Questions and Answers of Financial Reporting and Analysis

White Ski Resorts operates a series of ski resorts in northern Europe and reports under IFRS. On June 30, 20X0, White purchased land for €3,000,000. White reports land values on the balance sheet
As a senior partner at one of the nation’s largest public accounting firms, you serve as chair of the firm’s financial reporting policy committee. You are also the firm’s chief spokesperson on
Akers Company sold bonds on July 1, 20X1, with a face value of $100,000. These bonds are due in 10 years. The stated annual interest rate is 6% per year, payable semiannually on June 30 and December
By July 1, 20X2, the market yield on the Akers Company bonds described in had risen to 10%.Required:What was the bonds’ market price on July 1, 20X2?
On January 1, 20X1, when the market interest rate was 14%, Luba Corporation issued 10-year bonds in the face amount of $500,000 with interest at 12% payable semiannually. The bonds mature on December
Presented below is information from Toys “R” Us, Inc., Form 10-K for the fiscal years ending January 31, 2017, and January 30, 2016.On August 16, 2016, we completed the offering to exchange the
On January 2, 20X1, West Company issued 9%, 10-year bonds in the amount of $500,000 that mature on December 31, 20X9. The bonds were issued for $469,500 to yield 10%. Interest is payable annually on
On January 1, 20X1, Mason Manufacturing borrows $500,000 and uses the money to purchase corporate bonds for investment purposes. Interest rates were quite volatile that year and so were the fair
On January 1, 20X1, Tango-In-The-Night, Inc., issued $75 million of bonds with an 8% coupon interest rate. The bonds mature in 10 years and pay interest semiannually on June 30 and December 31 of
Zero coupon bonds pay no interest—the only cash investors receive is the lump-sum principal payment at maturity. On January 1, 20X1, The Ledge Inc. issued $250 million of zero coupon bonds at a
In 20X5, Kahn Financial Group used the fair value option for some of its own debt. During the first quarter of 20X5, the fair value of its debt declined by $2.7 billion. Its reported net income for
On January 1, 20X1, Brooks Energy issued $200 million of 15-year, floating rate debentures at par value. The debentures pay interest on June 30 and December 31 of each year. The floating interest
On January 1, 20X0, Roland Inc. issued $125 million of 8% bonds at par. The bonds pay interest semiannually on June 30 and December 31 of each year, and they mature in 15 years. On December 31, 20X1
On July 1, 20X1, Mirage Company issued $250 million of bonds with an 8% coupon interest rate. The bonds mature in 10 years and pay interest semiannually on June 30 and December 31 of each year. The
Clovis Company recently issued $500,000 (face value) bonds to finance a new construction project. The company’s chief accountant prepared the following bond amortization schedule:Required:1.
Mills Corporation owns 90% of Morrow Corporation, and there is no excess cost associated with Mills’s investment in Morrow. During 20X1, Mills reported in the income statement in its “Parent
Massie Corporation has an investment in the common stock of Witzmann Corporation. Massie acquired its investment at Witzmann’s book value, so there was no excess cost associated with the
Theo Corporation has the following sales and expenses in 20X1, excluding any amounts related to its investment in Caratini Corporation. Next to Theo’s amounts are the 20X1 sales and expenses for
Kramden Corporation acquired Norton Company several years ago for $500 million. Goodwill of $100 million was recognized on the transaction. Through 20X0, no goodwill impairment charges have been
The following data pertain to Tyne Company’s investments in marketable equity securities. (Assume that all securities were held throughout 20X0 and 20X1.)Required:1. What amount should Tyne report
On September 1, 20X1, Cano & Company, a U.S. corporation, sold merchandise to a foreign firm for 250,000 euros. Terms of the sale require payment in euros on February 1, 20X2. On September 1,
The following is an excerpt from McDonald’s Corporation’s 2015 Management Discussion and Analysis. The MD&A, which is included in the Form 10-K annual report to the SEC, provides insight into
A wholly owned subsidiary of Ward Inc. has certain expense accounts for the year ended December 31, 20X3, stated in local currency units (LCUs) as follows:LCUDepreciation of equipment (related assets
Excerpts from IBM’s 2012 segment disclosures are given below.Business Segments and CapabilitiesThe company’s major operations consist of five business segments: Global Technology Services and
Lindy, a calendar-year U.S. corporation, bought inventory items from a supplier in Germany on November 5, 20X1, for 100,000 euros, when the spot exchange rate was $1.40 per euro. At Lindy’s
Provided below are excerpts from The Walt Disney Company Form 10-K for the fiscal year ended October 3, 2015.Description of the Business and Segment InformationThe Walt Disney Company, together with
Mack Company is a European subsidiary of Bear Down Corporation, a U.S. company. Mack had the following balance sheets at December 31, 20X2, and December 31, 20X1.Also provided above are the U.S.
