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Financial Reporting And Analysis Using Financial Accounting Information 12th Edition Charles H Gibson - Solutions
Why is net income–noncontrolling interest deducted before arriving at net income?
Explain the relationship between the income statement and the reconciliation of retained earnings.
List the three types of appropriated retained earnings accounts. Which of these types is most likely not a detriment to the payment of a dividend? Explain.
A balance sheet represents a specific date, such as ‘‘December 31,’’ while an income statement covers a period of time, such as ‘‘For the Year Ended December 31, 2010.’’ Why does this difference exist?
Describe the following items:a. Net income–noncontrolling interestb. Equity in earnings of nonconsolidated subsidiaries
An income statement is a summary of revenues and expenses and gains and losses, ending with net income for a specific period of time. Indicate the two traditional formats for presenting the income statement. Which of these formats is preferable for analysis? Why?
Comment on your ability to determine a firm’s capacity to make distributions to stockholders, using published financial statements.
Management does not usually like to tie comprehensive income closely with the income statement. Comment.
Review the consolidated income statement, expenses analyzed by function (Exhibit 4-12). Comment on similarities and differences to the U.S. GAAP income statement.
Review the consolidated income statement, expenses analyzed by nature (Exhibit 4-13). Comment on similarities and differences to the U.S. GAAP income statement.
U.S. GAAP had a new standard, effective for fiscal years beginning on or after December 15, 2008, relating to the presentation of noncontrolling interest. Considering this standard, present the profit for the year presented in Exhibit 4-12, IFRS model consolidated income statement.
The following information for Decher Automotives covers the year ended 2010:Administrative expense ............. $ 62,000Dividend income ............... 10,000Income taxes .................. 100,000Interest expense ................ 20,000Merchandise inventory, 1/1 ...........
The following information for Lesky Corporation covers the year ended December 31, 2010: RequiredChange this statement to a multiple-step format, as illustrated in this chapter.
The accounts of Consolidated Can contain the following amounts at December 31, 2010:Cost of products sold ............. $410,000Dividends ................. 3,000Extraordinary gain (net of tax) ......... 1,000Income taxes ................ 9,300Interest expense ...............
The following items are from Taperline Corporation on December 31, 2010. Assume a flat 40% corporate tax rate on all items, including the casualty loss.Sales .................. $670,000Rental income ............... 3,600Gain on the sale of fixed assets ....... 3,000General and
The income statement of Rawl Company for the year ended December 31, 2010, shows the following:Net sales……………………………………………………… $ 360,000Cost of sales
At the end of 2010, vandals destroyed your financial records. Fortunately, the controller had kept certain statistical data related to the income statement, as follows:a. Cost of goods sold was $2 million.b. Administrative expenses were 20% of the cost of sales but only 10% of sales.c. Selling
The following information applies to Bowling Green Metals Corporation for the year ended December 31, 2010:Total revenues from regular operations .............. $832,000Total expenses from regular operations .............. 776,000Extraordinary gain, net of applicable income taxes .........
You were recently hired as the assistant treasurer for Victor, Inc. Yesterday, the treasurer was injured in a bicycle accident and is now hospitalized, unconscious. Your boss, Mr. Fernandes, just informed you that the financial statements are due today. Searching through the treasurer’s desk,
List the statement on which each of the following items may appear. Choose from (A) income statement, (B) balance sheet, or (C) neither.a. Net incomeb. Cost of goods soldc. Gross profitd. Retained earningse. Paid-in capital in excess of parf. Salesg. Supplies expenseh. Investment in G. Companyi.
List where each of the following items may appear. Choose from (A) income statement, (B) balance sheet, or (C) reconciliation of retained earnings.a. Dividends paidb. Notes payablec. Income from noncontrolling interestd. Accrued payrollse. Loss on disposal of equipmentf. Landg. Adjustments of prior
The income statement of Tawls Company for the year ended December 31, 2010, shows the following:Requireda. Compute the net earnings remaining after removing nonrecurring items.b. Determine the earnings from the nonconsolidated subsidiary.c. For the subsidiary that was not consolidated, what amount
The income statement of Jones Company for the year ended December 31, 2010, follows.Requireda. Compute the net earnings remaining after removing nonrecurring items.b. Determine the earnings (loss) from the nonconsolidated subsidiary.c. Determine the total taxamount.
