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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
(Similar to Problem 2-21) On June 1, a sole proprietorship was formed to sell and service personal computers. During the first six months, the following transactions occurred:1. On June 1, invested $50,000 in the business.2. On July 1, purchased a four-wheel-drive pickup truck for $22,000 (on
(Similar to Problem 2-22) Seaver & Co., a CPA firm, prepare their own financial statements with a December 31 year-end.1. As of December 31, Seaver & Co. have rendered $20,500 worth of services to clients for which they have not yet billed the client, and for which they have not made any accounting
(Similar to Problem 2-24) Susan’s Sweets opened a candy shop on January 1.1. Susan invested $100,000 in cash on January 1, 1999, and began business as a sole proprietorship.2. Susan paid $20,000 for a six-month lease. The lease is renewable for another six months on July 1.3. Susan purchased
(Similar to Problem 2-25) Susan’s Shoe Shop opened on January 1. The following transactions took place during the first month:1. Deposited $30,000 in the firm’s checking account.2. Purchased shoes, boots, socks, and other inventory for $45,000 on account.3. Purchased display shelving, chairs,
Matt’s Ski Shop is in the process of acquiring a vehicle for the business. The following transactions took place in December, 2000:1. Verbally agreed to purchase a used car from Slee-Z-Auto for $3,500.2. Paid $400 for a warranty on the used car.3. Took the car on a test drive, found it faulty,
(Similar to Problem 2-29) Matt, the sole proprietor of Matt’s Ski Shop, traveled to Switzerland to attend the Alpine Equipment Exposition. The following transactions occurred:1. Paid $2,000 for airline tickets, hotel accommodations, and tour guidance from Hugo’s U-Go Travel.2. Changed the
(Similar to Problem 2-33) John’s Anti-Mediation League (JAML) engaged in the following transactions in 1999:1. On January 1, JAML borrowed $100,000 at six percent per year with interest due quarterly.2. JAML paid a $1,000 kickback to a good friend who helped obtain the loan.3. JAML had not yet
Sue’s Mediation League (SML) engaged in the following transactions in 2000:1. On January 1, SML borrowed $250,000 at nine percent per year with interest due quarterly.2. SML paid $1,000 to a good friend who helped obtain the loan.3. SML had not yet paid any interest after the loan had been in
(Similar to Problem 2-34) Sharon’s Affairs and Parties (SAAP) engaged in the following transactions in 1999:1. SAAP borrowed $150,000 at 10 percent per year to begin operations.2. SAAP accrued the first month’s interest on the loan.3. SAAP accrued the second month’s interest.4. SAAP paid the
Hilger’s Intimate Promises (HIP) engaged in the following transactions in 2000:1. HIP borrowed $50,000 at eight percent per year to begin operations.2. HIP accrued the first month’s interest on the loan.3. HIP accrued the second month’s interest.4. HIP paid the interest due at the end of the
The SEC archives can be accessed at www.sec.gov/edaux/searches.htm.Required Locate the SEC disclosures for the corporate filings listed below. For each filing, answer the questions and identify who might use this information and why it is important to that user.a. 10-K for Centurion Mines Corp
International Dairy Queen’s annual income statement for the year ended November 30, 1994, and its four quarterly income statements are presented below.Annual ending 11/30/94 11/30/94 2/24/95 5/26/95 8/25/95 Net sales $340,833 $76,070 $67,530 $106,150 $115,361 Cost of goods sold 249,985 55,140
Falcon Amusements, Inc. chose September 30 as its year-end. Reported below are its quarterly income statements for fiscal 2000 and its annual income statement.Quarterly 10/1/99 1/1/00 4/1/00 7/1/00 Annual at 12/31/99 3/31/00 6/30/00 9/30/00 9/30/00 Net sales $577,441 $571,930 $698,432 $818,034
Locate the most recent 10-K filing by Gillette Corporation from the EDGAR archives (www.sec.gov/edaux/searches.htm). The “Notes to the Financial Statements”contains detailed segment information.lop87 Requireda. Identify the major business (industry) segments in which Gillette is involved.b.
