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Financial Accounting an introduction to concepts, methods and uses 13th Edition Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis - Solutions
Heckle Group began operations as an engineering consulting firm, on June 1. 2008. On that date it issued 100,000 shares of common stock for €920,000. During June, Heckle used €600,000 of the proceeds to purchase office space and office equipment. It acquired a patent for €120,000, agreeing to
The following information is based on the financial statements of Boeing Company for the year ended December 31, 2007. During 2007 Boeing reported revenues of $66,387 million and net expenses including income taxes) of $62,313 million. Assume that during 2007, Boeing collected $65,995 in cash from
Consider the following information reported by Fonterra Cooperative Group Limited for the year ended May 31, 2007; all figures are in millions of New Zealand dollars ($). Fonterra is the largest dairy cooperative in New Zealand. Fonterra reported revenues of $13,882, cost of goods sold of $11,671,
Selected balance sheet amounts for Dragon Group International Limited, a diversified electronics firm in Singapore, appears next, as of December 31, 2007, and December 31, 2006. Dragon Group International reports all amounts in millions of Singapore dollars ($). Compute the missing amounts for the
Selected balance sheet amounts for Lenovo Group Inc., a Chinese computer manufacturer, appear next, for the years March 31, 2008, and March 31, 2007. Lenovo reports all amounts in thousands of U.S. dollars ($). Compute the missing amounts for the twoyears.
Selected income statement information for Colgate Palmolive Company, a U.S, consumer products manufacturer, appears below for the years ended December 31, 2007, 2006, and 2005. Colgate reports all amounts in millions of U.S. dollars ($). Compute the missing amounts for the threeyears.
Selected income statement information for Polo Ralph Lauren, a U.S. clothing manufacturer and distributor, appears next for the years ended March 31, 2007; April 1, 2006; and April 2, 2005. Polo Ralph Lauren reports all amounts in millions of U.S dollars ($). Compute the missing amounts for the
The following information is based on data reported in the statement of cash flows for Ericsson, a Swedish telecommunications firm, for the years ended December 31, 2007, 2006, and 2005. Ericsson reports all amounts in millions of Swedish kronor (SEK).Prepare a statement of cash flows for Ericsson
Selected data from the statement of cash flows for Jackson Corporation for the years ended October 31, 2008, 2007, and 2006 appear as follows (amounts millions)Prepare a statement of cash flows for Jackson Corporation for each of the three years 2008.2007, and 2006 using the format in Exhibit 1.3.
The accounting records of JetAway Airlines reveal the following for the year ended September 30, 2008 (amounts in thousands:a. Prepare a comparative balance sheet for JetAway Airlines as of September 30, 2008, and September 30, 2007 in the format used in Exhibit 1.1. Classify each balance sheet
Jack Block opens a tax and bookkeeping services business. Block’s Tax and Bookkeeping Services, on July 1, 2008. He invests $40,000 for all the common stock of the business and the firm borrows $20,000 from the local bank, promising to repay the loan on December 31, 2008, along with interest at
Dina Richards opens a high-end stationery store, Stationery Plus, on November 1, 2008. She finances the store by investing $80,000 in cash in exchange for all the common stock of the firm. She also obtains a bank loan for $100,000, which she promises to repay in four equal installments of $25,000
The ABC Company starts the year in fine shape. The firm makes widgets—just what the customer wants. It makes them for $0.75 each and sells them for $1.00. The ABC Company keeps an inventory equal to shipments of the pat 30 days, pays its bilk promptly, and collects cash from customers within 30
Prepared by Professor ‘sky T. Andrews Jr. and reproduced, with adaptation, by permission. Once upon a time many, many years ago, a feudal landlord lived in a small province of central Europe. The Landlord, called the Red-Bearded Baron, lived in a castle high on a hill. This benevolent fellow took
Why does every accounting transaction have to effects?
What is the relation between a T-account and a journal entry?
What is the purpose of temporary accounts?
What does “articulation of the balance sheet with the income statement” refer to?
What is the purpose of the income statement?
What is the key difference between an adjusting entry and a correcting entry?
What is the purpose of using contra accounts? What is the alternative to using them?
What is the key difference between the direct method and the indirect method for presenting a statement of cash flows?
