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Financial Accounting in an Economic Context 8th Edition Jamie Pratt - Solutions
Preferred stock is often seen as a hybrid security as it has characteristics of both debt and equity. The Wall Street Journal once reported two new securities used by companies going public: income deposited securities and enhances income securities, both of which carry characteristics of both debt
For twenty years, Westinghouse Electric Corp. used PCBs in the manufacture of electrical capacitors at its plain in Bloomington, Indiana. A federal consent decree has ordered the company to be prepared to build an incinerator in the future to destroy the PCB-contaminated materials. The decree, with
The Wall street journal reported (April 13, 2007) that shareholders of Kraft Foods “can afford to give management more time to improve its brands, sales margins, and earnings” because of the dividends paid by the company and the share buy-back program. Kraft foods has been losing market share
The stock in Dow Jones & Co., Inc. (the publisher of the Wall Street Journal) has a book value (shareholders’ equity per share) of approximately $6. Prior to a buyout offer, the stock had been trading (market value for $36 per share. Rupert Murdoch and his News Corporation made an unsolicited
The following information was taken from Google, Inc.'s statement of cash flow in the company's 2006 annual report (amount in millions):The following information was taken from Google's statement of shareholders' equity (amount in millions):Required(a) What is meant by "net proceeds" on the
Bloomberg News Service reported that Rhodia, SA, France’s largest specialty chemicals company, announced plans to sell 450 million Euros in shares, in addition to a 600 million euro bond issue, to raise cash to prevent a liquidity crisis. Rhodia had posted losses for the three previous years and
When Walt Disney Co. declared a 4:1 split of its common stock, the announcement boosted the entertainment company’s share up by $3.50 per share.Required (a) What is 4:1 stock split, and how did it affect the financial statements of Walt Disney Co.?(b) Why should the market value of Disney’s
During the 2008-2009 financial crisis, stock prices fluctuated wildly. The S&P 500 Index was 1,549.38 in October 2007, then dropped all the way to 735.09 in February 2009, and then rebounded to 1,104.49 by February 2012. Companies that actively repurchased their own stock shares were buyers in this
In July 2005 Microsoft adopted SFAS 123 (R), Share-based Payment, which required companies to recognize expenses related to stock option. In the company’s 2009 annul report, Microsoft reported net income of $14.6 billion, 17.7 billion, and $14.1 billion in 2009, 2008, and 2007,
Refer to the statement of shareholder’s equity reported by Emerson Electronics located at the end of the chapter.Required Describe Emerson’s dividend and treasury stock transaction and policies over the three-year period 2009-2009.
Hewlett-Packard and Apple, Inc., two very successful technology firms, show no investment in their own shares (treasury stock) on their 2008 balance sheets. Bear Stearns, on the other hand, was reported in a 2004 edition of the Wall street journal to have launched a $1 billion stock repurchase
Unilever Group, a Dutch-based consumer-goods company that publishes IFRS-based financial statement, reported a net profit on its 2008 income statement of 5.3 billion euros. That same year the company reported “total recognized income and expense” of only 1.1 billion euros, and on its 2008
The SEC form 10 k of NIKE is reproduced in Appendix C.RequiredReview the NIKE 10k, and answer the following questions.(a) What percentage if NIKE’s total assets were provided by liabilities, contributed capital, and retained earnings?(b) How many shares of common stock had been authorized,
(1.) Issued 300 shares of $90 par value preferred stock in exchange for land that had an appraised value of $32,000.(2.) Issued 17,500 shares of $20 par value common stock for $24 per share.(3.) Purchased 3,800 shares of common stock for the treasury at $20 per share.(4.) Sold 2,500 shares of
Below is the detailed liabilities section of Bruns Company, along with a summary of stockholders' equity and current assets. Please answer the following questions.Accounts payable $1,200,000Unearned revenue 800,000Taxes payable 600,000Current portion of long-term debt 500,000*8% Bonds payable,
A shareholder purchases 30 percent of the stock of an S corporation two-thirds of the way through the year for $20,000. The S corporation incurs an operating loss of $300,000 for the year. What is the amount that the shareholder may deduct on his personal income tax return, assuming the at-risk and
The following event took place for Gantt Manufacturing Company during March, the first month of its operations as a producer of digital clocks:1.Purchased $65,000 of material2.Used $50,000 of direct materials in production3.Incurred $75,000 of direct labor wages4.Incurred $105,000 of factory
You are considering preferred stock that pays a quarterly dividend of $1.50. If your desired return is 3% per quarter, how much would you be willing to pay?