TRW, Inc., is a global company that specializes in producing automotive, spacecraft, and information system products. The following (partial) segment data was reported (dollars in millions): LOP585 December 31 1994 1993 Sales:Automotive $5,679 $4,538 Space and defense 2,812 2,792 Information
Examine notes from the financial statements of two different companies to determine how they report segments of their operations. Evaluate the level of disclosure for each firm in terms of the usefulness and relevance of the notes provided by each firm. lop87
The following (partial) information was provided in the industry segment note in American Home Products Corporation’s 1994 financial statements (dollars in millions):Years Ended December 31 1994 1993 Net sales:Health care products $ 7,885.6 $7,369.1 Food products 997.3 935.8 Agricultural products
Assume you have just conducted a preliminary analysis of your firm’s 1999 financial statements. The firm has not prospered in recent years, and you are particularly concerned about violating a provision of a loan agreement you have with a local bank. Your firm has a $200,000, nine percent bank
Locate the most recent 10-K filing by Bank One and Time-Warner from the EDGAR archives (www.sec.gov/edaux/searches.htm). Refer to the note on significant accounting policies in “Notes to the Financial Statements” to identify changes in accounting policies. Identify any changes the companies
The following consolidated financial statements, selected excerpts from the notes, and auditor’s report for Zenith Electronics Corporation were obtained from the EDGAR database:Consolidated Financial Statements Zenith Electronics Corporation Statements of Consolidated Operations and Retained
Match the following terms to the correct description. For each situation, describe in words (ignore the dollar amounts) what accounting treatments are required.a. Change in accounting principle, cumulative effect reportedb. Change in reporting entityc. Change in accounting estimated. Change in
Review the prior chapters in this text and compile a list of at least five areas where estimates are required as part of the accounting measurement process.Determine through your review or through interviews with accounting professionals whether these estimates can generally be made in a reliable
Discuss why the effects of a change in an accounting estimate are not reported using the “cumulative effects” rule. Discuss the differences between the “cumulative effects”method and the “prospective”method. LOP898
Why would a change from FIFO, or some other inventory method, to LIFO not require a retroactive adjustment of a firm’s financial statements? What would be the cumulative effect of such an adjustment? LOP585
Identify an accounting change (other than a change in depreciation method)that requires a cumulative adjustment. Create a numerical example of this accounting change and show the effects on net income and retained earnings during the year when the change occurs. LOP585
Ace Construction Company accounted for all its long-term contracts on a deferred basis; that is, all revenue and expenses were deferred until the completion of the contract when all the costs were known with certainty. Although this is a conservative approach, Ace has been having difficulty with
U. S. Shoe Corporation reported the following income statement information:U.S. Shoe Corporation Consolidated Statement of Earnings (Partial)(Dollars in Thousands)1991 1990 1989 Earnings (loss) before cumulative effect of accounting change ($27,662) $49,187 $12,965 Cumulative effect of accounting
Bergen Brunswig Corporation reported the following information (dollars in thousands) in its 1993 consolidated earnings statement:Operating earnings from continuing operations $70,983 Net interest expense 22,723 Earnings from continuing operations before taxes 48,260 Taxes on income from continuing
Fitzer, Inc. reported the following data in its 1999 income statement (dollars in millions):Income before cumulative effect of accounting changes $1,093.5 Cumulative effect of change in accounting for postretirement benefits, net of income taxes (312.6)Income taxes 30.0 Net income $810.9 Fitzer’s
Review Reebok’s financial statements in Appendix E.Requireda. Read Notes 2 and 12. Identify any unfamiliar or unusual terms.b. Discuss Reebok’s relationship with these firms. What impact did Reebok’s actions have on the company’s financial statements?c. Why shouldn’t these special charges
The Kellogg Company reported the following financial information (dollars in millions):1993 1992 1991 Earnings before cumulative effect of accounting change $680.7 $682.8 $606.0 Cumulative effect of change in method of accounting for postretirement benefits other than pensions (net of tax benefit
Listed below are the income statements for Alco Standard Corporation, the largest distributor of copiers in North America (dollars in thousands):September 30 1994 1993 Revenues:Net sales $7,925,784 $6,387,078 Dividends, interest, and other income 3,537 6,332 Finance subsidiaries 66,731 51,149
Dandy’s Discount Duds offers credit to all customers. It estimated that 15 percent of all such customers will not be able to pay their accounts. Dandy’s credit sales in 2000 were $4,000,000. Its estimated bad debt expense was calculated at 15 percent of annual credit sales.Requireda. What is
A copy machine was acquired at the beginning of 1998 for $12,000. It had a salvage value of $2,000 and an estimated life of five years.Requireda. Calculate the annual straight-line (SL) depreciation.b. Assume that at the beginning of the year 2000, the copy machine’s total useful life is
A firm has a delivery truck that originally cost $55,000 with an estimated salvage value of $5,000 and an estimated life of 10 years. During the first two years, the firm used sum-of-the-years’digits (SYD) depreciation. At the beginning of the third year, straight-line (SL) depreciation was