Uranium Mining Company, founded in 1982 to mine and market uranium, purchased a mine in 1983 for $900 million. It estimated that the uranium had a market value of $150 per ounce. By 2010, the market value had increased to $300 per ounce. Records for 2010 indicate the following:Production
Each of the following statements represents a decision made by the accountant of GrowthIndustries:a. A tornado destroyed $200,000 in uninsured inventory. This loss is included in the cost of goods sold.b. Land was purchased 10 years ago for $50,000. The accountant adjusts the land account to
The following information for Gaffney Corporation covers the year ended December 31, 2010:Requireda. Will net income or comprehensive income tend to be more volatile? Comment.b. Which income figure will be used to compute earnings per share?c. What is the total tax expense reported?d. Will the
Multiple-choice questions:a. Which of the following items would be classified as operating revenue or expense on an income statement of a manufacturing firm?1. Interest expense2. Advertising expense3. Equity income4. Dividend income5. Cumulative effect of change in accounting principleb. Which of
Multiple-choice questions:a. The following relate to Owens data in 2010. What is the ending inventory?Purchases ...........$580,000Beginning inventory ....... 80,000Purchase returns ........ 8,000Sales ............. 900,000Cost of goods sold ....... 520,0001. $150,0002. $132,0003. $152,0004.
a. Would you consider the presentation to be a multiple-step income statement or a single-step income statement? Comment.b. Does it appear that there is a 100% ownership in all consolidated subsidiaries?c. If a subsidiary were not consolidated but rather accounted for using the equity method, would
a. Would you consider the presentation to be a multiple-step income statement or a single-step income statement? Comment.b. Does it appear that there is a 100% ownership in all consolidated subsidiaries?c. If a subsidiary were not consolidated but rather accounted for using the equity method, would
a. 1. Comment on the principles of consolidation.2. Does it appear that there is a 100% ownership in all consolidated subsidiaries?b. Comment on the use of estimates.c. Would you expect an impairment in marketable securities?d. What type of ‘‘special item'' would be costs on early
On October 15, 1990, United Airlines (UAL Corporation) placed the largest wide-body aircraft order in commercial aviation history—60 Boeing 747-400s and 68 Boeing 777s—with an estimated value of $22 billion. With this order, United became the launch customer for the B777. This order was equally
Boston Celtics Limited Partnership II and Subsidiaries presented these consolidated statements of income for 1998, 1997, and 1996.Requireda. Comment on Amortization of NBA Franchise and Other Intangible Assets.b. Would the discontinued operations be included in projecting the future? Comment.c. The
a. 1. Are inventories classified as a current asset? Comment.2. Does it appear that inventories are a highly liquid asset?b. 1. Goodwill impairment'what does this imply?2. Comment on the review of inventory for impairments. Why is this done under the guidelines of SFAS No. 144, Accounting for the
Shaw Communications, Inc.* included this information in its 2008 annual report.August 31, 2008, 2007, and 2006 (all amounts in thousands of Canadian dollars except share and per share amounts)Requireda. Observe net income using Canadian GAAP vs. net income using U.S. GAAP, and comprehensive income
China Unicom (Hong Kong) Limited provides a full range of telecommunications services, including mobile and fixed line service, in China.Requireda. Consolidated income statement1. Why presented in RMB and U.S. $?2. Is the statement presented by function or nature?3. Comment on the presentation
What is a ratio? How do ratios help to alleviate the problem of size differences among firms?
What does each of the following categories of ratios attempt to measure?(a) Liquidity;(b) Long-term borrowing capacity;(c) Profitability. Name a group of users who might be interested in each category.
Differentiate between absolute and percentage changes. Which is generally a better measure of change? Why?
Differentiate between horizontal and vertical analysis. Using sales as a component for each type, give an example that explains the difference.
Suppose you are comparing two firms within an industry. One is large and the other is small. Will relative or absolute numbers be of more value in each case? What kinds of statistics can help evaluate relative size?
Briefly describe how each of these groups might use financial reports: managers, investors, and creditors.
Refer to Exhibits 5-3, 5-4, and 5-5 to answer the following questions:a. For each of the firms illustrated, what is the single largest asset category? Does this seem typical of this type of firm?b. Which of the three firms has the largest amount in current assets in relation to the amount in
Differentiate between the types of inventory typically held by a retailing firm and a manufacturing firm.
