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financial accounting
Financial Accounting in an Economic Context 10th edition Jamie Pratt - Solutions
The 2014 IFRS-based balance sheet published by Volkswagen AG, the well-known German automaker, listed an account called “provisions” (divided into current and non-current categories) with a total balance (in million euros) of 32,986 (2014) and 32,341 (2013). The account covers obligations
Home Depot and Lowe’s are the leading home improvement retail chains in the United States. In 2012, Home Depot reported $40 billion in total assets and $31 billion in total liabilities, while Lowe’s reported $32 billion in total assets and $22 billion in total liabilities. Both companies, as is
Hartney Enterprises issued twenty $1,000 bonds on June 30, 2018, with a stated annual interest rate of 6 percent. The bonds mature in six years. Interest is paid semiannually on December 31 and June 30. The effective interest rate as of June 30, 2018, the date of issuance, was 8 percent.REQUIRED:a.
Morrow Enterprises purchased a building on January 1, 2018, in exchange for a three-year, non-interest- bearing note with a face value of $693,000. Independent appraisers valued the building at $550,125.a. At what amount should this building be capitalized?b. Compute the present value of the
You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online, and answer the following questions:a. What is working capital, and what is the trend in Disney’s working capital position in recent years?b. How much did working capital change as a percentage of total
On December 31, 2017, East Race Kayak Club decided to borrow $20,000 for two years. The Bend Bank currently is charging a 10 percent effective annual interest rate on similar loans.REQUIRED:a. Assume that the club borrows $20,000 and signs a two-year note with a 10 percent stated annual interest
The following table was summarized from the 2014 annual report of U.S. Steel:Long-term debt (in millions):a. Briefly explain the transactions entered into by U.S. Steel during 2014. Which financial statements were affected?b. Assuming an interest rate of 5 percent, approximately how much interest
The balance sheet as of December 31, 2017, for Melrose Enterprises follows:During 2017 Melrose entered into a loan agreement that required the company to maintain a debt/ equity ratio of less than 2:1.a. How much additional debt can Melrose take on before it violates the terms of the loan
Hartl Enterprises issued ten $1,000 bonds on September 30, 2017, with a stated annual interest rate of 8 percent. These bonds will mature on October 1, 2027, and have an effective rate of 10 percent. Interest is paid semiannually on October 1 and April 1. The first interest payment will be made on
Hathaway Manufacturing issued long-term debt on January 1, 2017. The debt has a face value of $300,000 and an annual stated interest rate of 10 percent. The debt matures on January 1, 2022.a. Assume that the debt agreement requires Hathaway Manufacturing to make annual interest payments every
The balance sheet as of December 31, 2017, for Manheim Corporation follows:REQUIRED:a. Compute Manheim Corporation€™s long-term debt/equity ratio.b. Assume that Manheim Corporation is considering borrowing money and signing a five-year note with the following terms:Face value
During fiscal 2014, the SUPERVALU grocery chain paid approximately $151 million on its lease contracts—$ 26 million on capital leases and $125 million on operating leases.a. How did the operating lease payments affect the income statement, balance sheet, and statement of cash flows?b. How did the
Patnon Plastics needs some cash to finance expansion. Patnon issued the following debt to acquire the cash:A. A five-year note with a stated interest rate of zero, a face value of $20,000, and an effective interest rate of 10 percent.B. An eight-year note with an annual stated rate of 8 percent
The following information was taken from the footnotes to Johnson & Johnson€™s 2014 financial statements (dollars in millions):REQUIRED:a. Which amounts appeared on Johnson & Johnson€™s balance sheet and where?b. What is a zero coupon debenture, and how does the
The balance sheet as of December 31, 2018, for Boyton Sons follows:The company needs capital to finance operations and purchase new equipment. Boyton is not certain how much money it will need and is considering one of the following three-year notes payable. Each note would mature on January 1,
Earl Rix, president of Rix Driving Range and Health Club, has provided you with the following information:The stated annual interest rate on the notes is 10 percent, and interest is paid annually on December 31. The $95,000 in interest expense is due solely on these notes. While reviewing the
On January 1, 2018, Wilmes Floral Supplies borrowed $2,413 from Bower Financial Services. Wilmes Floral Supplies gave Bower a $2,500 note with a maturity date of December 31, 2019. The note specified an annual stated interest rate of 8 percent.a. Compute the present value of the note’s future
You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online.REQUIRED:Review the Disney 10-K, and answer the following questions:a. What percentage of Disney’s total assets were provided by liabilities, contributed capital, and retained earnings?b. How many shares of
