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Financial Accounting 7th Edition LibbyShort - Solutions

Determining Financial Statement Effects of Various TransactionsAdamson Incorporated is a small manufacturing company that makes model trains to sell to toy stores. It has a small service department that repairs customers' trains for a fee. The company has been in business for five years. At
Recording Transactions in T-Accounts, Preparing the Balance Sheet, and Evaluating the Current RatioEthan Allen Interiors, Inc., is a leading manufacturer and retailer of home furnishings in the United States and abroad. The following is adapted from Ethan Allen€™s June 30, 2008, annual
Identifying Effects of Transactions on the Statement of Cash Flows Refer to AP2-3.Required:Using the events (a) through (h) in AP2-3, indicate whether each transaction is an investing (I) or financing (F) activity for the quarter and the direction of the effect on cash flows (+ for increase and −
Finding Financial InformationRefer to the financial statements of American Eagle Outfitters in Appendix B at the end of this book. Required:1. Is the company a corporation, a partnership, or a sole proprietorship? How do you know?2. The company shows on the balance sheet that inventories are
Finding Financial InformationRefer to the financial statements of Urban Outfitters in Appendix C at the end of this book.Required:1. Use the company’s balance sheet to determine the amounts in the accounting equation (A = L + SE) as of January 31, 2009.2. If the company were liquidated at the
Comparing Companies within an IndustryRefer to the financial statements of American Eagle Outfitters in Appendix B, Urban Outfitters in Appendix C, and the Industry Ratio Report in Appendix D at the end of this book.Required:1. Compute the current ratio for both companies. Compared to the industry
Broadening Financial Research Skills: Locating Financial Information on the SEC’s DatabaseThe Securities and Exchange Commission (SEC) regulates companies that issue stock on the stock market. It receives financial reports from public companies electronically under a system called EDGAR
Using Financial Reports: Evaluating the Reliability of a Balance SheetFrances Sabatier asked a local bank for a $50,000 loan to expand her small company. The bank asked Frances to submit a financial statement of the business to supplement the loan application. Frances prepared the following balance
Using Financial Reports: Analyzing the Balance SheetRecent balance sheets of Dell, Inc., a leading producer and marketer of a broad range of personal computers, mobility products, software, and related tools and services, are provided.Required:1. Is Dell a corporation, sole proprietorship, or
Making a Decision as a Financial Analyst: Preparing and Analyzing a Balance SheetYour best friend from home writes you a letter about an investment opportunity that has come her way. A company is raising money by issuing shares of stock and wants her to invest $20,000 (her recent inheritance from
Evaluating an Ethical Dilemma: Analyzing Management IncentivesIn July 2004, the U.S. government filed civil and criminal charges against four former executives of Netherlands-based Ahold’s subsidiary U.S. Foodservice, Inc., an operator of supermarkets such as Bi-Lo and Giant Food Stores. Two of
Describe a typical business operating cycle.
Explain what the time period assumption means.
Write the income statement equation and define each element.
Explain the difference betweena. Revenues and gains.b. Expenses and losses.
Define accrual accounting and contrast it with cash basis accounting.
What four criteria must normally be met for revenue to be recognized under accrual basis accounting?
Explain the matching principle.
Explain why stockholders’ equity is increased by revenues and decreased by expenses.
Explain why revenues are recorded as credits and expenses as debits.
Complete the following matrix by entering either debit or credit in eachcell:
Complete the following matrix by entering either increase or decrease in eachcell:
Identify whether the following transactions affect cash flow from operating, investing, or financing activities, and indicate the effect of each on cash (+ for increase and ˆ’ for decrease). If there is no cash flow effect, write€œNone.€
State the equation for the total asset turnover ratio and explain how it is interpreted.
Multiple - Choice Questions1. Which of the following is not a specific account in a company’s chart of accounts?a. Gains b. Revenue c. Net Incomed. Unearned Revenue2. Which of the following is not one of the four criteria that normally must be met for revenue to be recognized according to the
Matching Definitions with TermsMatch each definition with its related term by entering the appropriate letter in the space provided. There should be only one definition per term (that is, there are more definitions thanterms).
Reporting Cash Basis versus Accrual Basis IncomePayson Sports, Inc., sells sports equipment to customers. Its fiscal year ends on December 31. The following transactions occurred in 2012:a. Purchased $314,000 of new sports equipment inventory; paid $90,000 in cash and owed the rest on account.b.
