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Financial Accounting in an Economic Context 8th Edition Jamie Pratt - Solutions

The Brown Corporation experienced the following financial events on October 10, 2012:1. The company entered into a new contract with the employees’ union that calls for a $2,00 per hour increase in wages, a longer lunch break, and cost-of-living adjustment, effective January 1, 2013.2. The
The following accounts and balances were taken from the records of US Airways (dollars in million). Identify each account as an income statement? Or balance sheet account. Where is each account reflected in the basic accountingequation?
The following information was taken from the 2008 annual report of Bristol-Myers Squibb, a world-leading drug company (dollars in millions). Prepare and income statement, balance sheet, and statement of cash flows, and comment on the financial performance and condition of thecompany.
The following cash T-account for Miller Manufacturing summarizes all the transactions affecting cash during 2012. a. Compute the ending cash balance.b. Prepare a statement of cashflows.
Small and Associates, a small manufacturing firm, entered into the following cash transactions during January 2012:1. Issued 600 shares of stock for $25 each.2. Sold services for $4,000.3. Paid wages of $1,600.4. Purchased land as a long-term investment for $9,000 cash.5. Paid a $2,000 dividend.6.
Ed's Lawn Service entered into the following transaction during 2012, its first year of operations: 1. Collected $12,000 in cash in cash from shareholders. 2. Borrowed $5,000 from a bank. 3. Purchased two parcels of land for a total $10,000. 4. Paid $5,000 to rent lawn equipment for the remainder
The following cash T-account for Holcomb Manufacturing summarizes all the transactions affecting cash during 2012. a. Compute the ending cash balance.b. Prepare a statement of cash flows (directmethod).
Eaton Enterprises made the following adjusting journal entries on December 31, 2011:a. Give a brief explanation for each of the above entries.b. Classify each of the above entries as either a cost expiration adjusting entry or an accrual adjustingentry.
Hog Heaven Rib Joint made the following journal entries on December 31, 2011: Place each of the transactions above in one of the following five categories: (1) operating cash flow, (2) investing cash flow, (3) financing cash flow, (4) accrual adjusting journal entry, and (5) cost expiration
The Hurst Corporation pays its employees every Friday for the five-day week just ended. In January 2, 2013, the company paid its employees $70,000 for the week beginning Monday. December 29.a. Assuming that the employees earned wages evenly throughout the week, prepare any adjusting journal entries
During 2009, Starbucks purchased fixed assets costing approximately $450 million. Assume that the company purchased the assets at the beginning of the year, uses straight-line depreciation, and normally depreciates its equipment over three years.a. Compute the book value of the equipment at the end
Washington Forest Products began operations on January 1, 2011. On December 31, 2-11, the company’s accountant ascertains that the following amounts should be reported as expenses on the income statement:Insurance expense
The following journal entries were recorded by Lauren Retailing during the month of July: a. Prepare an income statement and the operating section of a statement of cash flows.b. Explain why net income is not equal to net cash flow from operations, and reconcile the twonumbers.