A firm has a computer that originally cost $37,500 with an estimated salvage value of $17,500 and an estimated life of five years. During the first two years, the firm used straight-line (SL) depreciation. In the third year, the sum-of-theyears’digits (SYD) method was adopted.Requireda. Calculate
Polymer Element Corporation presented the following (partial) income statements (dollars in thousands, except EPS):December 31 2000 1999 1997 Income from continuing operations after tax $ 207,500 $ 195,400 $ 189,600 Cumulative effect of change in accounting principle (25,000) 0 (45,000)Net income $
Central Air Conditioning, Inc. purchased machinery for installing air conditioners. The purchase price of the machine on July 1, 2000, was $35,000. The company chose a seven-year life, a sum-of-the-years’ digits (SYD) depreciation, and no salvage value. Unfortunately, the weather during 2000,
Mesple Music, Inc. purchased musical instrument equipment on January 1, 1999, for $25,000. Mesple depreciated it on the straight-line basis over five years with no salvage value. However, on January 1, 2001, the company realized that the productive capacity of this equipment is declining, so it
IDQ’s income statement data for the years ended November 30, 2000 and 2001, are presented below (dollars in millions). LOP585 11/30/00 11/30/01 Net sales $1061 $1154 Cost of goods sold 792 830 Gross profit 269 324 Selling, general, and administrative 111 134 Income before depreciation 158 190
IDQ’s income statement data for the year ended November 30, 1999, is presented below (dollars in millions). LOP585 11/30/99 Net sales $340 Cost of goods sold 249 Gross profit 91 Selling, general, and administrative 40 Income before depreciation 51 Nonoperating income 2 Income before tax 53
The Sisters Coffee Emporium has been researching and developing new exotic coffee flavors and innovative coffee equipment. During 1998, it spent over$250,000 on R&D costs. It is now year-end and the company is preparing its balance sheet. Sisters would like the most relevant information to be
What are the implications of earnings management? As an external financial analyst, what can be done to combat earnings management? LOP585
Identify some methods that might be used to manage earnings that were not described in this chapter. Are these new methods more appropriate or more ethical than the methods already described in the chapter? Why? LOP585
Describe each of the methods used to manage earnings. Which seem appropriate and ethical? Why? LOP585
Discuss each of the motivations for earnings management. Under what circumstances would you support the use of these techniques? Why? LOP585
What is earnings management? Why would a manager engage in earnings management? Would an investor or creditor approve of such activities? Under what circumstances would an investor or creditor approve? Why? LOP585
Identify the differences between relevance and reliability. Which would a manager emphasize? A financial analyst? LOP585
Why should financial analysts not be willing to accept all the information in a firm’s financial statements at face value? LOP585
Discuss how economic consequences can affect various users of financial statements. How should those who are affected by economic consequences participate in the development of accounting principles? LOP585
How do a firm’s accounting principles affect contracts that are based on the financial statements? LOP585
Describe financial accounting’s two primary roles. Discuss the major criteria that financial accounting must adopt as part of its informational role? What other roles or criteria would you suggest? Why? LOP585
Why do price-to-earnings (P/E) ratios differ between firms? LOP585
Assume that a firm changes from FIFO to LIFO during a period of rising prices.Would a proponent of the EMH predict an increase or decrease in the firm’s share price as a result of the change in inventory valuations? Why? LOP585
Describe the efficient market hypothesis (EMH). How does it affect financial statement analysis as described in this text? LOP585
Why are interim reports less reliable and less useful than annual reports? In what major ways do interim reports differ from annual reports? LOP585
Why does a firm’s annual report contain so much information in such a variety of formats? Under what circumstances would a more condensed format be more useful? LOP585
Describe why a firm with more foreign operations or more large customers(greater than 10 percent of its volume) might be viewed as having higher risk than a domestic company with many small customers (less than 10 percent). LOP585
Why is information about a firm’s major customers reported as part of the notes on the firm’s segment? Why not use a threshold higher than 10 percent as the criterion for determining who is a major customer? LOP585
Why are domestic and foreign operations separately disclosed? How would this information be helpful to an investor or creditor? LOP585
Why are profits for each segment shown as part of segment reporting? LOP585
Why are the identifiable assets for each segment shown as part of segment reporting? LOP585
Describe what is meant by an industry segment and the types of information that must be reported for each segment. LOP585
Identify three types of segment reporting. Where is this information reported?Why have such types of segment reporting been required? LOP585
Why is a change in reporting entity shown as a retroactive adjustment and not as a prospective adjustment? LOP585
In general, how are the financial statements changed when two firms merge or engage in some similar restructuring? LOP585
Where are the effects of changes in accounting estimates reported? Why should the financial statement user often not be aware of many of these changes? LOP585
