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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

How does depletion of natural resources affect cash flows? When does cash change as a result of transactions involving natural resources?
How does amortization of an intangible asset affect cash flows? When does cash change as a result of transactions involving intangibles?
A firm purchased an oil well costing $2,600,000, which is expected to produce five million barrels of oil. The well can probably be sold for $100,000 after all the oil is extracted. If 500,000 barrels of oil were extracted and sold this year, what is the depletion expense?
A firm acquired a machine for $150,000 and spent $50,000 to install it. The machine has a five-year life and a zero residual value. The firm is considering the possible effects on net income if it chooses to capitalize or expense the installation costs. Calculate the effect on net income each year
A firm purchased computer-aided drafting and machining equipment at the beginning of the year for $420,000. The machine has an expected useful life of six years and a $38,000 residual value.Requireda. Calculate the annual depreciation expense for the first four years of the equipment’s life using
A firm acquired a $650,000 fixed asset that has a four-year life and a residual value of $50,000. Show the effects on the balance sheet equation of the asset’s disposal at the end of the fourth year, assuming the following separate circumstances:a. The asset is sold for its estimated residual
A firm acquired a $24,000 truck that has a three-year life and an estimated residual value of $6,000. Using the balance sheet equation, record the truck’s purchase and depreciation using sum-of-the-years’-digits depreciation. Show the effects in each year, and be sure to include separate
A firm acquired a $20,000 computer, along with $14,000 of related ancillary equipment that can only be used on this machine. The computer and the related equipment have an estimated life of five years and a residual value of $2,000.Requireda. Using the balance sheet equation, record the
A firm acquired a patent for $125,000 and expected its economic useful life to be 15 years.Requireda. What useful life should be used to amortize the patent?b. Show the balance sheet effects of holding the patent for three years.c. What if the firm had to defend its patent in a lawsuit at the
A firm spent $1,500,000 for an oil well that is expected to produce 3,000,000 barrels of oil. During the first year, no oil is extracted. During the second year, 1,000,000 barrels are extracted and sold.Requireda. Show the effects on the balance sheet equation of the oil well acquisition and
A firm acquired a $4.5 million gold mine that is expected to yield 500,000 ounces of gold. During each of the first two years, 100,000 ounces of gold are mined and sold.Requireda. Show the effects on the balance sheet equation from the mine acquisition and depletion for each of these two years.b.
A firm purchased machinery on account with an invoice price of $15,000. The terms of payment were 2/10, net 30. In addition, transportation of $250, installation of $420, and sales tax of $1,000 were paid in cash. While installing the machinery, an employee’s negligence caused $150 worth of
Discuss the following proposition: GAAP should only include one depreciation method: options give managers too much flexibility and too many opportunities to manipulate net income.
Why would a firm choose one depreciation method over another?
Identify key differences between three depreciation methods: straight-line, sumof-the-years’-digits, and declining-balance.
Discuss the following proposition: GAAP should permit managers the flexibility to choose from among several depreciation methods; each firm is unique and may require the flexibility to match its depreciation method to its own unique circumstances.
Discuss the following proposition: Intangible assets may last one year, or they may last indefinitely; therefore, no one can determine the proper amortization schedule until the asset is exhausted or retired.
Discuss the following proposition: Intangible assets reflect so much uncertainty that they should not be shown on the firm’s balance sheet.
Identify the following costs that could be capitalized on the firm’s balance sheet.Identify costs that should be included in property, plant, and equipment (PPE).a. New windshield wiper blades on the company’s truckb. New sidewalks in front of the firm’s factoryc. Freight expenses for new
Firm A purchased a patent from another firm at a cost of $1 million. Firm B spent the same amount in developing a patent through its own internal research and development (R&D) efforts.Requireda. Describe the accounting treatment for each firm. Show the balance sheet and income statement effects
Discuss the following proposition: Intangible assets have no substance; therefore, they have no value and should not be shown on the firm’s balance sheet.