Rosario Company’s International Division reported the following results:The constant currency growth rate for 20X2 represents what the year-over-year sales growth versus 20X1 would have been if
Nagy Corporation’s International Division consists of two of Nagy’s subsidiaries. One of the subsidiaries operates in the United Kingdom and the other on the European continent.The U.K.
Wick Corporation has a Mexican subsidiary that had the following balance sheet at December 31, 20X1 (stated in millions of pesos):(millions of pesos)Cash300Accounts receivable125Inventory400Property
Darvish Company is a European subsidiary of Cubbie Corporation, a U.S. company. Darvish had the following balance sheet at December 31, 20X1:(in millions of euros)Cash€ 50Accounts
United Company has two foreign subsidiaries, Cancorp and Britcorp. Cancorp operates in Canada and Britcorp operates in the United Kingdom. Both companies are 100% owned by United Company and their
Refer to Darvish Company in problem P18-5. Use the same information, except assume Cubbie translates Darvish’s financial statements into U.S. dollars using the temporal method.Required:1. What is
The CEO of Lannister, Inc., evaluates financial statement information for five distinct operating segments: Hardware sales, Consulting, Hardware servicing, Financing, and Rising technology. Revenue
The CEO of Mannix, Inc., evaluates financial statement information for five distinct operating segments: Appliances, Heathcare, Transportation, Financial services, and Other stuff. Operating profit
Refer to the facts in problem P18-7.Required:1. Translate Mavrogenes’s 20X1 Income Statement into U.S. dollars using the temporal method.2. Translate Mavrogenes’s 20X1 Statement of Retained
The CEO of Crawford, Inc., evaluates financial statement information for four distinct operating segments: Television stations, Television entertainment production, Movie entertainment production,
Fly-by-Night is an international airline company. Its fleet includes Boeing 757s, 747s, and 737s and McDonnell Douglas MD-83s and MD-80s. Assume that Fly-by-Night made the following expenditures
On January 1, 20X1, Hardy, Inc., purchased certain plant assets under a deferred payment contract. The agreement called for making annual payments of $10,000 for five years. The first payment is due
Samson Manufacturing Company, a calendar-year company, purchased a machine for $65,000 on January 1, 20X0. At the date of purchase, Samson incurred the following additional costs: Loss on sale
Presented below are excerpts from the 2018 annual report of Marston’s PLC, a UK-based company that operates pubs.Property, plant and equipment• Freehold and leasehold properties are initially
On April 23, 20X1, Starlight Department Stores, Inc., acquired a 75-acre tract of land by paying $25,000,000 in cash and by issuing a six-month note payable for $5,000,000 and 1,000,000 shares of its
Crews Cable Company provides phone, internet, television, and security services to its customers. Crews offers a promotion where current customers can add phone and security services for an
Apex Company purchased a tooling machine on January 3, 20W1, for $30,000. The machine was being depreciated on the straight-line method over an estimated useful life of 20 years, with no salvage
Hopkins Co. often partners with other companies to deliver technology solutions to its clients. Because of these working relationships, Hopkins offers a sales incentive program to these companies for
Gonzo Co. owns a building in Georgia. The building’s historical cost is $970,000, and $440,000 of accumulated depreciation has been recorded to date. During 20X1, Gonzo incurred the following
AT&T Inc. is a global provider of telecommunications, media, and technology services. The following information was taken from AT&T’s Form 10-K for the year ended December 31,
On June 30, 20X1, Macrosoft Company acquired a 10-acre tract of land. On the tract was a warehouse that Macrosoft intended to use as a distribution center. At the time of purchase, the land had an
Union Company acquired machinery on January 2, 20X1, for $315,000. The machinery’s estimated useful life is 10 years, and the estimated residual value is $15,000. Union estimates that the machine
