Financial Accounting Reporting And Analysis 6th Edition Earl K. Stice, James Stice, Michael Diamond, James D. Stice - Solutions

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There are five different measurement attributes currently used in practice. List these measurement at- tributes.
SFAC No. 5 indicates that, to be recognized, an item should meet four criteria, subject to the cost-bene- fit constraint and materiality threshold. List these criteria.
According to Concepts Statement No. 2, relevance and reliability are the two primary qualities that make accounting information useful for decision making. Comment on what is meant by relevance and relia- bility.
Financial accounting is designed to measure directly the value of a business enterprise. Comment.
The objectives of general-purpose external financial reporting are primarily to serve the needs of man- agement. Comment.
Briefly describe the following:a. Committee on Accounting Proceduresb. Committee on Accounting Terminologyc. Accounting Principles Boardd. Financial Accounting Standards Board
What is the FASB Conceptual Framework for Accounting and Reporting intended to provide?
Briefly describe the operating procedure for Statements of Financial Accounting Standards.
Briefly explain the term generally accepted accounting principles.
Explain the matching principle. How is the matching principle related to the realization concept?
Dexter icy? Company charges to expense all equipment that costs $25 or less. What concept supports this polQ 1-30. Which U.S. government body has the legal power to determine generally accepted accounting princiQ 1-31. What ples? is the basic problem with the monetary assumption when there has been
Elliott Company constructed a building at a cost of $50,000. A local contractor had submitted a bid to construct it for $60,000.a. At what amount should the building be recorded?b. Should revenue be recorded for the savings between the cost of $50,000 and the bid of $60,000?
At which point is revenue from sales on account (credit sales) commonly recognized?
Would an accountant record the personal assets and liabilities of the owners in the accounts of the business? Explain.
Generally accepted accounting principles have substantial authoritative support. Indicate the problem with determining substantial authoritative support.
An entity may choose between the use of the accrual basis of accounting and the cash basis. Comment.
Some industry practices lead to accounting reports that do not conform to the general theory that underlies accounting. Comment.
Many important events that influence the prospect for the entity are not recorded in the financial records.Comment and give an example.
The same generally accepted accounting principles apply to all companies. Comment.
It is proper to handle immaterial items in the most economical, expedient manner possible. In other words, generally accepted accounting principles do not apply. Comment, including a concept that justifies your answer.
No estimates or subjectivity is allowed in the preparation of financial statements. Discuss.
Discuss why the concept of full disclosure is difficult to apply.
The consistency concept requires the entity to give the same treatment to comparable transactions from period to period. Under what circumstances can an entity change its accounting methods, provided it makes full disclosure?
The matching concept involves the determination of when to recognize the costs associated with the revenue that is being recognized. For some costs, such as administrative costs, the matching concept is difficult to apply. Comment on when it is difficult to apply the matching concept. What do
There are other acceptable methods of recognizing revenue when the point of sale is not acceptable. List and discuss the other methods reviewed in this chapter, and indicate when they can be used.
Inventory that has a market value below the historical cost should be written down in order to recognize a loss. Comment.
An arbitrary write-off of inventory can be justified under the conservatism concept. Is this statement true or false? Discuss.
In some countries where inflation has been material, an effort has been made to retain the significance of money as a measuring unit by adjusting the financial statements by an inflation factor. Can an accurate ad- justment for inflation be made to the statements? Can a reasonable adjustment to the
Countries have had problems with the stability of their money. Briefly describe the problem caused for fi- nancial statements when money does not hold a stable value.
Which standard of measure is the best for measuring financial transactions?
Describe the following terms, which indicate the period of time included in the financial statements:a. Natural business yearb. Calendar yearc. Fiscal year
The only accurate way to account for the success or failure of an entity is to accumulate all transactions from the opening of business until the business eventually liquidates. Comment on whether this is true.Discuss the necessity of having completely accurate statements.
Because of assumptions and estimates that go into the preparation of financial statements, the statements are inaccurate and are, therefore, not a very meaningful tool to determine the profits or losses of an entity or the financial position of an entity. Comment.