Locate the three 10-Q filings and the 10-K for the most recently completed fiscal year for Cedar Fair, L.P., and H&R Block.These statements can be retrieved from the EDGAR archives (www.sec.gov/edgarhp.htm).Requireda. What is the main business of these two companies? What is the peak season for
The 10-K for Oncogene Science,a biotechnology company,contains a thorough description of its main products. Locate the most recent 10-K from the EDGAR archives (www.sec.gov/edgarhp.htm).Requireda. What are the main products of Oncogene Science?b. Scroll down to the most recent set of financial
Locate the most recent financial statements for the computer manufacturing companies listed below.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 usually located in the Investor Information
The following financial statements from Eli Lilly and Company and Pfizer INC.were downloaded from the SEC’s EDGAR database:194 CHAPTER 5 Critical Thinking Consolidated Statements of Cash Flows ELI LILLY AND COMPANY AND SUBSIDIARIES(Dollars in millions)Year Ended December 31 1997 1996
The following financial statements from SOS Staffing Services, Inc. were downloaded from the SEC’s EDGAR database:190 CHAPTER 5 Writing SOS STAFFING SERVICES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS For the Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995 Increase
Write a short memo discussing the advantages of using operating cash flows as an indicator of success. Contrast the use of operating cash flows as a performance measure, with accrual-based net income measures. Indicate the circumstances under which managers might prefer to use both measures
Obtain the cash flow statements for a company that has been described in a recent business article as having cash flow problems. Conduct your own analysis of the company’s cash flows, using the ratios described in this chapter.Write a short essay, clearly showing why you agree or disagree with
Scan recent business publications or use a business index in your library to locate an article discussing a company’s cash flow issues. Read the article and write a short summary discussing the managerial implications of the company’s cash flow issues.LOP9
Obtain recent financial statements for two or three companies.If possible,these companies should be in the same industry and they should use the same method in reporting their cash flows from operating activities. Ideally, they will all use the direct method,though it will be hard to identify three
From Appendix E,“Reebok International Ltd.,” review Reebok’s cash flow statement and income statement.Requireda. Evaluate Reebok’s cash flow from operations. Calculate the relevant cashbased ratios from this chapter.b. Compare Reebok’s cash flow from operations to its “income before
From Appendix D,“Wendy’s International, Inc.,”review Wendy’s cash flow statement and income statement.Requireda. Evaluate Wendy’s cash flow from operations. Calculate the relevant, cashbased ratios from this chapter.b. Compare Wendy’s cash flow from operations to “income before
VaporWare II,Inc.(VWIII),had spectacularly good financial results in 1999.However, in 2000, the millenium bug, other defects, and general customer dissatisfaction resulted in returns of $3 million.These products had originally been expensed for $1 million. It cost $5 million to satisfy VWIII’s
Key,Inc.,manufactures key rings and “dummy”keys for football fans to shake and rattle at opportune times during football games.These items are sold to sports specialty shops and sidewalk vendors during the football season.The company’s fiscal year ends December 31 each year. In 1999, just
Four Square Computer Company has provided the following (partial) income statement for the year ended December 31, 2001:Revenues Cash sales $1,600,000 Sales on account 3,335,000 Subtotal4,935,000 Expenses Salary expense 2,259,900 Supplies expense 300,550 Advertising expense 969,430 Rent 1,200,000
Write a short essay describing the advantages and disadvantages of using the income statement and the cash flow statement as a basis for evaluating the performance of a firm. Specifically comment on the distinction between operating performance, based on cash provided by operations and on income
Jane Stallings is the vice-president of operations for the Floppy Disk Computer Company,which produces a wide variety of hardware and software for personal computers.This equipment is sold to other manufacturers and is also sold to business and personal (retail) customers through specialty computer
Beth’s Espresso Cart, first introduced in Chapter 4,“The Income Statement,” finished its second year of operations.1. Cash collections from clients $35,505 2. Payments to suppliers (beans, etc.) 17,347 3. Replacement of cups, pots, etc. 1,000 4. Depreciation of coffee cart 1,300 5.