When the effects of a change in an accounting estimate are recognized, can prior financial statements be restated retroactively? Why? LOP585
Why does the FASB require that firms make retroactive adjustments when a new reporting standard has been issued? LOP585
Why would a firm that is issuing its first public financial statements have more latitude in using retroactive adjustments for the effects of accounting changes? LOP585
Under what circumstances are prior years’financial statements retroactively restated? Why do you suppose these exceptions exist? LOP585
Are financial statements that include an accounting change more comparable with those of prior years or of subsequent years? Why? LOP585
Discuss any inconsistencies that are introduced when accounting principle changes occur. LOP585
Under the general rule dealing with accounting principle changes, have the firm’s retained earnings changed? How has the firm gained or lost some of its prior (accumulated) retained earnings? Why? LOP585
Discuss the general rule in reporting the effects of an accounting principle change. What is meant by a “cumulative effect”adjustment? LOP585
What is the financial statement user’s first indication that an accounting change has occurred? Why should this source be examined first when reading a financial statement? LOP585
Discuss why financial statement users prefer a firm to consistently use the same accounting principles. LOP585
Describe three different types of accounting changes. Under what circumstances should each be reported? LOP585
How does comprehensive income differ from the concept of sustainable income, as described earlier in the text? Under what circumstances might an investor or creditor prefer sustainable income, as compared to comprehensive income? LOP585
Under what circumstances would a manager prefer comprehensive income or net income? An investor? A creditor? LOP585
Describe comprehensive income. How does it differ from net income? LOP585
Understand the motivations for and methods of earnings management. LOP585
Describe the two major roles of financial accounting. LOP585
Explain the efficient market hypothesis and its implications for accounting. LOP585
Identify reports filed with the Securities and Exchange Commission (SEC). LOP585
Describe annual and interim reports. LOP585
Analyze information about operating segments. LOP585
Interpret the financial statements of firms that have undertaken accounting changes. LOP585
Understand and interpret comprehensive income. LOP585
Access the EDGAR archives (www.sec.gov/edaux/searches.htm) and locate the Schedule 14D1 filing made by either Amdura Corporation or FKI plc on March 22, 1995 (they are identical). Hint: You can search for this filing on the SEC database by inputting the name of either company. It was filed when FKI
Access the EDGAR archives (www.sec.gov/edaux/searches.htm) and locate the Schedule 14D1 filing (February 1,1995) made by Cadbury Schweppes on the successful acquisition of Dr. Pepper/Seven-Up Companies Inc. Hint:Search on “Cadbury” or “Dr. Pepper.” Examine the section that contains the
Kimberly-Clark is a global corporation whose primary product is diapers and tissues.Access the EDGAR archives (www.gov.sec/edaux/searches.htm) to locate Kimberly-Clark’s 1995 10-K.Answer the following questions based on its Note on Foreign Currency Related Issues. P-968
Boise Cascade Company is a major producer of paper,building,and office products.The company reported the following items related to foreign exchange gains and losses in its 1993 financial statements (dollars in thousands):1993 1992 Foreign exchange gain $1,610 $6,590 Notes:Foreign exchange gains
Polygram’s financial statements included the following additional disclosure(see preceding problem):The calculation of Net income . . . substantially in accordance with U.S. GAAP, is as follows (in millions of Netherlands guilders):Net income per PolyGram’s Consolidated Statements of Income 738
The PolyGram Group includes businesses around the world that are chiefly involved in acquisition, production, and marketing in the music industry, as well as the manufacture, sale, and distribution of prerecorded sound carriers, such as compact discs,cassettes,and records.In addition,PolyGram is
Foreign companies whose shares are registered on U.S. security exchanges must file a description of significant differences between U.S.and domestic accounting principles with the SEC as well as a reconciliation of net income and shareholders’ equity under domestic and U.S. GAAP.Goldplate
Foreign companies whose shares are registered on U.S. security exchanges must file a description of significant differences between U.S.and domestic accounting principles with the SEC,as well as a reconciliation of net income and shareholders’ equity under domestic and U.S. GAAP.Antic Knights,
The balance sheet and income statement of Buchanen, Inc., a subsidiary of a U.S.company,is shown below.Buchanen,Inc.operates in New Zealand and prepares its financial statements in New Zealand dollars (NZ$). P-968 Buchanen, Inc.Balance Sheet and Income Statement December 31, 2000(NZ$ in
a. Managers of U.S. firms sometimes allege that they are at a disadvantage when selling securities in international markets because U.S.disclosure and measurement standards are more comprehensive,stringent,and costly than are those of most other nations.Assume that these managers are correct and
In Du Pont Corporation’s 1994 annual report,Note 27 contained the following(partial) information:Principal foreign currency exposures and related hedge positions on December 31, 1994, were as follows:Open Contracts Net Monetary to Buy(Sell)Currency Asset (Liability) Foreign Currency Net
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