Zebra Company has incurred substantial financial losses in recent years. Because of its financial condition, the ability of the company to keep operating is in question. Management prepares a set of financial statements that conform to generally accepted accounting principles. Comment on the use of
A corporation like General Motors has many owners (stockholders). Which concept enables the accountant to account for transactions of General Motors, separate and distinct from the personal transactions of the owners of General Motors?
Identify the accounting principle(s) applicable to each of the following situations:a. Tim Roberts owns a bar and a rental apartment and operates a consulting service. He has separate financial statements for each. n*\$4%> £sih*hb. An advance collection for magazine subscriptions is reported as a
The president of your firm, Lesky and Lesky, has little background in accounting. Today he walked into your office and said, "A year ago we bought a piece of land for $100,000. This year inflation has driven prices up by 6%, and an appraiser just told us we could easily resell the land for $11
How does the concept of consistency aid in the analysis of financial statements? What type of accounting disclosure is required if this concept is not applied?
Discuss the role of each of the following in the formulation of accounting principles:a. American Institute of Certified Public Accountantsb. Financial Accounting Standards Boardc. Securities and Exchange Commission
Shown below are several transactions recorded by Beth’s coffee shop, The Bitter Bean (TBB):Required For each transaction, describe the event or activity that occurred. For example:Answer: The firm borrowed $20,000. p-968 a. ASSETS Cash, +$30,000 b. Inventory, +$12,000 CPO e. f. g- Cash, -$3,000
Theraux Corporation received its bank statement for the month ended October 31, 1999. Contained in the bank statement were the following items:Check # $ Amount Checks cleared: 1140 $100 1156 400 1159 250 1161 500 1162 183 1163 175 1165 194 Date $ Amount Deposits cleared: 10/3/99 $1,250 10/5/99 480
In the HMO industry, accounts receivable represent one of the major assets.HMOs provide medical services to patients and then bill insurance companies and Medicare/Medicaid agencies.Timely collection is important to maintaining adequate liquidity. Locate the latest 10-K filings for Columbia/HCA
The Center for Inventory Management (CIM) publishes quarterly inventory ratios for manufacturing industry groups.Requireda. How does CIM (www.inventorymanagement.com) compute its inventory ratio? What shortcomings are implicit in its calculations?b. How would you convert CIM’s inventory ratio to
Locate the latest available set of financial statements for Oncogene Science,Inc., from the 10-K on file in the EDGAR archives.Requireda. In what types of short-term securities does Oncogene invest? (The information needed to answer this question can be found in the Notes to the Financial
Owens-Corning values its inventories using LIFO.This presents a problem when comparing its current ratio against that of a company using FIFO. Locate the latest financial statements for Owens-Corning at the company page (www.owenscorning.com) or from the 10-K filed in the EDGAR archives
The following balance sheet segments were extracted from the SEC’s EDGAR data base:Consolidated Balance Sheets ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions)December 31 1997 1996 --------------------------------------------------------------------------------------Current Assets
Sheila Glow sells advertising for KBOL, a local radio station. She receives a small monthly salary plus a commission of 20% of all advertising contracts that she negotiates and that are billed by KBOL. KBOL conducts an informal credit review on all new clients,but relies extensively on the
Storage Technology Corporation (StorageTek) is a manufacturer of computer storage devices. StorageTek continually modifies its existing products and develops new ones. These improvements permit larger amounts of data to be stored and accessed more quickly.One of StorageTek’s new products was
Topps Co., Inc., produces sports cards. During two quarters in the same year, Topps’ accounts receivable increased by more than 50%, while sales declined.Such a trend might indicate that Topps is experiencing difficulty collecting from its customers.Topps asserts,however,that receivables have