Assume that you are the controller of a publicly held company called Spring Corporation.The CEO and the CFO are quite concerned about financial analysts’assessments of Spring’s prospects.Analysts have publicized their doubts about Spring’s ability to generate cash from operating activities.As
The following cash flow statement from Low-Down Industries is causing concern to its president,Ms.High-Flyer.She can’t understand why Low-Down is having trouble meeting its debt obligations on a timely basis. She is further concerned about the long-term prospects of the company, especially
Woodway Company reported the following data in its 2000 statement of cash flows (dollars in thousands):2000 1999 Net earnings $ 1,654 $6,215 Cash provided by operating activities 26,118 1,984 Requireda. What are some likely explanations for the trend in cash provided by operating activities
SILLA,Inc., reported the following items (which are partial excerpts) in its 1999 statement of cash flows (dollars in thousands):2000 1999 Net loss $(81,542) $(202,144)Interest payments, net (114,000) (132,000)Debt repayments (214,000) (7,100)Cash provided by operating activities 36,548 15,432
Mitronics Corporation reported the following items (which are only partial excerpts) in its 1997 statement of cash flows (dollars in thousands).1997 1996 Net earnings $788 $845 Increases (decreases) in current liabilities (512) 532 Cash provided by operating activities 276 1,377 In the financial
Consider the following (summary) consolidated statements of cash flows from Pioneer Resource, Inc., for 1999 and 2000:Consolidated Statements of Cash Flows Pioneer Resource, Inc.For the years ending December 31, 2000 and 1999(Dollars in Millions)2000 1999 Cash flows from operating activities:Net
A condensed version of Microbyte Corporation’s consolidated statements of cash flows for 1999 and 2000 are shown below (dollars in thousands):Cash flows from operating activities:Cash received from customers $164,177 $82,152 Cash paid to suppliers and employees (142,336) (69,507)Interest received
The following (summary) statement of cash flows has been provided by Sigma Designs, which specializes in diversified graphic systems, document imaging, and multimedia markets.Sigma Designs, Inc.Statement of Cash Flows (abbreviated)For the Years Ended January 31, 1995 and 1994 (Dollars in
The following (summary) statement of cash flows has been provided by Sigma Designs, which specializes in diversified graphic systems, document imaging, and multimedia markets.Sigma Designs, Inc.Statement of Cash Flows (abbreviated)For the Years Ended January 31, 1993 and 1992 (Dollars in
StorageTek’s consolidated statement of cash flows contained the following information, as abbreviated (dollars in thousands):Year Ended December December 31, 1993 25, 1992 Operating Activities Cash received from customers $1,532,183 $1,572,892 Cash paid to suppliers and employees (1,446,321)
United States Surgical Corporation (USSC) provided the following consolidated statement of cash flows, as abbreviated:Year Ended December 31, 1993 1992 Cash flows from operating activities:Cash received from customers $1,103,300 $1,087,700 Cash paid to suppliers and employees (941,200)
The following summary information has been extracted from the financial statements of Hi-Tech Vaporware (dollars in thousands):2000 1999 Total net revenues $126,000 $106,000 Operating expenses (105,100) (93,500)Interest income 700 950 Interest expense (3,560) (3,815)Provision for income taxes (355)
Given the following information extracted from Byte City’s financial statements, calculate and evaluate its cash flow ratios:2000 1999 Interest paid $ 4,186,532 $ 3,695,431 Interest received 718,574 1,218,940 Income taxes paid 150,000 1,997,600 Total assets 107,219,075 103,542,717 Long-term debt
Byte City, Inc., provided the following cash flow information in the form of subtotals on its cash flow statements:2000 1999 Net cash provided by operating activities $ 2,956,020 $ 587,249 Net cash used in investing activities (8,123,648) (33,942,808)Net cash provided by financing activities
The following statement of cash flows has been provided by Davo’s Surf Shop of Malibu, California:Davo’s Surf Shop Statement of Cash Flows For the Year Ended December 31, 2000 Cash flows from operating activities $ 225,000 Cash flows from investing activities:Investment in Susie’s Swim-Wear,
The following cash flow statement was prepared by the Brainard Music Company for the year ended December 31, 2000:Cash flow from operating activities $(346,000)Cash flow from investing activities:Purchase of Musicbox, Ltd. $(280,000)Purchase of property and equipment (120,000)Total from investing
Consider the following information:Windbag International, Inc.Selected Financial Statement Information(Dollars in Millions)2000 1999 Total assets $1,086 $ 996 Total owners’ equity 681 660 Debt 145 201 Sales 1,256 1,199 Accounts receivable 28 27 Depreciation expense 74 69 Interest paid 19 22 Taxes
Consider the following information for two high-tech companies:Oxford, LTD Kendall, LTD(Dollars in thousands)Cash provided by operating activities $5,600 $ 7,419 Net income $ 684 $12,916 Requireda. Compute the quality of income ratio for each firm.b. What inferences can be drawn from these ratios?