Rahal and Watson, a small manufacturing company, entered into the following cash transactions during January of f2012:1. Issued 800 shares of common stock for $30 each.2. Collected $3,900 on outstanding accounts receivable.3. Paid wages for the month of January of $1,530.4. Purchased land as a
Peters Company was in business for two year, during which time it entered into the following transactions:Year 1:1. The owners contributed $24,000 cash.2. At the beginning of the year, rented a warehouse for two years with a prepaid rent payment of $12,000.3. Purchased $10,000 of inventory on
Condensed balance sheets for 2007 and 2008 and the 2009 income statement for Goodyear, the world??s largest tire company, are as follows (dollars in millions). a. Early in 2009, assume that Goodyear is considering the following transactions. Treat each separately and compute how it would affect
Excerpts from the financial statements of Dunbar Manufacturing are provided below.Wages____________________________________________Cash payment for wages during 2012$35,000Wages payable as of December 31, 2012 17,000Wage expense on the 2012 income statement
Your boss asks you to examine the following income statement of Hamilton Hardware and Watson Glass: In the notes to the financial statements, you notice that Hamilton Hardware uses the straight-line method of depreciation and that Watson Glass uses the double-declining-balance method.a. Assume
Tony began a small retailing operation on January 1, 2012. During 2012, the following transactions occurred:1. Tony contributed $20,000 of his own money to the business.2. $60,000 was borrowed from the bank.3. Long-loved assets were purchased for $25,000 cash.4. Inventory was purchased: $25,000
Below are several transactions entered into by Vulcan Metal Corporation during 2012. Unless otherwise noted, all transactions involve cash.1. Purchased equipment for $150,000.2. Paid employees $30,000 in wages.3. Collected $15,000 from customers as payments on open accounts.4. Provided services for
The following T-accounts reflect seven different transactions that Rodman Container Company entered into during 2012: REQUIRED:For each transaction, describe what occurred and how it affected the accounting equation.
Ryan Hope, controller of Hope, Inc., provides you with the following information concerning Hope during 2012. (Hope, Inc. began operation on January 1, 2012.)1. Issued 1,000 shares of common stock at $95 per share.2. Paid $2,6000 per month to rent office and warehouse space. The rent was paid on
The December 31, 2011, balance sheet for Morrison Home Services is summarized below. During January of 2012, the following transactions were entered into:1. Services were performed for $7,000 cash.2. $3,000 cash was received from customers on outstanding accounts receivable.3. $3,000 cash was
The December 31, 2011, balance sheet of Tybee Corporation is provide below (in millions). Transactions during January 2012:Paid $5 for employee wages.Collected $10 cash from customers for work previously performed and billed.Purchased equipment for $4 cash.Purchased $2 of supplies for cash.Paid
Ten transactions are listed below. REQUIRED:For each one, indicate what specific accounts are affected as well as the direction (increase or decrease) of the effect. Also indicate whether the transaction would increase or decrease both net income (revenues minus expenses) on the income statement
Beta Alloys made the following adjusting journal entries on December 31, 2011. Required:Classify each adjusting entry as either an accrual adjustment (A) or a cost expiration adjusting (C), and indicate whether each entry increases (+), decreases (???), or has no effect (NE) on assets,
The following information is available for M&M Johnson, Inc.:a. The December 31, 2011, supplies inventory balance is $85,000. A count of supplies reveals that the company actually has $30,000 of supplies on hand.b. As of December 31, 2011, Johnson, Inc. had not paid the rent for December. The
The following information is available for Derrick Company: REQUIRED:Prepare the adjusting journal entries that gave rise to the changes indicated.
Burkholder Corporation borrowed $28,000 from its bank on January 1, 2011, at an annual interest 's rate of 10 percent. The $28,000 principal is to be paid as a lump sum at the end of the period of the loan, which is after December 31, 2012. This is the only interest-bearing debt held by
Prustate Insurance Company collected $240,000 from Jacobs Printing Corporation for a two-year fire insurance policy on May 31, 2011. The policy is in effect from June 1, 2011, to May 31, 2012.REQUIRED:a. Assume that Prustate Insurance Company recorded the $240,000 cash collection as a liability on
The balance sheet of Walgreen's a leading chain drugstore, as of August 31, 2009, appear as follows (dollars in million): REQUIRED:Assume that the following eight transactions occurred that next year (dollars in millions). Indicate the effect of each transaction on net income (revenues minus
The following balances were taken from the October 31, 2008, balance sheet of Hewlett-Packard (dollars in millions). Current assets $51,728 Long-term assets 61,603 Current liabilities 52,939 Long-term liabilities 21,450 Shareholders' equity 38,942 Early in fiscal 2009, Hewlett-Packard considered
The following balances were taken from the December 31, 2008, balance sheet of Manpower, Inc., a world-leading workforce provider (dollars in millions): Current assets ? ? ? ? ? ? ? ? ? ? ? ? ?$4,690 Long-term assets? ? ? ? ? ? ? ? ? ? ? 1,928 Current liabilities? ? ? ? ? ? ? ? ? ? ?