Financial analysts have computed the following ratios for Firm X and several industries where Firm X has significant operations.Evaluate Firm X’s performance relative to each industry. What factors might account for the differences observed?Accounts Receivable Ratios Industry Comparisons Apparel
Discuss the implications of the following note.How will it affect the company’s liquidity? How will it affect the company’s overall asset management policies?Conry Publishing Company 1999 Annual Report Note 5 (Partial)At December 31, 1999, the Company has a $10,000,000 Line of Credit
Describe the concept of factoring accounts receivable.If necessary,conduct further research in a finance text to determine what functions a factor performs.Consider the following factoring issues:a. Why would a company sell its receivables to a factor?b. If these receivables were 180 days old, why
Entertainment Office Group is a leading producer of film (and video) entertainment. Its 1999 and 1998 consolidated balance sheets reported the following assets (dollars in thousands):1999 1998 Cash and short-term investments $ 37,015 $ 38,402 Accounts receivable, net 66,241 32,659 Film costs and
Pioneer Resource, Inc., reported the following in its Notes to Consolidated Financial Statements for 1999.Material and Supplies: Inventories of new and reusable material and supplies are stated at the lower of cost or market with cost determined on a FIFO or average cost basis. For certain large
Kesler Inc. is a research-based health care company whose objectives include the application of scientific knowledge to help people enjoy longer, healthier, and more productive lives. Its balance sheets for 2000 and 1999 show the following amounts (dollars in millions):2000 1999 Cash and cash
The manager of Rob’s Shoe Store has been congratulated by her division manager for almost completely eliminating all bad debts. She instituted a policy of conducting extensive credit checks on all prospective credit customers and, consequently,rejects most applications.The cost of each credit
Marketable securities are usually shown on the balance sheet as current assets.Based on what you have learned, under what circumstances might they be shown as noncurrent assets? Why do you think a firm might hold its investments in marketable securities for more than a year? lop85
Refer to Wendy’s financial statements in Appendix D. Review the financial statements to determine how and where current assets have been reported.Requireda. Did Wendy’s disclose how it calculated the allowance for uncollectible accounts? Is it essential for a financial analyst to know which
Refer to Reebok’s financial statements in Appendix E.Review the financial statements to determine how and where current assets have been reported.Requireda. Calculate the following accounts receivable ratios:• Accounts receivable as a percentage of sales• Average sales per day• Collection
Firefly Beach Cottages, Inc., purchased a three-year fire insurance policy for$4,800.The policy was purchased on July 1, 1999, and financial statements are prepared as of December 31 each year.Requireda. Show the effects of this insurance policy on the balance sheets for each of the following years
S.Claus Company makes toys and gifts.At the beginning of July,it owned 200 gallons of red paint,which were recorded on the balance sheet at $4.00 per gallon.The following events occurred in the next quarter. 1. Purchased 300 gallons on July 1 at $4.25 each. 2. Purchased 500 gallons on August 1 at
The Atlas Tile Company has an accounts receivable balance at December 31 of$376,000. Its allowance for uncollectible accounts, before adjustment, has a balance of $37,000. Credit sales for Atlas, for the year just ended, were $2,700,000.Using its credit history,Atlas decides to increase its
S. Claus Company ended the 2000 season with an accounts receivable balance of $375,000, less allowance for uncollectible accounts of $37,500. Use the accounting equation to reflect each of the following situations and calculate the 2001 season’s ending balance in accounts receivable and the
Becca’s Finance and Collection Company had the following year-end balances in its financial statements:1999 2000 Accounts receivable $300,000 $500,000 Allowance for uncollectibles (50,000) (50,000)Interest and finance revenue 150,000 300,000 Requireda. Assess the adequacy of the 2000 balance in
Becca’s Finance and Collection Company has had a lot of trouble collecting its receivables recently.Discuss how each of the following circumstances might be reflected in the Allowance for Uncollectible Accounts: 1. Dagwood Bumpstead has an “open”account that is always overdue.Dagwood makes