Identifying RevenuesRevenues are normally recognized when the delivery of goods or services has occurred, there is persuasive evidence of an arrangement for customer payment, the price is fixed or determinable, and collection is reasonably assured. The amount recorded is the cash-equivalent sales
Identifying ExpensesRevenues are normally recognized when goods or services have been provided and payment or promise of payment has been received. Expense recognition is guided by an attempt to match the costs associated with the generation of those revenues to the same time period. The following
Determining Financial Statement Effects of Various TransactionsThe following transactions occurred during a recent year:a. Issued stock to organizers for cash (example).b. Purchased equipment on credit.c. Declared and paid cash dividends.d. Earned revenue, collected cash.e. Incurred expenses, on
Determining Financial Statement Effects of Various TransactionsWolverine World Wide, Inc., manufactures military, work, sport, and casual footwear and leather accessories under a variety of brand names, such as Hush Puppies, Wolverine, and Bates, to a global market. The following transactions
Recording Journal EntriesSysco, formed in 1969, is North America’s largest marketer and distributor of food service products, serving approximately 400,000 restaurants, hotels, schools, hospitals, and other institutions. The following summarized transactions are typical of those that occurred in
Recording Journal EntriesVail Resorts, Inc., owns and operates five premier year-round ski resort properties (Vail Mountain, Beaver Creek Resort, Breckenridge Mountain, and Keystone Resort, all located in the Colorado Rocky Mountains, and Heavenly Valley Mountain Resort, located in the Lake Tahoe
Recording Journal EntriesBlaine Air Transport Service, Inc., has been in operation for three years. The following transactions occurred in February:February 1 Paid $275 for rent of hangar space in February.February 2 Purchased fuel costing $490 on account for the next flight to Dallas.February 4
Analyzing the Effects of Transactions in T-Accounts and Computing Cash Basis versus Accrual Basis Net IncomeStacey’s Piano Rebuilding Company has been operating for one year (2010). At the start of 2011, its income statement accounts had zero balances and its balance sheet account balances were
Preparing an Income Statement, Statement of Stockholders’ Equity, and Classified Balance SheetRefer to E3-10.Required:Use the ending balances in the T-accounts in E3-10 to prepare the following:1. An income statement for January 2011 in good form (ignore income taxes).2. A statement of
Preparing a Statement of Cash FlowsRefer to E3-10.Required:Use the transactions in E3-10 to prepare a statement of cash flows in good form.
Analyzing the Effects of Transactions in T-AccountsLisa Frees and Amelia Ellinger had been operating a catering business for several years. In March 2011, the partners were planning to expand by opening a retail sales shop and decided to form the business as a corporation called Traveling Gourmet,
Preparing an Income Statement, Statement of Stockholders’ Equity, and Classified Balance SheetRefer to E3-13.Required:Use the balances in the completed T-accounts in E3-13 to respond to the following:1. Prepare an income statement in good form for the month of March 2011.2. Prepare a statement of
Preparing a Statement of Cash FlowsRefer to E3-13.Required:Use the transactions in E3-13 to prepare a statement of cash flows in good form.
Inferring Operating Transactions and Preparing an Income Statement and Balance SheetKate's Kite Company (a corporation) sells and repairs kites from manufacturers around the world. Its stores are located in rented space in malls and shopping centers. During its first month of operations ended April
Analyzing the Effects of Transactions Using T-Accounts and Interpreting the Total AssetTurnover Ratio as a Financial AnalystMassa Company, which has been operating for three years, provides marketing consulting services worldwide for dot-com companies. You are a financial analyst assigned to report
Inferring Transactions and Computing Effects Using T-AccountsA recent annual report of The New York Times Company, a diversified media company that currently includes newspapers (including The New York Times), Internet businesses, and television and radio stations, included the following accounts.
Finding Financial Information as an InvestorYou are evaluating your current portfolio of investments to determine those that are not performing to your expectations. You have all of the companies’ most recent annual reports.Required:For each of the following, indicate where you would locate the
Matching Definitions with TermsMatch each definition with its related term by entering the appropriate letter in the space provided. There should be only one definition per term (that is, there are more definitions thanterms).
Reporting Cash Basis versus Accrual Basis IncomeSkidmore Music Company had the following transactions in March:a. Sold instruments to customers for $15,000; received $10,000 in cash and the rest on account. The cost of the instruments was $9,000.b. Purchased $3,000 of new instruments inventory;
Identifying RevenuesThe following transactions are July 2011 activities of Craig€™s Bowling, Inc., which operates several bowling centers (for games and equipment sales). If revenue is to be recognized in July, indicate the revenue account title and amount. If revenue is not to be
Identifying ExpensesThe following transactions are July 2011 activities of Craig€™s Bowling, Inc., which operates several bowling centers (for games and equipment sales). If expense is to be recognized in July, indicate the expense account title and amount. If expense is not to be
Recording RevenuesFor each of the transactions in M3-3, write the journal entry in good form.
