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Financial Reporting And Analysis Using Financial Accounting Information 12th Edition Charles H Gibson - Solutions
Why are notes to statements necessary?
What are contingent liabilities? Are lawsuits against the firm contingent liabilities?
Which of the following events, occurring subsequent to the balance sheet date, would require a note?a. Major fire in one of the firm’s plantsb. Increase in competitor’s advertisingc. Purchase of another companyd. Introduction of new management techniquese. Death of the corporate treasurer
Describe a proxy statement.
If a company issues a summary annual report, where can the more extensive financial information be found?
Which two principal financial statements explain the difference between two balance sheet dates? Describe how these financial statements explain the difference between two balance sheet dates.
What are the three major categories on a balance sheet?
Describe the relationship between the terms ethics and morals.
What is the relationship between the accounting equation and the double-entry system of recording transactions?
Define the following:a. Permanent accountsb. Temporary accounts
Why are adjusting entries necessary? Discuss in detail.
The SEC released for public comment a proposed roadmap for adoption of IFRS by public companies in the United States. What were the serious concerns?
Identify the usual forms of a business entity and describe the ownership characteristic of each.
Describe the purchase method of accounting for a business combination.
What is the basic guideline for consolidation?
Where must a company’s code of ethics be made available?
Describe the Treadway Commission.
Why is the COSO report on internal control systems important under requirements of the Sarbanes-Oxley Act?
Private companies are not under Sarbanes-Oxley. Why do some private companies follow the law?
Indicate the two approaches to presenting consolidated statements.
Describe how a company could be required to consolidate another company in which it has no or minor voting stock.
Describe the filing deadline for Form 10-K.
Describe the Norwalk Agreement.
The SEC announced that it would accept financial statements from private issuers without reconciliation to U.S. GAAP if they are prepared using IFRS, as issued by the International Accounting Standards Board. Comment on possible problems with this position.
Professor Ball noted a number of problems with implementing IFRS. What were the problems noted by Professor Ball?
Mike Szabo Company engaged in the following transactions during the month of December:December 2 Made credit sales of $4,000 (accepted accounts receivable).6 Made cash sales of $2,500.10 Paid office salaries of $500.14 Sold land that originally cost $2,200 for $3,000 cash.17 Paid $6,000 for
Darlene Cook Company engaged in the following transactions during the month of July:July 1 Acquired land for $10,000. The company paid cash.8 Billed customers for $3,000. This represents an increase in revenue. The customer has been billed and will pay at a later date. An asset, accounts
Gaffney Company had these adjusting entry situations at the end of December.1. On July 1, Gaffney Company paid $1,200 for a one-year insurance policy. The policy was for the period July 1 through June 30. The transaction was recorded as prepaid insurance and a reduction in cash.2. On September 10,
DeCort Company had these adjusting entry situations at the end of December:1. On May 1, DeCort Company paid $960 for a two-year insurance policy. The policy was for the period May 1 through April 30 (2 years). This is the first year of the policy. The transaction was recorded as insurance
Multiple-choice questions:a. The balance sheet equation can be defined as which of the following?1. Assets + Stockholders’ Equity = Liabilities2. Assets + Liabilities = Stockholders’ Equity3. Assets = Liabilities = Stockholders’ Equity4. Assets – Liabilities = Stockholders’ Equity5. None
Multiple-choice questions:a. Audit opinions cannot be classified as which of the following?1. All-purpose2. Disclaimer of opinion3. Adverse opinion4. Qualified opinion5. Unqualified opinionb. From the point of view of analysis, which classification of an audit opinion indicates that the financial
Multiple-choice questions:a. Which party has the primary responsibility for the financial statements?1. Bookkeeper2. Auditor3. Management4. Cost accountant5. None of the aboveb. Which of the following is a type of audit opinion that a firm would usually prefer?1. Unqualified opinion2. Qualified
The following are selected accounts of Laura Gibson Company on December 31:RequiredIn the space provided:1. Indicate if the account is a permanent (P) or temporary (T) account.2. Indicate the normal balance in terms of debit (Dr.) or credit(Cr.).