The components of 2014 comprehensive income for CVS Health and for Caterpillar Inc. are outlined as follows (dollars in millions):REQUIRED:a. The net incomes for the two firms are shown above. Discuss how the total changes to equity due to non-owner transactions compare for the two firms.b. CVS is
Lundy Manufacturing produces and sells football equipment. The company was involved in the following transactions or events during 2018:1. The company purchased $250,000 worth of materials to be used during 2019 to manufacture helmets and shoulder pads.2. The company sold football equipment for
Ratings agencies such as Moody’s and Standard & Poor’s rate securities to give investors an independent grading of the risks involved in financial transactions. During a recent year, both Moody’s and S&P reported large increases in profits due to the increased volume of securities
The managers of Martin House are paid a salary and share in a bonus that is determined at the end of each year. The total bonus is determined by multiplying the company’s income from operations by 25 percent. The bonus is not considered an operating expense. Interest on borrowed funds is
Weyerhaeuser Company is engaged principally in the growing and harvesting of timber and the manufacture, distribution, and sale of forest products. When Mount St. Helens, a volcano located in Washington State, erupted, 68,000 acres of the company’s standing timber, logs, buildings, and equipment
The December 31, 2018, balance sheet of Smedley Company is as follows:During 2019, the company entered into the following transactions:1. Common stock was issued for $35,000 cash.2. Services were performed for $50,000 cash.3. Cash expenses of $24,000 were incurred.4. Long-term liabilities of
Raleigh Corporation began operations on February 10, 2018. During 2018, the company entered into the following transactions:1. Issued $110,000 of common stock and $25,000 of preferred stock.2. Performed services for $580,000.3. Issued $475,000 in long-term debt for cash.4. Incurred expenses:
In the shareholders’ equity section of its 2013 and 2014 balance sheets, H&R Block reported accumulated other comprehensive income balances of $5.177 million and $1.74 million, respectively. The 2014 income statement reported net income of $474 million. During 2014 the net holding gain for
Morton Manufacturing maintains a credit line with First Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company’s dividends in any one year to 20 percent of net income. The 2018 income statement data of Morton Manufacturing is as
Excerpts from Crozier Industries€™ financial records as of December 31, 2018, follow:The amounts shown do not include any tax effects. Crozier€™s tax rate is 35 percent. Assume that all items are treated the same for accounting and income tax purposes.REQUIRED:a. Indicate which
In its 2018 financial report, Meeks Company reported $850,000 under the line item “extraordinary losses” on the income statement. The company’s tax rate is 35 percent. The footnote pertaining to extraordinary losses indicates that the $850,000 loss, before tax, is composed of the following
LTB Enterprises consists of four separate divisions: building products, chemicals, mining, and plastics. On March 15, 2018, LTB sold the chemicals division for $625,000 cash. Financial information related to the chemicals division follows:a. Provide the journal entry (or entries) to record the sale
The following information has been obtained from the internal financial records of MTM Company:Retained earnings, December 31, 2017 .........................................$1,259,000Dividends declared and paid during 2018 .........................................100,000Dividends declared during
In a recent annual report, which included a statement of comprehensive income, Bristol-Myers Squibb reported the following items (dollars in millions):Impairment charge ..................................................$(1,830)Research and development
It is December 2018, and Sharon Sowers, the CEO of Mallory Services, has decided to sell the clerical division. She has received an offer for $105,000 but is undecided about whether she wishes to complete the sale in 2018 or 2019. She is currently evaluating the effects of the sale on 2018 reported
The lower portion of an income statement for McDonald’s follows (dollars in millions):Income from continuing operations ...............................................$2,873.0Income from discontinued operations net of taxes ............................671.2Net income
It is December 2018, and Rob Blandig, the CEO of Carmich Industries, has decided to sell the chemical division. He has received an offer for $350,000, but he is undecided about whether he wishes to complete the sale in 2018 or 2019. He is currently evaluating the effects of the sale on 2018
Carrefour, a French retailer, publishes financial statements under IFRS, denominated in euros. Sony, the Japanese electronics giant, publishes financial statements under U.S. GAAP, denominated in yen. Excerpts taken directly from their 2014 income statements are provided in the following table.