Recording ExpensesFor each of the transactions in M3-4, write the journal entry in good form.
Determining the Financial Statement Effects of Operating Activities Involving RevenuesThe following transactions are July 2011 activities of Craig€™s Bowling, Inc., which operates several bowling centers (for games and equipment sales). For each of the following transactions, complete the
Determining the Financial Statement Effects of Operating Activities Involving ExpensesThe following transactions are July 2011 activities of Craig€™s Bowling, Inc., which operates several bowling centers (for games and equipment sales). For each of the following transactions, complete the
Preparing a Simple Income StatementGiven the transactions in M3-7 and M3-8 (including the examples), prepare an income statement for Craig’s Bowling, Inc., for the month of July 2011.
Preparing the Operating Activities Section of a Statement of Cash FlowsGiven the transactions in M3-7 and M3-8 (including the examples), prepare the Operating Activities section of the statement of cash flows for Craig’s Bowling, Inc., for the month of July 2011.
Computing and Explaining the Total Asset Turnover RatioThe following data are from annual reports of Jen€™s Jewelry Company:Compute Jen€™s total asset turnover ratio for 2012 and 2011. What do these results suggest to you about Jen€™s JewelryCompany?
Recording Nonquantitative Journal EntriesThe following list includes a series of accounts for Sanjeev Corporation, which has been operating for three years. These accounts are listed and numbered for identification. Following the accounts is a series of transactions. For each transaction, indicate
Recording Journal Entries Ryan Terlecki organized a new Internet company, CapUniverse, Inc. The company specializes in baseball-type caps with logos printed on them. Ryan, who is never without a cap, believes that his target market is college and high school students. You have been hired to record
Determining Financial Statement Effects of Various Transactions and Identifying Cash Flow EffectsAccording to its annual report, Wendy€™s International serves €œthe best hamburgers in the business€ and other fresh food including salads, chicken sandwiches, and baked
Analyzing the Effects of Transactions Using T-Accounts, Preparing Financial Statements, and Evaluating the Total Asset Turnover Ratio as a ManagerBrianna Webb, a connoisseur of fine chocolate, opened Bri's Sweets in Collegetown on February 1, 2011. The shop specializes in a selection of gourmet
Preparing a Statement of Cash Flows (AP3-5)Refer to P3-4.Required:For the transactions listed in P3-4, prepare a statement of cash flows for the month.
Analyzing the Effects of Transactions Using T-Accounts, Preparing Financial Statements, and Evaluating the Total Asset Turnover RatioFollowing are account balances (in millions of dollars) from a recent FedEx annual report, followed by several typical transactions. Assume that the following are
Recording Journal Entries and Identifying Cash Flow EffectsCedar Fair, L.P. (Limited Partnership) is one of the largest regional amusement park operators in the world, owning 12 amusement parks, five outdoor water parks, one indoor water park, and six hotels. The parks include Cedar Point in Ohio,
Recording Nonquantitative Journal EntriesThe following is a series of accounts for Kruger & Laurenzo, Incorporated, which has been operating for two years. The accounts are listed and numbered for identification. Following the accounts is a series of transactions. For each transaction, indicate the
Recording Journal Entries Jimmy Langenberger is the president of TemPro, Inc., a company that provides temporary employees for not-for-profit companies. TemPro has been operating for five years; its revenues are increasing with each passing year. You have been hired to help Jimmy analyze the
Determining Financial Statement Effects of Various Transactions and Identifying Cash Flow EffectsBig Dog Holdings, Inc., is the parent company of Big Dog USA, a company that develops, markets, and retails a collection of consumer products centered around the signature BIG DOGS name, logo, and
Analyzing the Effects of Transactions Using T-Accounts, Preparing Financial Statements, and Evaluating the Total Asset Turnover Ratio as a ManagerAlpine Stables, Inc., was established in Denver, Colorado, on April 1, 2011. The company provides stables, care for animals, and grounds for riding and
Preparing a Statement of Cash FlowsRefer to AP3-4.Required:For the transactions listed in AP3-4, prepare a statement of cash flows for the month.
