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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

Why must both cash flows and net income be analyzed as part of a profitability analysis?P=968
Why must both cash and accounts receivable be analyzed as part of a liquidity analysis?P=968
Describe the benefits of conducting horizontal and vertical analyses.P=968
Describe several situations that may require restatement of the financial statements prior to conducting ratio calculations.P=968
Identify the major elements of financial statements that form the basis for an investor’s analysis.P=968
Identify several bases of comparability that might be established before attempting to compare ratio results.P=968
Discuss several aspects of non-comparability that the analyst cannot overcome.P=968
Discuss several ways that comparability between firms can be enhanced.P=968
Discuss why it is so important that financial information be comparable before conducting analysis and computing ratios.P=968
Identify and describe several sources of financial information for publicly traded U.S. companies.P=968
Identify several users of financial statement analysis. Discuss the differences between users who have regular interaction with the firm versus those who may have less frequent interactions.P=968
Discuss the basic goals of financial statement analysis. Indicate those goals with which you agree or disagree. Identify any additional goals that may be added.P=968
Identify limitations of financial statement analyses.P=968
Identify, calculate, use, and interpret appropriate ratios.P=968
Determine when financial information is comparable and alternatively, learn how to enhance the comparability of financial information that may appear to be noncomparable.P=968
Know where to obtain financial information.P=968
Understand why financial statements are analyzed.P=968
How does the Committee define the core activities of a firm?b. List the core activities for the following corporations: p-968
This assignment is based on a report by the Jenkins Committee. The Jenkins Committee was formed to analyze users’needs in financial reporting and to suggest improvements in financial reporting, keeping in mind these needs.Requireda. Locate Chapter Six of the Jenkins Committee report (located at
A major asset for most companies is facilities. Use the SEC’s EDGAR corporate database (www.sec.gov/edaux/searches.htm.) to locate the 10-K for Rockwell International dated September 30, 1995, and filed on December 21, 1995.Requireda. Locate and read Item 2, properties (pp. 7-8). For the United
Select two of the following companies (your instructor might specify which two) and locate the most recent set of financial statements. You may use either the 10-K available at EDGAR (www.sec.gov/edgarhp.htm) or the annual report available at the company page on the Web. The annual report is
In 1999, Woolies, Inc. reported some accounting irregularities. Although its yearly results were accurate, Woolies initially reported interim results that were incorrect. An investigation into this matter determined that senior management created an environment that prompted the inaccurate
As the staff accountant for Gil’s Plumbing, you notice that a $1,000 check is drawn (payable to “Cash”) on the third Monday of each month and is charged to miscellaneous expenses. You also notice that a sleazy character with a canvas bag comes into the office on the third Tuesday of each
Often, when a highly-regarded athlete joins a new team, his/her contract is recorded at a value well beyond the payments due in the first year.a. Since a person cannot be owned, how can an athlete’s contract be recorded in the team’s financial statements?b. What measurement rules might apply to
Consider a situation in which you learn that your employer’s accounting staff has consistently overestimated the firm’s expenses (such as depreciation or bad debts). As a manager in the firm, what action could you take in response to this knowledge? Why? p-968
Write a one- to two-paragraph essay defending the following statement:Assets need not be objectively measured and valued because they can be sold at any time. If the firm feels that asset values are going to decline, it can avoid any potential losses merely by selling the assets before they
Write a one- to two-paragraph essay assessing the following statement:Liabilities must be precisely measured because the firm needs to know how much is owed to its creditors. If such amounts are not precisely known, the firm risks bankruptcy or other liquidity crises whenever the actual liabilities
Financial statements, and the underlying accounting processes, rely on many subjective estimates. Review the sample transactions described in this chapter and indicate which of them are objective. Which are subjective? Which could be more objective if additional information was available? Why? p-968
Suppose that Tina’s Frame Shop is anticipating applying for a bank loan in the near future. Although Tina’s has been using accrual accounting, the bookkeeper suggests that the firm switch to a cash basis in order to improve its financial picture.Requireda. Assuming that the bank requires
Refer to the T-shirt business first described in Chapter 1, “Financial Accounting and Its Environment.”The firm now has a small store near the football stadium to display and sell various sporting goods. During the first week that the shop is open, the following events occur. Should they be
Answer each of the following independent questions:a. Dennis Company has assets of $125,000 and owners’equity of $40,000. What are its liabilities? If these liabilities include an outstanding mortgage of $60,000, identify some of the other liabilities that Dennis Company might have.b. Bruce
Assume that you are auditing a small bank that uses the cash basis of accounting to record interest on its customers’ accounts and uses the accrual basis of accounting for interest earned on its investments.a. If most of the bank’s investments were earning daily interest, while most of the
Following are several transactions recorded by Bruce’s tea shop, The Better Leaf(TBL):Required For each transaction, describe the event or activity that occurred. For example:Answer:The firm borrowed $20,000. p-968
Sharon’s Affairs and Parties (SAAP), a sole proprietorship, engaged in the following transactions in 1999: 1. SAAP borrowed $150,000 at 10% per year to begin operations. 2. SAAP accrued the first month’s interest on the loan. 3. SAAP accrued the second month’s interest. 4. SAAP paid the
John’s Anti-Mediation League (JAML), a sole proprietorship, engaged in the following transactions in 1999: 1. On January 1, JAML borrowed $100,000 at 6% per year with interest due quarterly. 2. JAML paid a $1,000 kickback to a good friend who helped obtain the loan. 3. JAML had not yet paid any
Heidi’s Golf and Swim Club borrowed $500,000 at 12% per annum.Requireda. Calculate Heidi’s expected monthly and annual interest expense.b. Show the effect of the $500,000 loan on Heidi’s accounting equation.c. Show the effects of the first and second months’ interest accruals.d. Show the
Identify the effects of the following events on the income statement and the balance sheet for each year:a. Sunshine House borrowed $20,000 at 5% interest per annum.b. Interest for the first year was accrued, but not paid.c. Two months into the next year, the interest was paid for the first year.d.