An auditor’s report is the formal presentation of all the effort that goes into an audit. Below is a list of the classifications of audit opinions that can be found in an auditor’s report as well as a list of phrases describing the opinions?Classifications of Audit Opinionsa. Unqualified
A company prepares financial statements in order to summarize financial information. Below are a list of financial statements and a list of descriptions.Financial Statementsa. Balance sheetb. Income statementc. Statement of cash flowsd. Statement of stockholders’ equityDescriptions1. Details
Dan Murphy awoke at 5:45 A.M., just like he did every workday morning. No matter that he went to sleep only four hours ago. The Orange Bowl game had gone late into the evening, and the New Year’s Day party was so good, no one wanted to leave. At least Dan could awake easily this morning. Some of
The Majority of Managers Surveyed Say It’s Not Wrong to Manage Earnings Occasionally, the morals and ethics executives use to manage their businesses are examined and discussed. Unfortunately, the morals that guide the timing of nonoperating events and choices of accounting policies have largely
In the early 1980s, airlines introduced frequent-flier awards to develop passenger loyalty to a single airline. Free tickets and possibly other awards were made available to passengers when they accumulated a certain number of miles or flights on a particular air carrier. These programs were
The FASB and the IASB have made progress toward convergence. The IFRS standards are considered to be more principles based than the U.S. rules-based GAAP. As of 2007, the IFRSs filled approximately 2,000 pages of accounting regulations.* When an IFRS or interpretation does not exist, then judgment
Professional standards require auditors to make a preliminary judgment about materiality levels during the planning of an audit. Statement of Auditing Standards (SAS) No. 47 states that the auditor plans the audit to obtain reasonable assurance of detecting misstatements that he/she believes could
Management is responsible for the integrity and objectivity of the financial information included in this report. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Where necessary, the financial statements
In 1995, Congress passed the Private Securities Litigation Reform Act (the Act). The principal provisions of the Act are intended to curb abusive litigation and improve the quality of information available to investors through the creation of a safe harbor for forward-looking statements.Requireda.
This case includes a news release issued by the Public Company Accounting Oversight Board. This news release comments on the first disciplines of an accounting firm and auditors under the Sarbanes-Oxley Act of 2002.Requireda. Does it appear that Mr. Morris and the accounting firm can continue to
Information reported in the Enbridge, Inc., 2008 annual reports follows:ENBRIDGE, INC.Corporate Head Office3000 Fifth Avenue PlaceCalgary, Alberta, Canada T2P3L8Enbridge is traded on the New York Stock Exchange in the United States under the symbol ‘‘ENB.’’Requireda. Were Canadian or U.S.
Washington, D.C., Oct. 13, 2004—The Securities and Exchange Commission today announced the filing of enforcement actions alleging fraud and other violations against Royal Ahold (Koninklijke Ahold N.V.) (Ahold) and three former top executives: Cees van der Hoeven, former CEO and chairman of
This matter involves Hewlett-Packard’s failure to disclose the circumstances surrounding a board member’s resignation amidst the company’s controversial investigation into boardroom leaks. On May 18, 2006, HP’s Board of Directors learned the findings of the company’s leak investigation
Name and describe the three major categories of balance sheet accounts.
Are the following balance sheet items (A) assets, (L) liabilities, or (E) stockholders’ equity?a. Cash dividends payableb. Mortgage notes payablec. Investments in stockd. Cashe. Landf. Inventoryg. Unearned renth. Marketable securitiesi. Patentsj. Capital stockk. Retained earningsl. Accounts
Classify the following as (CA) current asset, (IV) investments, (IA) intangible asset, or (TA) tangible asset: a. Landb. Cashc. Copyrightsd. Marketable securitiese. Goodwillf. Inventoriesg. Toolsh. Prepaidsi. Buildingsj. Accounts receivablek. Long-term investment in stockl. Machinery
Differentiate between marketable securities and long-term investments. What is the purpose of owning each?
What is depreciation? Which tangible assets are depreciated, and which are not? Why?
For reporting purposes, management prefers higher profits; for tax purposes, lower taxable income is desired. To meet these goals, firms often use different methods of depreciation for tax and reporting purposes. Which depreciation method is best for reporting and which for tax purposes? Why?
A rental agency collects rent in advance. Why is the rent collected treated as a liability?
