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Financial Reporting And Analysis Using Financial Accounting Information 12th Edition Charles H Gibson - Solutions
J. Shaffer Company has an ending inventory of $360,500 and a cost of goods sold for the year of $2,100,000. It has used LIFO inventory for a number of years because of persistent inflation.Requireda. Compute the days’ sales in inventory.b. Is J. Shaffer Company’s days’ sales in inventory as
Szabo Company had an average inventory of $280,000 and a cost of goods sold of $1,250,000.RequiredCompute the following:a. The inventory turnover in daysb. The inventory turnover
The inventory and sales data for this year for G. Rabbit Company are as follows:RequiredUsing the above data from G. Rabbit Company, compute the following:a. The accounts receivable turnover in daysb. The inventory turnover in daysc. The operatingcycle
Anna Banana Company would like to estimate how long it will take to realize cash from its ending inventory. For this purpose, the following data are submitted:Accounts receivable, less allowance for doubtful accounts of $30,000 ...$ 560,000ending inventory ........................680,000Net sales
Laura Badora Company has been using LIFO inventory. The company is required to disclose the replacement cost of its inventory and the replacement cost of its cost of goods sold on its annual statements. Selected data for the year ended 2009 are as follows:Ending accounts receivable, less allowance
A partial balance sheet and income statement for King Corporation follow:KING CORPORATIONPartial Balance SheetDecember 31, 2009AssetsCurrent assets:Cash .........................$ 33,493Marketable securities ..................215,147Trade receivables, less allowance of $6,000
Individual transactions often have a significant impact on ratios. This problem will consider the direction of such an impact.Required Indicate the effects of the previous transactions on each of the following: total current assets, total current liabilities, net working capital, and current ratio.
Current assets and current liabilities for companies D and E are summarized as follows:Required Evaluate the relative solvency of companies D andE.
Current assets and current liabilities for companies R and T are summarized as follows.Required Evaluate the relative solvency of companies R andT.
The following financial data were taken from the annual financial statements of Smith Corporation:Requireda. Based on these data, calculate the following for 2008 and 2009:1. Working capital2. Current ratio3. Acid-test ratio4. Accounts receivable turnover5. Merchandise inventory turnover6.
Anne Elizabeth Corporation is engaged in the business of making toys. A high percentage of its products are sold to consumers during November and December. Therefore, retailers need to have the toys in stock prior to November. The corporation produces on a relatively stable basis during the year in
The following data relate to inventory for the year ended December 31, 2009:A physical inventory on December 31, 2009, indicates that 400 units are on hand and that they came from the March 1 purchase.Required Compute the cost of goods sold for the year ended December 31, 2009, and the ending
The following data relate to inventory for the year ended December 31, 2009. A physical inventory on December 31, 2009, indicates that 600 units are on hand and that they came from the July 1 purchase.Required Compute the cost of goods sold for the year ended December 31, 2009, and the ending
J.A. Appliance Company has supplied you with the following data regarding working capital and sales for the years 2009, 2008, and 2007.Requireda. Compute the sales to working capital ratio for each year.b. Comment on the sales to working capital ratio for J.A. Appliance in relation to the industry
Depoole Company manufactures industrial products and employs a calendar year for financial reporting purposes. Items (a) through (e) present several of Depoole’s transactions during 2009. The total of cash equivalents, marketable securities, and net receivables exceeded total current liabilities
Information from Greg Company’s balance sheet follows:Current assets:Cash ....................$ 2,100,000Marketable securities ............. 7,200,000Accounts receivable ............... 50,500,000Inventories ................. 65,000,000Prepaid expenses ................ 1,000,000Total current
The following data apply to items (a) and (b). Mr. Sparks, the owner of School Supplies, Inc., wants to maintain control over accounts receivable. He understands that accounts receivable turnover will give a good indication of how well receivables are being managed. School Supplies, Inc., does
Items (a) through (d) are based on the following information:RequiredAnswer the following multiple-choice questions:a. Sharkey's acid-test ratio as of December 31, 2009, is1. 0.63.2. 0.70.3. 0.89.4. 0.99.b. Sharkey's receivables turnover for 2009 is1. 8 times.2. 6 times.3. 12 times.4. 14 times.c.