Use the accounting equation to analyze the effects of the following events. Assume that the beginning balances are zero. Prepare an income statement and balance sheet after recording each transaction.a. Sugar Loaf Enterprises bought inventory for resale at a cost of $350,000 on account.b. Half the
Use a balance sheet equation to show how each of the following events would be treated under 1. the cash basis of accounting and 2. the accrual basis of accounting.a. Ordered airline tickets, hotel accommodations, and tour guidance from Hugo’s U-Go Travel at a cost of $5,000.b. Changed the
Assume that you inherit $10,000, which according to the terms of the bequest must be invested in a single company. After much research, you find two attractive alternatives: The Salt Company and The Pepper Company Requireda. On the basis of the following limited information, which of the following
Ascertain the missing items (A-L) in the following independent situations. (Note:You do not have to find the answers in any particular sequence. See the previous assignment for an explanation of how to find these missing items.)1 23 Assets, January 1 $12,000 E I Assets, December 31 $ 9,000 F $
Ascertain the missing items (A-L) in the following independent situations. (Note:You do not have to find the answers in any particular sequence.)1 23 Assets, January 1 $ 5,000 E I Assets, December 31 $ 8,000 F $ 9,000 Liabilities, January 1 A $ 2,000 $ 3,000 Liabilities, December 31 $ 3,000 $ 2,200
Susan’s Shoe Shop opened on January 1. The following transactions took place during the first month:1.Deposited $30,000 in the firm’s checking account.2.Purchased shoes, boots, socks, and other inventory for $45,000 on account.3.Purchased display shelving, chairs, and other fixtures for $10,000
(Note: Increase owners’ equity capital account.)Requireda. Use the basic accounting equation to show the effects of the transactions and any necessary accruals during Susan’s first year of business.b. Based on that analysis, prepare a balance sheet and an income statement for the first year.
Susan’s Sweets, a candy shop, opened on January 1, 1999, with the following transactions:1,Susan deposited $100,000 in cash on January 1, 1999, and began business as a sole proprietorship.2,Susan transferred a rental agreement for commercial premises to the candy shop. She personally had paid
The following account balances are shown on November 30, 1999, for the Clever Bookstore:Cash $ 8,000 Accounts payable $ 4,000 Accounts receivable 9,000 Salaries payable 2,000 Inventory 60,000 Notes payable 35,000 Supplies 3,000 J. Clever, capital 39,000 Total $80,000 Total $80,000 p-968
The accounting firm Seaver & Co. prepares its own financial statements at the end of each year. Based on the following information, prepare any adjustments that are needed for the accounting records as of December 31, 1999 in terms of the basic accounting equation.a. As of December 31, Seaver & Co.
Jane Goodrum established a sole proprietorship to sell and service personal computers. Use the balance sheet equation to analyze the effects of the following transactions:a. Invested $50,000 in the business.b. Purchased a four-wheel drive pickup truck for $22,000 (on account) that will be used in
Identify the effects of the following events on the first year’s income statement and balance sheet:a. A company paid a $2,000 bill for a fire insurance policy that covers the current year and the next year.b. A company purchased a trash compactor for $200 that has an expected life of five years.