Stock Values: White Wedding Corporation will pay a $3.05 per share dividend next year. The company pledges to increase its dividends by 5.25 percent per year, indefinitely. If you require an 11 percent return on your investment, how much will you pay for the company's stock today?
1. You want to have $1 million to use for retirement in 35 years. If you can earn 1% per month, how much do you need to deposit on a monthly basis if the first payment is made in one month?2. What if the first payment is made today?
If $150 were invested today, how large a sum could be withdrawn at the end of the following time periods at the following compound interest rates? Complete the following table.
Compute the present value of $10,000 received at the end of the following time periods at the following discount rates. Compute the followingtable.
If $ 150 were invested at the end of each year over the following time periods at the following interest rates, how large a sum could be withdrawn at the end of the final time period? Complete the followingtable.
If $ 150 were invested at the beginning of each year over the following time periods at the following interest rates, how large a sum could be withdrawn at the end of the final time period? Complete the followingtable.
Compute the present value of $10,000 received at the end of each year over the following time periods at the following discount rates. Complete the followingtable.
Compute the present value of $10,000 received at the beginning of each year over the following time period at the following discount rates. Complete the followingtable.
Compute the present value of the payment patterns provided below, given an 8 percent discount rate.a. $50 at the end of Year 2; $100 at the end of Year 5; $80 at the end of Year 8.b. $100 at the end of Years 1, 2, 3, 4; $100 at the end of Year 8.c. $60 at the end of Years 5, 6, 7, 8; $100 at the
Compute the present value of the payment patterns provided below, given an 8 percent discount rate.a. $50 at the end of Year 2; $100 at the end of Year 5; $80 at the beginning end of Year 8.b. $100 at the end of Years 1, 2, 3, 4; $100 at the beginning of Year 8.c. $60 at the end of Years 5, 6, 7,
Ben Watson found $25,000 lying on the sidewalk and decided to invest the money. He believes that he can earn a 10 percent rate (compounded annually) on his investment for the first four years, 12 percent for the following three years, and 15 percent for the following five years.a. How much money
Rudnicki Corporation raises money by issuing bonds. The bond agreement states that Rudnicki must make interest payments in the amount of $40,000 at the end of each year for ten years and make a $500,000 payment at the end of the tenth year. Assume that the discount rate is 10 percent.a. What
Congratulations! You have just won the lottery. The lottery board offers you three different options for collecting your winnings:1. You will receive payments of $500,000 at the end of each year for twenty years.2. You will receive a lump-sum payment of $4,500,000 today.3. You will receive a
Consider a three-year, $700 ordinary annuity (the first payment is due one year from now) and a three-year, $700 annuity due (the first payment is due now). Assume a discount rate of 10 percent. For each of the two annuities, compute the equivalent value of the following points in time.NowThe end
Dunn Drafting Company is considering expanding its business by purchasing new equipment. Because of constraints on how much the company can spend for new equipment, the president wants to make sure that the company enters into the best possible deal. Dunn Drafting has four options for paying for
The Croziers have a three-year-old son named Ryan, and they want to provide for Ryan’s college education. The estimate that it will cost $40,000 per year for four years when Ryan enters college fifteen years from now. Assume that all investments can earn a 10 percent annual interest rate and that
The Taylors have a nine-year-old daughter name Emily, and they wish to provide for her college education. The estimate that it will cost $30,000 per year for four years when Emily enters college ten years from now. Assume that all investments can earn a 8 percent annual interest rate and that the
Christie Bauer is contemplating investing in South Bend Ironworks. She estimate that the company will pay the following dividends per share at the end of the next four years and that the current price of the company’s common stock ($100) will remain unchanged.Year1
Wharton Company is planning to make the following investments.1. $1,000 at the end of each year for five years at a 10 percent annual rate. Wharton Company will leave the accumulated principal and earnings in the bank for another five years at a 12 percent annual rate.2. $3,000 at the end of each