Two similar companies use different inventory valuation methods. LL Co. uses the LIFO inventory valuation method, and FF Co. uses FIFO. Ignore the effect of income taxes on each company.Income Statements LL Co. FF Co.Sales $ 35,000 $35,000 Cost of goods sold (20,350) (18,200)Gross profit 14,650
Two similar companies use different inventory valuation methods. In fact, the companies are identical except for their inventory methods. L Co.uses the LIFO inventory valuation method, and F Co. uses FIFO.Income Statements L Co. F Co.Sales $ 30,000 $30,000 Cost of goods sold (21,280) (19,200)Gross
Pratsky, Inc., had the following account balances:December 31, 1999 Assets Liabilities Cash $12,500 Accounts payable $10,000 Accounts Receivable 22,400 Allowance for Stockholders’ Equity:uncollectible accounts (3,400) Invested capital 20,000 Inventory 17,500 Retained earnings 19,000 Total
El Puerto Company uses LIFO for its inventories. Information regarding 2000’s beginning inventory and purchases up until December 15,2000 is shown below:Beginning inventory (January 1, 2000) 500,000 units @ $10 $5 million Purchases during 2000: 1,200,000 units @ an average cost of $20 $24 million
Jeans R’Us, Inc., reported the following data in its annual financial statements(dollars in thousands):2000 2001 Cost of goods sold—LIFO 31,678 44,690 Cost of goods sold—FIFO 31,089 41,656 Ending inventory—LIFO 12,298 13,365 Ending inventory—FIFO 14,888 18,989 Net income—LIFO 30,500
Teddie Bower,Inc.,reported the following data in its annual financial statements(dollars in thousands):1999 2000 Sales $333,667 $313,456 Cost of goods sold—LIFO 32,587 44,690 Cost of goods sold—FIFO 30,198 45,833 Ending inventory—LIFO 11,189 10,567 Ending inventory—FIFO 15,999 14,234 Net
Tom Hanky, a financial analyst specializing in the toy industry, has provided the following comments concerning the 1999 financial statements of Toys-U-Must:Toys-U-Must began operations in 1999 and uses the LIFO method in costing its inventories. Because the typical firm in the industry uses FIFO
Dolo’s Building Block Company uses LIFO costing and reports the following information in a footnote to its financial statements:“If Dolo had used FIFO costing during 2000, the beginning and ending inventories would have been higher by $50 million and $70 million, respectively.”Requireda.
Illusory Products Co.began operations early in 1999 and reported the following items in its financial statements at the ends of 1999 and 2000 (dollars in millions):1999 2000 Ending inventory $18 $22 Gross margin 62 75 Retained earnings 54 66 Early in 2001, management discovered that the ending
Ken’s and Den’s Recreational Products,Inc.,reports the following information in its 2000 financial statements:Balance (dollars in millions)January 1, 2000 December 31, 2000 Accounts receivable (gross) $14 $12 Allowance for uncollectible accounts 1 2 Inventory 20 26 During 2000:Sales 80 Cost of
Calculate the gross profit percentages for each of the following situations and, based on these results, identify which situations are most preferable:a. Sales of $450,000, cost of goods sold of $300,000b. Sales of $660,000, gross profit of $230,000c. Sales of $700,000, gross profit of $330,000d.
Calculate the gross profit percentages for each of the following situations and, based on these results, identify which situations are most preferable:a. Sales of $500,000, cost of goods sold of $300,000b. Sales of $600,000, gross profit of $300,000c. Sales of $600,000, cost of goods sold of
Frosty King, Inc., reported the following information in its 2000 financial statements:Years Ended November 30 2000 1999 Net sales $228,542,157 $231,845,632 Accounts receivable, net 21,402,613 19,280,407 Allowance for uncollectible accounts 650,811 1,018,416 Requireda. Calculate the adequacy of
DSE is a world leader in the application of information technology.Excerpts from its financial statements disclosed the following information (dollars in millions):Years Ended December 31 1999 1998 1997 Total revenues $8,463.9 $8,154.3 $6,998.2 Accounts receivable $1,325.6 $1,200.5 —Requireda.
Shard Crockery Co. recognized the following events related to customer accounts receivable during 2000.At the start of the year,the firm reported gross accounts receivable of $22,000,000 and an allowance for uncollectible accounts of$2,000,000. 1. Sales on credit totaled $60,000,000 for the year.
