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Financial Reporting And Analysis Using Financial Accounting Information 12th Edition Charles H Gibson - Solutions

Consecutive five-year balance sheets and income statements of Donna Szabo Corporation are shown below and on the following page.Requireda. Compute or determine the following for the years 2005–2009:1. Degree of financial leverage2. Earnings per common share3. Price/earnings ratio4. Percentage of
Answer the following multiple-choice questions:a. In 2007 and 2008, Zoret Company reported earnings per share of $0.80 and $1.00, respectively. In 2009, Zoret Company declared a 4-for-1 stock split. For the year 2009, Zoret Company reported earnings of $0.30 per share. The appropriate earnings per
a. 1. How many shares of common stock had been issued as of August 1, 2008?2. How many shares of common stock were outstanding as of August 1, 2008?3. What share number is used to compute earnings per share?b. When computing the price/earnings ratio, should the basic or diluted earnings per share
On November 14, 2007, a special meeting of stockholders was held authorizing a two-for-one stock split effected in the form of a 100 percent stock dividend to holders of record on November 26, 2007, distributed on December 3, 2007. All share and per share data (except par value) have been adjusted
Selected data from the 2007 annual report of Frisch’s Restaurants, Inc., follow:FRISCH’S RESTAURANTS, INC., AND SUBSIDIARIES* CONSOLIDATED BALANCE SHEET May 29, 2007 and May 30, 2006ASSETS20072006Current Assets Cash$321,200$815,346Trade and other
Apple Inc.* presented this selected financial data with its 2008 annual report.Requireda. 1. For consolidated statements of operations, prepare a horizontal common-size analysis for 2006–2008. Use 2006 as the base.2. Comment on the results in (1).b. 1. For stock-based compensation expense,
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 operates stores and websites selling casual sportswear apparel.’’ 10-K2. Limited Brands, Inc.(January 31,
With this case, we review the profitability 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
Which two financial ratios do commercial loan officers regard as the most significant? Which two financial ratios appear most frequently in loan agreements?
The commercial loan officers did not list the dividend payout ratio as a highly significant ratio, but they did indicate that the dividend payout ratio appeared frequently in loan agreements. Speculate on the reason for this apparent inconsistency.
List the top five financial ratios included in corporate objectives according to the study reviewed in this book. Indicate what each of these ratios primarily measures.
CPAs regard which two financial ratios as the most significant? The highest rated profitability ratio? The highest debt ratio?
Financial ratios are used extensively in annual reports to interpret and explain financial statements. Comment.
List the sections of annual reports where ratios are most frequently located, in order of use.
According to a study of annual reports reviewed in this chapter, what type or types of financial ratios are most likely to be included in annual reports? Speculate on the probable reason for these ratios appearing in annual reports.
The study of annual reports reviewed in this chapter indicated that wide differences of opinion exist on how many ratios should be computed. Comment.
Indicate which of the following accounting policies are conservative by placing an X under Yes or No. Assume inflationary conditionsexist.
All firms are required to expense R&D costs incurred each period. Some firms spend very large sums on R&D, while others spend little or nothing on this area. Why is it important to observe whether a firm has substantial or immaterial R&D expenses?
Indicate some possible uses of a reliable model that can be used to forecast financial failure.
Describe what is meant by a firm’s financial failure.
According to the Beaver study, which ratios should be watched most closely, in order of their predictive power?
According to the Beaver study, three current asset accounts should be given particular attention in order to forecast financial failure. List each of these accounts and indicate whether they should be abnormally high or low.
You are the auditor of Piedmore Corporation. You determine that the accounts receivable turnover has been much slower this period than in prior periods and that it is also materially lower than the industry average. How might this situation affect your audit plan?
You are in charge of preparing a comprehensive budget for your firm. Indicate how financial ratios can help determine an acceptable comprehensive budget.
List four popular forms of graphs used by accountants.
List two things that can make a line graph misleading.
Describe a proper management of earnings. Describe an improper management of earnings.
In valuation of stock equity, fundamental analysis makes extensive use of multi-period discounted cash flow. Comment.
We are interested in the future when valuing the stock equity of a company. Therefore, traditional financial statements are of little use in this endeavor. Comment.
It appears that most restatements are symptomatic of financial reporting fraud. Comment.
