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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

The balance sheet for Wendy’s International Inc. is shown in Appendix C.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 Wendy’s’ liquidity in each year.d. Evaluate
Van Gogh’s fragmentary balance sheet is shown below.Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 210,000 Accounts payable $ 250,000 Accounts receivable 466,000 Notes payable ?Inventories 812,000 Accrued expenses 275,000 Prepaid expenses ? Total current
A vertical analysis was previously conducted, using the Edgar Elgar, Inc. balance sheet. The results are shown below.Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash 5.3% Accounts payable 22.6%Accounts receivable 12.6 Notes payable 16.3 Inventories 39.5 Accrued
The following schedule summarizes the components of shareholders’ equity reported in the year-end balance sheets of Nuclear Holdings and Hellmorgen:Nuclear Holdings Hellmorgen(Dollars in millions)Shareholders’ equity:Paid-in capital $13,905 $50,322 Retained earnings (deficit) 29,132
The following schedule summarizes the components of shareholders’ equity reported in the 1997 balance sheets of Wendy’s and Reebok:Wendy’s Reebok(Dollars in millions)Shareholders’ equity:Invested capital $1 $365 Retained earnings 1,145 839 Other (639) (20)Total shareholders’ equity $ 507
The following schedule summarizes the noncurrent assets reported in the 1997 balance sheets of Wendy’s and Reebok:Wendy’s Reebok(Dollars in millions)Current assets (total) $ 382 $1,465 Noncurrent assets Property, plant, and equipment (at cost) 1,803 354 Less: Accumulated depreciation (538)
The following schedule summarizes the noncurrent assets reported in the yearend balance sheets of Packard Computers, a company that designs and manufactures electronic data and communications systems, and Nazareth Steel, a major steel fabricator:Packard Nazareth Computers Steel(Dollars in
The following schedule summarizes the current assets reported in the year-end balance sheets of Costello Laboratories, a company that develops, manufactures, and markets health care products, and Triangle Air Lines, a major provider of passenger, freight, and mail air transportation:Costello
The following schedule summarizes the current assets reported in the 1997 balance sheets of Wendy’s and Reebok:Wendy’s Reebok(Dollars in millions)Current Assets Cash and equivalents $ 234 $ 210 Notes receivable 14 —Accounts receivable, net of allowance 67 562 Prepaids and other — 54
Given these transactions:1. Community donations of $150,000 are received.2. A mortgage of $1.5M is secured and a hospital is constructed.3. Donated land worth $1M is received.4. Short-term lines of credit are used to acquire supplies of $50,000.5. Obstetrics clients pay $20,000 in advance as a
Comparative balance sheets for Creative Cabinetry, Inc. are shown below:Assets 12-31-01 12-31-00 Cash $ 95,000 $ 33,000 Accounts receivable 23,160 22,500 Inventory 30,000 123,650 Prepaid rent 3,840 5,850 Total current assets 152,000 185,000 Land 83,000 72,000 Equipment 800,000 600,000 Accumulated
Given these transactions:1, An engineering firm was formed when three engineers each invested$50,000 (cash).2, Each founder also invested an assortment of utility trucks, inclinometers, and other specialty equipment, valued at $10,000 (each).3. Borrowed $50,000 to provide additional operating
Consider these transactions:1. Investors purchased $900,000 of common stock from the firm.2. The firm purchased land, buildings, and equipment valued at $1,300,000;paid $300,000 in cash; and signed a mortgage for the balance due.3. Paid rent of $10,000 for five automobiles.4. The auto rental covers
Given the following data:2001 2000 Cash $300,000 $340,000 Retained earnings ? ?Accounts payable 20,000 11,000 Wages payable 7,000 5,000 Interest payable 10,000 30,000 Bonds payable 40,000 100,000 Mortgage payable 60,000 300,000 Invested capital 500,000 600,000 Accounts receivable 37,500 118,000
Given the following data:2001 2000 Cash $ 30,000 $ 40,000 Retained earnings 175,000 225,000 Current liabilities 17,000 16,000 Invested capital 600,000 600,000 Accounts receivable 27,500 38,000 Inventories 45,000 47,000 Fixed assets, net ? ?Requireda. Rearrange these data into classified balance
The following balance sheet data are given:2000 1999 Cash $ 45,000 $ 35,000 Fixed assets 330,000 270,000 Current liabilities 95,000 45,000 Long-term liabilities 300,000 320,000 Accounts receivable 115,000 95,000 Invested capital 100,000 100,000 Inventories 100,000 80,000 Retained earnings 95,000
The following transactions are given:1. Owners invested $500,000 in this business for capital stock.2. Buildings and equipment are purchased for $200,000 cash and a mortgage of$600,000.3. Inventory purchased on account for $100,000.4. Insurance for two years paid in advance, $8,000.5. Interest of
