome is a retailer of music, instruments, and related items. Its net assets have been carried on its own books at a total of $530,000. An appraisal of all of Metrodome’s
Use the straight-line (SLN) and double-declining-balance (DDB) functions in Excel or another spreadsheet program to calculate the required amounts in the following situations.a. Machinery was purchased at its invoice price of $296,016. This amount did not include sales tax of 6.15%. The estimated
You are reviewing the balance sheet, income statement, and statement of cash flows of a large, well-known company. It has operations in several different lines of business and in several countries. As you inspect these financial statements, you are searching for information about the company’s
Zirconium Graphics Company reported the following information for the year ended December 31:a. Sale of plant assets having a book value of $30,000 for $22,000 cashb. Sale of securities with a book value of $26,000 for $28,000 cashc. Depreciation and amortization expense of $7,500d. Interest and
On January 1, Baruti Company acquired 4,000 shares of Biltmore Company’s common stock at a price of $9 per share. Baruti did so to establish a long-term working relationship with Biltmore Company. At December 31, Biltmore reported net income of $30,000 and paid a $0.50 cash dividend on each of
Clary Jensen Farms purchased power equipment with an expected useful life of four years or 1,000 hours of usage. The equipment was purchased on January 1, 2004, for $125,000. It is expected to have a salvage value of $5,000 at the end of four years. During 2004, the equipment was used for 260
U.S. income tax law permits some assets to be depreciated using an accelerated method during the early years of an asset’s life. In later years, a switch to the straight-line depreciation method is allowed if it produces more favorable tax results. (More favorable tax results occur when
Matta Company has just acquired two assets:1. New diagnostic equipment for the medical services division was acquired at an invoice price of $93,000. This did not include the 8.7% sales tax. Transportation cost of $2,650 was incurred to ship the equipment from the factory to Matta’s medical
Diamondback Mfg. is buying a new grinding machine. The machine costs $124,000 and is assumed to have a salvage value of $4,000 in five years. The manufacturer’s description of the machine indicates that it should operate for 30,000 hours. The company’s accountant is trying to decide whether to
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