Consider the following information for two hi-tech companies:Oxford, LTD Kendall, LTD(Dollars in thousands)Accounts receivable Beginning of year $ 9,915 $ 408 End of year 11,250 7,258 Sales for year 21,891 11,606 Requireda. Calculate the cash collected from customers for each firm.b. Compute the
Haywire Systems had the following cash receipts and payments during 2000(dollars in millions):1. Cash received from customers $130 2. Cash paid to inventory suppliers 42 3. Cash paid to employees as wages 38 4. Paid income taxes 31 5. Cash paid for other operating expenses 17 6. Cash dividends paid
The Shifting Sands Company reported an increase in its property (land) account of $4 million during 1999.During 1999,the firm sold land with an initial cost of$12 million for cash proceeds of $9 million and purchased additional land for$16 million. Determine the effects of these transactions on the
Determine the amounts of cash flows associated with each of the following:1. Sales revenue was $20 million; accounts receivable decreased by $2 million.2. Salary expense was $7.5 million; salaries payable decreased by $1 million.3. Cost of goods sold was $9 million;inventories decreased by $1.2
Determine the amounts of revenue or expense associated with each of the following cash flows:1. Cash received from customers was $8.5 million; accounts receivable increased by $1.6 million.2. Paid salaries of $3 million; salaries payable decreased by $.6 million.3. Paid cash of $4.5 million to
The following transactions were recorded by Macintosh Corporation:1. Purchased a building and took on a mortgage for $150,000.2. Purchased merchandise for $12,000 cash.3. Collected an account receivable of $4,000.4. Recorded depreciation of $20,000.5. Paid dividends of $8,000 to shareholders.6.
The following transactions were made by Manning, Inc.:1. Merchandise was purchased for $180,000 cash.2. Sales during the year (half received in cash) were $250,000.3. Cost of goods sold in transaction 2 was $130,000.4. Wages earned by employees was $42,000,of which $20,000 was still unpaid at
The following transactions were recorded by May G&M Retail Stores:1. Merchandise inventory was sold on account for $120,000.2. The cost of merchandise sold in transaction 1 was $62,500.3. Collections from customers were $125,000.4. A $900,000 long-term note payable was paid by check.5. A $10,000
Evaluate the following two scenarios and identify the possible sources of information that would be used by a union in asserting its demands to two different bargaining units (employers).1. Firm 1 reported record high earnings, but also told its union representatives that it could not afford even a
Discuss the differences in the following terms:a. Cash received from customers versus sales revenueb. Cash paid to suppliers versus cost of goods soldc. Cash proceeds from the sale of equipment versus gain on the sale of equipmentd. Cash paid to employees versus wages expensee. Cash paid for
Indicate where each of the following transactions would be reported on the statement of cash flows (operating section, investing section, financing section, or not a cash flow item):1. Purchased inventory on account.2. Issued common stock for cash.3. Paid loan principle.4. Paid interest on the
The following transactions were reported by Colorado Company in its statement of cash flows. Indicate whether each transaction is an operating (O), a financing(F),an investing (I),or a transaction that has no effect on cash flows (X) activity.1. Office supplies were purchased and paid for.2. Land
Consider the following events or transactions:1. Delivered groceries and received a personal check.2. Took a taxi and paid the fare.3. Gave a refund for defective merchandise.4. Recorded depreciation.5. Sold a building,received a note receivable in exchange,and recorded a gain.6. Made a donation to
Consider the following transactions or events:1. Sold merchandise on account.2. Sold a used computer for cash.3. Paid a supplier’s overdue account.4. Recorded depreciation expense on a building.5. Signed a mortgage and received cash.6. Purchased inventory on account.7. Gave a refund after hearing
Consider the differences between owning and managing an apartment building or a retail store.Would the owner of one prefer a cash-based measure of performance? Would one prefer an accrual-based performance measure? Would either have an advantage if only the income statement, or only the statement
A government agency once reported to one of the authors that it could not extend a job offer because it was “financially embarrassed.”What do you suppose this term meant? Could a commercial company also be financially embarrassed?What mechanisms might a firm have that a government agency would
Discuss how cash return on assets (CROA) can be used as a measure of managerial performance. Distinguish between CROA and “free cash flow.”LOP9
In each of the following cases, indicate whether the amount of cash inflow (or outflow) is greater or less than the related revenue (or expense):a. A firm’s accounts receivable balance has increased during the period.b. A firm’s salaries payable balance has increased during the period.c. A