Dual effects on balance shed equation. Fresh Foods Group, a European food retailer that operates supermarkets in sewn countries, engaged in the following three transactions during 2008: (1) Purchased and received inventory costing €678 million on account from various suppliers: (2) Returned
Dual effects on balance sheet equation, Cement Plus, a firm specializing in building materials, engaged in the following four transactions during 2008: (1) Purchased and received inventory costing $14,300 million, of which $12,000 million was on account with the rest paid in cash: (2) Purchased a
Analyzing changes in accounts receivable, Braskem S.A., a large Brazilian petrochemical company, reported a balance of R$1,594.9 million in Accounts Receivable at the beginning of 2007 and R$1,497.0 million at the end of 2007. Its income statement reported total Sales Revenue of R$12,134.5
Analyzing changes in inventory, Boeing Company, a U.S. airplane manufacturer, reported a balance of $8,105 million in Inventory at the beginning of 2007 and $9,563 million at the end of 2007. Its income statement reported Cost of Products Sold of $45,375 million for 2007. Compute the cost of
Analyzing changes in inventory and accounts payable. Ericsson, a Swedish firm specializing in communication networks, reported a balance in Inventories of SEK21,470 million at the beginning of 2007 and SEK22,475 million at the end of 2007. It also reported a balance in Trade (Accounts) Payable of
Analyzing changes in income taxes payable Kajima Corporation, a Japanese construction firm, reported a balance in Income Taxes Payable of ¥3,736 million at the beginning of 2007 and ¥4,310 million at the end of 2007. Net income before income taxes for 2007 totaled ¥73,05l million. Assume that
Analyzing changes in retained earnings. Eaton Corporation, a U.S. diversified power management company, reported a balance in Retained Earnings of $2,796 million at the beginning of 2007 and $3,257 million at the end of 2007. Based on Eaton Corporation’s financial reports for fiscal 2007, it
On in Relations between financial statements The following selected information is based on the 2007 financial statements of the German healthcare firm, Bayer Group. Bayer Group applies IFRS, and reports its results in millions of euros. Compute the missing information in each of the following
Relations between financial statements The following selected information is based on the 2007 financial statements of Beyond Petroleum (BP). BP applies IFRS, and reports its results in millions of U.S dollars. Compute the missing information in each of the following four independent cases. The
Journal entries for inventories and accounts payable On December 31, 2006, the Merchandise Inventories account of the Japanese electronics firm Fujitsu Limited (Fujitsu) had a balance of ¥408,710 million, based on Fujitsu’s financial reports for fiscal 2007. Assume that during 2007, Fujitsu
Journal entries for insurance Momma Company, a U.S. clothing designer, manufacturer, and retailer, reported a balance in prepaid insurance of $90.7 million, based on its financial reports dated March 31, 2008, the end of its fiscal year. Assume that of this balance. $24 million relates to an
Journal entries for prepaid rent ABB Group (ABB), headquartered in Switzerland, is one of the world’s largest engineering companies. ABB applies U.S. GAAP, and reports its results in millions of U.S, dollars. Based on ABB’s financial reports for fiscal 2007, at January 1, 2007, ABA reported a
Journal entries for borrowing Sappi Limited, a South African paper company, reports non-current Interest-Bearing Borrowings of $1,634 million at September 30, 2006. Sappi Limited applies IFRS, and reports its results in millions of U.S. dollars. At September 30, 2007, this balance had increased to
Journal entries related to the income statement. Toyota Motor Company (Toyota), the Japanese car manufacturer, reported Sales of Products of ¥22,670 billion for the year ended March 31, 2007. The Cost of Products Sold was ¥18,356 billion. Assume that Toyota made all sales on credit. By March 31,
Journal entries ri1atcd to the income statement Teva Pharmaceutical, an Israeli drug company, reported Net Sales of $9,408 million for the year ended December 31, 2007. Based on Teva Pharmaceutical’s financial reports for fiscal 2007, the cost of these sales was $6,531 million. Assume that Teva
Journal entry to correct recording error In the fiscal year ended December 31, 2008, Bostick Enterprises paid $120,000 for equipment, which it had purchased on January 1, 2008 The equipment has an expected useful life of 10 years and zero salvage value. The firm recorded the acquisition by debiting
Dual effects of transactions on balance sheet equation and journal entries Assume that during 2008, Bullseye Corporation, a U.S. retailer, engages in the following six transactions. Bullseye Corporation applies U.S. GAAP, and reports its results in millions of U.S. dollars.(1) The firm issues 20
Dual effects of transactions on balance sheet equation and journal entries Assume that during 2008, Inheritance Brands, a U.S. manufacturer and distributor, engaged in the following fie transactions. Inheritance Brands applies U.S. GAAP, and reports its results in millions of U.S. dollars.(1) The