The terms of three different contracts follow.1. $8,000 received at the beginning of each year for ten years, compounded at a 6 percent annual rate.2. $8,000 received today and $20,000 rece3ived ten years from today. The relevant interest rate is 12 percent.3. $8,000 received at the end of Years 4,
J. Hartney, president of Doyle Industries, has a choice of three bonus contract. The fist option is to receive an immediate cash payment of $25,000. The second option is a deferred payment of $60,000, to be received in eight years. The final option is to received an immediate cash payment of
Boulder Wilderness Adventures purchased rafting and kayaking equipment by issuing a note to Recreational Co-op, the seller of the equipment. The note required a down payment of $5,000, annual payments of $10,000 at the end of each year for five years (the first payment to be one year from now), and
Assume an annual interest rate of 8 percent for each of the following independent cases. Compute the value at time 0 and the value at the end of the investment period for all the cash flows described.a. $10,000 is invested and held for four years.b. $2,000 is invested at the end of each year for
Joy Don Corp. sells a building to Trifle and Life in exchange for a note. The note specifies a lump sum payment of $300,000 ten years in the future and annual payments (beginning today) of $2,000 at the beginning of each year for ten years. Assume an annual interest rate of 10 percent.REQUIRED:a.
The following information was taken from the 2009 annual report of Emerson Electric Co., a leader in the network power sector (dollars in millions): (a) Compute total accounts receivable as of the end of 2009 and 2008, and compute the bed debt allowance as a percentage of total accounts
The following information was taken from the publicly available records of General Electric concerning the allowance for uncollectible account for its financing subsidiary, GE Capital Services (dollars in millions): (a) What dollar amounts of bad debt expense were recognized on the 2008 and 2007
General Electric’s financing subsidiary (GE Capital Services–GECS) provides financing services for GE’s customers. If you purchase a GE appliance, for example, you could finance it through GECS. In 2008, GECS generated over $71 billion in revenue and reported profits of over $7 billion. These
Boyer international is currently preparing its financial statements for 2011. The company has several different sources of cash and is trying to decide how to classify them. The sources of cash follow: (a) $30,000 in a checking account with The First National Bank. (b) $3,000 in checks dated
The following items were taken from the financial records of Melvin Construction Company.(a) $2,000 in a checking account. (b) $8,000 invested in a treasury note due to mature in 90 days. (c) $3,000 in a savings account that cannot be withdrawn until a $10, 000 outstanding debt is paid off.(d)
On December 12, Woodington sold goods on account for a gross price of $40,000. The terms of the sale were 2/10, n/30. As of December 31, when financial statements were prepared, no payment had been received by Woodington. Full payment was received on January 5 of the following year.(a) Prepare
On May 1, 2012, Crab Cove Fishing Company sold Maine lobster on account for a gross price of $30,000. On May 5, the company also sold cod on account for a gross price of $20,000. The terms of both sales were 3/10, n/30. Crab Cove received payment for the first sale on May 6, 2012, and payment for
Arlington Cycle Company began operations on January 1, 2011. The company reported the following selected items in its 2012 financial report: Arlington estimated bad debts at 2 percent of gross sales.Analyze the activity in the allowance for doubtful accounts T-account, and comment on whether the
In its 2011 financial report, Sound Unlimited reported the following items:1. A credit balance of $200,000 in allowance for doubtful accounts.2. A debit balance of $7,500,000 in accounts receivable.3. Sales of $3,250,000.During 2011, the company was involved in the following transactions that
The following items were extracted from the 2008 financial records of Cummins, Inc. (dollars in millions):Allowance for doubtful accountsDuring the following year, the company wrote off $11 of accounts receivable as uncollectible and then estimated $9 of the year’s receivables to be
The 2012 annual report of Johnson Services reveals the following information. The dollar amounts are end-of-year balances. Johnson estimates bad debts each year at 2 percent of credit sales.a. Compute the actual amount of write-offs during 2012.b. Infer the journal entries that explain the
Kyocera is a Japanese telecommunications company that publishes IFRS-based financial statements. On its March 31, 2009, statement of cash flows in the operating section it reported a “provisions for doubtful accounts” of 671 million yen, and a “decrease in receivables” of 75,866 million