On December 31, 20X1, Fern Company adopted the dollar-value LIFO inventory method. All of Fern’s inventories constitute a single pool. The inventory on December 31, 20X1, using the dollar-value
Acute Company manufactures a single product. On December 31, 20X0, it adopted the dollar- value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was
Ramps by Jake, Inc., manufactures skateboard ramps. The company uses independent sales representatives to market its products and pays a commission of 8% on each sale. Data regarding the five styles
1. Refer to the facts in Problem 10-16. Repeat the requirements assuming that Jake uses the FIFO cost flow assumption.2. Explain how the financial statements are affected when a company decides that
Caldwell Corporation (a fictional company) operates an ice cream processing plant and uses the FIFO inventory cost flow assumption. A partial income statement for the year ended December 31, 20X2,
The following inventory valuation errors have been discovered for Knox Corporation:• The 20X1 year-end inventory was overstated by $23,000.• The 20X2 year-end inventory was understated by
Watsontown Yacht Sales has been selling large power cruisers for 25 years. On January 1, 20X1, the company had $5,950,000 in inventory (based on a FIFO valuation). While the number of yachts in
Nathan’s Grills, Inc., imports and sells premium-quality gas grills. The company had the following layers in its LIFO inventory at January 1, 20X4, at which time the replacement cost of the
KW Steel Corp. uses the LIFO method of inventory valuation. Waretown Steel, KW’s major competitor, instead uses the FIFO method. The following are excerpts from each company’s 20X1 financial
Bourne Company (a fictional company) has the following inventory note in its 20X3 annual report.LIFO revaluations decreased $140 million in 20X3, compared with decreases of $169 million in 20X2 and
JKW Corporation (a fictional company) has been selling plumbing supplies since 1981. In 2003, the company adopted the LIFO method of valuing its inventory. The company has grown steadily over the
Blago Wholesale Company began operations on January 1, 20X1, and uses the average cost method in costing its inventory. Management is contemplating a change to the FIFO method in 20X2 and is
The following is an excerpt from the financial statements of Talbot Industries (a fictional company):Effective September 30, 20X1, the Company changed its method of accounting for inventories from
Selected information concerning the operation of Kern Company for the year ended December 31, 20X1, is available as follows:Units produced10,000Units sold9,000Direct materials used$40,000Direct labor
Parque Corporation (a fictional company) applied to Fairview Bank (another fictional company) early in 20X2 for a $400,000 five-year loan to finance plant modernization. The company proposes that the
Information from Jacob Perez Company’s records is available as follows for the year ended December 31, 20X1:Net sales .................................................... $1,600,000Cost of goods
Princess Retail Stores started doing business on January 1, 20X1. The following data reflect its inventory purchases and sales during the year:Required:1. Compute gross margin and cost of ending
On June 30, 20X1, a tornado damaged Jensen Corporation’s warehouse and factory, completely destroying the work-in-process inventory. Neither the raw materials nor finished goods inventories were
Packard, Inc., adopted the dollar-value LIFO inventory method on June 30, 20X1, the end of its fiscal year. Packard’s inventory records provide the following information:Required:Calculate the
Hestor Company’s records indicate the following information:Merchandise inventory, January 1, 20X1 ............................ $ 550,000Purchases, January 1 through December 31, 20X1 ...........
Diana Gomez Corporation, a manufacturer of cowboy boots, provided the following information from its accounting records for the year ended December 31, 20X1.Inventory at December 31, 20X1 (based on a
Baines Corporation (a fictional company) manufactures fireplace tools and accessories. It has been prosperous since its incorporation, largely due to a small, exceptionally skilled, and highly
Mastrolia Manufacturing produces pacifiers. The company uses absorption costing for external reporting, but management prefers variable costing for evaluating the profitability of each model.