Preparing a balance sheet and an income statement The accounting records of Callen Incorporated reveal the following for 2007 and 2008. Callen applies U.S. GAAP, and reports its results in thousands of euros.a. Prepare a Comparative balance sheet for Callen Incorporated as of December 31, 2007, and
Preparing a balance sheet and an income statement The following information is based on accounting data for 2007 and 2008 for ChemAsia Limited (ChemAsia), a large petrochemicals company in China. ChemAsia applies IFRS, arid reports its results in millions of U.S. dollars.a. Prepare an income
Miscellaneous transactions and adjusting entries Assume that LJB Group (LJB). a Swiss engineering firm, engaged in the following six transactions during the year ended December 31, 2008. LJB applies U.S. GAAP, and reports its results in millions of U.S. dollars. Give the journal entries to recor1
Miscellaneous transactions and adjusting entries Platinum Fields Limited (Platinum Fields) is a South African platinum producer. Platinum Fields applies IFRS, and reports its results in millions of South African rand (R). For the year ended June 30. 2008. Platinum Fields engaged in the following
Preparing the income statement and balance sheet using the accrual basis Bob Hansen opens a retail store on January 1, 2008. Hansen invests $50,000 for all of the common stock of the firm. The store borrows $40,000 from a local bank. The store must repay the loan with interest for both 2008 and
Recording transactions in T-accounts and preparing a balance sheet Veronica Regaldo creates a new business in Mexico on January 1, 2008, to operate a retail store. Transactions of Regaldo Department Stores during January 2008 in preparation for opening its first retail store in February 2008
Analysis of transactions and preparation of the income statement and balance sheet Refer to the information for Regaldo Department Stores as of January 31. 2008, in Problem 34 Regaldo Department Stores opened for business on February I. 2008 Transactions and events during February 2008 were as
Analysis of transactions and preparation of the income statement and balance sheet Zealock Bookstore opened a bookstore near a college campus on July 1, 2008. Transactions and events of Zealock Bookstore during 2008 follow. The firm uses the calendar year as its reporting period.(1) July 1, 2008:
Analysis of transactions and preparation of comparative income statements and balance sheets Refer to the information for Zea1ock Bookstore in Problem 36. The following transactions relate to 2009.(1) March 15, 2009: Pays income taxes for 2008.(2) June 30, 2009: Repays the bank loan with
Reconstructing the income statement and balance sheet (Adapted from a problem by Stephen A. Zeff) Portobello Co., a retailer, is in its 10th year of operation. On December 28, 2008, three days before the close of its fiscal year, a flash flood devastated the company's administrative office and
Reconstructing the income statement and balance sheet Computer Needs, Inc., operates a retail store that sells computer hardware and software. It began operations on January 2, 2007, and operated successfully during its first year, generating net income of $8,712 and ending the year with $15,600 in
Effect of errors on financial statements Consider the following hypothetical information pertaining to Embotelladora Andina S.A. (Embotelladora), the producer and distributor of Coca-Cola products in Chile. Embotelladora applies Chilean accounting standards, and reports its results in thousands of
Effect of recording errors on financial statements, Forgetful Corporation (Forgetful) neglected to make various adjusting entries on December 31, 2008, the end of its accounting period. Forgetful applies U.S. GAAP, and reports in U.S. dollars. Indicate the effects on assets, liabilities, and
Working backward to the balance sheet at the beginning of the period (Problems 42 through 44 derive from problems by George H. Sorter). The following data relate to the Prima Company.(1) Exhibit 2.19: Balance sheet at December 31, 2008.(2) Exhibit 2.20: Statement of net income and retained
Working backward to cash receipts and disbursement Exhibit 2.22 presents the comparative balance sheet of The Secunda Company as of the beginning and end of 2008. Exhibit 2.23 presents the income statement for 2008. The company makes all sales on account and purchases all goods and services on
Working backward to the income statement Tertia Company presents balance sheets at the beginning and end of 2008 {Exhibit 2.24), as well as a statement of cash receipts and disbursements (Exhibit 2.25). Prepare a combined statement of income and retained earnings for 2008.
Preparing, adjusting entries Assume that a firm closes its books once per year, on December 31. The firm employs a full-time bookkeeper and a part-time professional accountant who makes all necessary adjusting entries to prepare the financial statements on December 31. During the year, the firm
Financial ratios are useful metrics for relating two items in the financial statements. Interpreting changes in a particular financial ratio is difficult, however, because the explanation might relate to changes in the numerator, the denominator, or both” Explain this statement using a change in
I can understand why the analyst adds back interest expense to net income in the numerator of the rate of return on assets but I don’t see why an adjustment is made for income taxes provide an explanation.