A bond carries a stated rate of interest of 6% and par of $1,000. It matures in 20 years. It is sold at 83 (83% of $1,000, or $830).a. Under normal conditions, why would the bond sell at less than par?b. How would the discount be disclosed on the statements?
Explain how the issuance of a convertible bond can be a very attractive means of raising common equity funds.
Classify each of the following as a (CA) current asset, (NA) noncurrent asset, (CL) current liability, (NL) noncurrent liability, or (E) equity account. Choose the best or most frequently used classification.a. Suppliesb. Notes receivablec. Unearned subscription revenued. Accounts payablee.
Explain these preferred stock characteristics:a. Accumulation of dividendsb. Participation in excess of stated dividend ratec. Convertibility into common stockd. Callability by the corporatione. Preference in liquidation
Describe the account Unrealized Exchange Gains or Losses.
What is treasury stock? Why is it deducted from stockholders’ equity?
DeLand Company owns 100% of Little Florida, Inc. Will DeLand Company show a noncontrolling interest on its balance sheet? Would the answer change if it owned only 60%? Will there ever be a case in which the subsidiary, Little Florida, is not consolidated?
What is redeemable preferred stock? Why should it be included with debt for purposes of financial statement analysis?
Describe fair value as it relates to assets and liabilities.
Describe quasi-reorganization.
Describe employee stock ownership plans (ESOPs).
Why are commercial lending institutions, insurance companies, and mutual funds willing to grant loans to an employee stock ownership plan at favorable rates?
What are some possible disadvantages of an employee stock ownership plan?
Describe depreciation, amortization, and depletion. How do they differ?
What are the three factors usually considered when computing depreciation?
An accelerated system of depreciation is often used for income tax purposes but not for financial reporting. Why?
Assume that a city donated land to a company. What accounts would be affected by this donation, and what would be the value?
The following information was obtained from the accounts of Airlines International dated December 31, 2010. It is presented in alphabetical order.Accounts payable ............... $ 77,916Accounts receivable ............... 67,551Accrued expenses ............... 23,952Accumulated depreciation
The following information was obtained from the accounts of Lukes, Inc., as of December 31, 2010. It is presented in scrambled order.Common stock, no par value, 10,000 sharesauthorized, 5,724 shares issued ............ $ 3,180Retained earnings ..................129,950Deferred income tax liability
The following information was obtained from the accounts of Alleg, Inc., as of December 31, 2010. It is presented in scrambled order.Common stock, authorized 21,000 shares at $1 parvalue, issued 10,000 shares ................$10,000Additional paid-in capital ................ 38,000Cash
The following is the balance sheet of Ingram Industries:Required Indicate your criticisms of the balance sheet and briefly explain the proper treatment of any itemcriticized.
The following is the balance sheet of Rubber Industries:RUBBER INDUSTRIESBalance SheetFor the Year Ended December 31, 2010AssetsCurrent assets:Cash ………………………………………………… $ 50,000Marketable equity securities
The following is the balance sheet of McDonald Company:RequiredIndicate your criticisms of the balance sheet and briefly explain the proper treatment of any item criticized.
You have just started as a staff auditor for a small CPA firm. During the course of the audit, you discover the following items related to a single client firm:a. During the year, the firm declared and paid $10,000 in dividends.b. Your client has been named defendant in a legal suit involving a
Corvallis Corporation owns 80% of the stock of Little Harrisburg, Inc. At December 31, 2010, Little Harrisburg had the following summarized balance sheet:The earnings of Little Harrisburg, Inc., for 2010 were $50,000 after tax.Requireda. What would be the amount of noncontrolling interest on the
Aggarwal Company has had 10,000 shares of 10%, $100 par-value preferred stock and 80,000 shares of $5 stated-value common stock outstanding for the last three years. During that period, dividends paid totaled $0, $200,000, and $220,000 for each year, respectively.Required Compute the amount of
Rosewell Company has had 5,000 shares of 9%, $100 par-value preferred stock and 10,000 shares of $10 par-value common stock outstanding for the last two years. During the most recent year, dividends paid totaled $65,000; in the prior year, dividends paid totaled $40,000.Required Compute the amount
An item of equipment acquired on January 1 at a cost of $100,000 has an estimated life of10 years.RequiredAssuming that the equipment will have a salvage value of $10,000, determine the depreciation for each of the first three years by the:a. Straight-line methodb. Declining-balance methodc.
