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financial reporting and analysis
Financial Accounting Reporting And Analysis 6th Edition Earl K. Stice, James Stice, Michael Diamond, James D. Stice - Solutions
Eli Lilly and Company provided the following information in the notes (excerpts) to its 1997 financial statements:Note 8: Stock Plans Stock options and performance awards have been granted to officers and other executive and key employees. Stock options are granted at exercise prices equal to the
Philip Morris was the founder and chairman of Lollipops, Inc. until his death in 1998. The company’s performance had been sharply declining during the 1990s. Because Morris owned the majority of the shares in the company, he was very concerned about the resultant decline in the share prices and
Clorox and Lubrizol repurchased some common stock in 1995. Locate their 10-K filings for 1995 from the EDGAR archives (www.sec.gov/edaux/searches.htm).Requireda. For each company, list the number of shares of common stock authorized, issued, and outstanding. Does either company hold any treasury
Quicken.com’s home page (www.quicken.com) contains information on several hundred corporations. In addition to links to corporate home pages or financial information, it also provides current and historical stock price data (as well as other market-related data). Access the market-related data
Access Quicken.com’s home page (www.quicken.com), which provides links to corporate pages and market-related data. The menu contains two options for charts.Requireda. Set the time horizon so that it will capture enough price history to include the stock prices for Applied Materials on October 12,
Premier Anesthesia is a high-tech health services provider that transformed itself from a private company to a public company in 1992. At the end of 1992, its price-to-earnings ratio was 45.0, based on estimated 1992 earnings. Its quarterly earnings for the first and second quarter of 1992 were,
DUD Computer is a private company. DUD’s major product lines are CAD/CAM computer vision design systems, midrange computers, and computer services.DUD had $1.26 billion in debt at the end of 2000, its losses were more than half a billion dollars, and its net worth (retained earnings) was a
Locate recent annual reports for three companies in the same industry. If such reports are not conveniently available, use a business reference service, such as Moody’s, Standard & Poor’s, Compustat, or the SEC’s EDGAR database to obtain the following information:• Company name and industry
An American Accounting Association Committee suggested the following in a committee report subtitled “Debt Disguised as Equity” (Accounting Horizons, September 1991, p. 88):. . . If [debt can be made to look like equity] while at the same time retaining the tax-deductibility of the interest on
Many U.S. firms have completed exchanges or swaps of stock for debt. Collectively, such swaps often retire more debt than the value of the stock that is exchanged. In other words, the face value of the debt often exceeds the market value of the stock that is exchanged. Typical swaps might
DWN Corporation began operations in 2000. Calculate the balances in each component of shareholders’equity at the end of 1998, after recognizing the following transactions:1. Issue one million shares of $5.00 par value common stock at a price of$15.00.2. Earn net income of $450,000.3. Declare and
Understand why large business firms prefer to organize as corporations. OL89
Describe why retained earnings is not cash. Why can’t shareholders withdraw their portion of shareholders’ equity as cash? OL89
Distinguish between invested capital and retained earnings. What are the sources of each? Describe how each can be reduced. OL89
With regard to common stock, distinguish among authorized, issued, and outstanding shares. Why would a firm never have more outstanding shares than authorized and issued shares? OL89
Under what circumstances does a firm receive cash when it issues stock? Under what circumstances might it not receive cash? OL89
Identify and describe the differences between a stock dividend and a stock split. OL89
With regard to common stock, describe the concept of treasury stock. Describe why this is shown in a contra-equity account. OL89
Distinguish between outstanding common stock and treasury stock. Why would a firm want to have treasury stock? OL89
Describe the concept of employee stock options. Why might a firm want to issue stock options? OL89
What are cumulative dividends as compared to noncumulative dividends? OL89
Identify and describe the differences between convertible preferred stock and convertible bonds. OL89
Distinguish between dividends and other benefits that an investor gets by owning shares in a corporation. Why would an investor prefer a $100 noncash benefit, rather than a $100 cash dividend? Under what circumstances would an investor prefer the $100 in cash? OL89
Describe the differences between an equity or ownership interest in a corporation as compared to a creditor interest. What different rights does each have? OL89
Comprehend the types of transactions and events that affect the components of shareholders’ equity. OL89