Record the following business transactions in the basic accounting equation.Use column headings for Cash, Accounts Receivable, Land, Accounts Payable, Unearned revenue, Notes Payable, Invested Capital, and Retained Earnings.a. Three individuals each invested $70,000 in a newly formed corporation in
Ascertain the missing items (A, B, and C) in the following situation: p-968
Find the missing elements in the following (independent) cases: p-968
John Hasty opened his bakery on March 1, 1999, as a sole proprietor. The following transactions took place at the beginning of March:1, Deposited $10,000 into a checking account in the name of the Hasty Bakery.2, Rented a small kitchen and paid the first month’s rent of $500.3, Purchased kitchen
The Western Fittings Corporation began business on July 1, 1999. The following transactions occurred during its first six months:1, Three individuals each invested $30,000 in exchange for capital stock.2, One year’s rent was paid for $12,000 on July 1.3, On August 1, several pieces of property,
R & RTravel entered into the following transactions. Which of these transactions or events should be recorded in R & R’s accounting process? Explain your answer.a. Obtained a bank loan.b. Repaid a bank loan.c. Signed a one-year agreement to rent office space. The first month’s rent is paid at
A professional baseball player signs a contract for next season to play for the Colorado Rockies. The contract includes payment terms of $7,000,000 over the next two years. The player receives an extra “signing bonus”of $1,000,000. How should each of these two amounts be recorded by the
Use pluses and minuses (or NA for not applicable) to show how the following events should be analyzed using the accounting equation under 1. the cash basis of accounting and 2. the accrual basis of accounting.a. Signed a contract for the purchase of land.b. Paid a deposit on the land purchase.c.
Identify which of the following events should be reported on financial statements under 1. the cash basis of accounting, 2. the accrual basis of accounting, 3. both methods, or 4. neither method.Explain each choice.a. Agreed (verbally) to purchase a used car from Slee-Z-Auto.b. Paid $300 for a
Indicate the effects [(1) increase, (2) decrease, (0) no effect] on the accounting equation from the following transactions: p-968a. Owner invested cash in the business.b. Performed services for cash.c. Purchased equipment by signing a note payable.d. Customers paid in advance for services to be
Define owners’ equity. How does this differ from retained earnings? How can one firm’s asset be another firm’s equity? p-968
Define an asset. Define a liability. How can one firm’s asset be another firm’s liability? p-968
Define accrual accounting. Contrast accrual accounting with cash basis accounting. p-968
Indicate whether each of the following statements concerning possible organization structures is true or false. If a statement is false, indicate why it is false.a. A corporation and its investors are legally the same entity.b. The shareholders of a corporation are not liable for the debts of the
Indicate whether each of the following statements concerning possible organization structures is true or false. If a statement is false, indicate why.a. A sole proprietorship and its owner are legally the same entity.b. The partners in a partnership are not liable for the debts of the
Identify two forms of business organizations and list a major advantage and disadvantage of each. p-968
Executory contracts.a. Discuss the concept of an executory contract. Why might a firm sign such a contract?b. How should such a contract be recorded in the firm’s financial statements? p-968
Using the definition of assets in this chapter, describe why each of the following items should not be listed as an asset on the firm’s balance sheet:a. Favorable locationb. Skilled employeesc. Reputation for honesty and fairnessd. Brand recognition in the markete. Steady customersf. Customers’
Describe each part of the basic accounting equation. Identify one example of each item or term in this equation and describe why it fits in that particular category. p-968
Explain the differences between the balance sheets of sole proprietorships and those of corporations. p-968
Distinguish between the accrual basis and the cash basis of accounting. p-968
Describe the relationship between the balance sheet and the income statement. p-968
Prepare simple balance sheets and income statements. p-968
Use the basic accounting equation to analyze transactions. p-968
Describe revenues and expenses. p-968
Explain why the balance sheet must balance. p-968
Define the terms assets, liabilities, and owners’ equity. p-968
Refer to Reebok’s financial statements in Appendix E. Review the balance sheet to determine how and where contingencies were reported.Requireda. Read Note 17. Identify and discuss any unusual terms. Trace any numerical disclosures of contingencies in the notes to corresponding disclosures in the
In 1995, Sundstrand Corporation decided to, among other things, shut down and dispose of its Lima, Ohio manufacturing facility. The company recognized the costs associated with this decision as restructuring charges and expensed the costs in 1995. Locate the 1995 10-K for Sundstrand Corporation
Locate the most recent set of financial statements for the companies listed below. You may use either the 10-K available at EDGAR (www.sec.gov/edaux/searches.htm) or the annual report available at the company’s home page. The annual report is usually located in the Investor Information
Identify three major types of noncurrent assets: (1) property, plant, and equipment; (2) intangible assets; and (3) natural resources. P-968
Explain why most business firms pay their accounts payable within the discount period. As a manager, in what circumstance might you decide to pay after the discount period has expired? LOP9
Use the accounting equation to show the effects of each of the following transactions on the firm’s balance sheet:1. Borrowed $20,000 cash from First Bank and signed an interest-bearing 120-day note (12% annual interest rate) on October 1.2. On November 1, borrowed cash from Interwest Bank.