Multiple-Choice questions:a. A company’s current ratio is 2.2 to 1 and quick (acid-test) ratio is 1.0 to 1 at the beginning of the year. At the end of the year, the company has a current ratio of 2.5 to 1 and a quick ratio of 0.8 to 1. Which of the following could help explain the divergence in
Consecutive five-year balance sheets and income statements of Anne Gibson Corporation follow:Requireda. Using year-end balance sheet figures, compute the following for the maximum number of years, based on the available data:1. Days' sales in receivables2. Accounts receivable turnover3. Accounts
Allowance for Uncollectible Accounts'Ethics vs. Conservatism To aid in determining the balance for the allowance for uncollectible accounts, an aging schedule is often prepared. The Arrow Company prepared the following aging schedule for December 31, 2009:The current balance in allowance for
a. What is the working capital at the end of 2008?b. What is the balance in the LIFO reserve account at the end of 2008? Describe this account.c. If the LIFO reserve account was added to the inventory at LIFO, what would be the resulting inventory number at the end of 2008? Which inventory amount
The following information was taken directly from the annual report of a firm that wishes to remain anonymous. (The dates have been changed.)Requireda. The corporation indicates that earnings can be affected unrealistically by rapid increases and fluctuations in prices when using LIFO. Comment.b.
a. Based on these data, calculate the following for 2008 and 2007:1. Days' sales in receivables (use trade receivables)2. Accounts receivable turnover (use gross trade receivables at year-end)3. Days' sales in inventory4. Inventory turnover (use year-end inventory)5. Working capital6. Current
a. Based on these data, calculate the following for 2008 and 2007:1. Days' sales in receivables2. Accounts receivable turnover (gross receivables at year-end)3. Days' sales in inventory4. Inventory turnover (use inventory at year-end)5. Working capital6. Current ratio7. Acid-test ratiob. Comment
The Grand retail firm reported the following financial data for the past several years:The Grand retail firm had a decentralized credit operation allowing each store to administer its credit operation. Many stores provided installment plans allowing the customer up to 36 months to pay. Gross
a. Based on these data, calculate the following for 2009 and 2008:1. Days' sales in receivables2. Accounts receivable turnover (gross receivables at year-end)3. Days' sales in inventory4. Inventory turnover (use inventory at year-end)5. Working capital6. Current ratio7. Acid-test ratiob. Comment
With this case, we review the liquidity of several specialty retail stores. The companies reviewed and the year-end dates are as follows:1. Abercrombie & Fitch Co.(January 31, 2009'52-week; February 2, 2008'52-week; February 3, 2007'53-week)‘‘Abercrombie & Fitch Co .is a specialty
With this case, we review the liquidity of several restaurant companies. The restaurant companies reviewed and the year-end dates are as follows:1. Yum Brands, Inc. (December 27, 2008; December 29, 2007)‘‘Through the five concepts of KFC, Pizza Hut, Taco Bell, LJS and Arco (the
Is profitability important to a firm’s long-term debt-paying ability? Discuss.
List the two approaches to examining a firm’s long-term debt-paying ability. Discuss why each of these approaches gives an important view of a firm’s ability to carry debt.
Would you expect an auto manufacturer to finance a relatively high proportion of its long-term funds from debt? Discuss.
Would you expect a telephone company to have a high debt ratio? Discuss.
Discuss how noncash charges for depreciation, depletion, and amortization can be used to obtain a short-run view of times interest earned.
Is it feasible to get a precise measurement of the funds that could be available from long-term assets to pay long-term debts? Discuss.