A firm’s total assets turnover decreased, but its accounts receivable, inventory, and fixed asset turnover increased. Suggest possible explanations.
What is the difference between the profit margin for ROA and the profit margin for ROCE? Suggest a scenario when a firm’s profit margin for ROA would increase and its profit margin for ROCE would decrease.
One company president stated. “The operations of our company are such that we must turn inventory over once every four weeks.” A company president in another industry stated. ‘The operations of our company are such that we can live comfortably with a turnover of four times each year.”
Some have argued that for any given firm at a particular time, there is an optimal inventory turnover ratio. Explain.
Under what circumstances will the rate of return on common shareholders’ equity exceed the rate of return on assets? Under what circumstances will it be less?
A company president stated. The operations of our company are such that we can effectively use only a small amount of financial leverage. Explain.
Define financial leverage. As long as a firm’s rate of return on assets exceeds its after-tax cost of borrowing, why doesn’t the firm increase borrowing to as close to 100% of financing as it can?
Calculating and disaggregating the rate of return on assets Recent annual reports of CBRL Group (Cracker Barrel) and McDonalds Corporation (McDonalds) reveal the following (amounts in millions):Cracker Barrel operates a chain of restaurants featuring value-priced country meals. Cracker Barrel owns
Profitability a analysis for two types of retailers Information taken from recent annual reports of two retailers appears as follows amounts in millions). One of these companies is Family Dollar Stores, a discount store chain, and the other is Abercrombie & Fitch, a specialty retailer of apparel.
Calculating and disaggregating rate of return on common shareholders€™ equity Information taken from the annual reports of Exxon Mobil, a petroleum company, for three recent years appears below (amounts in millions):a. Compute the rate of return on common shareholders€™ equity
Profitability analysis for two companies The following data show fie items from the financial statements of two companies for a recent war (amounts in millions):aNet Income + [Interest Expense x (1 ' Tax Rate)]bNet Income – Preferred Stock Dividendsa. Compute the rate of return on assets
Profitability analysis for two companies The following data show five items from the financial statements of two companies for a recent year (amounts in millions):aNet Income + [Interest Expense x (1 ' Tax Rate)JbNet Thcome - Preferred Stock Dividendsa. Compute the rate of return on assets for
Analyzing accounts receivable for two companies The annual reports of Dell, Inc. and Sun Microsystems, two manufacturers of computers, reveal the information below for the current year (amounts in millions). Dell sells custom-order personal computers, primarily to individuals. Sun Microsystems
Analyzing inventories over three years The following information relates to the activities of Mattel, a manufacturer of toys (amounts in millions):a. Compute the inventory turnover for each year.b. Compute the average number of days that inventories are held each year.c. Compute the ct of goods
Analyzing, fixed asset turnover three years The following information relates to The Walt Disney Company (Disney), an entertainment company (amounts in millions):a. Compute the used asset turnover for each year.b. How well has Disney managed its investment in fixed assets over the three years?
Relating profitability to financial leveragea. Compute the rule of return on common shareholders' equity in each of the following independent cases.b. In which cases is financial 1everai'e working to the advantage of the common shareholders?
Interpreting changes in earnings per share Company A and Company B both start 2008 with $1 million of shareholders’ equity and 100,000 shares of common stock outstanding. During 2008, both companies earn net income of $100,000, a rate of return of 10% on common shareholders’ equity at the
Calculating and interpreting short-term liquidity ratios Data taken from the financial statements of Nike, a designer and manufacturer of athletic footwear and apparel, appear as follows (amounts in millions):a. Compute the current and quick ratios on May 31 of each year.b. Compute the cash flow
Calculating and interpreting short-term liquidity ratios Data taken from the financial statements of Nestlé, a consumer Foods Company headquartered in Switzerland, appear as follows (amounts in millions of euros):a. Compute the current and quick ratios on December 31 of each yearb. Compute the
Calculating and interpreting long-term liquidity ratios Data taken from the financial statements of Tokyo Electric, a Japanese generator and provider of electric services, appear below (amounts in billions of Japanese yen).a. Compute the long-term debt ratio and the debt-equity ratio at the end of
Calculating and interpreting long-term liquidity ratios Data taken from the financial statements of Arcelor Mittal, a steel manufacturer headquartered in the Netherlands, appear below amounts in millions of cubs). Arcelor Mittal acquired other steel companies during the three-year period.a.
