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financial reporting and analysis
Financial Reporting And Analysis 5th Edition Lawrence Revsine, Daniel Collins - Solutions
Changes resulting from cash inflows and cash outflows. LO.1
Changes resulting from noncash transactions that are recurring and routine (e.g., credit sales and interest expense). LO.1
Changes resulting from noncash transactions that are neither recurring nor routine(e.g., business combinations). LO.1
Changes resulting from accounting allocations (e.g., depreciation expense). LO.1
Changes resulting from accounting allowances (e.g., bad debt expense). LO.1
Other changes resulting from remeasurements (e.g., fair value changes and impairment losses). LO.1
Calculate Eiger’s cash flow from operating activities for 2011. LO.1
Explain the reasons for the difference between the firm’s net income and its cash flow from operating activities in 2011. LO.1
Calculate Zurich’s cash flow from operating activities for 2011. LO.1
Explain the reasons for the difference between the firm’s net income and its cash flow from operating activities in 2011. LO.1
$15,000 in cash and a $35,000 note payable were exchanged for land valued at $50,000. LO.1
Bonds payable (maturing in 2015) in the amount of $30,000 were retired by paying$28,000 cash. LO.1
Capital stock in the amount of $40,000 was issued at par value. LO.1
The company sold surplus equipment for $10,000. The equipment had a book value of$14,000 at the time of the sale. LO.1
Net income was $35,500. LO.1
Cash dividends of $5,000 were paid to the stockholders. LO.1
100 shares of stock (considered short-term investments) were purchased for $8,300. LO.1
A new building was acquired through the issuance of $75,000 in bonds. LO.1
$12,000 of depreciation was recorded on the plant and equipment. LO.1
At December 31, 2011, Cash was $93,200, Accounts receivable had a balance of $41,500, Inventory had increased to $73,000, and Accounts payable had fallen to $25,500. Long-term investments and Taxes payable were unchanged from 2010. LO.1
Prepare a statement of cash flows for 2011. LO.1
Prepare the December 31, 2011, balance sheet for Kay Wing, Inc. LO.1
Cash includes $12,000 in U.S. treasury bills purchased on December 21, 2011, that mature in January 2012. The account also includes $8,500 in stock purchased just before year-end that the company plans to sell in a few days. LO.1
The Accounts receivable balance consists of:Account Title Debits Credits Production equipment $ 477,700 Accumulated depreciation—production equipment $ 239,600 Patents 50,000 Leasehold 7,000 Accounts payable 38,400 Accrued salaries 3,400 Taxes payable 65,800 Notes payable 200,000 Installment note
Notes payable consists of two notes. One, in the amount of $50,000, is due on March 19, 2012. The other note matures on October 27, 2014. LO.1
The Taxes payable account contains deferred income taxes amounting to $61,250. LO.1
The installment note payable bears an annual interest rate of 10%. Semiannual payments of $6,756.43 are due each June 30 and December 31 and include principal and accrued interest. These payments will reduce the Installment note balance by $5,220 in 2012. LO.1
Of the 1,000,000 authorized shares of no par common stock, 300,000 shares are issued and outstanding. LO.1
The company recently announced plans to sell its operating facility in Katy, Texas, consisting of land (cost $82,000) and a building (cost $175,000; book value $110,000). Production equipment has already been removed from the Katy plant and is being used in other company facilities. LO.1
Based on this information, prepare an income statement and statement of cash flows. LO.1
Provide an intuitive explanation of how the adjustments made to net income in the cash flow statement convert the accrual numbers to cash flow numbers. LO.1
Calculate the balance in retained earnings at the time of the change (beginning of 2011) as it would have been reported had FIFO been previously used. LO.1
Prepare the journal entry to record the change in accounting principle at the beginning of 2011. LO.1
After several years of production problems at the accessories manufacturing plant, Krewatch sold the plant to an investor group headed by a former manager at the plant. Krewatch plans to continue to carry the accessory line in its retail stores and is committed to purchase the plant’s entire
Krewatch incurred restructuring costs of $12,562,990 when it eliminated a layer of middle management. LO.1
Krewatch extinguished $200 million in 30-year bonds issued 18 years ago. These bonds were the only ones issued in the company’s history. Krewatch recognized a gain on this transaction. LO.1
Krewatch changed its method of accounting for inventory from FIFO to the average cost method. LO.1