One of the ratios used to indicate long-term debt-paying ability compares total liabilities to total assets. What is the intent of this ratio? How precise is this ratio in achieving its intent?
For a given firm, would you expect the debt ratio to be as high as the debt/equity ratio? Explain.
Explain how the debt/equity ratio indicates the same relative long-term debt-paying ability as does the debt ratio, only in a different form.
Why is it important to compare long-term debt ratios of a given firm with industry averages?
How should lessees account for operating leases? Capital leases? Include both income statement and balance sheet accounts.
A firm with substantial leased assets that have not been capitalized may be overstating its long-term debt-paying ability. Explain.
Why is the vesting provision an important provision of a pension plan? How has the Employee Retirement Income Security Act influenced vesting periods?
Indicate the risk to a company if it withdraws from a multiemployer pension plan or if the multiemployer pension plan is terminated.
Operating leases are not reflected on the balance sheet, but they are reflected on the income statement in the rent expense. Comment on why an interest expense figure that relates to long-term operating leases should be considered when determining a fixed charge coverage.
What portion of net worth can the federal government require a company to use to pay for pension obligations?
Consider the debt ratio. Explain a position for including short-term liabilities in the debt ratio. Explain a position for excluding short-term liabilities from the debt ratio. Which of these approaches would be more conservative?
Consider the accounts of bonds payable and reserve for rebuilding furnaces. Explain how one of these accounts could be considered a firm liability and the other could be considered a soft liability.
Explain why deferred taxes that are disclosed as long-term liabilities may not result in actual cash outlays in the future.
A firm has a high current debt/net worth ratio in relation to prior years, competitors, and the industry. Comment on what this tentatively indicates.
Comment on the implications of relying on a greater proportion of short-term debt in relation to long-term debt.
When a firm guarantees a bank loan for a joint venture in which it participates and the joint venture is handled as an investment, then the overall potential debt position will not be obvious from the face of the balance sheet. Comment.
When examining financial statements, a note that describes contingencies should be reviewed closely for possible significant liabilities that are not disclosed on the face of the balance sheet. Comment.
There is a chance that a company may be in a position to have large sums transferred from the pension fund to the company. Comment.
Indicate why comparing firms for postretirement benefits other than pensions can be difficult.
Speculate on why the disclosure of the concentrations of credit risk is potentially important to the users of financial reports.
Comment on the significance of disclosing the off-balance-sheet risk of accounting loss.
Consider the following operating figures:Net sales ................ $1,079,143Cost and deductions:Cost of sales ............. 792,755Selling and administration ......... 264,566Interest expense, net .......... 4,311Income taxes ............. 5,059 1,066,691 $
Jones Petro Company reports the following consolidated statement of income:Operating revenues ....................$2,989Costs and expenses:Cost of rentals and royalties ................ 543Cost of sales ................................ 314Selling, service, administrative, and general expense .....
Sherwill’s statement of consolidated income is as follows:Net sales ..................... $658Other income .................... 8 666Costs and expenses:Cost of products sold ................. 418Selling, general, and administrative expenses ........ 196Interest .......................
Kaufman Company’s balance sheet follows.AssetsCurrent assetsCash ........................... $ 13,445Short-term investments—at cost (approximate market) ...... 5,239Trade accounts receivable, less allowance of $1,590 ....... 88,337Inventories—at lower of cost (average method) or
Individual transactions often have a significant impact on ratios. This problem will consider the direction of such an impact.RequiredIndicate the effect of each of the transactions on the ratios listed. Use + to indicate an increase, – to indicate a decrease, and 0 to indicate no effect.
