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Using Financial Accounting Information The Alternative to Debits and Credits 7th Edition Gary A. Porter, Curtis L. Norton - Solutions

Three large mass merchandisers use the following methods to value ending inventory: Company X—weighted average costCompany Y—first-in, first-out (FIFO)Company Z—last-in, first-out (LIFO)The cost of inventory has steadily increased over the past ten years of the product life. Recently,
The following condensed income statements and balance sheets are available for Planter Stores for a two-year period. (All amounts are stated in thousands of dollars.)Before releasing the 2010 annual report, Planter's controller learns that the inventory of one of the stores (amounting to $500,000)
The following information was summarized from the 2009 annual report of Wal-Mart Stores, Inc. and Subsidiaries: (in millions)Cost of sales for the year ended January 31:2009 .................. $306,1582008 .................. 286,350 Inventories, January 31:2009 ..................
Carpetland City reported net income of $78,500 for the year ended December 31, 2010. The following items were included on Carpetland€™s balance sheet at December 31, 2010 and 2009:Carpetland uses the indirect method to prepare its statement of cash flows. Carpetland does not have any
Chestnut Corp., a ski shop, opened for business on October 1. It uses a periodic inventory system. The following transactions occurred during the first month of business:October 1: Purchased three units from Elm Inc. for $249 total, terms 2/10, n/30, FOB destination.October 10: Paid for the October
The following information was summarized from the consolidated balance sheets of Walgreen Co. and Subsidiaries as of August 31, 2008 and 2007 and the consolidated statements of income for the years ended August 31, 2008 and 2007Required1. Identify and analyze the transactions related to the
A list of accounts for Lloyd Inc. at December 31, 2010, follows:Required1. Determine cost of goods sold for 2010.2. Determine net income for 2010.3. Prepare a balance sheet dated December 31,2010.
Stellar Inc.€™s inventory records show 300 units on hand on November 1 with a unit cost of $4 each. The following transactions occurred during the month of November:All expenses other than cost of goods sold amount to $2,000 for the month. The company uses an estimated tax rate of 25% to
Comparison of Inventory Costing Methods—Perpetual System (Appendix) Repeat Problem 5-10A using the perpetual system.
Story Company’s inventory records for the month of November reveal the following:Inventory, November 1 300 units @ $27.00November 4, purchase 375 units @ $26.50November 7, sale 450 units @ $63.00November 13, purchase 330 units @ $26.00November 18, purchase 225 units @ $25.40November 22,
Following is an inventory acquisition schedule for Fees Corp. for 2010:Required1. Compute cost of goods sold and ending inventory under each of the following three methods assuming a periodic inventory system: (a) Weighted average, (b) FIFO, and (c) LIFO.2. Prepare income statements under each of
The 2008 annual report of The New York Times Company includes the following note:6. InventoriesInventories as shown in the accompanying Consolidated Balance Sheets were as follows:Required1. What types of inventory costs does The New York Times Company carry? What about newspapers? Are newspapers
Refer to the financial information for Kellogg’s and General Mills reproduced at the end of this book and answer the following questions: Required1. Are Kellogg’s and General Mills merchandisers, manufacturers, or service providers?2. What is the dollar amount of inventories that each company
JCPenney reports merchandise inventory in the Current Assets section of the balance sheet in its 2008 annual report as follows (amounts in millions of dollars):Required1. What method does JCPenney use to report the value of its inventory?2. What is the amount of the LIFO reserve at the end of each
Reading and Interpreting Gap Inc.’s Inventory Note The 2008 annual report for Gap Inc. includes the following information in the note that summarizes its accounting policies: Merchandise Inventory Effective January 29, 2006 (the beginning of fiscal 2006), we changed our inventory flow assumption
Emblems for you sells specialty sweatshirts. The purchase price is $10 per unit plus 10% tax and a shipping cost of 50¢ per unit. When the units arrive, they must be labeled, at an additional cost of 75¢ per unit. Emblems purchased, received, and labeled 1,500 units, of which 750 units were sold
Caroline’s Candy Corner sells gourmet chocolates. The company buys chocolates in bulk for $5 per pound plus 5% sales tax. Credit terms are 2/10, n/25, and the company always pays promptly to take advantage of the discount. The chocolates are shipped to Caroline FOB shipping point. Shipping costs
Darrell Keith is starting a new business. He plans to keep a tight control over it. Therefore, he wants to know exactly how much gross profit he earns on each unit that he sells. Darrell sets up an elaborate numbering system to identify each item as it is purchased and to match the item with a
