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Financial Reporting And Analysis Using Financial Accounting Information 11th Edition Charles H. Gibson - Solutions

Juniper Ltd has been trading for many years, preparing financial statements to 31 March each year. As from 1 April 2009, the company decided to adopt a new accounting policy in relation to revenue recognition.If this policy had been adopted in previous years, the company's revenue for the year to
Whilst preparing its financial statements for the year to 30 June 2010, Ibex plc discovers that (owing to a mathematical mistake) the sales figure for the year to 30 June 2009 had been understated by £100,000. Trade receivables at 30 June 2009 had been understated by the same amount. This error is
Harris plc began trading on 1 January 2006, preparing financial statements to 31 December each year. During 2009, the company decided to change its accounting policy with regard to the depreciation of property, plant and equipment. Depreciation charges calculated using the previous accounting
(a) Explain what is meant by a "material prior period error" and explain how such an error should be corrected.(b) List the disclosures which must be made when a material prior period error is corrected.
(a) Explain how an entity should select its accounting policy in relation to an item if there is no applicable international standard or interpretation.(b) In what circumstances may an entity change one of its accounting policies?
(a) Distinguish between accounting policies and accounting estimates.(b) Explain how a change in an accounting policy should be accounted for.(c) Explain how a change in an accounting estimate should be accounted for.
Chilwell Ltd prepares financial statements to 31 October each year. The company's trial balance at 31 October 2010 is as follows:£ £Land at valuation 250,000 Buildings at cost 300,000 Equipment and motor vehicles at cost 197,400 Allowances for depreciation at 1 November 2009:Buildings 60,000
The following trial balance has been extracted from the books of Walrus plc as at 31 March 2010:£000 £000 Land, at cost 120 Buildings, at cost 250 Equipment, at cost 196 Vehicles, at cost 284 Goodwill, at cost 300 Accumulated depreciation at 1 April 2009:Buildings 90 Equipment 76 Vehicles 132
List the main types of information which should be provided in the notes which accompany and form an integral part of the financial statements.
You have been asked to help prepare the financial statements of Tanhosier Ltd for the year ended 31 March 2010. A trial balance as at 31 March 2010 is shown below.£000 £000 Sales 50,332 Purchases 29,778 Property, plant and equipment - cost 59,088 Property, plant and equipment - accumulated
Explain the purpose of a statement of changes in equity and list the main items that should be shown in this statement.
International standard IAS1 lists seven "general features" relating to the presentation of financial statements. These are:(a) fair presentation and compliance with international standards(b) going concern basis and accrual basis(c) materiality and aggregation(d) offsetting(e) frequency of
The main role of the International Accounting Standards Board (IASB) is to devise and publish International Financial Reporting Standards (IFRSs) and revised versions of International Accounting Standards (IASs). IASs were originally published by the IASB's predecessor body, the International
Assuming that today's date is 1 January 2010, calculate the present value of each of the following:(a) £50,000 to be received on 1 January 2013(b) £100,000 to be received on 1 January 2015(c) £10,000 to be received on I January each year from 2011 to 2014 inclusive.Use a discount rate of 7% in
The qualitative characteristics of relevance, reliability and comparability which are identified in the IASB Framework for the Preparation and Presentation of Financial Statements are some of the attributes that make financial information useful to the various users of financial statements.Explain
The IASB Framework states that an entity's choices of measurement bases and capital maintenance concept determine the accounting model used in the preparation of the financial statements.(a) Explain each of the measurement bases identified in the Framework.(b) Explain each of the capital
Define each of the five elements of financial statements. Also explain the circumstances in which an element should be recognised in the financial statements.
Identify the four qualitative characteristics of useful financial information. Also identify any factors which contribute to the achievement of each characteristic.
Explain the two assumptions which underlie the preparation of financial statements.
(a) State the objective of financial statements.(b) Identify the main users of financial statements and indicate why each user group might be interested in the information provided in these statements.
Explain what is meant by a "conceptual framework" for financial reporting and list the main purposes of the IASB Framework for the Preparation and Presentation of Financial Statements.
