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Accounting Tools For Business Decision Making 3rd Edition Paul D. Kimmel - Solutions
If your school has a subscription to the FASB Codification, go to aaahq.org/ ascLogin.cfm to log in and prepare responses to the following.InstructionsAccess the glossary (“Master Glossary”) to answer the following.(a) What is the definition of revenue?(b) What is the definition of compensation?
Compare and contrast the rules regarding revenue recognition under IFRS versus GAAP.
Under IFRS, do the definitions of revenues and expenses include gains and losses?Explain.
The financial statements of Zetar plc are presented in Appendix C. The company’s complete annual report, including the notes to its financial statements, is available at www.zetarplc.com. Visit Zetar’s corporate website and answer the following questions from Zetar’s 2009 annual report. (a)
Explain sustainable income. What relationship does this concept have to the treatment of irregular itemson the income statement?
Duncan Inc. reported 2011 earnings per share of $3.26 and had no extraordinary items. In 2012, earnings per share on income before extraordinary items was $2.99, and earnings per share on net income was $3.49. Do you consider this trend to be favorable? Why or why not?
Sandran Inc. has been in operation for 3 years and uses the FIFO method of pricing inventory. During the fourth year, Sandran changes to the average-cost method for all its inventory. How will Sandran report this change?
What amount did Tootsie Roll Industries report as “Other comprehensive earnings” in 2009? By what percentage did Tootsie Roll’s “Comprehensive earnings” differ from its “Net earnings”?
(a) Kristina Desmet believes that the analysis of financial statements is directed at two characteristics of a company: liquidity and profitability. Is Kristina correct? Explain.(b) Are short-term creditors, long-term creditors, and stockholders interested in primarily the same characteristics of
(a) Distinguish among the following bases of comparison: intracompany, intercompany and industry averages.(b) Give the principal value of using each of the three bases of comparison.
Two popular methods of financial statement analysis are horizontal analysis and vertical analysis. Explain the difference between these two methods. Discuss.
(a) If Lind Company had net income of $300,000 in 2011 and it experienced a 24.5% increase in net income for 2012, what is its net income for 2012?(b) If 6 cents of every dollar of Lind’s revenue is net income in 2011, what is the dollar amount of 2011 revenue?
Name the major ratios useful in assessing (a) Liquidity and (b) Solvency. Discuss.
Ron Singer is puzzled. His company had a profit margin of 10% in 2012. He feels that this is an indication that the company is doing well. Teresa Ridley, his accountant, says that more information is needed to determine the company’s financial well-being. Who is correct? Why?
What does each type of ratio measure?(a) Liquidity ratios.(b) Solvency ratios.(c) Profitability ratios.
What is the difference between the current ratio and working capital?
Smart Mart, a retail store, has a receivables turnover ratio of 4.5 times. The industry average is 12.5 times. Does Smart Mart have a collection problem with its receivables?
Which ratios should be used to help answer each of these questions?(a) How efficient is a company in using its assets to produce sales?(b) How near to sale is the inventory on hand?(c) How many dollars of net income were earned for each dollar invested by the owners?(d) How able is a company to
At year-end, the price-earnings ratio of General Motors was 11.3, and the price-earnings ratio of Microsoft was 28.14. Which company did the stock market favor? Explain.
Holding all other factors constant, indicate whether each of the following changes generally signals good or bad news about a company.(a) Increase in profit margin ratio.(b) Decrease in inventory turnover ratio.(c) Increase in current ratio.(d) Decrease in earnings per share.(e) Increase in
The return on assets for Corwin Corporation is 7.6%. During the same year, Corwin’s return on common stockholders’ equity is 12.8%. What is the explanation for the difference in the two rates?
Which two ratios do you think should be of greatest interest in each of the following cases?(a) A pension fund considering the purchase of 20-year bonds.(b) A bank contemplating a short-term loan.(c) A common stockholder.
Hawi Inc. has net income of $200,000, average shares of common stock outstanding of 40,000, and preferred dividends for the period of $20,000. What is Hawi’s earnings per share of common stock? Sid Brey, the president of Hawi, believes that the computed EPS of the company is high Comment.