Interpret shareholders’ equity ratios that are helpful in analyzing financial statements.? OL89
Describe the differences between shareholders’ equity and liabilities. OL89
Identify three components of shareholders’ equity and describe each component. OL89
Describe how dividends decrease shareholders’ equity. Under what circumstances will dividends not reduce shareholders’ equity? OL89
Write a short memo explaining why large firms prefer to organize as corporations. OL89
Describe why a firm’s owners might prefer a corporate structure, rather than a partnership. OL89
Under what circumstances might a partnership want to shift immediately to a corporate structure? OL89
Describe the differences between common and preferred stock. OL89
Describe why a firm’s financial statements do not reflect the market value of the firm’s shares of common and preferred stock. OL89
Describe why shareholders’ equity can be referred to as a residual interest in a corporation. OL89
Why might a firm want to issue hybrid securities, such as convertible bonds or preferred stock with special preference rights? OL89
Record the effects of the following transactions, using the balance sheet equation and Cash and other assets. Calculate the ending balance in Retained Earnings.1. The beginning balance in retained earnings is $2,590,000; common stock,$1.00 par value, is $2,000,000; and Cash and other assets is
Calculate earnings per share (EPS), given the following information:• Net income, $63,000,000• Common stock outstanding, 3,000,000 shares• Bonds payable, $35,000,000• Retained earnings (ending balance), $42,300,000
Calculate EPS, given the following information:• Common stock outstanding, 4,000,000 shares• Net income, $55,000,000• Bonds payable, $33,000,000• Retained earnings (ending balance), $44,000,400• Preferred shares outstanding, 1,000,000, $10.00 par value• Preferred dividends, $2,000,000
Macintosh Browning Corporation has the following stockholders’ equity at December 31, 1999:Seven percent cumulative preferred stock: $120 par, 50,000 shares authorized, 20,000 shares issued and outstanding $2,400,000 Common stock: $10 par, 500,000,000 shares authorized, 300,000 shares issued
LP&G Corporation has the following stockholders’equity at December 31, 1999:Common stock: $20 par, authorized 700,000 shares, issued 200,000 shares $ 4,000,000 Additional paid-in capital 3,200,000 Total contributed capital 7,200,000 Retained earnings 5,400,000 Total stockholders’ equity
The H. Houdini Company’s capital structure includes $10,000,000 of long-term debt at an average rate of 12%. The capital structure also includes $3,000,000 of (cumulative) preferred stock, with stated dividends of five percent and$6,000,000 of common stock. It has no retained earnings.Requireda.
The Open Sesame Company has assets of $300,000,000, long-term debts of$100,000,000, common stock of $100,000,000, and retained earnings of$100,000,000. Most of the long-term debt consists of convertible debt carrying fairly high interest rates that are about five points above the current prevailing
Smith Smyth, Inc., has the following capital structure:Current liabilities $ 20,000,000 Long-term debt 30,000,000 Preferred stock ($10 par value) 40,000,000 Common stock ($1 par value) 40,000,000 Capital in excess of par 20,000,000 Retained earnings 15,000,000 Total liabilities and shareholders’
Bitsy Betsy, Inc. has the following capital structure:Current liabilities $ 35,000,000 Long-term debt 35,000,000 Preferred stock (no par) 45,000,000 Common stock (no par) 45,000,000 Retained earnings 10,000,000 Total liabilities and shareholders’ equity $170,000,000 Requireda. Calculate Betsy’s
Swan and Duboner Corporation has the following stockholders’ equity on December 31, 1999:Six percent preferred stock: $100 par value, 20,000 shares authorized, 5,000 shares issued and outstanding $ 500,000 Common stock: $5 par value, 1,000,000 shares authorized, 250,000 shares issued 1,250,000
Calculate EPS, given the following information:• Net income, $65,100,000• Common stock outstanding, 3,100,000 shares• Preferred stock outstanding, 1,000,000 shares• Dividends paid on preferred stock, $5,000,000• Bonds payable, $40,000,000• Retained earnings (ending balance), $45,679,000
a. Describe how earnings per share (EPS) is computed.b. Why is EPS such an important ratio?c. Describe what EPS represents. Describe what it does not represent. OL89
Describe why the market-to-book value ratio is analogous to comparing apples to oranges. Why have analysts found this ratio to be useful? OL89
Explain why price-to-earnings ratios may differ among firms. Describe why investors might prefer to buy a stock that has a relatively high price-to-earnings ratio? Why might some investors prefer low price-to-earnings ratios? Discuss. OL89
Assume that a firm uses relatively conservative methods of accounting (LIFO inventory costing and/or accelerated depreciation methods). Describe how this would affect your interpretation of the following measures: EPS, financial leverage ratio, and price-to-earnings ratio. OL89