IFRS1 First-time Adoption of International Financial Reporting Standards lays down the procedure which must be followed when an entity prepares its first financial statements that comply with international standards (IFRSs and IASs).(a) State the objective of IFRS1.(b) Explain the terms "first IFRS
The International Accounting Standards Board (IASB) develops international standards by means of a "due process". The main stages of this process are listed in the Preface to International Financial Reporting Standards. The Preface also states the objectives of the IASB and explains the scope of
The term "regulatory framework" refers to the body of rules and regulations which apply to the financial statements of limited companies. This framework includes company law, accounting standards and (for listed companies) stock exchange regulations.(a) State the objectives of the International
A company adopts international standards for the first time when preparing its financial statements for the year to 30 June 2010. These financial statements show comparative figures for the previous two years.Explain the main requirements of IFRS1 First-time Adoption of International Financial
Explain the purpose of accounting standards (whether national or international) and identify the advantages that stem from the standardisation of accounting practice. Are there any disadvantages?
Outline the structure of an international standard (IFRS or IAS).
Outline the structure and functions of:(a) the International Accounting Standards Committee (IASC) Foundation(b) the International Accounting Standards Board (IASB)(c) the Standards Advisory Council (SAC)(d) the International Financial Reporting Interpretations Committee (IFRIC).
The restaurant companies reviewed and the year-end dates are as follows:1. Yum Brands, Inc. (December 30, 2006; December 30, 2005)“Yum consists of six operating segments; KFC, Pizza Hut, Taco Bell, LJS/A&W, Yum Restaurants International . . . and YUM Restaurants China.” 10-K 2. Panera Bread
The Grand retail firm reported the following financial data for the past several years:The Grand retail firm had a decentralized credit operation allowing each store to administer its credit operation. Many stores provided installment plans allowing the customer up to 36 months to pay. Gross
The following information was taken directly from the annual report of a firm that wishes to remain anonymous. (The dates have been changed.)Financial Summary Effects of LIFO Accounting For a number of years, the corporation has used the last-in, first-out (LIFO) method of accounting for its steel
A firm requires short-term funds to cover payroll expenses. These funds can come from 1. Trade credit.2. Collections of receivables.3. Bank loans.4. Delayed payments of accounts payable.5. All of the above.
The primary objective in the management of accounts receivable is 1. To achieve a combination of sales volume, bad-debt experience, and receivables turnover that maximizes the profits of the corporation.2. To realize no bad debts because of the opportunity cost involved.3. To provide the treasurer
Investment instruments used to invest temporarily idle cash balances should have which of the following characteristics?1. High expected return, low marketability, and a short term to maturity 2. High expected return, readily marketable, and no maturity date 3. Low default risk, low marketability,
If a firm has a high current ratio but a low acid-test ratio, one can conclude that 1. The firm has a large outstanding accounts receivable balance.2. The firm has a large investment in inventory.3. The firm has a large amount of current liabilities.4. The cash ratio is extremely high.5. The two
Selected year-end data for Bayer Company are as follows:Current liabilities $600,000 Acid-test ratio 2.5 Current ratio 3.0 Cost of sales $500,000 Bayer Company’s inventory turnover based on these year-end data is 1. 1.20.2. 2.40.3. 1.67.4. Some amount other than those given.5. Not determinable
If, just prior to a period of rising prices, a company changed its inventory measurement method from FIFO to LIFO, the effect in the next period would be to 1. Increase both the current ratio and inventory turnover.2. Decrease both the current ratio and inventory turnover.3. Increase the current
A company’s current ratio is 2.2 to 1 and quick (acid-test) ratio is 1.0 to 1 at the beginning of the year. At the end of the year, the company has a current ratio of 2.5 to 1 and a quick ratio of 0.8 to 1.Which of the following could help explain the divergence in the ratios from the beginning
Items (a) through (d) are based on the following information:Required Answer the following multiple-choice questions:a. Sharkey’s acid-test ratio as of December 31, 2007, is 1. 0.63.2. 0.70.3. 0.89.4. 0.99.b. Sharkey’s receivables turnover for 2007 is 1. 8 times.2. 6 times.3. 12 times.4. 14