Identify and explain factors that affect quality of earnings. Discuss.
Explain how the choice of one of the following accounting methods over the other raises or lowers a company’s net income during a period of continuing inflation.(a) Use of FIFO instead of LIFO for inventory costing.(b) Use of a 6-year life for machinery instead of a 9-year life.(c) Use of
On June 30, Amano Corporation discontinued its operations in Mexico. On September 1, Amano disposed of the Mexico facility at a pretax loss of $640,000. The applicable tax rate is 25%. Show the discontinued operations section of Amano’s income statement.
An inexperienced accountant for Corfeld Corporation showed the following in Corfeld’s 2012 income statement: Income before income taxes $300,000; Income tax expense $72,000; Extraordinary loss from flood (before taxes) $80,000; and Net income $168,000. The extraordinary loss and taxable income
On January 1, 2012, Gustin Inc. changed from the LIFO method of inventory pricing to the FIFO method. Explain how this change in accounting principle should be treated in the company’s financial statements.
Using these data from the comparative balance sheet of Rosalez Company, perform horizontalanalysis.
Using the data presented in BE13-4 for Rosalez Company, perform vertical analysis.
Net income was $500,000 in 2010, $485,000 in 2011, and $518,400 in 2012. What is the percentage of change from(a) 2010 to 2011, and(b) From 2011 to 2012? Is the change an increase or a decrease?
If Carolina Company had net income of $382,800 in 2012 and it experienced a 16% increase in net income over 2011, what was its 2011 net income?
Vertical analysis (common-size) percentages for Vallejo Company's sales, cost of goods sold, and expenses are listed here. Did Vallejo's net income as a percent of sales increase, decrease, or remain unchanged over the 3-year period? Provide numerical support for youranswer.
Horizontal analysis (trend analysis) percentages for Spartan Company's sales, cost of goods sold, and expenses are listed here. Explain whether Spartan's net income increased, decreased, or remained unchanged over the 3-year period.
These selected condensed data are taken from recent balance sheets of Bob Evans Farms (in thousands). Compute the current ratio for each year and comment on your results.
The following data are taken from the financial statements of Caprice Company. Compute for each year(a) The receivables turnover ratio and(b) The average collection period. What conclusions about the management of accounts receivable can be drawn from these data? At the end of 2010, accounts
The following data were taken from the income statements of Merlot Company. Compute for each year(a) The inventory turnover ratio and(b) Days in inventory. What conclusions concerning the management of the inventory can be drawn from these data?
Staples, Inc. is one of the largest suppliers of office products in the United States. It had net income of $738.7 million and sales of $24,275.5 million in 2009. Its total assets were $13,073.1 million at the beginning of the year and $13,717.3 million at the end of the year. What is Staples,
Schiller Company has stockholders’ equity of $400,000 and net income of $72,000. It has a payout ratio of 18% and a return on assets ratio of 20%. How much did Schiller pay in cash dividends, and what were its average total assets?
Selected data taken from a recent year’s financial statements of trading card company Topps Company, Inc. are as follows (in millions).Net sales ...................$326.7Current liabilities, beginning of year .........41.1Current liabilities, end of year ............62.4Net cash provided by
In its draft 2012 income statement, Provision Corporation reports income before income taxes $500,000, extraordinary loss due to earthquake $180,000, income taxes $200,000 (not including irregular items), and loss on disposal of discontinued music division $24,000. The income tax rate is 40%.
Summary financial information for Newburg Company is as follows. Compute the amount and percentage changes in 2013 using horizontal analysis, assuming2012 is the base year.