Davidson Corp. has the following transactions. Use the balance sheet equation to analyze the financial statement effects of these transactions. Set up the following columns: cash, patent, preferred stock, capital in excess of par, common stock, and treasury stock.1. Issued five million shares of
SKN Corporation began operations in 1999. Calculate the balances in each component of shareholders’equity at the end of 1999, after recognizing the following transactions:1. Issue two million shares of $10.00 par value common stock at a price of$25.00.2. Incur high R&D costs and show a net loss
RMN Corp. had a variety of shareholders’equity transactions in 2000. It had the following balances in Shareholders’ Equity accounts and Cash and other assets accounts at the beginning of 2000:Cash and other assets $78,000,000 Common stock, $1.00 par value 5,000,000 Capital in excess of par
Calculate earnings per share (EPS), given the following information:• Net income, $255,000,000• Authorized common stock, 50,000,000 shares• Common stock, 25,000,000 shares outstanding all year• Bonds payable, $50,000,000
Calculate EPS, given the following information:• Net loss, $20,000,000• Common stock, 2,000,000 shares outstanding all year• Preferred stock, 2,000,000 shares authorized, but none issued
Calculate EPS, given the following information:• Net income, $345,000,000• Authorized common stock, 20,000,000 shares, $1.00 par value• Weighted average number of shares outstanding, 11,455,678• Dividends paid, $35,000,000
A list of business transactions and events follows:1. Sale of common stock to investors 2. Sale of preferred stock to investors 3. Declaration of a cash dividend to common shareholders 4. Purchase of treasury stock 5. Sale of treasury stock 6. Issuance of options to employees, which will become
Conduct a research study on stock-based compensation. Write a memo describing how stock-based compensation should be reflected or disclosed on a company’s financial statements. OL89
Locate the latest available 10-K filing (www.sec.gov/edaux/searches) of Diebold, Inc., an Ohio-based manufacturer of automated teller machines or use the company’s home page (www.diebold.com). Scroll down to the Management Analysis of Results of Operations where vertical and horizontal analyses
Access the EDGAR archives (www.sec.gov/edaux/searches.htm) to locate the latest available 10-K filings for Kmart and Wal-Mart. Scroll down to the Summary of Key Financial Information and calculate the following ratios for the most recent two years. Hint: Some data must be obtained from the
Obtain the audited financial statements of a local service firm. Apply the financial analysis framework, as appropriate, to this firm. Write a short report describing your conclusions regarding this firm’s performance. Indicate why you would or would not be concerned about the long-term success
Review the financial statement ratios in this chapter and consider which might apply to a service organization, such as a law firm or an accounting firm. Write a short report indicating why each of your selected ratios would apply to a service firm.
Use a business library or the Internet to identify several recent articles discussing cash flow-based ratios that can be used in financial statement analysis.Requireda. Compare and contrast the cash flow-based ratios presented in this text with those in the articles you selected.b. Discuss the
Use a business library or the Internet to identify two recent articles that discuss financial statement analysis.Requireda. Compare and contrast the ratios presented in this text with those in the articles you selected.b. Discuss the advantages and disadvantages of any new ratios that were
Refer to the following excerpts from Fiddler Capital Management Incorporated’s 1999 financial statements. You have been provided with the independent auditor’s report, financial statements, and Notes 1 and 2.Independent Auditors’ Report Board of Directors Fiddler Capital Management Inc.Edina,
Obtain the financial statements from two companies in the same industry and conduct a comprehensive financial statement analysis of each company. Then consider a scenario under which the largest of these two companies would consider acquiring or merging with the smaller company. Write a short
Obtain the audited financial statements of a local nonprofit organization. Apply our financial statement analysis framework, as appropriate, to this organization. Write a short report describing your conclusions regarding this organization’s performance and indicate why you would, or would not,
Review the financial statement ratios in this chapter and consider which might apply to a nonprofit organization. Write a short report indicating why each of these ratios would (or would not) apply to a nonprofit organization.P=968
Obtain financial statements from a local company. Conduct a comprehensive financial statement analysis of this company using the financial statement analysis framework. After completing your analysis, conduct an interview with a financial manager (such as a CFO) and a general manager (such as a CEO
Obtain financial statements from two companies in the same industry. From the Internet or a local business library, obtain appropriate operating statistics and ratios for this industry. Conduct a comprehensive financial statement analysis of each company. Compare each company to the industry