The following balances were taken from the December 31, 2008, balance sheet of Time Warner (dollars in millions): Current assets ? ? ? ? ? ? ? ? ? ? ? ? ?$16,602 Long-term assets? ? ? ? ? ? ? ? ? ? ?? 97,294 Current liabilities? ? ? ? ? ? ? ? ? ? ? 13,976 Long-term liabilities? ? ? ? ? ? ? ??
The following balance sheet is presented for J.D.F Company as of December 31, 2011. During 2012, J.D.F entered into the following transactions.Made credit sales of $1,350,000 and cash sales of $350,000. The cost of the inventory sold was $700,000.Purchased $820,000 of merchandise inventory on
Excerpts from the financial statements of Tree Tops Services are as follows. Note: Net cash from operations consists of two components: (1) cash collections from services rendered and (2) cash payments due to operating activities. REQUIRED: For 2012, compute (1) cash collections from services
Mayberry Enterprises has two sources of revenue. It sells advertising displays to retail firms and provides a consulting service on how to mount and use these displays. You represent a large manufacturing company that is considering purchasing Mayberry. You have reviewed Mayberry's most recent
You are a credit analyst for First American Bank, and Badger Business has applied for a loan. The company claims to have more than tripled profits from 2011 to 2012 and believes that it should be given prime credit terms. In addition, you note that Badger has expanded its operations, recently
When MCI Communications Corporation (now part of Verizon Communications) purchased Satellite Business Systems (SBS) from International Business Machines Corporation (IBM), it issued common stock to IBN, valued at $376 million, and signed a note payable for $104 million. MCI received miscellaneous
When Campbell Soup purchased the European culinary business from Unilever, the acquisition was funded with available cash and a short-term notes payable. The $920 million purchased price was allocated: $100 million to fixed assets and inventory; $490 million to identifiable intangible assets (e.g.,
In the late 1990s the Internet explosion sent the share values of well-known Internet companies soaring. Many of these companies took advantage of the high prices by making major share issuances and using the funds as their major source of financing. Lycos collected $111 million from a 1998
The W.T. Grant Company was the nation’s largest retailer until it filed for bankruptcy only one year after it had reported profits of or $20 million for more than ten Consecutive years. Yet cash flow provided by operations started dipping several years earlier and remained negative until the
In “Behind the Wave of Corporation Fraud: A Chari2.e in How Auditors Work” the Wall Street Journal detailed several of the recent accounting scandals and the techniques management used to deceive both the auditors and the investing public. The article focused on audit techniques that
Herbert S. Bailey, Jr., published the following poem in Publishers Weekly (Jan. 13, 1975), which was written in the meter of Edgar Allan Poe’s famous poem, The Raven.Though my bottom line is black, I am flat upon my back.My cash flows out and customers pay slow.The growth of my receivables is
In January 2004, Munich-based automaker BMW switched how it classified certain expenses to match what it anticipates to be the format approved by International Financial Reporting Standards (IFRS). Previously, BMW classified these expense as part of operating profit, and now it has decided to move
The military’s money managers last year made almost $7 trillion in adjustments to their financial ledgers in an attempt to make them add up, the Pentagon’s inspector general said in a report released yesterday. The Pentagon could not show receipts of $2.3 trillion of those changes, and half a
The Wall Street Journal (October 5, 2009) reported that analysts are worried about companies borrowing money to pay dividends and to repurchase outstanding shares of stock. Aircraft parts manufacturer TransDigm Group borrowed $360 million to pay dividends, while Inter Corporation borrowed $1.5
In October 2008 NIKE completed the acquisition of 100% of the common shares of Umbro, a leading United Kingdom-based global soccer brand. The acquisition price was approximately $576 million, and since the acquisition Umbro has operated as a wholly owned NIKE subsidiary. Umbro prepares its
According to The Internal Auditor (April 2000):In the past, credible financial reports could be produced, audited, and published only on a periodic basis, because the information needed to generate such reports was either impossible or too costly to obtain on a real-time basis. However, a growing
The SEC Form 10-L of NIKE is reproduced in Appendix C.REQUIRED:a. In terms of the basic accounting equation, explain how NIKE accounts for prepaid expenses. What is the dollar value of prepaid expenses on the 2009 and 2008 balance sheets?b. In term of the basic accounting equation, explain how NIKE