Due to technological advances in golf club manufacturing, management determined that production equipment would need to be upgraded more frequently than in the past.Consequently, the useful lives of equipment for depreciation purposes were reduced. LO.1
The company wrote off inventory that was not salable at the insistence of its auditors. LO.1
Equipment was sold at a loss. LO.1
Provide journal entries for each of these transactions. LO.1
Provide adjusting entries at the end of the year. LO.1
Prepare an income statement for the year ended December 31, 2011. LO.1
Prepare a balance sheet as of December 31, 2011. LO.1
Prepare the necessary adjusting entries for the year ended December 31, 2011. LO.1
Prepare an income statement for the year ended December 31, 2011. LO.1
Prepare a balance sheet as of December 31, 2011. LO.1
In preparing a revised comparative statement of income, Helen should report income from continuing operations after income taxes for 2011 and 2010, respectively, amounting to how much? LO.1
Starting with the revised income from continuing operations numbers you obtained in requirement 1, prepare the revised comparative income statements for 2011 and 2010 showing appropriate details for gain (loss) from discontinued operations. LO.1
Jordan Wing realized $175,000 from settling a trademark infringement lawsuit. LO.1
The corporation disposed of its catalog sales component at a pre-tax loss of $345,000. This transaction meets the criteria for discontinued operations. LO.1
Sale of 10,000 shares of Xerox stock held as a short-term investment resulted in a gain of$23,450. LO.1
The firm changed its method of depreciating fixed assets from the straight-line method to the declining balance method, which was used to determine income in 2011. LO.1
Jordan Wing suffered a $23,000 impairment loss in 2010, which it failed to record. LO.1
The firm experienced an (extraordinary) uninsured tornado pre-tax loss in the amount of $83,500. LO.1
How should Barden’s 2011 comparative financial statements reflect this change in accounting principle? LO.1
Prepare whatever disclosure is required under current GAAP as a result of this change. LO.1
What criteria must be met to warrant reclassifying the noncore business units as discontinued operations effective with the quarter ending September 30, 2010? LO.1
Suppose that in March 2011 a buyer signed a purchase commitment for Corrpro’s Rohrback Cosasco Systems division. This sale requires regulatory approval that is expected to take at least 18 months to obtain. Should Corrpro’s 2011 financial statements include this division in assets and
Assume that in February 2011 a potential buyer of another of the domestic noncore business units insisted on a site assessment prior to signing a purchase commitment. The assessment’s purpose was to determine whether the site was environmentally impaired.Unfortunately for Corrpro, trace amounts
Is there any reason for management to prefer discontinued operations treatment for these noncore business units? LO.1
McDonald’s uses different critical events to recognize revenue for its different business activities. Identify the critical events and rank them from the most to the least conservative policy based on your judgment of the circumstances. For each source of revenue, does the chosen revenue
Prepare Neville Company’s 2011 and 2010 income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method. LO.1
Prepare Neville Company’s disclosure related to the accounting change; limit disclosure of financial statement line items affected by the change in accounting principle to those appearing on the company’s income statements for the years presented. LO.1
For Big Daddy’s, prepare summary journal entries for 2011 and 2012 necessitated by this franchise agreement. LO.1
Should Big Daddy’s recognize revenue from the initial franchise fee in their quarter ending September 30, 2011? Explain. LO.1
Does the financial statement data presented support your estimate? Why, or why not? LO.1
The SEC alleges that by the end of fiscal 2002, ClearOne had stuffed approximately $11.5 million of inventory into the distribution channel. On the basis of this assertion, what was the approximate amount of its alleged revenue overstatement by the end of 2002? LO.1
Retrieve the SEC’s complaint against ClearOne Communications, Inc. ( www.sec.gov/litigation/litreleases/lr17934.htm ). Describe management’s scheme for inflating revenue. LO.1
Determine how much income would be recognized if London used the completedcontract method for the 2012 and 2013 fiscal years. LO.1
Prepare a schedule showing London’s balances in the following accounts at September 30, 2012, under the percentage-of-completion method:• Accounts receivable• Costs and estimated earnings in excess of billings• Billings in excess of costs and estimated earnings LO.1