Bravo Wholesalers, Inc., began its business on January 1, 20X1. Information on its inventory purchases and sales during 20X1 follows:Required:1. Compute the cost of ending inventory and cost of goods
The following information related to Exxon Mobil’s inventories is taken from its 2017 annual report.3. Miscellaneous Financial Information In 2017, 2016, and 2015, net income included losses of $10
The following information related to Caterpillar’s inventories is taken from its 2015 annual report. Use this information in answering the questions that follow. There were no LIFO liquidations in
For the year 20X1, Dumas Company’s gross profit was $96,000; the cost of goods manufactured was $340,000; the beginning inventories of goods in process and finished goods were $28,000 and $45,000,
The following information is available for Day Company for 20X1:Cash disbursements for purchase of merchandise ........... $290,000Increase in trade accounts payable
Office Supply, Inc., had 300 calculators on hand at January 1, 20X1, costing $16 each. Purchases and sales of calculators during the month of January were as follows:Jessica does not maintain
On January 1, 20X1, Hillock Brewing Company sold 50,000 bottles of beer to various customers for $45,000 using credit terms of 3/10, n/30. These credit terms mean that customers receive a cash
The following information is available for Fess Company:Credit sales during 20X1 ...................................................................................... $150,000Allowance for credit
The following information is taken from the financial statements of Ramsay Health Care Inc.:Required:1. Reconstruct all journal entries relating to Gross accounts receivable and Allowance for credit
During 20X1, Kew Company, a service organization, had $200,000 in cash sales and $3,000,000 in credit sales. The accounts receivable balances were $400,000 and $485,000 at December 31, 20X0 and 20X1,
As described in the chapter, the abnormal earnings approach for estimating common share value is where V0 is the total value of all outstanding shares, BV0 is the current book value of
Randall Manufacturing has requested a $2 million, four-year term loan from Farmers State Bank. It will use the money to expand its warehouse and to upgrade its assembly line. Randall supplied the
Sunny Day Stores operates convenience stores throughout much of the United States. The industry is highly competitive, with low profit margins. The company’s competition includes national,
This case illustrates how the abnormal earnings valuation model described in Appendix 7A of this chapter can be combined with security analysts’ published earnings forecasts and used to spot
In Chapter 17, we will discuss goodwill impairment rules, which determine when goodwill must be written down and by how much. They do so by comparing the estimated fair value of a reporting unit to
Sonic Solutions develops digital media products, services, and technologies for consumers and content development professionals. In June 2010, a team of analysts at J.P. Morgan issued a research
As discussed in the chapter, abnormal earnings (AE) areAEt  =  Xt  −  (re  × BVt−1)where Xt is the firm’s net income, re is the cost of equity capital, and BVt–1 is the book
The quarterly cash flows from operations for two software companies areRequired:1. Explain why Firm B has more credit risk than Firm A.2. Suppose that Firm B’s cash flow was $200 higher each
The Compensation Committee chose consolidated EBITDA [earnings before interest, taxes, depreciation, and amortization] and revenue as the performance metrics for fiscal 2012, weighted at 80% and 20%,
Margaret Magee has served both as an outside director of MX Manufacturing for the past 10 years and as a member of the company’s compensation committee for the past 5 years. Margaret has been
Prior to being acquired by Amazon.com, Whole Foods Market provided that its Compensation Committee would determine a portion of executive bonuses by selecting from a list of 13 performance metrics.
On March 14, 2019, Core Molding Technologies, Inc. filed a Form 8-K disclosing an amendment to one of its borrowing agreements as follows:(T)he Borrowers and the Lenders agreed to modify certain
Following your retirement as senior vice president of finance for a large company, you joined the board of Cayman Grand Cruises, Inc. You serve on the compensation committee and help set the bonuses
In 20X1, Illinois Power & Heat spent $5 million repairing one of its electrical generating stations that was damaged by a tornado. The loss was uninsured. Management has asked the public service
Food Galore operates a chain of retail supermarkets. The supermarket business is highly competitive, and it is characterized by low profit margins. Food Galore recently entered into a credit
Duke Energy Corporation’s 2018 annual report to shareholders contains the following note disclosure (edited for brevity):Regulated Operations Substantially all of Duke Energy’s regulated
Big Energy Corporation received regulatory approval for its 20X1 electricity rate. The company has been authorized to charge customers $0.10 per kilowatt-hour (kwh), a rate lower than other utilities
Appearing next is information pertaining to Garrels Company’s Allowance for credit losses. Examine this information and answer the following questions.Required:1. Solve for the unknowns in the

Showing 300 - 400 of 543