The condensed financial statements of Blondell Company for the years 2011 and 2012 are presented below. Compute the following ratios for 2012 and 2011.(a) Current ratio.(b) Inventory turnover. (Inventory on December 31, 2010, was $340.)(c) Profit margin ratio.(d) Return on assets. (Assets on
Match each of the following terms with the phrase that best describes it.Quality of earnings........Pro forma incomeCurrent ratio ...........Discontinued operationsHorizontal analysis ........Comprehensive income1. A measure used to evaluate a company’s liquidity.2. Usually excludes items that a
Tulsa Company has income before irregular items of $310,000 for the year endedDecember 31, 2012. It also has the following items (before considering income taxes):(1) An extraordinary fire loss of $60,000 and (2) A gain of $30,000 from the disposal of a division. Assume all items are subject to
The Wall Street Journal routinely publishes summaries of corporate quarterly and annual earnings reports in a feature called the "Earnings Digest." A typical "digest" report takes the following form. (a) Includes a net charge of $26,000,000 from loss on the sale of electrical equipment(b)
Here is financial information for Pauletti Inc. InstructionsPrepare a schedule showing a horizontal analysis for 2012, using 2011 as the base year.
Operating data for Gladow Corporation are presented below. InstructionsPrepare a schedule showing a vertical analysis for 2012 and 2011.
The comparative balance sheets of Nike, Inc. are presented here. Instructions(a) Prepare a horizontal analysis of the balance sheet data for Nike, using 2008 as a base.(Show the amount of increase or decrease as well.)(b) Prepare a vertical analysis of the balance sheet data for Nike for 2009.
Here are the comparative income statements of Blevins Corporation. Instructions(a) Prepare a horizontal analysis of the income statement data for Blevins Corporation, using 2011 as a base. (Show the amounts of increase or decrease.)(b) Prepare a vertical analysis of the income statement data for
Nordstrom, Inc. operates department stores in numerous states. Selected financial statement data (in millions) for 2009 are presented below. For the year, net credit sales were $8,258 million, cost of goods sold was $5,328 million, and cash from operations was $1,251 million.InstructionsCompute
Skie Incorporated had the following transactions involving current assets and current liabilities during February 2012.Feb. 3 Collected accounts receivable of $15,000.7 Purchased equipment for $23,000 cash.11 Paid $3,000 for a 3-year insurance policy.14 Paid accounts payable of $12,000.18
Hendi Company has these comparative balance sheet data: Additional information for 2012:1. Net income was $25,000.2. Sales on account were $375,000. Sales returns and allowances amounted to $25,000.3. Cost of goods sold was $198,000.4. Net cash provided by operating activities was $48,000.5.
Selected comparative statement data for the giant bookseller Barnes & Noble are presented here. All balance sheet data are as of the end of the fiscal year (in millions). InstructionsCompute the following ratios for 2008.(a) Profit margin.(b) Asset turnover.(c) Return on assets.(d) Return
Here is the income statement for Bachus, Inc.BACHUS, INC.Income StatementFor the Year Ended December 31, 2012Sales .............................$400,000Cost of goods sold ........................230,000Gross profit .............................170,000Expenses (including $16,000 interest and $24,000
Lacey Corporation experienced a fire on December 31, 2012 in which its financial records were partially destroyed. It has been able to salvage some of the records and has ascertained the following balances. Additional information:1. The inventory turnover is 3.8 times.2. The return on common
Here are comparative statement data for Silver Company and Gold Company, two competitors. All balance sheet data are as of December 31, 2012, and December 31, 2011. Instructions(a) Prepare a vertical analysis of the 2012 income statement data for Silver Company and Gold Company.(b) Comment on
The comparative statements of Lucille Company are presented here. All sales were on account. Net cash provided by operating activities for 2012 was $220,000. Capital expenditures were $136,000, and cash dividends were $70,000.InstructionsCompute the following ratios for 2012.(a) Earnings per
Condensed balance sheet and income statement data for Glassgow Corporation are presented here. Additional information:1. The market price of Glassgow's common stock was $7.00, $7.50, and $8.50 for 2010, 2011, and 2012, respectively.2. You must compute dividends paid. All dividends were paid in