Prepare a schedule showing London’s gross profit (loss) recognized for the years ended September 30, 2012 and 2013 under the percentage-of-completion method. LO.1
Assume that the farm is left idle during 2012. With no harvest, Criswell’s only transaction consists of an October 2012 sale of the 15,000 bushels in inventory at $2.80 per bushel.Further assume that no fixed costs are incurred while the farm is idle. Compute income during 2012 on both the sale
Determine the December 31, 2011, balances for Soybeans inventory and Accounts receivable under each of the three income recognition methods in requirement 1. LO.1
Prepare a 2011 income statement for Criswell’s farm under each of the following assumptions regarding what constitutes the “critical event” in the process of recognizing income:a. Assuming that production is the critical event.b. Assuming that the sale is the critical event.c. Assuming that
What impact did GM’s past accounting practices related to supplier credits and rebates have on reported net income in the year in which the rebate was received and in subsequent years? LO.1
What entry would be necessary to restate GM’s Year 1 balance sheet?(Ignore income tax effects.) LO.1
Assume that GM “discovered” the error in its approach to recording supplier rebates on November 1, Year LO.1
What adjusting entry, if any, would have been required at December 31, Year 1? (Assume that GM reports on a calendar year basis and makes annual adjusting entries.) LO.1
Assume that GM made the entry you suggested in requirement LO.1
Had GM followed GAAP, what would the appropriate journal entry have been? Where would the account credited be shown on GM’s financial statements? LO.1
Given GM’s past accounting practices for such rebates, what journal entry did the company make when it received the payment? LO.1
Errors occurred in the depreciation calculations that resulted in depreciation expense being overstated by $3,500 in 2009, understated by $7,000 in 2010, and understated by$6,000 in 2011. LO.1
No adjusting entries were ever made to reflect accrued salaries. The amounts $12,000,$13,500, and $8,300 should have been accrued in each of the three prior years, respectively. LO.1
The office manager expensed rent on equipment and facilities when paid. Amounts paid in 2009, 2010, and 2011 that represent prepaid rent are $5,000, $4,500, and $4,900, respectively. LO.1
Determine Roxio’s gross revenues for fiscal years Year 1–Year 3. LO.1
Are opportunities for “earnings management” present in Roxio’s stated accounting policies for expected product returns? Is there any evidence in the data presented that Roxio’s management has availed themselves of any of the opportunities you identify? LO.1
Explain the rising balance in this account. LO.1
Re-create (in summary form) the journal entries Roxio made in the Allowance for sales returns and certain sales incentives account for fiscal years Year 1–Year LO.1
How much revenue would Brio recognize on this contract if the various elements included in the contract were not sold separately? LO.1
Prepare the journal entry to record receipt of the signed contract and electronic delivery of the software. Assume that the sale conforms to Brio’s normal billing terms and that collectibility is not an issue. LO.1
Following Brio’s stated revenue recognition policies, how much revenue would it recognize on this contract? LO.1
Elaborate on what circumstances would have to exist for each alternative to be employed. LO.1
Calculate the amount of gross profit recognized in 2011 under each of the alternatives identified in requirement 1. LO.1
Identify and explain three alternative methods for revenue and cost recognition available to Quincy in this scenario. LO.1
Prepare Miller’s journal entry under each method at December 31, 2014, if the company believes it will not collect any more of these installment receivables. LO.1
Prepare Miller’s journal entries each year if Miller adopts the cost-recovery accounting method under IFRS. (Ignore any presumed interest collections.) LO.1
Prepare Miller’s journal entries each year if Miller adopts the installment sales accounting method under U.S. GAAP. (Ignore any presumed interest collections.) LO.1
How would the solution to the three requirements above change if the contract-based revenue recognition principles proposed in the recent IASB/FASB exposure draft on revenue recognition are adopted? Assume that the entire contract is viewed as a single unit of accounting. LO.1
Because the highway is being built in an area with very unstable soils, Jensen believes it is not able to reasonably estimate the contract’s completion costs and thus uses the costrecovery method of accounting (IFRS) for this contract. Prepare the journal entry that Jensen would make at the end
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