The following data apply to items (a) and (b). Mr. Sparks, the owner of School Supplies, Inc., wants to maintain control over accounts receivable. He understands that accounts receivable turnover will give a good indication of how well receivables are being managed. School Supplies, Inc., does 70%
Information from Greg Company’s balance sheet follows:Required Answer the following multiple-choice questions:a. What is the acid-test ratio for Greg Company?1. 1.60 2. 1.76 3. 1.90 4. 2.20b. What is the effect of the collection of accounts receivable on the current ratio and net working capital,
Depoole Company manufactures industrial products and employs a calendar year for financial reporting purposes. Items (a) through (e) present several of Depoole’s transactions during 2007. The total of cash equivalents, marketable securities, and net receivables exceeded total current liabilities
J.A. Appliance Company has supplied you with the following data regarding working capital and sales for the years 2007, 2006, and 2005.Requireda. Compute the sales to working capital ratio for each year.b. Comment on the sales to working capital ratio for J.A. Appliance in relation to the industry
The following data relate to inventory for the year ended December 31, 2007. A physical inventory on December 31, 2007, indicates that 600 units are on hand and that they came from the July 1 purchase.Required Compute the cost of goods sold for the year ended December 31, 2007, and the ending
The following data relate to inventory for the year ended December 31, 2007:A physical inventory on December 31, 2007, indicates that 400 units are on hand and that they came from the March 1 purchase.Required Compute the cost of goods sold for the year ended December 31, 2007, and the ending
Anne Elizabeth Corporation is engaged in the business of making toys. A high percentage of its products are sold to consumers during November and December. Therefore, retailers need to have the toys in stock prior to November. The corporation produces on a relatively stable basis during the year in
The following financial data were taken from the annual financial statements of Smith Corporation:Requireda. Based on these data, calculate the following for 2006 and 2007:1. Working capital 2. Current ratio 3. Acid-test ratio 4. Accounts receivable turnover 5. Merchandise inventory turnover 6.
P 6-14. Current assets and current liabilities for companies R and T are summarized below.Required Evaluate the relative solvency of companies R and T. Current assets Current liabilities Working capital Company R Company T $400,000 $800,000 200,000 $200,000 400,000 $400,000
Current assets and current liabilities for companies D and E are summarized as follows:Required Evaluate the relative solvency of companies D and E. Current assets Current liabilities Working capital Company D Company E $400,000 $900,000 200,000 $200,000 700,000 $200,000
Individual transactions often have a significant impact on ratios. This problem will consider the direction of such an impact.Required Indicate the effects of the previous transactions on each of the following: total current assets, total current liabilities, net working capital, and current ratio.
A partial balance sheet and income statement for King Corporation follow:Required Compute the following:a. Working capitalf. Accounts receivable turnover in daysb. Current ratio g. Days’ sales in inventoryc. Acid-test ratio h. Inventory turnover in daysd. Cash ratio i. Operating cyclee. Days’
Laura Badora Company has been using LIFO inventory. The company is required to disclose the replacement cost of its inventory and the replacement cost of its cost of goods sold on its annual statements.Selected data for the year ended 2007 are as follows:Ending accounts receivable, less allowance
Anna Banana Company would like to estimate how long it will take to realize cash from its ending inventory.For this purpose, the following data are submitted:Accounts receivable, less allowance for doubtful accounts of $30,000 $ 560,000 Ending inventory 680,000 Net sales 4,350,000 Cost of goods
The inventory and sales data for this year for G. Rabbit Company are as follows:Required Using the above data from G. Rabbit Company, compute the following:a. The accounts receivable turnover in daysb. The inventory turnover in daysc. The operating cycle End of Year Net sales Gross receivables
J. Szabo Company had an average inventory of $280,000 and a cost of goods sold of $1,250,000.Required Compute the following:a. The inventory turnover in daysb. The inventory turnover
J. Shaffer Company has an ending inventory of $360,500 and a cost of goods sold for the year of$2,100,000. It has used LIFO inventory for a number of years because of persistent inflation.Requireda. Compute the days’ sales in inventory.b. Is J. Shaffer Company’s days’ sales in inventory as
P. Gibson Company has net sales of $3,500,000 and average gross receivables of $324,000.Required Compute the accounts receivable turnover.