Spit-Spot Cleaners,Inc.,recognized the following events related to customer accounts receivable during the firm’s first year of operation: 1. Sales on credit totaled $4,000,000 for the year. 2. The firm estimated that 2% of its credit sales would ultimately prove to be uncollectible. 3. Cash
The Simmons Corporation had the following investments at December 31: 1. 1000 shares of Hollings,Inc.,purchased early in the year at $40 per share and held as available-for-sale and with a year-end fair market value of $38 per share 2. $25,000 in U.S. three-month Treasury Bills 3. $15,000
Sensor Corporation: $9 per share Requireda. Assuming that these securities are considered available-for-sale, what would be the effect on the financial statements of holding these securities?b. Assuming that these securities are considered trading securities,what would be the effect on the
Traylor Corporation: $12 per share: E-967
Fancy Corporation: $24 per share: E-967
The Amber Corporation purchased three different stocks during the year as follows: E-967• 100 shares of Fancy Corporation, cost $23 per share• 250 shares of Traylor Corporation, cost $15 per share• 180 shares of Sensor Corporation, cost $7 per share Amber Corporation intends to sell these
Firm A has an accounts receivable balance of $126,000 and a balance in its allowance for uncollectible accounts of $29,000.Contrast this situation with Firm B, which has corresponding balances of $963,000 and $865,000.Which firm is riskier? Why? Which firm do you think is doing a better job of
Identify and discuss any unusual terms.b. Why does Wendy’s separate cash equivalents from notes receivable? Which are reported at market value? Why?c. Discuss how “inventories”may differ from “other current assets.”In your opinion,should they be disclosed separately? Does the distinction
Refer to Wendy’s financial statements in Appendix D. Review the balance sheet to determine how and where current assets were reported. E-967 Requireda. Read Note
Why does Reebok report cash and cash equivalents?b. What is the gross amount of accounts receivable at the end of 1997 and 1996? Why do you suppose the allowance for doubtful accounts has increased?c. Discuss how “other current assets” may differ from “prepaid expenses.” In your opinion,
Refer to Reebok’s financial statements in Appendix E. Review the balance sheet to determine how and where current assets were reported. E-967 Requireda. Read Note
Examine the financial statements for Wendy’s and Reebok in the appendices.Read Note 1 for each firm.Identify the inventory valuation method used by each.Do these methods seem appropriate for each firm? Why? Examine the relative amount of inventories reported by each firm.Why would one firm have
Compare and contrast each of the following methods used to value inventories: E-967a. FIFOb. LIFOc. Weighted averaged. Specific identificatione. Lower of cost or market 26 Classify each of the following items as either a cash or a noncash item.a. Savings accountsb. Postage stampsc. Traveler’s
Which of the following internal control statements is correct?a. Internal control does not ensure that collusion will be detected.b. Internal control design is the responsibility of the outside auditors.c. The costs of internal control often exceed the benefits.d. A strong system of internal
To help achieve internal control over the assets of a company:a. Segregate authorization and executionb. Segregate authorization and reviewc. Segregate custody and record keepingd. Segregate custody and payment E-967
Identify the best answer to each of the following multiple-choice questions,and explain why it is the best answer: E-967
Describe the circumstances under which a manager might want to change her firm’s inventory method from FIFO to LIFO. Similarly, describe why a change from LIFO to FIFO might be desirable. E-967
Discuss how and why accountants might use the accounts receivable contra asset account Allowance for Uncollectible Accounts. Does such an account seem useful for managers and analysts? Why? E-967
With regard to accounts receivable, explain how the average sales per day ratio and collection period ratio could be used.As a company relaxes its credit policies, how would the values of these ratios usually change? Why? E-967
If a firm purchased a three-year fire insurance policy on July 1,1999,how would this policy be shown on the firm’s balance sheet at December 31, 2000? E-967

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Financial Accounting Reporting And Analysis 6th Edition Earl K. Stice, James Stice, Michael Diamond, James D. Stice - Solutions

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