An item of equipment acquired on January 1 at a cost of $60,000 has an estimated use of 25,000 hours. During the first three years, the equipment was used 5,000 hours, 6,000 hours, and 4,000 hours, respectively. The estimated salvage value of the equipment is $10,000.Required Determine the
An item of equipment acquired on January 1 at a cost of $50,000 has an estimated life of five years and an estimated salvage of $10,000.Requireda. From a management perspective, from among the straight-line method, declining-balance method, and sum-of-the-years’-digits method of depreciation,
Multiple-choice questions:a. Which of the following accounts would not appear on a conventional balance sheet?1. Accounts Receivable2. Accounts Payable3. Patents4. Gain from Sale of Land5. Common Stockb. Current assets typically include all but which of the following assets?1. Cash restricted for
a. 1. The statement is entitled ‘‘Consolidated Balance Sheets.'' What does it mean to have a consolidate balance sheet?2. For subsidiaries where control is present, does Kellogg have 100% ownership? Explain.3. Are there subsidiaries where control is not present? Explain.b. 1. With this
a. The statement is entitled ‘‘Consolidated Balance Sheets.'' What does it mean to have a consolidated balance sheet?b. 1. What is the gross amount of current receivables at September 27, 2008?2. What is the allowance for doubtful accounts and September 27, 2008?3. Why are some
a. 1. The statement is entitled ‘‘Consolidated Balance Sheet.'' What does it mean to have a consolidated balance sheet?b. 1. What current liability decreased the most?2. What current liability increased the most?c. 1. How many common shares had been issued as of December 31, 2008?2. How
a. 1. What is the balance in receivables at February 28, 2009 and March 1, 20082. Comment on the trend in receivables.3. What is the balance in merchandize inventories at February 28, 2009 and March 1, 2008?4. Comment on the trend in merchandise inventories.5. Speculate on what the trend in
Dana Corporation included the following in its 2001 financial report:Foundation Business: Focused ExcellenceDana’s foundation businesses are: axles, drive shafts, structures, brake and chassis products, fluid systems, filtration products, and bearing and sealing products.These products hold
Brand values are expressed in terms of words such as ‘‘quality’’ and ‘‘integrity.’’ The Marketing Society rated the brand value of McDonald’s in 2008 at $10,417,000,000.*Requireda. Define an asset.b. In your opinion, do brands represent a valuable asset? Comment.c. Under generally
Big Car Company did substantial advertising in late December. The company’s year-end date was December 31. The president of the firm was concerned that this advertising campaign would reduce profits.Requireda. Define an asset.b. Would the advertising represent an asset? Comment.
China Unicom (Hong Kong) Limited provides a full range of telecommunications services, including mobile and fixed online services, in China. They are listed on the New York Stock Exchange and filed a Form 20-F with the SEC for the period ended December 31, 2008.Requireda. Special Note, etc.1.
Shaw Communications included Note 21 €œUnited States Generally Accepted Accounting Principles€ in its 2008 annual report.Requireda. In your opinion, is there a material difference between shareholders€™ equity at the end of 2008 using Canadian GAAP vs. U.S. GAAP?
What are extraordinary items? How are they shown on the income statement? Why are they shown in that manner?
Which of the following would be classified as extraordinary?a. Selling expenseb. Interest expensec. Gain on the sale of marketable securitiesd. Loss from floode. Income tax expensef. Loss from prohibition of red dyeg. Loss from the write-down of inventory
Give three examples of unusual or infrequent items that are disclosed separately. Why are they shown separately? Are they presented before or after tax? Why or why not?
Why is the equity in earnings of nonconsolidated subsidiaries sometimes a problem in profitability analysis? Discuss with respect to income versus cash flow.
A health food distributor selling wholesale dairy products and vitamins decides to discontinue the division that sells vitamins. How should this discontinuance be classified on the income statement?
How does the declaration of a cash dividend affect the financial statements? How does the payment of a cash dividend affect the financial statements?
What is the difference in the impact on financial statements of a stock dividend versus a stock split?
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