Shelby Company instituted a defined benefit pension plan for its employees at the beginning of 2013. An actuarial method that is acceptable under generally accepted accounting principles indicates that the company should contribute $40,000 each year to the pension fund to cover the benefits that
Agilent Technologies Inc., a diversified technology company, sells extended warranties for the products and services provided to customers, deferring the revenue until future recognition. The following information about the extended warranty liability account was taken from Agilent€™s
The 2014 annual report for HCA Inc., a nationwide chain of hospitals, contains the following statement in the footnotes to the financial statements:Reserves for professional liability risks were $1.407 billion and $1.279 billion at December 31, 2014 and 2013, respectively. The current portion of
Before adjustments and closing on December 31, 2017, the current accounts of Seymour and Associates indicated the following balances:The terms of an outstanding long-term note payable state that Seymour must maintain a current ratio of 2:1 or the note will become due immediately. The following
The following information was taken from the 2014 annual report of Target Corporation (dollars in millions):a. Compute the inventory purchases made by Target during 2014. Record a single entry that reflects these purchases.b. How much cash did Target pay to its suppliers in 2014? Record a single
FedEx Corporation, a world leader in express mail services, reported the following in its May 31, 2015, financial statements (dollars in millions):
Beth Morgan, controller of Boulder Corporation, is currently preparing the 2017 financial report. She is trying to decide how to classify the following items:1. Account payable of $170,000 owed to suppliers for inventory.2. A $60,000 note payable that matures in three months. The company is
Merck & Co. declared dividends (dollars in millions) of $5,173 (2012), $5,132 (2013), and $5,156 (2014). Cash payments for dividends reported on the statement of cash flows for the three years were $5,116 (2012), $5,157 (2013), and $5,170 (2014). Dividends payable at the end of 2013 totaled
Winslow Enterprises reports $40,000 in accounts payable on the balance sheet as of December 31, 2017.These payables, on average, will be paid in ten days.a. Assuming a .99672 present value factor for a 12 percent annual discount rate, approximate the present value of the cash outflows associated
In the footnotes to its IFRS-based 2014 financial statements, European Aeronautical Defense and Space Company (EADS), parent company for Airbus, includes a description of a long-lived asset account called “investment property,” which is leased to a third party. The historical cost of the
The following information was taken from the internal financial records of Southern Robotics regarding a patent filed in 2017 for a new robotics arm used for manufacturing:1. Legal and filing fees of $50,000 were paid during 2017 for filing the patent.2. Legal fees of $200,000 were incurred and
Swift Corporation incorporated on January 1, 2017, and incurred $45,000 in organization costs.a. Should Swift Corporation capitalize or expense these costs? Defend your answer.b. If these costs are capitalized, over what period of time should they be amortized? Provide the amortization journal
The following financial information was taken from the records of Frederickson and Peffer.a. Reconstruct the entry that recorded the sale of equipment during 2017.b. How much equipment was purchased during 2017? 2017 2016 BALANCE SHEET $26,900 $23,400 Equipment Less: Accumulated depreciation 9,800
Webb Net Manufacturing purchased a new net weaving machine on January 1, 2015, for $500,000. The new machine has an estimated life of five years and an estimated salvage value of $100,000. It is company policy to use straight-line depreciation for all of its machines.REQUIRED:a. Assume that Webb
Garmen Oil Company recently discovered an oil field on one of its properties in Texas. In order to extract the oil, the company purchased drilling equipment on January 1, 2017, for $800,000 cash and also purchased a mobile home on the same date for $54,000 cash to serve as on-site headquarters. The
Hulteen Hardware purchased a new building on January 1, 2013, for $1.5 million. The company expects the building to last 25 years and expects to be able to sell it then for $150,000. During 2018, the building was painted at a cost of $5,000. Almost ten years after acquiring the building, the roof
The 2014 annual report of Cisco Systems discloses that the company expenses all advertising and research and development costs, while capitalizing all software development costs.REQUIRED:Describe the effect of these two accounting treatments on the financial statements, discuss these treatments in
On January 1, 2017, Nover Solar Systems purchased 10,000 shares of Reilly Manufacturing for $190,000. The investment represented 25 percent of Reilly’s outstanding common stock. Nover intended to hold the investment indefinitely. During 2017, Reilly earned net income of $75,000, and during 2018,
Assume that on December 31, 2017, the market values of Thayers International and Bayhe Enterprises are $25 and $32, respectively. Prepare the entry to adjust the company’s short-term equity investments to market value.