P. Gibson Company has computed its accounts receivable turnover per year to be 12.Required Compute the accounts receivable turnover in days.P 6-5c. P. Gibson Company has gross receivables at the end of the year of $280,000 and net sales for the year of$2,158,000.Required Compute the days’ sales
P. Gibson Company has computed its accounts receivable turnover in days to be 36.Required Compute the accounts receivable turnover per year.
Mr. Williams, the owner of Williams Produce, wants to maintain control over accounts receivable. He understands that days’ sales in receivables and accounts receivable turnover will give a good indication of how well receivables are being managed. Williams Produce does 60% of its business during
Hawk Company wants to determine the liquidity of its receivables. It has supplied you with the following data regarding selected accounts for December 31, 2007, and 2006:Requireda. Compute the number of days’ sales in receivables at December 31, 2007, and 2006.b. Compute the accounts receivable
In this problem, compute the acid-test ratio as follows:Required Determine the cost of sales of a firm with the financial data given below.Current ratio 2.5 Quick ratio or acid-test 2.0 Current liabilities $400,000 Inventory turnover 3 times P Current Assets - Inventory Current Liabilities
Go to the SEC Web site (http://www.sec.gov).Under “Filings & Forms (EDGAR),” click on“Search for Company Filings.” Click on“Companies & Other Filers.” Under Company Name, enter “Dell Inc” (or under Ticker Symbol, enter “DELL”). Select the 10-K filed March 15, 2006.a. Determine
Go to the SEC Web site (http://www.sec.gov).Under “Filings & Forms (EDGAR),” click on“Search for Company Filings.” Click on“Companies & Other Filers.” Under Company Name, enter “Tribune Co” (or under Ticker Symbol, enter “TRB”). Select the 10-K filed February 26, 2007.a.
Go to the SEC Web site (http://www.sec.gov).Under “Filings & Forms (EDGAR),” click on“Search for Company Filings.” Click on“Companies & Other Filers.” Under Company Name, enter “Dynatronics Corp” (or under Ticker Symbol, enter “DYNT”). Select the 10-K SB filed September 28,
Go to the SEC Web site (http://www.sec.gov).Under “Filings & Forms (EDGAR),” click on“Search for Company Filings.” Click on“Companies & Other Filers.” Under Company Name, enter “Kroger Co” (or under Ticker Symbol, enter “KR”). Select the 10-K filed April 4, 2007.a. Determine the
Go to the SEC Web site (http://www.sec.gov).Under “Filings & Forms (EDGAR),” click on“Search for Company Filings.” Click on“Companies & Other Filers.”a. Under Company Name, enter “JLG Industries Inc” (or under Ticker Symbol, enter “JLG”).Select the 10-K filed October 2, 2006.1.
Management is a user of financial analysis. Which of the following comments does not represent a fair statement as to the management perspective?1. Management is not interested in the view of investors.2. Management is interested in liquidity.3. Management is interested in profitability.4.
Suppose you are comparing two firms in the coal industry. Which type of numbers would be most meaningful for statement analysis?1. Relative numbers would be most meaningful for both firms, especially for interfirm comparisons.2. Relative numbers are not meaningful.3. Absolute numbers would be most
Which analysis compares each amount with a base amount for a selected base year?1. Vertical common-size 2. Horizontal common-size 3. Funds statement 4. Common-size statement 5. None of these
Which service includes over 800 different lines of business?1. Annual Statement Studies 2. Standard & Poor’s Industry Surveys 3. Almanac of Business and Industrial Financial Ratios 4. Industry Norms and Key Business Ratios 5. The Department of Commerce Financial Report
Which service represents a compilation of corporate tax return data?1. Annual Statement Studies 2. Standard & Poor’s Industry Surveys 3. Almanac of Business and Industrial Financial Ratios 4. Industry Norms and Key Business Ratios 5. The Department of Commerce Financial Report
Which of the following is a publication of the federal government for manufacturing, mining, and trade corporations?1. Annual Statement Studies 2. Standard & Poor’s Industry Surveys 3. Almanac of Business and Industrial Financial Ratios 4. Industry Norms and Key Business Ratios 5. The Department
Industry ratios should not be considered as absolute norms for a given industry because of all but which of the following?1. The firms have different accounting methods.2. Many companies have varied product lines.3. Companies within the same industry may differ in their method of operations.4. The