The following information was taken from the financial statements of Coca-Cola and PepsiCo (dollar amounts in millions). Tax rates for Coca-Cola and Pepsi were 22 percent and 27 percent, respectively. a. Compute return on equity, return on assets, common equity leverage, capital structure
The following sales information concerning Johnson & Johnson's primary business segments appeared in the company's 2008 SEC Form 10-K (dollar in millions). a. Which of the three primary business segments is the largest, and which of the three grew the most from 2006 to 2008?b. What percentage
Excerpts from the 2008 financial report of Cisco Systems, a leading Internet net worker, are provided below (dollars in millions). Review the information, calculate relevant ratios from Figure, and explain why Cisco appears to be a good or poor investment. The tax rate was 20 percent.
Excerpts from the 2008 financial report of Inter, a computer-processor manufacturer, are as follows (dollars in millions). Review this information, calculate relevant ratios from figure, and explain why Intel appears to be a good or poor investment. The tax rate was 31 percent.
The chief executive officer of Ginny's Fashions has included the following financial statements in a loan application submitted to Priority Bank. The company intends to acquire additional equipment and wishes to finance the purchase with a long-term note. Assume that you, a bank loan officer,
The 2011 and 2012 financial statements of Ken's Sportswear follow: a. Compute all relevant ratios for 2012.b. Prepare common-size financial statements.c. Evaluate the company's financial performance andconditions.
Excerpted financial information from the records of The Gap, Inc., a major clothing retailer, follows (dollar in million s)" a. Compute the current ratio for each year.b. Compute the gross margin for each year.c. Compute inventory turnover and inventory days for 2007 and 2008; compute accounts
Beecham Limited began operations in early 2010. summaries of the statements of cash flows for 2012, 2011, and 2010 follow: a. Compute the missing dollar amounts, and briefly comment on the company's cash management policies during the three-year period.b. Does the company appear to have faced any
The following data are from the 2012 financial report of Generic Clothing Company: a. Based upon the above data, compute the following for Generic Clothing Company for both 2011 and 2012:(1) The current ratio(2) The quick ratiob. Assume that net credit sales for the years ended December 31, 2011,
PLP Corporation began operations on January 1, 2009. The initial investment by the owners was $100,000. The following information was extracted from the company's records. a. Compute the return on equity for each year. Has the company been effective at managing the capital provided by the equity
The financial information below was taken from the records of Lotechnic Enterprises. The company pays no dividends. a. Compute the current ratio, the debt/equity ratio, and return on assets for each of the four years. Assume that the year-end balances in 2009 reflect the average balances during
Monsanto Company, a leading global chemical manufacturer, entered into the following transactions during 2009. 1. Purchased inventory on account. 2. Purchased plant machinery by issuing long-term debt. 3. Made a principal payment on long-term debt. 4. Paid wages. 5. Sold inventory on account for 20
At the end of 2011, Montvale Associates borrowed $120,000 from the Baylinder Bank. The debt covenant specified that Montvale’s debt/equity ratio could not exceed 1.5:1 during the period of the loan. A summary of Montvale’s balance sheet after the loan follows.___________
The following information refers to the financial records of McDonald's Corporation over a three-year period (dollar amounts in millions except share price). a. Compute dividends declared as percentage of net income during each of the three years,b. Compute the price-earnings ratio, dividend
Merck, a major pharmaceutical, generated $7,808 million in net income for year ended December 31, 2008.1. The company declared and paid $3,278.5 million in dividends during 2008.2. Merck stock was selling for $57,37 per share on January 1, 2008, and for $30.440 per share on December 31, 2008.3. As
The operating profits from 2006 to 2008 reported by each of Johnson & Johnson's primary business segments are provided below. Sales numbers for each of the segments are provided in BE5-2 of the Brief Exercises section of this chapter (dollar in millions). Required:a. Which of the segments is
The following ratios were computed from the financial statements of INSEAD Incorporated: Use the ROE model to analyze these ratios, and comment on the company's performance from 2010 to 2012 andwhy:
The following ratios were computed from the financial statements of LBS Products: Use the ROE model to analyze these ratios, and comment on the company's performance from 2010 to 2012 and why?