Answer the following multiple-choice questions:Requireda. Notes to financial statements are beneficial in meeting the disclosure requirements of financial reporting. The notes should not be used to1. Describe significant accounting policies.2. Describe depreciation methods employed by the
Answer the following multiple-choice questions:Requireda. If business conditions are stable, a decline in the number of days’ sales outstanding from one year to the next (based on a company’s accounts receivable at year-end) might indicate1. A stiffening of the company’s credit policies.2.
Answer the following multiple-choice questions:Requireda. Which of the following would not be an example of the use of a multiple when valuing common equity?1. Multi-period discounted earnings models2. Price-to-earnings (PE)3. Price-to-book4. Price-to-operating cash flowb. The two most popular
Thorpe Company is a wholesale distributor of professional equipment and supplies. The company€™s sales have averaged about $900,000 annually for the three-year period 2007€“2009. The firm€™s total assets at the end of 2009 amounted to $850,000.The president of Thorpe
Konrath Company is considering extending credit to D. Hawk Company. L. Konrath Company estimated that sales to D. Hawk Company would amount to $2 million each year. L. Konrath Company, a wholesaler, sells throughout the Midwest. D. Hawk Company, a retail chain operation, has a number of stores in
Your company is considering the possible acquisition of Growth, Inc. The financial statements of Growth, Inc., follow:Partial notes: Under the LIFO method, inventories have been reduced by approximately $35,300 and $41,100 at December 31, 2009 and 2008, respectively, from current cost, which would
For each of the following numbered items, you are to select the lettered item(s) that indicate(s) its effect(s) on the corporation€™s statements. If more than one effect is applicable to a particular item, be sure to indicate all applicable letters. (Assume that the state statutes do not
Argo Sales Corporation has in recent years maintained the following relationships among the data on its financial statements:Gross profit rate on net sales .................40%Net profit rate on net sales ...............................................10%Rate of selling expenses to net sales
Warford Corporation was formed five years ago through a public subscription of common stock. Lucinda Street, who owns 15% of the common stock, was one of the organizers of Warford and is its current president. The company has been successful but currently is experiencing a shortage of funds. On
The following data apply to items (a) through (g):Required Answer the following multiple-choice questions:a. The acid-test ratio for 2009 is1. 1.1-to-1.2. 0.9-to-1.3. 1.8-to-1.4. 0.2-to-1.5. 0.17-to-1.b. The average number of days€™ sales outstanding in 2009 is1. 18 days.2. 360 days.3. 20
The statement of financial position for Paragon Corporation at November 30, 2009, the end of its current fiscal year, follows. The market price of the company€™s common stock was $4 per share on November 30, 2009.All items are to be considered independent of one another, and any
Calcor Company has been a wholesale distributor of automobile parts for domestic automakers for 20 years. Calcor has suffered through the recent slump in the domestic auto industry, and its performance has not rebounded to the levels of the industry as a whole.Calcor’s single-step income
The following data are for the A, B, and C Companies:Requireda. Compute the Z score for each company.b. According to the Altman model, which of these firms is most likely to experience financialfailure?
General Company€™s financial statements for 2009 follow here and on the following pages:Requireda. Compute the Z score of General Company at the end of 2009.b. According to the Altman model, does the Z score of General Company indicate a high probability of financialfailure?
LIFO reserves: Rhodes Company Reported year for analysis, 20092009 Net income as reported .......$ 90,200,0002009 Inventory reserve ..........50,000,0002008 Inventory reserve ..........46,000,0002009 Income taxes ...........55,000,0002009 Income before income taxes ......145,200,000Required Compute
LIFO reserves: Lion Company Reported year for analysis, 20082008 Net income as reported .......$45,000,0002008 Inventory reserve ............20,000,0002007 Inventory reserve ............28,000,0002008 Income taxes .............14,000,0002008 Income before income taxes .......59,000,000Required
Inventories valued under the LIFO method were $765 million and $889 million at December 31, 2008 and 2007, respectively, net of the LIFO allowance. The LIFO allowance reflects the excess of the current cost of LIFO inventories at December 31, 2008 and 2007, over the amount at which these
This case is an excerpt from a presentation given by former Chairman Arthur Levitt, Securities and Exchange Commission, the ‘‘Numbers Game,’’ to New York University Center for Law and Business, September 28, 1998.Requireda. ‘‘Big Bath’’—Comment on how a ‘‘Big Bath’’ would
Borders Group, Inc., presented this information in its 10-K’s:Requireda. Compute the following liquidity ratios for 2009 and 2008:1. Days’ sales in inventory2. Inventory turnover (use ending inventory)3. Working capital4. Current ratio5. Cash ratio6. Sales to working capital (use ending working
Selected data from Nike’s financial statements for the period 2005–2009 follow:Requireda. Liquidity1. Review the summary analysis for Nike, Inc., from 2007–2009. Give your opinion of the liquidity position (refer back to Exhibit 3, Summary Analysis).2. Review the current ratio in this case
To what agencies and other users of financial statements must banks report?