Mr. Parks has asked you to advise him on the long-term debt-paying ability of Arodex Company. He provides you with the following ratios:Requireda. Give the implications and the limitations of each item separately and then the collective influence that could be drawn from them about Arodex
For the year ended June 30, 2009, A.E.G. Enterprises presented the financial statements shown below. Early in the new fiscal year, the officers of the firm formalized a substantial expansion plan. The plan will increase fixed assets by $190 million. In addition, extra inventory will be needed to
The consolidated statement of earnings of Anonymous Corporation for the year endedDecember 31, 2009, is as follows:Net sales .................... $1,550,010,000Other income, net .................. 10,898,000 1,560,908,000Costs and expenses:Cost of goods sold
Allen Company and Barker Company are competitors in the same industry. Selected financial data from their 2009 statements follow.Requireda. Compute the following ratios for each company:1. Times interest earned2. Debt ratio3. Debt/equity ratio4. Debt to tangible net worthb. Is Barker Company in a
Consecutive five-year balance sheets and income statements of Laura Gibson Corporation are shown below.Operating lease payments were as follows: 2009, $30,000; 2008, $27,000; 2007, $28,500; 2006, $30,000; 2005, $27,000 (dollars in thousands).Requireda. Compute the following for the years ended
Multiple-choice questions:a. Which of the following ratios can be used as a guide to a firm’s ability to carry debt from an income perspective?1. Debt ratio2. Debt to tangible net worth3. Debt/equity4. Times interest earned5. Current ratiob. There is disagreement on all but which of the following
a. What is the gross interest expense for 2008 and 2007?b. What is the interest reported on the income statement for 2008, 2007, and 2006?c. What was the interest added to property and equipment during 2008 and 2007?d. When is capitalized interest recognized as an expense? Describe.e. What was the
a. Compute the following for 2009 and 2008:1. Times interest earned2. Fixed charge coverage3. Debt ratio4. Debt/equity ratiob. Compute the debt ratio for 2009, considering operating leases.c. Give your opinion regarding the significance of considering operating leases in the debtratio.
a. Observe that accumulated amortization is deducted from property under capital lease. Why is this described as amortization instead of depreciation?b. Why do the assets under capital leases not equal the liabilities under capitalleases?
The Celtics Basketball Holdings, L.P. and Subsidiary included the following note in its 1998 annual report:Note G—Commitments and Contingencies (in Part) National Basketball Association (“NBA”) players, including those that play for the Boston Celtics, are covered by a collective
Safeway participates in various multiemployer retirement plans, covering substantially all Company employees not covered under the Company’s noncontributory retirement plans, pursuant to agreements between the Company and various unions. These plans are generally defined benefit plans; however,
The Retirement Restoration Plan provides death benefits and supplemental income payments for senior executives after retirement. The Company recognized expense of $4.9 million in 2008, $4.8 million in 2007, and $5.2 million in 2006. The aggregate projected benefit obligation of the Retirement
a. For the defined benefit, noncontributory retirement plans, compare pension expense (cost) with operating revenue for 2008, 2007, and 2006. Comment.b. For the defined benefit, noncontributory retirement plans, compare pension expense (cost) with income before income taxes for 2008, 2007, and
On April 1, 1997, we established the TransAct Technologies Retirement Savings Plan (the €œ401(k) Plan€), a defined contribution plan under Section 401(k) of the Internal Revenue Code. All full-time employees are eligible to participate in the 401(k) Plan at the beginning of the
At December 31, 2007 and 2008, our financial instruments included cash and cash equivalents, trade receivables, marketable securities and accounts payable. Our subordinated notes outstanding at December 31, 2007, were repaid in December 2008. The carrying amount of cash and cash equivalents, trade
In this case, we review the debt of several specialty retail stores. The companies reviewed and the year-end dates are as follows:1. Abercrombie & Fitch Co.(January 31, 2009—52-week; February 2, 2008—52-week; February 3, 2007—53-week)‘‘Abercrombie * Fitch Co. is a specialty retailer that
In this case, we review the debt of several restaurant companies. The restaurant companies reviewed and the year-end dates are as follows:1. Yum Brands, Inc. (December 30, 2008; December 30, 2007)‘‘Through the five concepts of KFC, Pizza Hut, Taco Bell, LJS, and A & W (the ‘‘Concepts’’)
Dividends on preferred stock total $5,000 for the current year. How would these dividends influence earnings per share?