Wesfarmers Limited is a major diversified Australian public company with interests in fertilizer and chemicals manufacturing, gas processing and distribution, coal mining and production, building materials, hardware and forest products, rural and country services, transport, country supermarkets,
The following schedule summarizes the composition of current assets and current liabilities reported in the year-end balance sheets from Triangle Air Lines and Nazareth Steel:Triangle Air Nazareth Lines Steel(Dollars in millions)Total current assets $2,821,920 $1,591,100 Inventories included in
The following transactions are given:a. A law firm was formed by 10 lawyers, each investing $200,000.b. The firm charged its clients $1,200,000 for services rendered in May.c. The law firm collected $900,000 from its clients.d. One disgruntled client sued the law firm for malfeasance in the amount
The following transactions are given:a. A corporation issued capital stock in exchange for land valued at $300,000.b. A corporation issued capital stock for $200,000.c. The corporation hired a chief executive officer (CEO) at $180,000 per year.d. The firm agreed to rent office space at $2,000 per
The following transactions are given:a. A corporation issued common stock for cash.b. The firm bought land with part of the cash.c. The firm issued common stock in exchange for a building and equipment.d. The firm purchased inventory on account.e. The firm collected cash from a customer for
The following data are available:Cash $100,000 Accounts payable 55,000 Retained earnings ?Invested capital 150,000 Buildings and equipment 600,000 Mortgage payable 400,000 Requireda. Prepare a balance sheet.b. Would most businesses, in reality, have such a limited balance sheet? Why not?c. What
The following information is provided for Tom’s Track Shoe Store at the end of 2000:Accounts receivable $ 6,500 Accounts payable 106,500 Bonds payable 180,000 Invested capital 300,000 Cash 14,500 Equipment 88,000 Income taxes payable 11,500 Inventory 497,500 Other long-term assets 110,000 Notes
The following balances appear in the records of May Co. at the end of its first month of operations:Cash $12,000 Land $100,000 Equipment 6,500 Accounts payable 3,400 Supplies 2,700 Accounts receivable 7,500 Taxes payable 2,110 Truck 22,500 Mortgage 80,000 Owners’ equity ?Requireda. Determine the
The account balances given below are shown on the balance sheet of a corporation.Marketable securities $ 20,000 Invested capital 200,000 Buildings and equipment 400,000 Accounts receivable 80,000 Prepaid rent 17,000 Bonds payable 230,000 Inventories 85,000 Taxes payable 30,000 Accounts payable
Rearrange the following accounts in the order in which you would expect to find them in a typical balance sheet and explain why you put them in that order:a. Mortgage payableb. Accounts payablec. Taxes payabled. Owner’s Equitye. Inventoryf. Cash g. Land h. Building i. Accrued expenses j.
Classify each account listed below into one of the following categories:1. current assets, 2. noncurrent assets, 3. current liabilities, 4. noncurrent liabilities, and 5. owners’ equity.a. cashb. retained earningsc. landd. invested capitale. accounts payablef. accounts receivable
Suppose that a supervisor asks you to reclassify a short-term note payable as a long-term liability.a. What effect will this have on the current ratio?b. Could such an effect be viewed beneficially by a current or prospective lender?c. How would your answer change if the lender agreed to extend the
Discuss the process of calculating balance sheet vertical (composition) ratios.How are such ratios used? Why are these ratios important?
How much flexibility should the analyst or manager accept in constructing ratio definitions for use within the same company or organization? For example, why might the analyst be more flexible in defining the quick ratio but not the current ratio? On the other hand, would the same flexibility be
Compare and contrast the current ratio and the quick ratio.a. When might these two ratios be similar in amount?b. When will they be different in amount?c. If the current ratio is at an acceptable level but the quick ratio is weak, what factors might cause this?d. Why might some firms prefer to have
Is it possible for a firm to report a substantial amount of retained earnings on its balance sheet and still be unable to pay its shareholders a cash dividend? Explain.
Discuss the concept of owners’ equity on the balance sheet. In what ways does owners’ equity represent a residual interest? Why is owners’ equity called a residual amount?
Discuss the differences between bonds payable and mortgages payable. As a potential lender, which type of debt is preferable?