Assume that the following financial ratios are calculated for Royals Corporation in 2012:Asset turnover 0.625Common equity
Selected financial information appearing in the SEC Form 10-K for Johnson & Johnson is reported below (dollars in millions).________________________________2008Sales
Imation, a global technology company, reported the following selected items as part of its 2008 annual report (dollars in millions): REQUIRED:Compute the following ratios:1. Current ratio2. Quick ratio3. Receivable turnover (time and days)4. Interest coverage5. Return on assets6. Inventory
Edgemont Repairs began operations on January 1, 2010. The 2010, 2011, and 2012 financial statements follow: On January 1, 2012, the company expanded operations by taking out a $40,000 long-term loan at a 10 percent annual interest rate. REQUIRED:a. Compute return on equity, return on assets,
You are considering investing in Eli Lilly, a major pharmaceutical company. As part of your investigation of Lilly, you obtained the following balance sheets for the years ended December 31, 2008 and 2007 (dollars in millions): REQUIRED:a. Compute the dollar change in each account from 2007 to
You have just been as a stock analyst for a large stock brokerage company. Your first assignment is to analyze the performance of Gidley Electronics. The company's balance sheet for 2011 and 2012 is presented below and on the next page. The company's income statement and reconciliation of
The following information was obtained from the 2012 financial reports of Hathaway Toy Company and Yakima Manufacturing: Assume that the only change to shareholders' equity during 2012 is due to net income earned in 2012. Required: a. Which company is more effective at managing the capital
Excerpts from the 2008 financial statements for Goodyear are as follows (dollars in millions): REQUIRED:Assume that you have some capital to invest and that you are considering an equity investment in Goodyear. Review the financial statement and comment on Goodyear as an investment. Support your
The following selected financial information was obtained from the 2012 financial reports of Robotranics, Inc. and Technology, Limited: Assume that total assets, total liabilities, and total shareholders?? equity were constant through-out 2012.Required:a. Assume that you are considering purchasing
Tumwater Canyon Campsites began operations on January 1, 2012. The following information is available at year-end. Assume that all sales were on credit.Net income $25,000
Bob Cleary, the controller of Mountain-Pacific Railroad, has prepared the financial statements for 2011 and 2012, shown below and on the next page. The market prices of the company's stock as of January 1, 2011, December 31, 2011, and December 31, 2012, were $50, $45, and $70 per share,
Mountain-Pacific Railroad, whose financial statements are presented in P5-9, is interested in comparing itself to the reset of the industry. Bob Cleary, the controller, has obtained the following industry averages from a trade journal. (The industry average were the same for 2011 and 2012).Return
You have just hired as a loan officer for Washington Mutual Savings. Selig Equipment and Mountain Bike, Inc. have both applied for $125,000 nine-month loans to acquire additional plant equipment. Neither company offered any security for the loans. It is the strict policy of the bank to have only
Watson Metal Products is planning to expand its operations to France in response to increased demand from the French for quality metal products to use in production processes. Ben Watson, president of Watson Metal Products, and his consultants have estimated that the expansion will require an
The following relationships were obtained for Boulder Mineral Company for 2012:Current ratio
Information about PepsiCo's five primary segments is provided below (dollars in millions). The information was taken from the company's 2008 SEC Form 10-K. REQUIRED:a. Compute the percent each segment contributes to the total revenues reported for 2008.b. Rank the segments in terms of profit
Review the 2008 consolidated income statement and balance sheet published by Unilever, which is located at the end of Chapter 2 in this text.REQUIRED: a. Compute the profitability, solvency, leverage, and turnover ratios listed in figure. Comment on Uniliver’s earnings power and solvency. b.