Give an example of why a review of bank assets may indicate risk or opportunity of which you were not aware.
Why review the disclosure of nonperforming assets for banks?
Utilities are usually very highly leveraged. How is it that they are able to carry such high levels of debt?
For regulated utilities, why are plant and equipment usually listed first for utilities?
For regulated utilities, why review the account Construction Work in Progress?
For regulated utilities, describe the income statement accounts, allowance for equity funds used during construction, and allowance for borrowed funds used during construction.
When reviewing the financial statements of oil and gas companies, why is it important to note the method of costing (expensing) exploration and production costs?
Oil and gas companies must disclose quantity estimates for proved oil and gas reserves and the major factors causing changes in these resource estimates. Briefly indicate why this disclosure can be significant.
For oil and gas companies, there is the potential for a significant difference between the reported income and cash flows from operations. Comment.
In a transportation firm, what types of things will change operating revenues? Operating expenses?
Why could an insurance company with substantial investments in real estate represent a risk?
For an insurance company, describe the difference between GAAP reporting and SAP reporting of deferred policy acquisition costs.
Briefly describe the unique aspects of revenue recognition for an insurance company.
Insurance industry-specific financial ratios are usually prepared from financial statements prepared under what standards?
Insurance companies tend to have a stock market price at a discount to the average market price (price/ earnings ratio). Indicate some perceived reasons for this relatively low price/earnings ratio.
Real estate companies contend that conventional accounting does not recognize the underlying value of the property and that this misleads investors. Discuss.
The following are statistics from the annual report of McEttrick National Bank:Requireda. Calculate the total deposits times capital for each year.b. Calculate the loans to total deposits for each year.c. Calculate the capital funds to total assets for each year.d. Calculate the interest margin to
The following are statistics from the annual report of Dover Bank:Requireda. Calculate the following for 2009, 2008, and 2007:1. Earning assets to total assets2. Interest margin to average earning assets3. Loan loss coverage ratio4. Equity to total assets5. Deposits times capital6. Loans to
Super Power Company reported the following statistics in its statements of income:*Includes taxes of $3,200,000 in 2009 and $3,000,000 in 2008.Requireda. Calculate the operating ratio and comment on the results.b. Calculate the times interest earned and comment on the results.c. Perform a vertical
The following statistics relate to Michgate, an electric utility:Requireda. Calculate the following for 2009, 2008, and 2007:1. Operating ratio2. Funded debt to operating property3. Percent earned on operating property4. Operating revenue to operating propertyb. Comment on trends found in the
Local Airways had the following results in the past two years:Required Calculate the following for 2009 and 2008:a. The operating ratio and comment on the trend.b. The long-term debt to operating property ratio. What does this tell about debt use?c. The operating revenue to operating property and
Chihi Airways had the following results for the past three years:Requireda. Calculate the following for 2009, 2008, and 2007:1. Operating ratio2. Long-term debt to operating property3. Operating revenue to operating propertyb. Comment on trends found in the ratios computed in (a).c. Comment on the
Answer the following multiple-choice questions related to insurance financial reporting:Requireda. Which of the following does not represent a basic type of insurance organization?1. Stock companies2. Bond companies3. Mutual companies4. Fraternal benefit societies5. Assessment companiesb. Which of
Answer the following multiple-choice questions related to bank financial reporting:Requireda. All but which of the following would be a representative asset of a bank?1. Investment securities2. Loans3. Equipment4. Cash on hand5. Savings accountsb. All but which of the following would be considered
Answer the following multiple-choice questions:Requireda. A ratio that indicates how funds are supplied to a utility is1. Return on assets.2. Percent earned on operating property.3. Operating ratio.4. Funded debt to operating property.5. Operating revenue to operating property.b. A ratio that
AFUDC represents a method used to compensate the Utility for the estimated cost of debt and equity used to finance regulated plant additions and is recorded as part of the cost of construction projects.AFUDC is recoverable from customers through rates over the life of the related property once
Hess Corporation* included the information in this case as part of the supplementary oil and gas data. This case only represents a small portion of the supplementary oil and gas data.Results of Operations for Oil and Gas-Producing Activities The results of operations shown below exclude non-oil and
Camden National Corporation* included the following in its 2008 annual report: The following is a summary of activity in the allowance for loan losses:RequiredGive your opinion of trends in the allowance for loanlosses.