Companies in different industries naturally use different assets in daily operations. The differences are reflected in both type and amount of long-term tangible assets. Locate, from 10-Ks on file with EDGAR (www.gov.sec/edaux/searches.htm), the latest balance sheet and Notes to the Financial
For each of the following companies, locate the most recent 10-K available using the EDGAR database (www.sec.gov/edaux/searches.htm): Walt Disney Corp., Schering Plough, Oncogene Science, Chicago Tribune, John Wiley & Co., RJR Nabisco, and Macromedia Inc.Requireda. Identify a unique intangible
Locate the most recent set of financial statements for the computer manufacturers listed below. You may use either the 10-K available at EDGAR(www.sec.gov/edaux/searches.htm) or the annual report available at the company page on the Web.Corporation Home Page Location Compaq www.compaq.com (under
The following data for Pfizer and Eli Lilly have been excerpted from the SEC’s EDGAR database:NONCURRENT ASSETS 303 Integration of Concepts Pfizer (excerpts from balance sheet and income statement) 1997 1996 1995 Pfizer Inc. and Subsidiary Companies Long-term loans and investments 1,340 1,163 545
The following income statements for SOS Staffing Services, Inc. were extracted from the SEC’s EDGAR database (see next page)SOS Staffing Services, Inc.Consolidated Statements of Income Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995 Fiscal Year (52 Weeks) Ended
The president of your company clearly wants to report as large a net income number as possible. Part of your responsibility as the controller is to determine if certain expenditures should be expensed or capitalized. Knowing the president’s wishes, which of the following expenditures would you
Locate the 10-K filing for the following companies from EDGAR (www.sec.gov/edaux/searches.htm). Read the Notes to the Financial Statements sections where the following current liabilities are explained:Corporation Current Liability Novell Deferred revenue Browning-Ferris Deferred revenue Reader’s
Locate the most recent set of financial statements for the companies listed below. Use the 10-K available on the SEC’s EDGAR database (www.sec.gov/edaux/searches.htm) or the annual report available on the company’s home page. The annual report is usually located in the Investor Information
Review the following notes provided by an oil company in its annual report and identify any unusual terms. Compare and contrast its commitments and contingencies. Also identify the types of business risks faced by such an oil company.Note 18—Commitments (Excerpted)The company also has certain
The following excerpts from their notes on commitments and contingencies were reported by three different companies:PolyGram N.V.PolyGram has extensive international operations and is subject to a number of legal proceedings incidental to these operations. PolyGram does not expect that the outcome
The following summary data (thousands of dollars) are available for Hilary’s LoTech Health Care Concern:2000 2001 Total liabilities $ 3,500 $ 4,600 Warranty obligations (unrecorded) 750 850 Stockholders’ equity 10,000 12,000 Total assets 13,500 16,600 Requireda. Compute the debt to total assets
Engineering Group, Inc., is a major British international engineering firm with the following liabilities shown on its 1999 balance sheet (shown in millions of pounds):Loans and other borrowings 392.0 Other creditors 31.0 Provisions for liabilities and charges 130.5 Requireda. Where should warranty
Cabot Corporation is principally involved in the manufacture of carbon black and other specialty chemicals. Its 1994 financial statements have an accrued liability for environmental proceedings related to cleanup as a result of divesting businesses worth $44,000,000.Requireda. Why is this liability
Tyler Corporation is a diversified company that provides goods and services through three major operating subsidiaries: (1) a retailer of auto parts and supplies; (2) a marketer of products for fund-raising programs in schools; and (3) a manufacturer of cast iron pipe and fittings for waterworks
Oncogene Science, Inc., is a biopharmaceutical company involved in developing innovative products for the diagnosis and treatment of cancer, cardiovascular disease, and a number of other important human illnesses. Its proprietary core technologies include oncogenes, tumor suppressor genes, and gene
Polygram is an international entertainment company, which has published such hits as Billy Ray Cyrus’ Achy Breaky Heart. Polygram is headquartered in Amsterdam. It lists the following current liabilities in a note to its 1994 annual report(stated in millions of Netherlands guilders):1993 1994
Hiram’s Hi-Tech Industries assembles specialized electronic interfaces that are used in hand-held computers and communications devices (PDAs). Hiram’s has had significant warranty claims on its interfaces and is wondering what liability recognition would be appropriate for 2000. Hiram’s 1998
Seagull Designs does not report any warranty costs in its income statement, nor does it report any warranty obligations in its balance sheet. Seagull reports only the following four types of costs and expenses in its income statement:• Costs of sales• Sales and marketing• Research and

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