The following financial information is for Cheaney Company. Additional information:1. Inventory at the beginning of 2011 was $115,000.2. Receivables (net) at the beginning of 2011 were $86,000.3. Total assets at the beginning of 2011 were $660,000.4. No common stock transactions occurred during
Selected financial data of Target and Wal-Mart for 2009 are presented here (in millions). Instructions(a) For each company, compute the following ratios.(1) Current. (2) Receivables turnover. (3) Average collection period. (4) Inventory turnover. (5) Days in inventory. (6) Profit margin. (7) Asset
Here are comparative statement data for Martin Company and Lewis Company, two competitors. All balance sheet data are as of December 31, 2012, and December 31, 2011. Instructions(a) Prepare a vertical analysis of the 2012 income statement data for Martin Company and Lewis Company.(b) Comment on
The comparative statements of Jetson Company are shown below. All sales were on account. Net cash provided by operating activities was $108,000. Capital expenditures were $47,000, and cash dividends were $30,900.InstructionsCompute the following ratios for 2012.(a) Earnings per share.(b) Return
The condensed balance sheet and income statement data for Finch Corporation are presented below. Additional information:1. The market price of Finch common stock was $5.00, $3.50, and $2.80 for 2010, 2011, and 2012, respectively.2. You must compute dividends paid. All dividends were paid in
Financial information for Chimera Company is presented here. Additional information:1. Inventory at the beginning of 2011 was $330,000.2. Receivables at the beginning of 2011 were $80,000.3. Total assets at the beginning of 2011 were $1,175,000.4. No common stock transactions occurred during
Selected financial data for Stanley Black & Decker, Inc. and Snap-On Tools for 2009 are presented here (in millions). Instructions(a) For each company, compute the following ratios.(1) Current ratio.(2) Receivables turnover.(3) Average collection period.(4) Inventory turnover.(5) Days in
Your parents are considering investing in Tootsie Roll Industries common stock. They ask you, as an accounting expert, to make an analysis of the company for them. Fortunately, excerpts from a recent annual report of Tootsie Roll are presented in Appendix A of this textbook.Instructions(a) Make a
The financial statements of The Hershey Company are presented in Appendix B, following the financial statements for Tootsie Roll Industries in Appendix A.Instructions(a) Based on the information in the financial statements, determine each of the following for each company:(1) The percentage
The April 21, 2008, issue of the Wall Street Journal Online included an article by David Reilly entitled “A Way Charges Stay off Bottom Line.”Instructions Read the article and answer the following questions.(a) According to the article, how do companies avoid reporting losses on certain types
The Coca-Cola Company and PepsiCo, Inc. provide refreshments to every corner of the world. Selected data from the 2009 consolidated financial statements for The Coca-Cola Company and for PepsiCo, Inc. are presented here (in millions). Instructions(a) Compute the following liquidity ratios for
You are a loan officer for Great Plains Bank of Davenport. David Miller, president of D. Miller Corporation, has just left your office. He is interested in an 8-year loan to expand the company??s operations. The borrowed funds would be used to purchase new equipment. As evidence of the company??s
Kevin Halen is the chief executive officer of Brenna Electronics. Halen is an expert engineer but a novice in accounting. Halen asks you, as an accounting student, to explain (a) The bases for comparison in analyzing Brenna’s financial statements and (b) The limitations, if any, in financial
Ellen Toth, president of RF Industries, wishes to issue a press release to bolster her company’s image and maybe even its stock price, which has been gradually falling. As controller, you have been asked to provide a list of 20 financial ratios and other operating statistics for RF Industries’
If your school has a subscription to the FASB Codification, Use the Master Glossary for determining the proper definitions.(a) Discontinued operations.(b) Extraordinary items.(c) Comprehensive income.
Chen Company reports the following information for the year ended December 31, 2012: sales revenue $1,000,000, cost of goods sold $700,000, operating expenses $200,000, and an unrealized gain on available-for-sale securities of $75,000. Prepare a statement of comprehensive income using the
Assume the same information for Chen Company as in IFRS13-1. Prepare the income statement using the two-statement approach.