A summary of the 2017 balance sheet of Alsop Ltd., follows:On January 1, 2017, Alsop acquired 100 percent of the outstanding common stock of Martin Monthly for $62,000 cash. At the time of the acquisition, the fair market values of the assets and liabilities of Martin were $86,000 and $64,000,
In its 2015 annual report, Starbucks shows that as of September 30, 2015, it owned $81.3 million in marketable securities. Assume that Starbucks sold no marketable securities during the month of October 2015.REQUIRED:a. What would have happened to Starbucks’s net income for the month ended
Mystic Lakes Food Company began investing in equity securities for the first time in 2017. During 2017, the company engaged in the following transactions involving equity securities. Assume that the stock of Thayers International and Bayhe Enterprises is considered marketable and that ownership is
A summary of the December 31, 2016, balance sheet of Masonite Tires:On January 1, 2017, Masonite purchased 2,000 (20% of the outstanding common shares) shares of Bingo Boots for $40,000 and held the investment throughout 2017 and 2018. During 2017 and 2018, Bingo earned a net income of $15,000 and
Hartney Consulting Services is involved in the following investments as of December 31, 2017:1. Owns 40 percent of the common stock issued by Doyle Corporation. Doyle Corporation’s stock is actively traded, and Hartney Consulting intends to hold this investment for at least five years.2. Owns 55
On November 11, 2017, Wads worth Company purchased 20 shares of ZZZ for $8 per share. Wads worth held the investment for the remainder of 2017, and as of December 31, the per-share market value of ZZZ had risen to $10. During 2018, Wads worth sold 10 shares of ZZZ for $9 each, and at the end of
The 2014 statement of cash flows for Macy’s reports (dollars in millions) net cash from operating activities of $2,709 (2014), $2,549 (2013), and $2,179 (2012). Included on the statement of cash flows (indirect method) in the computation of net cash from operating activities are adjustments for
Tom Brown, controller of Microbiology Labs, informs you that the company has sold a segment of its business. Mr. Brown also provides you with the following information for 2018:The following information is not reflected in any of the above amounts:1. Microbiology Labs is subject to a 35 percent tax
You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online.REQUIRED:Review the 2015 Disney SEC Form 10-K, and answer the following questions:a. Describe how non-operating items affected Disney’s reported net income over the last three years. Are there earnings
The management of Sting Enterprises shares in a bonus that is determined and paid at the end of each year. The amount of the bonus is defined by multiplying net income from continuing operations (after tax) by 12 percent. The bonus is not used in the calculation of income from continuing
The following income statement was reported by Battery Builders for the year ending December 31, 2018:Show how Battery Builders would report earnings per share on the face of the income statement, assuming the following:a. An average of 15,000 shares of common stock was outstanding during 2018.b.