You are the controller for Georgetown Company. At the end of its first year of operations, the company is experiencing cash flow problems. The following information has been accumulated during the year: Purchases January 1,000 units @ $8March 1,200 units @ 8October 1,500 units @ 9During
You are the controller of a rapidly growing mass merchandiser. The company uses a periodic inventory system. As the company has grown and accounting systems have developed, errors have occurred in both the physical count of inventory and the valuation of inventory on the balance sheet. You have
You are the controller for a large chain of discount merchandise stores. You receive a memo from the sales manager for the midwestern region. He raises an issue regarding the proper treatment of sales returns. The manager urges you to discontinue the “silly practice” of recording Sales Returns
As controller of a widely held public company, you are concerned with making the best decisions for the stockholders. At the end of its first year of operations, you are faced with the choice of method to value inventory. Specific identification is out of the question because the company sells a
As a newly hired staff accountant, you are assigned the responsibility of physically counting inventory at the end of the year. The inventory count proceeds in a timely fashion. The inventory is outdated, however. You suggest that the inventory cannot be sold for the cost at which it is carried and
What is the purpose of the statement of cash flows? As a flows statement, explain how it differs from the income statement.
What is a cash equivalent? Why is it included with cash for purposes of preparing a statement of cash flows?
Preston Corp. acquires a piece of land by signing a $60,000 promissory note and making a down payment of $20,000. How should this transaction be reported on the statement of cash flows?
Hansen Inc. made two purchases during December. One was a $10,000 Treasury bill that matures in 60 days from the date of purchase. The other was a $20,000 investment in Motorola common stock that will be held indefinitely. How should each purchase be treated for purposes of preparing a statement of
Companies are required to classify cash flows as operating, investing, or financing. Which of these three categories do you think will most likely have a net cash outflow over a number of years? Explain your answer.
What is your evaluation of the following statements? Depreciation is responsible for providing some of the highest amounts of cash for capital-intensive businesses. This is obvious by examining the Operating Activities section of the statement of cash flows. Other than the net income of the period,
Which method for preparing the Operating Activities section of the statement of cash flows, the direct or the indirect method, do you believe provides more information to users of the statement? Explain your answer.
Assume that a company uses the indirect method to prepare the Operating Activities section of the statement of cash flows. Why would a decrease in accounts receivable during the period be added back to net income?
Why is it necessary to analyze both inventory and accounts payable in trying to determine cash payments to suppliers when the direct method is used?
A company has a very profitable year. What explanations might there be for a decrease in cash?
A company reports a net loss for the year. Is it possible that cash could increase during the year? Explain your answer.
What effect does a decrease in income taxes payable for the period have on cash generated from operating activities? Does it matter whether the direct or the indirect method is used?
Why do accounting standards require a company to separately disclose income taxes paid and interest paid if it uses the indirect method?
Is it logical that interest paid is classified as a cash outflow in the Operating Activities section of the statement of cash flows but that dividends paid are included in the Financing Activities section? Explain your answer.
Jackson Company prepays the rent on various office facilities. The beginning balance in Prepaid Rent was $9,600, and the ending balance was $7,300. The income statement reports Rent Expense of $45,900. Under the direct method, what amount would appear for cash paid in rent in the Operating
Baxter Inc. buys as treasury stock 2,000 shares of its own common stock at $20 per share. How is this transaction reported on the statement of cash flows?
Duke Corp. sold a delivery truck for $9,000. Its original cost was $25,000, and the book value at the time of the sale was $11,000. How does the transaction to record the sale appear on a statement of cash flows prepared under the indirect method?
Billings Company has a patent on its books with a balance at the beginning of the year of $24,000. The ending balance for the asset was $20,000. The company did not buy or sell any patents during the year, nor does it use an Accumulated Amortization account. Assuming that the company uses the
Ace Inc. declared and distributed a 10% stock dividend during the year. Explain how, if at all, you think this transaction should be reported on a statement of cash flows.
Explain where to find the information needed to determine a company’s cash flow adequacy.