Identify several examples of liabilities that do not require payments of specific dollar amounts to lenders.
Analysts often attempt to estimate the values of assets that are “missing”from the balance sheet. Identify at least two kinds of missing assets and discuss reasons for this omission from the balance sheet.
Distinguish between internally generated and externally acquired goodwill.Which of these is reported on the balance sheet? State and defend your agreement or disagreement with this accounting convention.
Distinguish between unreported assets and unreported liabilities. Why are items that are unreported on a balance sheet important to financial analysts or managers? Would a banker or other creditor be interested in such items? Why?
Define the term net realizable value as it refers to accounts receivable. Why would a financial analyst or manager be interested in the net realizable value of receivables, as compared to the gross amount of such receivables?
Differentiate between tangible and intangible assets. Do you believe that both types of assets are equally important in measuring a firm’s financial position? Discuss.
What is meant by the term net book value of a firm’s building and equipment?Explain why net book value differs from the initial cost of these assets and is also likely to differ from current market (resale) values.
Describe the concept of an operating cycle. Identify reasons why operating cycles may differ for firms in different industries, and also for firms in the same industry.
Compare and contrast noncurrent assets and long-term liabilities. How and why are they different? In what ways are they similar?
Differentiate between current and noncurrent assets, and explain why this distinction may be useful to readers of financial reports.
Compare and contrast prepaid expenses and accrued expenses. How and why are they different? Could they be easily confused? How are they being kept separate?
Compare and contrast current assets and current liabilities. How and why are they different? In what ways are they similar?
All assets represent probable future economic benefits to the firm. Identify the probable future benefit associated with each of the following: (a) inventories,(b) accounts receivable, and (c) building and equipment.
The balance sheet may be viewed as the cumulative result of the firm’s past activities. Explain how the assets, liabilities, and equity amounts may be interpreted in this way.
Explain why both sides of the balance sheet must have the same total dollar amount. Does this equality imply that the balance sheet is “correct”as a measure of financial position? Discuss.
Discuss the role and purpose of the balance sheet. How is it different from an income statement?
Rearrange the balance sheet equation into several variations. Why are these differences helpful? How might each version be used? Should an analyst always use the simplest version possible? Why or why not?
Be alert to the limitations as well as the usefulness of balance sheet information.? LOP85
Use balance sheet relationships to obtain information useful to investors and lenders. LOP85
Appreciate why balance sheets differ for firms in different industries. LOP85
Comprehend the ordering and classification of items on the balance sheet. LOP85
Recognize the types of assets, liabilities, and owners’ equity that are found on the balance sheets of most business firms. LOP85
Identify the basic elements of the balance sheet. LOP85
Locate the most recent 10-K filing by Toys ‘R’ Us and Gillette in the EDGAR archives (www.sec.gov/edaux/searches.htm).Requireda. What is each company’s major product line? (This information should be near the beginning of the 10-K.) For each company, do you expect sales to be fairly constant
Locate the most recent 10-K filing by Wal-Mart and Kmart in the EDGAR archives(www.sec.gov/edaux/searches.htm). Scroll down to the Summary of Financial Information (in the financial report section).Requireda. Calculate the following ratios or amounts for each of the most recent three years:1.