Group Danone, a French-based food processor that publishes IFRS-based financial statements, reported 2014 net income of 1.3 billion euros. Accumulated currency translation adjustments and net holding gains/ losses from securities, both of which directly affected shareholders’ equity but were not
The following information was taken from the 2018 financial records of Rothrock Consolidated. All items are pretax.The company€™s income tax rate is 35 percent, and the items above are treated identically for financial reporting and tax purposes.Prepare the following:a. An income
Laidig Industries has prepared the following un-adjusted trial balance as of December 31, 2018:ADDITIONAL INFORMATION:1. A physical count of inventory on December 31, 2018, indicated that the company had $480,000 of inventory on hand.2. An aging of accounts receivable indicates that $75,000 is
The following pretax amounts were obtained from the financial records of Watson Company for 2018:The company€™s tax rate is 35 percent.a. Prepare an income statement for the year ended December 31, 2018, using the multistep format.b. Prepare a reconciliation of retained earnings for the
Kennington Company has outstanding debt that contains restrictive covenants limiting dividends to 15 percent of net income from continuing operations. During 2018, the company reported net operating income of $335,000, excluding the following items—all of which ignore tax effects:1. A $25,000
Brinkley Leasing purchases farm machinery and leases it to farms. At the beginning of 2017 the company paid $1,000,000 for a fleet of tractors, and estimated their useful lives at five years. Brinkley immediately leased the vehicles for an annual charge of $250,000. Assume that all lease payments
Madigan International is planning a major stock issuance in early 2019. During 2018, the company reported net income from operations of $865,000 before taxes. The following four items describe major events that occurred during 2018.1. A $42,000 gain was recognized on the sale of a subsidiary.2.
The following events occurred during 2018 for Frames Unlimited:1. Purchased inventory for $60,000 in cash.2. Recorded $40,000 in insurance expense for the portion of an insurance policy acquired in 2014 that expired during 2018.3. Paid $40,000 for rental space that the company will not use until
The 2014 statement of cash flows for technology company Hewlett-Packard reported a net profit of $5.0 billion and net cash provided by operating activities of $12.3 billion. Depreciation and amortization totaled $4.3 billion. HP used the indirect form of presenting the statement of cash flows.a.
Classify each of the following transactions as an operating, investing, or financing activity, even those that would not appear explicitly on the statement of cash flows. Some transactions may be classified in more than one category:1. Purchase of machinery for cash.2. Issuance of common stock for
Endnote Enterprises entered into the following transactions during 2018:1. Sold merchandise for $52,000 in cash.2. Purchased a parcel of land. The company paid $12,000 in cash and issued a $30,000 note payable for the remainder.3. Purchased a three-year insurance policy for $30,000.4. Purchased a
Pier 1 Imports reported retail sales for fiscal 2014 of $1.9 billion. During the year, accounts receivable increased from $24.6 million to $29.4 million.Estimate the cash collected by Pier 1 from its customers during 2014.
The statement of cash flow for Yahoo! contained the following numbers (dollars in millions):a. Explain how profit could drastically increase while cash from operations fell over the same time period.b. Analyze Yahoo!€™s cash management activities in 2013 and contrast them with 2014. 2014
Ruttman Enterprises began operations in early 2016. Summaries of the statement of cash flows for the years 2016, 2017, and 2018 follow:REQUIRED:a. Compute the missing dollar amounts.b. Briefly comment on the company€™s cash management policy over the three-year period. 2018 2017 2016
The following are several activities that Wallingford Inc. engaged in during 2018:1. Wrote off an open receivable as uncollected.2. Purchased a piece of plant equipment.3. Reacquired 5,000 shares of its common stock.4. Sold a building in exchange for a five-year note.5. Declared, but did not pay, a
MHT Enterprises entered into the following transactions during 2018:1. Sold a piece of equipment with a book value of $8,000 for $1,200.2. Purchased a parcel of land for $13,000.3. Purchased a three-year insurance policy for $9,000.4. Issued 1,000 shares of common stock at $7 per share.5.