Potter Stables uses the aging method to estimate its bad debts. Sherman Potter, the company president, has given you the following aging of accounts receivable as of December 31, 2009, along with the historical probabilities that the account balances will not be collected. Compute total
On January 1, 2012, Outreach Incorporated sold services to a Canadian supply company and accepted a three-year note in the amount of 11,000 Canadian Dollars. Assume that exchange rates between the U.S. dollar and the Canadian dollar are as follows: Provide the journal entries (in U.S. dollars)
Assume that Outreach (in E6-10) hedged the 11,000 (Canadian dollar) receivable by borrowing 11,000 Canadian dollars from a Canadian bank on January 1, 2012. Use journal entries to demonstrate how this transaction removes Outreach’s exposure to the risk of fluctuating exchange rate. Explain.
On September 30, 2011, Print-O-Matic Inc. entered into an arrangement with its bank to borrow $250,000. The principal is due on October 1, 2016, and the note has a stated annual interest rate of 10 percent. Under the borrowing agreement, Print-O-Matic agreed to maintain a compensating balance of
During the month of March, QNI Corporation made the following credit sales and had the Following related collections. QNI prepares financial statements for the first quarter of operations at the end of March.March.March 3 Sold goods to AAA company for a
Financial information for CNG Inc. follows: The company estimate bad debts for financial reporting purposes at 3 percent of credit sales. The balance in allowance for doubtful accounts as of January 1, 2012, was $10,000.REQUIRED:a. Provide the journal entries related to allowance for doubtful
Glacier Ice company uses a percentage-of-net-sales method to account for estimated bad debts. Historically, 3 percent of net sales have proven to be uncollectible. During 2011 and 2012, the company reported the following: REQUIRED:a. Prepare the necessary adjusting entry on December 31, 2011, to
Albertson's Locksmith Corporation started operations on January 1, 2010. Albertson's estimates uncollectibles using the percentage-of-credit-sales method. The following information pertains to the company's sales, receivables, and collections for the first three years of operation: Albertson's
The information below was taken from the footnotes of JPMorgan Chase's 2008 annual report. The December 31,2008, balance in the allowance account was $23, 164 (dollars in millions). REQUIRED:Compute the actual write-offs recognized by JPMorgan Chase in 2006, 2007, and 2008. Comment on JPMorgan
The following financial information represents Hadley Company's first year of operations, 2011: After reading Hadley's financial statements, you conclude that the company had a very successful first year of operations. However, after further examination, you note that the sales figure on the
Excerpts from the 2011 financial statements of Finely, Lts, a service company, follow:Fees earned...............$240,000Accounts receivable..............68,000Allowance for doubtful accounts........3,400Total current assets.............105,000Total current liabilities............65,000Net
Fine Line Service began operations on January 28, 2008. The company does not establish an allowance for doubtful accounts. It simply recognizes a bad debt expense when an account is deemed uncollectible. The company has written off the following items over the past five years: July 6, 2008Wrote off
In an attempt to include all relevant information for decision-making purposes, Merimore Company estimated bad debts using the aging method. However, for external reporting purposes, the company estimates bad debts as a percentage of credit sales. Merimore prepares monthly adjusting journal
Excerpts from the financial statements of Ticheley Enterprises are as Follows. On December 27, 2011, Ticheley sent merchandise with a sales price of $8,500 to major customer. The merchandise was in transit as of December 31. The cost of the inventory shipped was $2,900, and the company chose to
Hughes International is a U.S. company that conducts business throughout the world. Listed below are selected transactions entered into by the company during 2011. 1. Sold merchandise to Royal Equipment Company (a United Kingdom company) in exchange for an account receivable in the amount of
International Services entered into a debt covenant requiring it to maintain a current ratio of at least 1.5:1. The company's condensed balance sheet as of December 31 follows: International's primary customer is Buckingham, Ltd., a company located in Britain. As of December 31, Buckingham owed
Safeguard Scientifics, Inc. reported the following in its 2008 financial statements. The credit facility required the company to maintain cash collateral equal to the company’s borrowings (amounts in thousands). Cash held in escrow-current......$ 6,433Cash held in escrow-long-term.......