a. Prepare a horizontal common-size analysis for 2008, 2007, and 2006 for the following items from the Consolidated Statements of Operations (use 2006 as the base).1. Total interest income2. Total interest expense3. Provision for credit losses4. Total fees an other income5. Total general and
Exhibit 12-20 includes the consolidated statement of income for the Chubb Corporation.Requireda. Prepare a horizontal common-size analysis of this statement. Use 2006 as the base.b. Comment on trends found in (a).
List some sources of information that may be available when preparing personal financial statements.
List some objectives that could be incorporated into the financial reporting of a professional accounting organization.
The accounting for governments is centered on the entity concept and the efficiency of the entity. Comment.
For governmental accounting, define the following types of funds:1. General fund2. Proprietary fund3. Fiduciary fund
The budget for a state or local government is not as binding as a budget for a commercial business. Comment.
Could a profit-oriented enterprise use fund accounting practices? Comment.
Why are the financial data of a component unit included with the government entities reporting entity?
For each of these situations, indicate the amount to be placed on a statement of financial condition at December 31, 2010.a. Bill and Pat Konner purchased their home at 2829 Willow Road in Stow, Ohio, in August 1994 for $80,000. The unpaid mortgage is $20,000. Immediately after purchasing the home,
For each of these situations, indicate the amount to be placed on a statement of financial condition at December 31, 2010.a. Raj Reel owns the following securities:1,000 shares of Ree’s2,000 shares of Bell’sRee’s is traded on the New York Stock Exchange. The prices from the most recent trade
For Barb and Carl, the assets and liabilities and the effective income tax rates at December 31, 2010, follow:Requireda. Compute the estimated tax liability on the differences between the estimated current value of the assets and liabilities and their tax bases.b. Present a statement of financial
For Mary Lou and Ernie, the assets and liabilities and the effective income tax rates at December 31, 2010, follow:Requireda. Compute the estimated tax liability on the differences between the estimated current value of the assets and liabilities and their tax bases.b. Present a statement of
For Mike Szabo, the changes in net worth for the year ended December 31, 2010, follow:Realized increases in net worth:Salary ..................$ 60,000Dividend income .............................2,500Interest income .................2,000Gain on sale of marketable securities ..........500Realized
For Jim and Carrie, the changes in net worth for the year ended December 31, 2010, are as follows.Realized increases in net worth:Salary .....................$ 50,000Interest income ....................6,000Realized decreases in net worth:Income taxes ...................15,000Interest expense
Use Exhibit 13-2, City of Toledo, Ohio, Expenses, Governmental Activities.Requireda. Prepare a horizontal common-size statement for 2002€“2008. Use 2002 as the base.b. Comment on significant items in the horizontal common-sizeanalysis.
Use Exhibit 13-2, City of Toledo, Ohio, Expenses, Governmental Activities.Requireda. Prepare a vertical common-size statement. Use total governmental activities as the base.b. Comment on significant items in the vertical common-sizeanalysis.
Use Exhibit 13-3, City of Toledo, Ohio, Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt per Capita, Last 10 Fiscal Years.Requireda. Prepare a vertical common-size statement. Use 1999 as the base. Include assessed value, net general bonded debt, and net bonded debt per
Use Exhibit 13-4, the Ohio Society of Certified Public Accountants’ financial report.Requireda. Prepare a vertical common-size analysis for the consolidated statement of financial position. For April 30, 2009, use total assets as the base and stop with total expenses. Comment on significant items
The Ohio Society of Certified Public Accountants’ financial report for the year ended April 30, 2009, included this note.Note 1. OrganizationThe Ohio Society of Certified Public Accountants was organized in 1908 as a not-for-profit corporation. The mission of the society is to act on behalf of
Answer the following multiple-choice questions related to personal financial statements:Requireda. For the personal financial statement, statement of changes in net worth, which of the following would be a realized increase in net worth?1. Dividend income2. Change in value of land3. Decrease in

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