Sometimes manufacturing firms have only raw materials and finished goods listed on their balance sheets. This is true of Avon Products, a manufacturer of cosmetics, and it might be true of food canners also. Explain the absence of work in process.
Answer the following concerning the Almanac of Business and Industrial Financial Ratios:a. This service presents statistics for how many size categories of firms?b. Indicate some of the industries covered by this service.
Using The Department of Commerce Financial Report discussion in the text, answer the following:a. Could we determine the percentage of total sales income after income taxes that a particular firm had in relation to the total industry sales? Explain.b. Could we determine the percentage of total
a. What is the SIC number? How can it aid in the search of a company, industry, or product?b. What is the NAICS number? How can it aid in the search of a company, industry, or product?
Indicate some sources that contain a dividend record of payments.
Indicate some sources that contain an appraisal of the outlook for particular industries.
Best Buy Co., Inc.’s consolidated balance sheets from its 2009 annual report are presented in Exhibit 5-3.Requireda. Using the balance sheets, prepare a vertical common-size analysis for 2009 and 2008. Use total assets as a base.b. Using the balance sheets, prepare a horizontal common-size
Best Buy Co., Inc.’s consolidated statements of earnings from its 2009 annual report are presented in Exhibit 5-3.lRequireda. Using the statement of earnings, prepare a vertical common-size analysis for 2009, 2008, and 2007. Use revenue as a base.b. Using the statement of earnings, prepare a
The Kelly Services, Inc., and Subsidiaries balance sheets from its 2008 annual report are presented in Exhibit 5-4.Requireda. Using the balance sheets, prepare a vertical common-size analysis for 2008 and 2007. Use total assets as a base.b. Using the balance sheets, prepare a horizontal common-size
The Kelly Services, Inc., and Subsidiaries statements of earnings from its 2008 annual report are presented in Exhibit 5-4.Requireda. Using the statements of earnings, prepare a vertical common-size analysis for 2008, 2007, and 2006. Use revenues as the base.b. Using the statements of earnings,
Determine the absolute change and the percentage for theseitems.
Determine the absolute change and the percentage for theseitems.
a. Complete the increase (decrease) in dollars and percent.b. Comment ontrends.
Multiple-choice questions:a. Which of the following statements is incorrect?1. Ratios are fractions expressed in percent or times per year.2. A ratio can be computed from any pair of numbers.3. A very long list of meaningful ratios can be derived.4. There is one standard list of ratios.5.
It is proposed at a stockholders’ meeting that the firm slow its rate of payments on accounts payable in order to make more funds available for operations. It is contended that this procedure will enable the firm to expand inventory, which will in turn enable the firm to generate more sales.
Jones Wholesale Company has been one of the fastest growing wholesale firms in the United States for the last five years in terms of sales and profits. The firm has maintained a current ratio above the average for the wholesale industry. Mr. Jones has asked you to explain possible reasons why the
What is the reason for separating current assets from the rest of the assets found on the balance sheet?
Define the operating cycle.
Define current assets.
List the major categories of items usually found in current assets.
A. B. Smith Company has guaranteed a $1 million bank note for Alender Company. How would this influence the liquidity ratios of A. B. Smith Company? How should this situation be considered?
List the two computations that are used to determine the liquidity of receivables.
List the two computations that are used to determine the liquidity of inventory.
Would a company that uses a natural business year tend to overstate or understate the liquidity of its receivables? Explain.
T. Melcher Company uses the calendar year. Sales are at a peak during the holiday season, and T. Melcher Company extends 30-day credit terms to customers. Comment on the expected liquidity of its receivables, based on the days’ sales in receivables and the accounts receivable turnover.
A company that uses a natural business year, or ends its year when business is at a peak, will tend to distort the liquidity of its receivables when end-of-year and beginning-of-year receivables are used in the computation. Explain how a company that uses a natural business year or ends its year
If a company has substantial cash sales and credit sales, is there any meaning to the receivable liquidity computations that are based on gross sales?
Describe the difference in inventories between a firm that is a retail company and a firm that is a manufacturing concern.