The Wall Street Journal reported, “For more than ten year, IBM has quietly turned to Merrill Lynch & Co. and others to execute a rate financial maneuver that propped up the results of IBM’s big leasing business. The maneuver allowed IBM to book immediately all the revenue from a long-term
Excerpts from the June 31, 1994, balance sheet of The Quaker Oats Company (now part of PepsiCo, Inc.) are provided below (dollars in millions). REQUITED:a. The notes to the company's 1992 financial statements state that "under the most restrictive terms of the various loan agreements.minimum
The footnotes to the 2008 financial statements of Citigroup, the holding company for Citibank, contained the following information (dollars in millions): REQUIRED:a. Fill in the missing values and comment on any trends across the three-year period.b. As of the end of 2008, the company had
The Wall street Journal (March 12,2007) reported that an analyst with the Center for Financial Research and Analysis found an interesting item in an earnings report from New Century financial Corporation, a mortgage lending company specializing in “subprime” loans to borrowers with checkered
Publicly traded companies release financial statements (unaudited) on a quarterly basis. For the quarter ended December 31, 2009, Market Watch reported that Bank of America (B of A) and Wells Fargo had improved their results over the same period in 2008 but that “lingering signs of credit
Excerpts from the operating sections of the 2008 statement of cash flows for Target and Toyota are provided below. Target publishes U.S. GAAP-based financial statements and Toyota publishes IFRS-based financial statements (dollars in millions). REQUIRED:a. What is the bad debt provision, and
In July 2006, Par Pharmaceuticals announced that it would restate financial results for fiscal year 2004 and 2005 and for the first quarter of fiscal 2006 due to an understatement of the allowance for uncollectibles for accounts receivable. The understatement resulted from delays in recognizing
The following quote was taken from the 2009 annual report of Hewlett-Packard.HP sells a significant portion of its products through third-party distributors and resellers and, as a result, maintains individually significant receivable balances with these parties.If the financial condition or
Forbes noted that “Fairfield Company does set aside a reserve for bad debts, but last year it began tinkering with its provision for loan losses, reducing it from $6.5 million in one year to $5.39 million the next. It may nor sound like much, but the reserve now covers only 4% of the company’s
In its November, 2009, press release discussing third quarter financial results, the construction management and consulting firm Hill International specifically cited an increase in bad debt expense as a drag on otherwise improved operating profits. Hill provides its globally to companies involved
An article in Forbes noted that “accounting rules.can often change the way companies do business.” Under the accounting rule covering receivables and payables denominated in foreign currencies, for example, “it is very important for companies to monitor their currency dealings.” A case in
The SEC Form 10-K of NIKE is reproduced in Appendix C.REQUIRED:Review the SEC 10-K Form for NIKE, and answer the following questions. a. Compute the change in NIKE’s current ratio and working capital from 2008 to 2009.Which accounts are the most important in explaining that change? b. What is
In its 2008 annual report, Hewltt-Packard reported beginning inventory of $8.0 billion, ending inventory of $7.9 billion on the balance sheet, and cost of goods sold of $69.3 billion on the income statement. Compute the inventory purchases made by Hewlett-Packard during 2008.