Evaluate the following conventions in preparing a statement of cash flows:a. Dividend payments to shareholders are reported as a financing activity, and interest payments on debt are reported as an operating activity.b. Purchases of inventory are operating activities, but purchases of plant and
Describe two investing and financing activities that do not involve cash receipts or payments.Why might a financial analyst want to know about such noncash transactions?LOP9
Under the indirect method of preparing the statement of cash flows,each of the following items would be added to net income in measuring cash flows from operating activities (CFOA).Which (if any) of these items may be considered to be a source of cash?a. Depreciation expenseb. Loss on sale of plant
Identify each of the following activities as either operating, investing, or financing activities:a. Cash received from customersb. Cash paid to acquire operating equipmentc. Cash paid as dividends to shareholdersd. Cash received from issuing common stocke. Cash paid for income taxesLOP9
Compare and contrast the two methods of preparing cash flow statements: the direct vs. the indirect method.What are the essential differences between these two methods? The similarities?LOP9
Define the following cash flow concepts in your own words as you would describe them to the owner of a small business:a. Cash flow from operating activitiesb. Cash used to purchase investmentsc. Cash obtained from bank loansd. Cash collected from clientse. Cash paid to vendorsf. Taxes paid to
How could a firm report positive amounts of net income and negative cash flows from operating activities? Identify specific instances where this might occur.LOP9
Identify three types of operating, financing, and investing activities. Contrast these with several noncash investing or financing activities.LOP9
What information is provided in a statement of cash flows that is not disclosed in a balance sheet or an income statement?LOP9
Discuss three major business activities that usually produce cash inflows or outflows.LOP9
Why are managers and creditors often more concerned about cash and cash flows, as compared to nonmonetary assets?LOP9
Contrast cash and cash equivalents? Why would managers want to include both when preparing a statement of cash flows?LOP9
Describe how a firm’s financial statements help meet these objectives:a. To evaluate a firm’s ability to generate future cash flows available to pay dividends to shareholders.b. To evaluate a firm’s ability to meet its short-term obligations and its needs for external financing.LOP9
The income statement and the cash flow statement focus on various aspects of profitability and liquidity. Distinguish between these concepts and discuss their importance to users of financial statements.LOP9
Draw inferences about the financial performance of a firm from the statement of cash flows.LOP9
Explain the difference between the direct and the indirect methods of presenting a statement of cash flows.LOP9
Identify the three types of activities that generate and use cash.LOP9
Explain the complementary nature of accrual earnings and cash flows.LOP9
Describe the objectives of the statement of cash flows.LOP9
Locate the balance sheet for IBM and Bank One. You can 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. The annual report is usually located in the Investor Information section.Corporation WWW Page Location IBM
Locate the most recent set of financial statements for the corporations 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.The annual report is usually located in the Investor Information
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 page on the Web.The annual report is usually located in the Investor Information
Consider Sigma Designs’ balance sheets for 1993 and 1992 (dollars in thousands). Sigma Designs is a high-tech software development company specializing in imaging and multimedia computer applications.Assets 1993 1992 Current Assets Cash and equivalents $ 5,086 $ 9,283 Marketable securities 14,326
XYZ Corporation’s 2000 and 1999 balance sheets are summarized below (dollars in millions):Current Assets 12-31-00 12-31-99 Cash and temporary investments $ 535 $ 499 Receivables, less allowances 706 668 Materials and supplies 211 199 Prepaid and other 213 215 Total current assets 1,665 1,581
The following worksheet entries have been retrieved from a corrupt data file.Cash Inventory Buildings Trucks Accts. Pay Mortgage Inv. Cap.a. 1,000 1,000b. 2,000 2,000c. 8,000 8,000d. 4,000 4,000 e.22,000 22,000f. 4,000 4,000 g. 8,000 6,000 2,000 h. 18,000 18,000 i. 6,000 6,000 h. 12,000
The balance sheet for Reebok International LTD is shown in Appendix D.Requireda. Conduct a vertical analysis of the balance sheet for each year, 1996 and 1997.b. Calculate the liquidity, asset management, and debt management ratios.c. Evaluate Reebok’s liquidity in each year.d. Evaluate

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