During times of inflation, which of the inventory costing methods listed below would give the most realistic valuation of inventory? Which method would give the least realistic valuation of inventory? Explain.a. LIFOb. Averagec. FIFO
The number of days’ sales in inventory relates the amount of the ending inventory to the average daily cost of goods sold. Explain why this computation may be misleading under the following conditions:a. The company uses a natural business year for its accounting period.b. The company closes the
The days’ sales in inventory is an estimate of the number of days that it will take to sell the current inventory.a. What is the ideal number of days’ sales in inventory?b. In general, does a company want many days’ sales in inventory?c. Can days’ sales in inventory be too low?
Some firms do not report the cost of goods sold separately on their income statements. In such a case, how should you proceed to compute days’ sales in inventory? Will this procedure produce a realistic days’ sales in inventory?
One of the computations used to determine the liquidity of inventory determines the inventory turnover. In this computation, usually the average inventory is determined by using the beginning-of-the-year and the end-of-the-year inventory figures, but this computation can be misleading if the
Explain the influence of the use of LIFO inventory on the inventory turnover.
Define current liabilities.
Several comparisons can be made to determine the short-term debt-paying ability of an entity. Some of these are:a. Working capitalb. Current ratioc. Acid-test ratiod. Cash ratio1. Define each of these terms.2. If the book figures are based on cost, will the results of the preceding computations
Discuss how to use working capital in analysis.
Both current assets and current liabilities are used in the computation of working capital and the current ratio, yet the current ratio is considered to be more indicative of the short-term debt-paying ability. Explain.
In determining the short-term liquidity of a firm, the current ratio is usually considered to be a better guide than the acid-test ratio, and the acid-test ratio is considered to be a better guide than the cash ratio. Discuss when the acid-test ratio would be preferred over the current ratio and
Discuss some benefits that may accrue to a firm from reducing its operating cycle. Suggest some ways that may be used to reduce a company’s operating cycle.
Discuss why some firms have longer natural operating cycles than other firms.
Would a firm with a relatively long operating cycle tend to charge a higher markup on its inventory cost than a firm with a short operating cycle? Discuss.
Is the profitability of the entity considered to be of major importance in determining the short-term debt-paying ability? Discuss.
Does the allowance method for bad debts or the direct write-off method result in the fairest presentation of receivables on the balance sheet and the fairest matching of expenses against revenue?
Before computing the current ratio, the accounts receivable turnover and the inventory turnover should be computed. Why?
Before computing the acid-test ratio, compute the accounts receivable turnover. Comment.
Indicate the single most important factor that motivates a company to select LIFO.
A relatively low sales to working capital ratio is a tentative indication of an efficient use of working capital. Comment. A relatively high sales to working capital ratio is a tentative indication that the firm is undercapitalized. Comment.
List three situations in which the liquidity position of the firm may be better than that indicated by the liquidity ratios.
List three situations in which the liquidity position of the firm may not be as good as that indicated by the liquidity ratios.
The cost of inventory at the close of the calendar year of the first year of operation is $40,000, using LIFO inventory, resulting in a profit before tax of $100,000. If the FIFO inventory would have been $50,000, what would the reported profit before tax have been? If the average cost method would
In this problem, compute the acid-test ratio as follows:Current Assets – Inventory/Current LiabilitiesRequired Determine the cost of sales of a firm with the following financial data.Current ratio ........... 2.5Quick ratio or acid-test ....... 2.0Current liabilities ..........
Hawk Company wants to determine the liquidity of its receivables. It has supplied you with the following data regarding selected accounts for December 31, 2009, and 2008:Requireda. Compute the number of days€™ sales in receivables at December 31, 2009, and 2008.b. Compute the accounts
Mr. Williams, the owner of Williams Produce, wants to maintain control over accounts receivable. He understands that day€™s sales in receivables and accounts receivable turnover will give a good indication of how well receivables are being managed. Williams Produce does 60% of its
Solomon Company would like to compare its days’ sales in receivables with that of a competitor, L. Konrath Company. Both companies have had similar sales results in the past, but L. Konrath Company has had better profit results. L. Solomon Company suspects that one reason for the better profit
a. P. Gibson Company has computed its accounts receivable turnover in days to be 36. Required Compute the accounts receivable turnover per year.b. P. Gibson Company has computed its accounts receivable turnover per year to be 12.Required Compute the accounts receivable turnover in days.c. P.
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