The following information was taken from the footnotes in the 2008 annual report of Johnson & Johnson. a. From information in the footnote alone, indicate whether Johnson & Johnson is a retailer, manufacturer, or service firm. Explain.b. From information in the footnote alone, indicate
General Electric uses the LIFO inventory cost flow assumption, reporting inventories on its 2008 balance sheet of $13.7 billion and a LIFO reserve of approximately $706 million. What would be GE’s 2008 inventory balance if it used the FIFO assumption instead? Why is the disclosure of the LIFO
Dallas Manufacturing Engaged in five transactions involving inventory at the end of 2011: 1. Ordered $50,000 of inventory on December 29, 2011. The goods were shipped on December 30, 2011, with the terms FOB shipping point. Dallas received the inventory on January 4, 2012.2. Received an order to
Nick’s Fish Market purchased Maine lobster on account on October 10, 2011, for a gross price of $76,000. Nick also purchased Alaskan king crab on account on October 11, 2011, for a gross price of $36,000. The terms of both sales were 2/15, n/30. Nick paid for the first purchase on October 20,
Baymont Corporation purchased inventory on account on March 3, 2011, for a gross price of $50,000. The company purchase additional inventory on account on March 10, 2011, for a gross price of S140,000. The terms of both sales were 3/12, n/30. Baymont Corporation paid for the first purchase on April
The following information was extracted from annual reports of 3M (dollars in millions). Compute the missing information.
The following information comes from the records of Telly’s Supply:Beginning inventory.......$32,000Inventory purchases.......85,000Transportation-in..........4,300An inventory count taken at year-end indicates that inventory with a cost of $50,000 is on hand as of December 31, 2011.Assume that
The Finish Line, Inc. reported the following items in its fiscal 2008 financial report (dollars in millions). Assume that counting errors caused the ending inventory in 2007 to be understated by $50 and the ending inventory in 2008 to be overstated by $50.a. Compute the impact of these errors
The Japanese firm Sony prepares its financial statements using U.S. GAAP. Two items related to its inventory appeared in the operating section of the 2009 statement of cash flow, both in millions of yen: loss on impairment of assets (38,308) and change in inventories (160,432). On the statement of
Marian’s Firs specializes in full-length mink coats. As of January 1, Marian had four top-of-the-line coats. Although the four coats are equivalent, they were purchased the previous year at different costs:CostCoat 1....$8,400Coat 2......7,100Coat 3......7,600Coat 4.....6,800During January a
Vinnie’s House of Televisions has 75 identical 27-inch color monitors in stock on January 1, 2012. Vinnie maintains records of the serial number of each monitor to track its costs. Vinnie purchased the 75 monitors on December 5, 2011, for $450 each. He also purchased 50 on January 2, 2012, for
Watkins Corporation began operations on January 1, 2010. The 2010 and 2011 schedules of inventory purchases and sales are as follows: Complete the following schedule, and briefly discuss the trade-offs associated with choosing an inventory cost flow assumption.
Heller Bottling Company began business in 2008. Inventory units purchased and sold for the first year of operations and each of the following four years follow: Inadequate cash flows forced Heller Bottling Company to cease operations at the end of 2012.a. Compute cost of goods sold for each of
The following disclosure was included in the footnotes of Caterpillar's 2008 annual report. The company uses the LIFO cost flow assumption and reported net income of $3,557 for 2008. The company's effective tax rate is 21 percent (dollars in million). a. Compute 2008 ending inventory for
Central Incorporated has two items in inventory as of December 31, 2011. Each item was purchased for $40. Company management chose to write down Item # 1 $28, which at year end was assessed to be its market value. Management did not write down Item #2 because its market value was estimated to be
In its 2008 annual report the Unilever Group, which published IFRS-based financial statements, reported the following in the inventory footnote (in million euros). "During 2008, 246 million euros (2007: 177 million euros) was charged to the income statement for damaged, obsolete, and lost
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