The financial statements of Zetar plc are presented in Appendix C. The company’s complete annual report, including the notes to its financial statements, is available at www.zetarplc.com. InstructionsUse the company’s annual report to answer the following questions.(a) The company’s income
Can a business enter into a transaction that affects only the left side of the basic accounting equation? If so, give an example.
Are the following events recorded in the accounting records? Explain your answer in each case.(a) A major stockholder of the company dies.(b) Supplies are purchased on account.(c) An employee is fired.(d) The company pays a cash dividend to its stockholders.
Indicate how each business transaction affects the basic accounting equation.(a) Paid cash for janitorial services.(b) Purchased equipment for cash.(c) Issued common stock to investors in exchange for cash.(d) Paid an account payable in full.
Why is an account referred to as a T account?
James Quest, a fellow student, contends that the double-entry system means each transaction must be recorded twice. Is James correct? Explain.
Gayle Weir, a beginning accounting student, believes debit balances are favorable and credit balances are unfavorable. Is Gayle correct? Discuss.
State the rules of debit and credit as applied to (a) Asset accounts, (b) Liability accounts, and (c) The common stock account.
What is the normal balance for each of these accounts?(a) Accounts Receivable.(b) Cash.(c) Dividends.(d) Accounts Payable.(e) Service Revenue.(f ) Salaries and Wages Expense.(g) Common Stock.
Indicate whether each account is an asset, a liability, or a stockholders’ equity account, and whether it would have a normal debit or credit balance.(a) Accounts Receivable. (b) Accounts Payable. (c) Equipment.(d) Dividends.(e) Supplies.
For the following transactions, indicate the account debited and the account credited.(a) Supplies are purchased on account.(b) Cash is received on signing a note payable.(c) Employees are paid salaries in cash.
For each account listed here, indicate whether it generally will have debit entries only, credit entries only, or both debit and credit entries.(a) Cash.(b) Accounts Receivable.(c) Dividends.(d) Accounts Payable.(e) Salaries and Wages Expense.(f ) Service Revenue.
What are the basic steps in the recording process?
(a) When entering a transaction in the journal, should the debit or credit be written first?(b) Which should be indented, the debit or the credit?
(a) Should accounting transaction debits and credits be recorded directly in the ledger accounts?(b) What are the advantages of first recording transactions in the journal and then posting to the ledger?
Journalize these accounting transactions. (a) Stockholders invested $12,000 in the business in exchange for common stock.(b) Insurance of $800 is paid for the year.(c) Supplies of $1,800 are purchased on account.(d) Cash of $7,500 is received for services rendered.
(a) What is a ledger?(b) Why is a chart of accounts important?
What is a trial balance and what are its purposes?
Kevin Haden is confused about how accounting information flows through the accounting system. He believes information flows in this order:(a) Debits and credits are posted to the ledger.(b) Accounting transaction occurs.(c) Information is entered in the journal.(d) Financial statements are
Two students are discussing the use of a trial balance. They wonder whether the following errors, each considered separately, would prevent the trial balance from balancing. What would you tell them?(a) The bookkeeper debited Cash for $600 and creditedWages Expense for $600 for payment of wages.(b)
Presented below are three economic events. On a sheet of paper, list the letters(a),(b), and (c) With columns for assets, liabilities, and stockholders’ equity. In each column, indicate whether the event increased (+), decreased (−), or had no effect (NE) on assets, liabilities, and
During 2012, Gavin Corp. entered into the following transactions.1. Borrowed $60,000 by issuing bonds.2. Paid $9,000 cash dividend to stockholders.3. Received $13,000 cash from a previously billed customer for services provided.4. Purchased supplies on account for $3,100.Using the following tabular
During 2012, Newberry Company entered into the following transactions.1. Purchased equipment for $286,176 cash.2. Issued common stock to investors for $137,590 cash.3. Purchased inventory of $68,480 on account.Using the following tabular analysis, show the effect of each transaction on the
For each of the following accounts, indicate the effect of a debit or a credit on the account and the normal balance.(a) Accounts Payable. (b) Advertising Expense. (c) Service Revenue.(d) Accounts Receivable.(e) Retained Earnings.(f ) Dividends.
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