Interview a local stockbroker or financial analyst and discuss the differences between the debt-to-equity ratio and financial leverage (debt/assets). At the same time, discuss the percentage composition ratios and determine whether he/she would find them more helpful than debt-to-equity (or
Interview a local stockbroker or financial analyst and discuss the differences between liquidity and profitability ratios. Identify the three most important ratios used by this professional in each area and describe why they are important.P=968
Select three large firms in the food service industry. Use your library or Internet sources to obtain balance sheet and profitability ratios for each of those three firms. Review these ratios with reference to the ratios described in this text. Compare the ratios that are computed in a manner
Financial statements for two companies, The Gap and Intimate Brands, are presented below. Although the notes were omitted, a statement from each company’s auditor is included. Both companies are in the retail apparel industry.P=968
This assignment is based on the computations and exhibits shown earlier that are based on Wendy’s financial statements. In each case, refer to the relevant exhibits and review the results.Requireda. Review the horizontal and vertical analyses of Wendy’s income statement for 1997 and 1996 (step
Review Wendy’s financial statements in Appendix D to determine whether any unusual or noteworthy events may limit the scope or comparability of financial statement analysis. Review the audit report and determine whether any restatements might be necessary. Also determine whether any barriers
Conduct a comprehensive financial analysis of Reebok International’s financial statements (see Appendix E).Required:a. Review Reebok International’s financial statements (see Appendix E) to determine whether any unusual or noteworthy events may limit the scope or comparability of financial
Electronic Fab Technology (EFT) is a leader in information technology. EFT reported the following results for 2000, as summarized below (dollars in thousands):Year Ended December 31 2000 1999 Net sales $52,541,842 $29,816,626 Cost of goods sold 47,123,066 25,688,263 Gross profit 5,418,776 4,128,363
General Cinema Companies, Inc., reported the following results for 1994 as summarized below (dollars in thousands except for per-share amount):Years Ended October 31 1994 1993 Revenues $452,563 $495,031 Costs applicable to revenues 188,616 214,653 Selling, general and administrative expenses
Dairy King, LTD., reported the following results for 1999 (dollars in millions):1999 1998 Revenues:Net sales $268.8 $241.6 Service fees 54.2 51.6 Franchise sales (fees) 8.6 7.6 Property management 8.1 9.0 Other 1.1 1.3 340.8 311.1 Costs and expenses:Cost of sales 242.4 217.2 Property management
Describe how managers may make biased estimates that will cause net income to be overstated or understated. What can the analyst do to combat these earnings manipulation possibilities?P=968
Describe how managers can affect the timing of earnings recognition. What can the analyst do to combat these earnings manipulation possibilities?P=968
Describe several possible choices of accounting methods that managers may make in an effort to manipulate or influence reported earnings. What can the analyst do to combat these earnings manipulation possibilities?P=968
Describe several limitations of financial statement analysis. What can be done to minimize these limitations?P=968
Discuss why the “What’s missing?”question is so crucial during all phases of financial statement analysis.P=968
Under what conditions might the financial leverage ratio be confusing and less useful than the percentage composition ratios?P=968
Why would a lender and an investor be equally concerned with earnings per share (EPS)?P=968
Why would a lender not be too concerned about market-to-book value and price-to-earnings (P/E) ratios? Why would a creditor or banker be more concerned?P=968
Describe the relationships between cash interest coverage and times interest earned.P=968
Describe why the percentage composition ratios might have three or four components. Why might they have less than three components? Why might they have more than four such components?P=968
Under what circumstances might the percentage composition ratios not sum to 100 percent?P=968
Discuss the relationship between financial leverage and percentage composition.P=968
Discuss why a tax adjustment is necessary as part of return on assets (ROA).P=968
Compare and contrast the quality of the income ratio with dimensions of income quality.P=968
Discuss the differences between cash flow from operating activities (CFOA)and cash collections from customers.P=968
Describe the relationship between quality of sales and accounts receivable as a percent of sales.P=968
Describe the relationship between return on assets (ROA) and cash return on assets.P=968
Describe the relationship between return on equity (ROE) and cash return to shareholders.P=968
Describe the similarities between the collection period and the number of days’ sales in ending inventory.P=968
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