Locate the most recent set of financial statements for the regional telecommunications 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
You are the chief accountant for the Seal Company, which produces candy bars.You like your job very much, and one reason is that your best friend, Stacy Monroe, is a salesperson for Seal.Seal primarily markets its candy bars to grocery chains, which buy in large quantities. As December 31 (Seal’s
Contact local firms with which you are familiar, or review several annual reports from firms in the same industry, and examine their revenue recognition principles and procedures. Review the notes to their financial statements to see how they describe their principles. Write a short description and
Consider the following horizontal analysis of a firm’s income statement (assume that 1998 is the base year used for comparison, when all items equal 100%):2000 1999 Net revenues Product sales 116.4% 118.2%Product support and enhancement 124.2 177.9 Total net revenue 119.3 134.9 Operating expenses
Byte City, Inc., is a leading independent provider of systems and network management software. Its income statements are abbreviated as follows:2000 1999 Net revenues Software products $64,282,171 $ 52,392,108 Product support and enhancements 32,545,876 27,419,766 Total net revenues 96,828,047
The following scenario illustrates several issues concerning revenue recognition, particularly impacting sustainable earnings or operating profits. You should also consider the managerial implications associated with these issues.A computer firm designs, builds, and sells a microcomputer, called a
Borden, Inc., in response to pressure from the Securities and Exchange Commission, restated its 1993 and 1992 earnings. It restated the effects of a $642 million restructuring charge taken in 1992, which contributed significantly to Borden’s reported 1992 loss of $439.6 million. It reclassified
Sigma Designs is a high-tech software development company specializing in imaging and multimedia computer applications. Sigma’s balance sheets are reproduced below (dollars in thousands):Assets 1993 1992 Cash and equivalents $ 5,086 $ 9,283 Marketable securities 14,326 19,537 Accounts receivable,
IBM is a well-known U.S. company specializing in computer hardware. Several U.S. companies are comparable to IBM.Requireda. Using library resources (or the Internet), obtain income statements for IBM and one other comparable company (Digital or Compaq) for similar fiscal periods.b. Conduct
Pioneer Resource Inc.’s 1999 income statement (dollars in millions) is summarized on the next page. Pioneer Resource is involved in telecommunications.Revenues $13,932.3 $13,231.1 Costs and expenses Network operations 3,787.1 3,642.3 Selling, general, and administrative 4,219.7 4,007.5 Taxes,
Microbyte Corporation’s consolidated statement of operations (dollars in thousands) follows. Note that Microbyte is a computer company, specializing in data storage devices.2000 1999 Sales $184,355 $92,642 Cost of goods sold 102,453 53,344 Gross profit 81,902 39,298 Operating expenses:Selling,
SILLA, Inc., is a producer and supplier of natural gas and petroleum-based products. Its condensed statements of operations for the first quarters of 1998 and 1999 are shown below (dollars in thousands):1999 1998 Revenues:Natural gas, oil, and other liquids $63,405 $59,088 Other 1,065 176 64,470
The following worksheet has been retrieved from a company’s files that were destroyed by fire. Identify the underlying transactions that occurred during the month. Write a brief (one to two sentence) description of each transaction.Accts. Sh.Cash Equipment Buildings Prepaids Pay. Equity Revs.
Review the Income Statement from Reebok International Ltd. in Appendix D.Requireda. Conduct a horizontal and vertical analysis of the income statement for each year from 1995 to1997.b. Calculate the other profitability ratios described in Chapter 4.c. Evaluate Reebok’s profitability in each year.
Review the Income Statement from Wendy’s International Inc. in Appendix D.Requireda. Conduct a horizontal and vertical analysis of the income statement for each year from 1995 to1997.b. Calculate the other profitability ratios described in Chapter 4, “The Income Statement.”c. Evaluate
Consider the following cases:1. Banana Republic sells clothes for cash or on credit card vouchers, which are collected from banks within a few days after the sale.2. Micropoint Computer Systems sells hardware and software on installment or time-payment plans. Micropoint runs a credit check on every
Consider the following income statement:Commission revenue $120,000 Rental revenue 9,900 Interest income 4,100 Total revenue $134,000 Salaries expense 54,000 Depreciation expense 23,000 Interest expense 2,550 Miscellaneous expense 10,400 (89,950)Operating income 44,050 Income taxes
Beth’s Espresso Cart Inc. sells coffee, pastries, and mineral water at the Boulder Mall. Last year, Beth leased a coffee cart and opened her business. She initially felt that cash flows were a useful measure of her performance. The cart’s owner is now running a competitive coffee cart on the
Susan’s Drawing Studio has been very successful, with annual sales and profits at a record high. Susan wants to evaluate and better understand the studio’s profitability and performance based on the following year-end account balances:Sales $400,000 Supplies used $ 25,600 Property tax expense
Consider the following income statement (dollars in thousands):1999 1998 Net revenues:Computer sales $ 75,250 $ 62,250 Software sales 45,400 38,600 Net revenues 120,650 100,850 Operating expenses:Cost of sales 4,205 4,500 Marketing 63,520 45,542 Research and development 30,100 21,587 General and
Consider the following income statement (dollars in thousands):2000 1999 Net revenues Software sales $ 77,350 $ 66,450 Customer support and service 48,500 39,040 Total net revenues 125,850 105,490 Operating expenses Cost of goods sold 4,700 4,580 Sales and marketing 60,650 40,235 Research,
for the year ended December 31, 1999. Selling expenses include advertising and commission expense.b. Calculate earnings per share. Assume that 100,000 shares were outstanding.