The denominator of the earnings per share computation includes the weighted average number of common shares outstanding. Why use the weighted average instead of the year-end common shares outstanding?
Preferred dividends decreased this year because some preferred stock was retired. How would this influence the earnings per share computation this year?
Retroactive recognition is given to stock dividends and stock splits on common stock when computing earnings per share. Why?
Define financial leverage. What is its effect on earnings? When is the use of financial leverage advantageous and disadvantageous?
Given a set level of earnings before interest and tax, how will a rise in interest rates affect the degree of financial leverage?
Why does a relatively new firm often have a low dividend payout ratio? Why does a firm with a substantial growth record and/or substantial growth prospects often have a low dividend payout ratio?
Why would an investor ever buy stock in a firm with a low dividend yield?
Why can a relatively small number of stock appreciation rights prove to be a material drain on future earnings and cash of a company?
Explain how outstanding stock appreciation rights could increase reported income in a particular year.
McDonald Company shows the following condensed income statement information for the current year:Required Calculate the degree of financialleverage.
A firm has earnings before interest and tax of $1,000,000, interest of $200,000, and net income of $400,000 in Year 1.Requireda. Calculate the degree of financial leverage in base Year 1.b. If earnings before interest and tax increase by 10% in Year 2, what will be the new level of earnings,
The following information was in the annual report of Rover Company:Requireda. Based on these data, compute the following for 2009, 2008, and 2007:1. Percentage of earnings retained2. Price/earnings ratio3. Dividend payout4. Dividend yield5. Book value per shareb. Discuss your findings from the
The following data relate to Edger Company:The stock was selling at 120.5%, 108.0%, and 105.0% of book value in 2009, 2008, and 2007, respectively.Requireda. Compute the following for 2009, 2008, and 2007:1. Percentage of earnings retained2. Price/earnings ratio3. Dividend payout4. Dividend yield5.
Dicker Company has the following pattern of financial data for Years 1 and 2:Required Calculate earnings per share and comment on thetrend.
Assume the following facts for the current year:Common shares outstanding on January 1: 50,000 sharesJuly 1: 2-for-1 stock splitOctober 1: a stock issue of 10,000 sharesRequired Compute the denominator of the earnings per share computation for the current year.
XYZ Corporation reported earnings per share of $2.00 in 2008. In 2009, XYZ Corporation reported earnings per share of $1.50. On July 1, 2009, and December 31, 2009, 2-for-1 stock splits were declared.Required Present the earnings per share for a two-year comparative income statement that includes
Cook Company shows the following condensed income statement information for the year ended December 31, 2009:Income before extraordinary gain ..........$30,000Plus: Extraordinary gain, net of tax expense of $2,000 .....5,000Net income .....................$35,000The company declared dividends of
Assume the following facts for the current year:Net income ........................$200,000Common dividends .....................$ 20,000Preferred dividends (The preferred stock is not convertible.) ....$ 10,000Common shares outstanding on January 1 ..........20,000 sharesCommon stock issued on
Smith and Jones, Inc. is primarily engaged in the worldwide production, processing, distribution, and marketing of food products. The following information is from its 2009 annual report:Requireda. Based on these data, compute the following for 2009 and 2008:1. Percentage of earnings retained2.
On December 31, 2009, Farley Camera, Inc., issues 5,000 stock appreciation rights to its president to entitle her to receive cash for the difference between the market price of its stock and a pre-established price of $20. The date of exercise is December 31, 2010, and the required service period
a. A company has only common stock outstanding.RequiredAnswer the following multiple-choice question. Total stockholders’ equity minus preferred stock equity divided by the number of shares outstanding represents the1. Return on equity.2. Stated value per share.3. Book value per share.4.
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