Effect of various transactions on financial statement ratios Indicate the immediate effects (increase, decrease, no effect) of each of the following independent transactions on (1) the rate of return on common shareholders’ equity, (2) the current ratio, and (3) the liabilities to assets ratio.
Effect of various transactions on financial statement ratios Indicate the effects (increase, decrease, no effect) of the following independent transactions on (1) earnings per share, (2) working capital (= current assets — current liabilities), and (3) the quick ratio, where accounts receivable
Calculating and interpreting profitability and risk ratios in a time-series setting Target Corporation, headquartered in the United States, operates retails chains under two store concepts: Target Discount Stores and Target Superstores, Target Discount Stores offer a wide variety of clothing,
Profitability and risk analysis in a cross-section setting This problem compares the profitability and risk ratios of three leading discount chains: Carrefour, Target, and Wal-Mart. Carrefour, headquartered in France, is Europe's largest retailer and the second largest retailer in the world. Sales
Calculating and interpreting profitability and risk ratios. The Gap and Limited Brands maintain leading market positions in the specialty apparel retailing market. The products of The Gap (jeans. blouses, shirts) are more standardized than those of Limited Brands. The products of Limited Brands are
Interpreting profitability and risk ratios GlaxoSmithKline plc is a pharmaceutical company headquartered in the United Kingdom. Exhibit 6.33 presents financial statement ratios for GlaxoSmithKline for 2005, 2006, and 2007. Ignore the Line for Minority Interest in Subsidiaries, an account that
Interpreting profitability and risk ratios Scania is a Swedish company that manufactures trucks and other heavy vehicles and provides financing for its customers' purchases. Exhibit 6.34 presents financial statement ratios for Scania for 2005, 2006, and 2007.The amount on the common-size income
Detective analysis-identify company Effective financial statement analysis requires an understanding of a firm€™s economic characteristics. The relations among various financial statement items provide evidence of many of these economic characteristics Exhibit 6.35 presents common-size
Preparing pro forma financial statements (requires Appendix 6.1) Problem 27 presents financial statements for Target Corporation for its fiscal years ending January 31, 2006, 2007, and 2008, as well as financial statement ratiosa. Prepare a set of pro froma financial statements for Target
Whom might the accounting convention of conservatism hurt?
One of the criteria for the recognition of an asset or a liability is that there be an exchange. What justification can you see for this requirement?
Identify the underlying accounting principle that guides the measurement of the acquisition cost of inventories, equipment, buildings, and other similar assets. What is the rationale for this accounting principle?
Accounting typically does not recognize either assets or liabilities for mutually unexecuted contracts. What justification can you see for this treatment?
A group of investors Owns an office building that it rents unfurnished to tenants. It purchased the building five years previously from a construction company. At that time, it expected the building to have a useful life of 40 years. Indicate the procedures you might follow to ascertain the
Some of the assets of one firm correspond to the liabilities of another firm. For example, an account receivable on the seller’s balance sheet is an account payable on the buyer’s balance sheet. For each of the following items, indicate whether it is an asset or a liability and give the
For each of the following items, indicate whether the item meets all of the criteria in the definition of a liability. If so, how does the firm value it?a. Interest accrued but not paid on a note.b. Advances from customers for goods and services to be delivered later.c. Confirmed orders from
What is the amount of the liability that the company recognizes in each of the following independent cases?a. A plaintiff files a lawsuit against the company. b. The probability is 90% that the company will lose. If it loses, the amount of the loss will most likely be $100,000.
The word probable appears in the definitions of assets and liabilities und in the recognition criteria for liabilities with uncertain amount and/or timing.a. What is the meaning (or the interpretation) of probable as used in the definitions of assets and liabilities?b. How does the meaning (or the
Balance sheet formats The following information is based on the balance sheet of Aracruz Celulose, a Brazilian manufacturer of bleached pulp used to make paper, for the year ended December 31, 2006. Aracruz Celulose applies U.S. GAAP and reports results in thousands of U.S dollars:a. Prepare a
Balance sheet formats The following information is based on the balance sheet of Delhaize Group (Delhaize), the Belgian food distributor, for 2007 (in ‚¬ million). Delhaize applies IFRS and reports its results in millions of euros. Prepare a balance sheet for Delhaize that uses a format
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