Pier 1 Imports reported cost of sales of $1.1 billion for fiscal 2014. Inventory increased during the year from $378 million to $479 million, and accounts payable (related to inventory purchases) increased from $84 million to $103 million.a. Estimate the cost of inventories purchased during
Summaries of the 2018 statements of cash flows for five different companies follow. For each company compute the missing dollar amount, and briefly describe the company€™s cash management policy for 2018. Cash Provided (Used) by Net Increase Company Investments (Decrease) $ (38) Financing
Cash flows from three well-known Internet companies are provided in the following chart (dollars in millions):REQUIRED:Describe the similarities and differences of the cash flow policies across the three companies. Priceline: 2014 2013 2012 $ 2,301 $ 1,786 $2,914 Operations Investing (2,349)
The following information was taken from the 2014 statements of cash flow for Agilent Technologies and Advanced Micro Devices (dollars in millions):a. Compute the change in cash for both companies.b. Describe the cash management profile for each company€”that is, what is the source
SUPERVALU is one of the largest grocery chains in the United States. Its February 28, 2015, statement of cash flows included the following (dollars in millions):REQUIRED:a. Depreciation and amortization are added back to net earnings in the computation of net cash provided by operations. Does this
Excerpts of statements of cash flows reported by Kraft Foods, Kellogg€™s, and General Mills, three companies in the food industry, are provided in the following table (dollars in millions):For each company compute the missing dollar amount, and briefly describe the company's cash
The following is a list of transactions entered into by Kaitland Manufacturing during 2018:1. Recorded depreciation expense of $170,000.2. Sold 10,000 shares of common stock ($10 par value) for $18 per share.3. Purchased 5,000 shares of IBM for $75 per share.4. Purchased a three-year insurance
The operating section of the 2014 consolidated statement of cash flows for Imation Corporation, a global technology company, is excerpted in the following table (dollars in millions):REQUIRED:a. Review the trends across time of depreciation. Does the company€™s growth strategy seem to
The following information was taken from the 2014 annual report of Hewlett-Packard, a leading technology manufacturer (dollars in millions):REQUIRED:a. Compute the missing dollar amounts.b. Comment on the company€™s cash management policies across the three-year period. 2012 2013 2014
The IFRS-based 2013 and 2014 statements of cash flows published by the Danone Group, a French food processor, are provided in the following table. Briefly describe each of the line items, and comment on the company€™s cash management policies. Consolidated Statement of Cash Flows Year
Webb Industries reported the following information concerning the company€™s property, plant, and equipment in its 2018 financial report:Listed here are four independent cases involving buildings, equipment, and land during 2018.1. The company purchased a building for $60,000.2. The
The following information was taken from the 2014 annual report and statement of cash flows of Eli Lilly, a major pharmaceutical (dollars in millions):**Change in the cash balance does not always equal the sum of cash from operations, investing, and financing due to adjustments for exchange rate
Tony began a small retailing operation on January 1, 2018. During 2018, the following transactions occurred:1. Tony contributed $20,000 of his own money to the business.2. $60,000 was borrowed from the bank.3. Property, plant, and equipment assets were purchased for $25,000 cash.4. Inventory was
The shareholders’ equity section of Mountvale Associates is as follows:The following selected transactions occurred during 2018:1. 1/1/18: A 20 percent stock dividend was issued. The fair market value of the stock at the time was $3 per share.2. 8/25/18: Land was purchased in exchange for
Starbucks is a relatively young, fast-growing company that is a pioneer and leader in its industry. Excerpts from its 2014 statement of cash flows are as follows (dollars in millions):*Change in the cash balance does not always equal the sum of cash from operations, investing, and financing due to
The following year-end totals were taken from the records of Landau€™s Supply House. Compute the cash outflows associated with insurance and salaries and wages during 2018. 2018 2017 Prepaid insurance Salaries and wages payable Insurance expense Salaries and wages expense $4,200 $7,000
You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online.REQUIRED:Review the 10-K, and answer the following questions:a. What are the major sources of cash for the company, and what is it doing with that cash?b. Were there any significant transactions in 2013,
The following information was taken from the records of Dylan€™s Toys:Equipment with a cost of $8,000 was sold during 2018.a. How much equipment was purchased during 2018?b. How much cash was collected on the sale of the equipment during 2018?c. Provide the journal entry to record the
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