Financial profiles, expressing the dollar value of financial statement accounts as a percentage of total assets (for balance sheet accounts) and sales (for income statement accounts), are listed for four well-known companies. 1. Bed Bath & Beyond-housewares retailer 2. Kelly Services-provided
Financial profiles, expressing the dollar value of financial statement accounts as a percentage of total assets (for balance sheet accounts) and sales (for income statement accounts), are listed for four well-known companies. 1. Walgreen's-retailer of pharmacy and consumer goods 2. EchoStar
Morningstar, a firm that evaluates and rates mutual fund performance, published an article on its Web site discussing a company's book value per share (shareholder's equity/number of shares outstanding) versus its market price per share. Morningstar claims that the price-to-book ratio (market price
Movie rental company Netflix announced first quarter 2009 earnings of $32 million, on revenue growth of 21 percent. Earnings per share ($0.54) beat the consensus analyst forecast of $0.50. In reaction to the news, Netflix’s stock price rose nearly 5 percent to $47.70 per share.REQUIRED:a. What is
Eastman Kodak Company announced plans to cut its workforce by 21 percent over a three-year period and booked an expense of approximately $1.5 billion, citing its planned transition from its traditional film business to new digital imaging technology. The expense, referred to us a “restructuring
A retailer is posting strong earnings growth in its bricks-and-mortar business, but its fledgling Internet operation is posting losses. In making their earnings estimates, should Wall Street analysts ignore those losses and focus only on the profitable business, or should they took at the
Fortune ran an article on Bob Olstein, an investment analyst who was particularly bullish at the time on several well-known stocks. He said the following indicators were the keys to his success: (1) a recent dramatic drop in the stock price, (2) company reports of positive free cash flow (net
In an article published in the Journal of Accountancy, James Deitrick and Walter Harrison noted that the major markets fro common stocks (e.g., the New York Stock Exchange, the American Stock Exchange) have been found to be efficient. That is, “common stock prices behave as if they fully
Baruch Lev, a well-respected accounting professor at New York University’s Stern School of Business, has commented about the lack of relevance in today’s financial statement. He notes that the 500 largest companies in the United States have market-to-book ratios (the ratio between the market
Billionaire investor Warren Buffet was once quoted in the financial post saying, the reaction of weak management to weak operations is often weak accounting.REQUIRED:What does he mean? Provide some examples. What are the implications for financial statement users?
An accounting professor at the University of California at inventory, accounts receivable, and order backlogs. These are the strongest indicators and are more closely related to stock returns than reported earnings. In particular, investors should look at how companies’ inventories of finished
The business press follows the movement of stock prices very closely, especially when companies post their earnings announcements. Interestingly, there is no set pattern for how stock prices react to earnings announcements. Sometimes companies report earnings increases and stock prices decrease,
The June 4, 2007, edition of the Wall Street Journal reported that in 2007 many companies selling stock to the public for the first time-initial public offerings (IPOs)-are not yet profitable. According to a report issued by the research firm Sageworks, 46 percent of the companies that listed IPOs
Review the Eli Lilly financial statements contained in ID5-14 and, based on the following assumptions, prepare a simplified 2009 income statement and balance sheet.Sales growth in 2009 is at the same rate as in 2008.Expense to sales ratio is 85 percent.Total assets to sales ratio remains at the
Cash flow profiles over a three-year period are provided here for three well-known companies: Echo star Communications, Wal-Mart, and US Airways. Link each profile to one of the firms, explain what it means in terms of the company's cash management strategy, and describe how this analysis might

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