You have been studying accounting for nearly a semester now and have become convinced of the value of determining a company’s net income on an accrual basis. Why do you think the accounting profession requires companies also to prepare a statement of cash flows, especially since you can look at
A friend in your class is confused and asks for your help in understanding cash equivalents: “Say a company invests $50,000 in a 60-day certificate of deposit. Since the company obviously used cash to buy the CD, why is this not classified as an investing activity on the statement of cash
For each of the following transactions on the statement of cash fflows, indicate whether it would appear in the Operating Activities section (O), in the Investing Activities section (I), or in the Financing Activities section (F). Assume the use of the direct method in the Operating Activities
For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the direct method (D) or the indirect method (I).______ 1. Net income______ 2. Increase in accounts receivable______ 3. Collections on accounts receivable______ 4. Payments on accounts
Direct Method Fill in the blank for each of the following situations.
For each of the following items, indicate whether it would be added to (A) or deducted from (D) net income to arrive at net cash flow provided by operating activities under the indirect method.______ 1. Increase in accounts receivable______ 2. Decrease in prepaid rent______ 3. Decrease in
A company generated $1,500,000 from its operating activities and spent $900,000 on additions to its plant and equipment during the year. The total amount of debt that matures in the next five years is $750,000. Compute the company’s cash flow adequacy ratio for the year.
Assume that a company uses a work sheet as illustrated in Exhibit 12-16 to prepare its statement of cash flows and that it uses the indirect method in the Operating Activities section of the statement. For each of the following changes in balance sheet accounts, indicate in one of the three columns
Metropolis Industries invested its excess cash in the following instruments during December 2010:Certificate of deposit, due January 31, 2011 $ 35,000Certificate of deposit, due June 30, 2011 95,000Investment in City of Elgin bonds, due May 1, 2012 15,000Investment in Quantum Data
For each of the following transactions reported on a statement of cash flows, indicate whether it would appear in the Operating Activities section (O), in the Investing Activities section (I), or in the Financing Activities section (F). Put an S in the blank if the transaction does not affect cash
Retirement of Bonds Payable on the Statement of Cash Flows—Indirect Method Redstone Inc. has the following debt outstanding on December 31, 2010:10% bonds payable, due 12/31/14 $500,000Discount on bonds payable (40,000) $460,000On this date, Redstone retired the entire bond issue by paying cash
Carnival Corporation & plc is one of the largest cruise companies in the world with such well-known brands as Carnival Cruise Lines, Holland America Line, and Princess Cruises. Classify each of the following items found on the company’s 2008 statement of cash flows according to whether it would
For each of the following transactions, indicate whether they would be reported in the Investing Activities section of the statement of cash flows (I) or the Financing Activities section (F). Put an S in the blank if the transaction does not affect cash but is reported in a supplemental schedule of
Spencer Corp. reported accounts receivable of $28,000 on its December 31, 2009, balance sheet. On December 31, 2010, accounts receivable had decreased to $22,000. Sales for the year amounted to $55,000. What is the amount of cash collections that Spencer will report in the Operating Activities
Stanley Company’s comparative balance sheets included accounts receivable of $80,800 at December 31, 2009, and $101,100 at December 31, 2010. Sales reported by Stanley on its 2010 income statement amounted to $1,450,000. What is the amount of cash collections that Stanley will report in the
Wolf’s comparative balance sheets included inventory of $45,000 at December 31, 2009, and $63,000 at December 31, 2010. The comparative balance sheets also included accounts payable of $33,000 at December 31, 2009, and $39,000 at December 31, 2010. Wolf’s accounts payable balances are
Lester Enterprises’ comparative balance sheets included inventory of $90,200 at December 31, 2009, and $70,600 at December 31, 2010. Lester’s comparative balance sheets also included accounts payable of $57,700 at December 31, 2009, and $39,200 at December 31, 2010. Lester’s accounts payable
The following account balances for the noncash current assets and current liabilities of Labrador Company are available:In addition, the income statement for 2010 is as follows: 2010Sales revenue ............... $100,000Cost of goods sold ............. 75,000Gross profit
The computation of cash provided by operating activities requires analysis of the noncash current asset and current liability accounts. Determine the missing amounts for each of the following independent cases:Case 1Accounts receivable, beginning of year $150,000Accounts receivable, end of year