Revenue, expenses, and related accounts of Stackwell Enterprises Inc. for the year ended December 31, 1999, were Cost of goods sold $135,000 Utilities expense $4,800 Depreciation expense 12,000 Income tax rate 30%Dividends declared and paid 4,000 Earthquake loss (gross Advertising expense 1,600
for the year ended December 31, 2000. Note: Make the necessary adjustments before preparing the income statement.b. Assume that stockholders’equity at the beginning of the year was $740,000.The only changes recorded in stockholders’ equity during 2000 were net income and dividends. Calculate
The Bichette Company had the following transactions during the year ended December 31, 2000:1. Sales on account were $155,000. Cash sales were $38,000.2. Cost of goods sold during the year was $42,000.3. Wages earned by employees were $32,000. Three-quarters of the amount was paid during the year
The Lick Skillet Bakery provides deli meals, bakery goods, and espresso to restaurant customers. It also sells take-out specialty foods, including bakery goods, hot and cold entrees, and so on. The owners of Lick Skillet want to know how successful the bakery was in 2000, based on the following
Consider the following transactions, which are independent, except as noted:1. Sarah Jones, R.N., provided home nursing services to her clients and billed them for 20 hours of service at $65 per hour.2. Ms. Jones collected $60 per hour from her state’s Medicaid program for the services in
Consider the following transactions:1. A firm sold merchandise for $1,000, but no cash was received.2. A firm collected the $1,000 from transaction 1.3. A medical clinic provided treatment for a patient and billed the patient’s insurance company for $65. The patient is responsible for any
Jill Zimmer wants to evaluate the success of her restaurant, Planet Broadway. She has assembled the following 2000 data:1. Wages were $270,000, paid in cash.2. Collections from customers were $675,000. (Assume that half the customers paid their bills by year-end).3. A $5,000 deposit for a future
Denny’s CPA School provided the following vertical analysis of its income statements for 1999 and 2000:Percentage of Revenues 1999 2000 Revenues 100% 100%Salaries expense 40 45 Rentals expense 20 25 Books and supplies 10 10 Advertising 10 15 Operating income 20 5 Income tax 8 2 Net income 12 3 In
Consider the following transactions for the publishers of Mobile Home Improvement. This magazine is produced monthly and sold on newsstands and to annual subscribers.1. Mobile Home Improvement received cash for 100 two-year subscriptions($48 each) and 3,000 one-year subscriptions ($36 each).2.
Amherst Trucking Co. had the following pre-tax amounts of revenues, expenses, gains, and losses during 2000. All items are subject to an income tax rate of 40%.Revenues $1,500,000 Operating expenses $ 900,000 Extraordinary loss $ 400,000
Boomingdales, Inc., reported the following transactions:1, Purchased $150 of equipment on account. The corporation has over $1 million in assets.2, Sold merchandise at retail of $150,000 during the year on account. Customers returned $10,000 of merchandise at retail for credit on their accounts.
Spinner Sewing Corporation was incorporated on January 1, 2000. Three investors each invested $150,000 in exchange for $150,000 of common stock of the corporation. The following transactions took place during 2000:1, Purchased merchandise inventory on account, $200,000.2, Rent paid on January 2 for
Sort the following account titles according to whether they would appear on the income statement or the balance sheet:Supplies expense Salaries payable Accounts payable Cost of goods sold Land Trucks Capital stock Sales revenue Interest earned Interest expense Accrued taxes payable Tax expense
James Hardie Industries Ltd. is an Australian company specializing in building materials. It also has several plants in the USA specializing in producing fibrecement roofing materials. It reported the following financial results on its 1998 income statement:1998 1997 Total revenues (($bn) 1.29 1.62
and 4-32, what estimate would you make regarding Woodway’s adjusted income (sustainable operating profit or sustainable earnings)?. LOP95
The Woodway Company included the following note in its 2000 annual report:In June 2000, Woodway Company and its principle subsidiaries filed for protection under Chapter 11 of the United States Bankruptcy Code. Woodway recorded a provision for possible impairment of $24 million at December 31,
Woodway Company’s annual report contained the following data (dollars in millions) on its income statement Interest expense $ 2,489 Investment income 11,218 Other income 9,033 Depreciation 1,257 Revenues 591,762 Other expenses 8,482 Cost of sales 482,355 Operating expenses 98,576 Income taxes 522
For each numbered item, indicate (by letter) where in the income statement it belongs.a. Revenuese. Other Income and Expensesb. Cost of Goods Soldf. Separate Line Item, Net of Taxc. Selling Expenses After Income from Continuingd. General and Administrative Operations Expenses g. Not on the Income

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