Analyzing the Effects of Transactions Using T-Accounts, Preparing Financial Statements, and Evaluating the Total Asset Turnover RatioThe following are the summary account balances from a recent balance sheet of Exxon Mobil Corporation. The accounts have normal debit or credit balances, but they
Finding Financial InformationRefer to the financial statements of American Eagle Outfitters in Appendix B at the end of the book.Required:1. State the amount of the largest expense on the income statement for the year ended January 31, 2009, and describe the transaction represented by the
Finding Financial InformationRefer to the financial statements of Urban Outfitters in Appendix C at the end of the book.Required:1. What is the company’s revenue recognition policy? 2. Assuming that $50 million of cost of sales was due to noninventory purchase expenses (distribution and
Comparing Companies within an IndustryRefer to the financial statements of American Eagle Outfitters in Appendix B, Urban Outfitters in Appendix C, and the Industry Ratio Report in Appendix D at the end of this book.Required:1. By what title does each company call its income statement? Explain
Analyzing a Company over TimeRefer to the annual report for American Eagle Outfitters in Appendix B.Required:1. The annual report or 10-K report for American Eagle Outfitters provides selected financial data for the last five years. Compute the total asset turnover ratio for each of the most
Interpreting the Financial PressThe October 4, 2004, edition of BusinessWeek presented an article titled “Fuzzy Numbers” on issues related to accrual accounting and its weaknesses that have led some corporate executives to manipulate estimates in their favor, sometimes
Using Financial Reports: Analyzing Changes in Accounts and Preparing Financial StatementsPete's Painting Service was organized as a corporation on January 20, 2011, by three individuals, each receiving 5,000 shares of stock from the new company. The following is a schedule of the cumulative account
Making a Decision as a Bank Loan Officer: Analyzing and Restating Financial Statements That Have Major Deficiencies (A Challenging Case)Julio Estela started and operated a small boat repair service company during 2012. He is interested in obtaining a $100,000 loan from your bank to build a dry
Evaluating an Ethical DilemmaMike Lynch is the manager of an upstate New York regional office for an insurance company. As the regional manager, his compensation package comprises a base salary, commissions, and a bonus when the region sells new policies in excess of its quota. Mike has been under
Describe the roles and responsibilities of management and independent auditors in the financial reporting process.
Define the following three users of financial accounting disclosures and the relationships among them: (a) Financial analysts, (b) Private investors, and (c) Institutional investors.
Briefly describe the role of information services in the communication of financial information.
Explain why information must be relevant and reliable to be useful.
What basis of accounting does GAAP require on the (a) Income statement, (b) Balance sheet, and(c) Statement of cash flows?
Briefly explain the normal sequence and form of financial reports produced by private companies in a typical year.
Briefly explain the normal sequence and form of financial reports produced by public companies in a typical year.
What are the four major subtotals or totals on the income statement?
Define extraordinary items. Why should they be reported separately on the income statement?
List the six major classifications reported on a balance sheet.
For property, plant, and equipment, as reported on the balance sheet, explain (a) Cost, (b) Accumulated depreciation, and (c) Net book value.
Briefly explain the major classifications of stockholders’ equity for a corporation.
What are the three major classifications on a statement of cash flows?
What are the three major categories of notes or footnotes presented in annual reports? Cite an example of each.
Briefly define return on assets and what it measures.
Multiple Choice Question 1. If average total assets increase, but net income, net sales, and average stockholders’ equity remain the same, what is the impact on the return on assets ratio?a. Increases. b. Decreasesc. Remains the same.. d. Cannot be determined without additional information.2. If
Matching Players in the Accounting Communication Process with Their Definitions Match each player with the related definition by entering the appropriate letter in the spaceprovided.
Matching Definitions with Information Releases Made by Public CompaniesFollowing are the titles of various information releases. Match each definition with the related release by entering the appropriate letter in the spaceprovided.
Finding Financial Information: Matching Information Items to Financial ReportsFollowing are information items included in various financial reports. Match each information item with the report(s) where it would most likely be found by entering the appropriate letter(s) in the spaceprovided.
Ordering the Classifications on a Typical Balance SheetFollowing is a list of classifications on the balance sheet. Number them in the order in which they normally appear on a balance sheet. No. Title___ Long-term liabilities___ Current liabilities___ Long-term investments___ Intangible
Preparing a Classified Balance SheetCampbell Soup Company is the world's leading maker and marketer of soup and sells other well-known brands of food in 120 countries. Presented here are the items listed on its recent balance sheet (dollars in millions) presented in alphabetical
Preparing and Interpreting a Classified Balance Sheet with Discussion of Terminology(Challenging)Lance, Inc., manufactures, markets, and distributes a variety of snack foods. Product categories include sandwich crackers, cookies, restaurant crackers and bread basket items, candy, chips, meat
Recording Stock Issuances with Par Value In a recent year, Coach, Inc., a designer and marketer of handbags and other accessories, issued 10,200 shares of its $0.01 par value stock for $43,000 (these numbers are rounded). These additional shares were issued under an employee stock option plan.
Inferring Stock Issuances and Cash Dividends from Changes in Stockholders€™ EquityThe Kroger Co. is one of the largest retailers in the United States and also manufactures and processes some of the food for sale in its supermarkets. Kroger reported the following January 31 balances in its

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