The following selected account balances are available from the records of Lewistown Company:Other information available for 2010 is as follows:a. Lewistown reported net income of $285,000 for the year.b. It declared and distributed a stock dividend of $50,000 during the year.c. It declared cash
Timber Corp. began the year with a balance in its Income Taxes Payable account of $10,000. The year-end balance in the account was $15,000. The company uses the indirect method in the Operating Activities section of the statement of cash flows. Therefore, it presents the amount of income taxes paid
Assume that a company uses the indirect method to prepare the Operating Activities section of the statement of cash flows. For each of the following items, indicate whether it would be added to net income (A), deducted from net income (D), or not reported in this section of the statement under the
The following account balances for the noncash current assets and current liabilities of Suffolk Company are available:Net income for 2010 is $40,000. Depreciation expense is $20,000. Assume that all sales and all purchases are on account.Required1. Prepare the Operating Activities section of the
On its most recent statement of cash flows, a company reported net cash provided by operating activities of $12,000,000. Its capital expenditures for the same year were $2,000,000. A note to the financial statements indicated that the total amount of debt that would mature over the next five years
Use the following legend to indicate how each transaction would be reported on the statement of cash flows. (Assume that the stocks and bonds of other companies are classified as long-term investments.)II = Inflow from investing activitiesOI = Outflow from investing activitiesIF = Inflow from
Use the following legend to indicate how each transaction would be reported on the statement of cash flows. (Assume that the company uses the direct method in the Operating Activities section.)IO = Inflow from operating activitiesOO = Outflow from operating activitiesII = Inflow from investing
The following account balances are taken from the records of Martin Corp. for the past two years.Other information available for 2010 is as follows:a. Net income for the year was $200,000.b. Depreciation expense on plant and equipment was $50,000.c. Plant and equipment with an original cost of
The following events occurred at Handsome Hounds Grooming Company during its first year of business:a. To establish the company, the two owners contributed a total of $50,000 in exchange for common stock.b. Grooming service revenue for the first year amounted to $150,000, of which $40,000 was on
The following balances are available for Chrisman Company:Bonds were retired during 2010 at face value, plant and equipment were acquired for cash, and common stock was issued for cash. Depreciation expense for the year was $35,000. Net income was reported at $26,000.Required1. Prepare a statement
Statement of Cash Flows Using a Work Sheet—Indirect Method Refer to all of the facts in Problem 12-1.Required1. Using the format in the chapter’s appendix, prepare a statement of cash flows work sheet.2. Prepare a statement of cash flows for 2010 using the indirect method in the Operating
Peoria Corp. just completed another successful year, as indicated by the following income statement:Presented here are comparative balance sheets:Other information is as follows:a. Dividends of $60,000 were declared and paid during the year.b. Operating expenses include $50,000 of depreciation.c.
Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-3.Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-3.Presented here are comparative balance sheets:Required1. Prepare a statement of cash flows for 2010 using the indirect method in
Statement of Cash Flows Using a Work Sheet—Indirect Method Refer to all of the facts in Problem 12-3.Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-3.Presented here are comparative balance sheets:Required1. Using the format in the chapter’s appendix, prepare a
The income statement for Astro Inc. for 2010 is as follows:For the Year EndedDecember 31, 2010Sales revenue ........... $ 500,000Cost of goods sold ......... 400,000Gross profit ........... $ 100,000Operating expenses ........ 180,000Loss before interest and taxes .... $ (80,000)Interest
Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-6.Presented here are comparative balance sheets:Required1. Prepare a statement of cash flows for 2010 using the indirect method in the Operating Activities section.2. On the basis of your statement in (1), draft a
Statement of Cash Flows Using a Work Sheet—Indirect Method Refer to all of the facts in Problem 12-6.Required1. Using the format in the chapter’s appendix, prepare a statement of cash flows work sheet.2. Prepare a statement of cash flows for 2010 using the indirect method in the Operating
The balance sheet of Terrier Company at the end of 2009 is presented here, along with certain other information for 2010: December 31, 2009Cash ................ $ 140,000Accounts receivable .......... 155,000Total current assets ........... $ 295,000Land
Statement of Cash Flows Using a Work Sheet—Indirect Method Refer to all of the facts in Problem 12-9.Required1. Prepare a balance sheet at December 31, 2010.2. Using the format in the chapter’s appendix, prepare a statement of cash flows work sheet.3. Prepare a statement of cash flows for 2010
Glendive Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2010. An income statement for the year and comparative balance sheets are as follows:Dividends of $7,000 were declared and paid during the year. New plant assets were purchased during the year for
Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-11.Required1. Prepare a statement of cash flows for 2010 using the indirect method in the Operating Activities section.2. Evaluate the following statement: Whether a company uses the direct or indirect method to
Lang Company has not yet prepared a formal statement of cash flows for 2010. Following are comparative balance sheets as of December 31, 2010 and 2009, and a statement of income and retained earnings for the year ended December 31, 2010:Required1. For purposes of a statement of cash flows, are the
The following balances are available for Madison Company:Bonds were issued during 2010 at face value, and plant and equipment were acquired for cash. Depreciation expense for the year was $50,000. A net loss of $21,800 was reported.Required1. Prepare a statement of cash flows for 2010 using the
Statement of Cash Flows Using a Work Sheet—Indirect Method Refer to all of the facts in Problem 12-1A.Required1. Using the format in the chapter’s appendix, prepare a statement of cash flows work sheet.2. Prepare a statement of cash flows for 2010 using the indirect method in the Operating
Wabash Corp. just completed another successful year, as indicated by the following income statement:For the Year EndedDecember 31, 2010Sales revenue ......... $2,460,000Cost of goods sold ........ 1,400,000Gross profit .......... $1,060,000Operating expenses ....... 460,000Income before
Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-3A.Presented here are comparative balance sheets:Required1. Prepare a statement of cash flows for 2010 using the indirect method in the Operating Activities section.2. On the basis of your statement in (1), draft a
Statement of Cash Flows Using a Work Sheet—Indirect Method Refer to all of the facts in Problem 12-3A.Presented here are comparative balance sheets:Required1. Using the format in the chapter’s appendix, prepare a statement of cash flows work sheet.2. Prepare a statement of cash flows for 2010
The income statement for Pluto Inc. for 2010 is as follows:Presented here are comparative balance sheets:Other information is as follows:a. Dividends of $84,000 were declared and paid during the year.b. Operating expenses include $40,000 of depreciation.c. Land and plant and equipment were acquired
Statement of Cash Flows—Indirect Method Refer to all of the facts in Problem 12-6A.Presented here are comparative balance sheets:Required1. Prepare a statement of cash flows for 2010 using the indirect method in the Operating Activities section.2. On the basis of your statement in (1), draft a
Statement of Cash Flows Using a Work Sheet—Indirect Method Refer to all of the facts in Problem 12-6A.Presented here are comparative balance sheets:Required1. Using the format in the chapter’s appendix, prepare a statement of cash flows work sheet.2. Prepare a statement of cash flows for 2010
The balance sheet of Poodle Company at the end of 2009 is presented here, along with certain other information for 2010:Other information is as follows:a. Net income for 2010 was $50,000.b. Included in operating expenses was $25,000 in depreciation.c. Cash dividends of $40,000 were declared and
Refer to all of the facts in Problem 12-9A.Required1. Prepare a balance sheet at December 31, 2010.2. Using the format in the chapter’s appendix, prepare a statement of cash flows work sheet.3. Prepare a statement of cash flows for 2010 using the indirect method in the Operating Activities
Bannack Corp. is in the process of preparing its statement of cash flows for the year ended June 30, 2010. An income statement for the year and comparative balance sheets are as follows:Dividends of $5,000 were declared and paid during the year. New plant assets were purchased during the year for
Refer to all of the facts in Problem 12-11A.Required1. Prepare a statement of cash flows for 2010 using the indirect method in the Operating Activities section.2. Evaluate the following statement: Whether a company uses the direct or indirect method to report cash flows from operations is
Shepard Company has not yet prepared a formal statement of cash flows for 2010. Comparative balance sheets as of December 31, 2010 and 2009, and a statement of income and retained earnings for the year ended December 31, 2010, appear below and on the following page.Required1. For purposes of a
Refer to the statement of cash flows for both Kellogg’s and General Mills for the most recent year and any other pertinent information reprinted at the back of this book. Required1. Compute each company’s cash flow adequacy ratio for the most recent year.2. What do the ratios computed in (1)
Refer to Best Buy’s statement of cash flows shown in the chapter opener and answer the following questions for the most recent year. Required1. Which method, direct or indirect, does Best Buy use in preparing the Operating Activities section of its statement of cash flows? Explain how you know

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