Fremont Electronics has income of $1,000,000. Columbus Electronics has income of $2,000,000.Which of the following statements is a correct statement?1. Columbus Electronics is getting a higher return on assets employed.2. Columbus Electronics has higher profit margins than does Fremont
A figure from this year’s statement is compared with a base selected from the current year.1. Vertical common-size statement 2. Horizontal common-size statement 3. Funds statement 4. Absolute figures 5. Balance sheet
Which of the following statements is incorrect?1. Ratios are fractions expressed in percent or times per year.2. A ratio can be computed from any pair of numbers.3. A very long list of meaningful ratios can be derived.4. There is one standard list of ratios.5. Comparison of income statement and
a. Complete the increase (decrease) in dollars and percent.b. Comment on trends. Rapid Retail Comparative Statements of Income (In thousands of dollars) Net sales Cost of goods sold Gross profit December 31 Increase (Decrease) 2008 2007 Dollars Percent $30,000 $28,000 20,000 19,500 10,000 8,500
Determine the absolute change and the percentage for these items. Change Analysis Item Year 1 Year 2 Amount Percent 12345 4,000 5,000 (3,000) (9,000) 2,000 7,000 15,000
Determine the absolute change and the percentage for these items. Change Analysis Item Year 1 Year 2 Amount Percent 12345 3,000 2 6,000 (4,000) (7,000) 4,000 4,000 8,000 10,000
The Kelly Services, Inc. and Subsidiaries statements of earnings from its 2006 annual report are presented in Exhibit 5-4.Requireda. Using the statements of earnings, prepare a vertical common-size analysis for 2006, 2005, and 2004.Use revenues as the base.b. Using the statements of earnings,
The Kelly Services, Inc. and Subsidiaries balance sheets from its 2006 annual report are presented in Exhibit 5-4.Requireda. Using the balance sheets, prepare a vertical common-size analysis for 2006 and 2005. Use total assets as a base.b. Using the balance sheets, prepare a horizontal common-size
Best Buy Co., Inc.’s consolidated statements of earnings from its 2007 annual report are presented in Exhibit 5-3.Requireda. Using the statement of earnings, prepare a vertical common-size analysis for 2007, 2006, and 2005.Use revenue as a base.b. Using the statement of earnings, prepare a
Best Buy Co., Inc.’s consolidated balance sheets from its 2007 annual report are presented in Exhibit 5-3.Requireda. Using the balance sheets, prepare a vertical common-size analysis for 2007 and 2006. Use total assets as a base.b. Using the balance sheets, prepare a horizontal common-size
The consolidated financial statements of the Company are prepared in Canadian dollars in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”).The following adjustments and disclosures would be required in order to present these consolidated financial statements
On October 15, 1990, United Airlines (UAL Corporation) placed the largest wide-body aircraft order in commercial aviation history—60 Boeing 747-400s and 68 Boeing 777s—with an estimated value of $22 billion. With this order, United became the launch customer for the B777. This order was equally
Which of the following is not a category within accumulated other comprehensive income?1. Foreign currency translation adjustments 2. Unrealized holding gains and losses on available-for-sale marketable securities 3. Changes to stockholders’ equity resulting from additional minimum pension
Schroeder Company had 200,000 shares of common stock outstanding with a $2 par value and retained earnings of $90,000. In 2006, earnings per share were $0.50. In 2007, the company split the stock 2 for 1. Which of the following would result from the stock split?1. Retained earnings will decrease as
The stockholders’ equity of Gaffney Company at November 30, 2008, is presented below.Common stock, par value $5, authorized 200,000 shares, 100,000 shares issued and outstanding $500,000 Paid-in capital in excess of par 100,000 Retained earnings 300,000$900,000 On December 1, 2008, the board of
Bell Company has 2,000,000 shares of common stock with par of $10. Additional paid-in capital totals $15,000,000, and retained earnings is $15,000,000. The directors declare a 5% stock dividend when the market value is $10. The reduction of retained earnings as a result of the declaration will be
Which of the following will not be disclosed in retained earnings?1. Declaration of a stock dividend 2. Adjustment for an error of the current period 3. Adjustment for an error of a prior period 4. Net income 5. Net loss
Minority share of earnings comes from which of the following situations?1. A company has been consolidated with our income statement, and our company owns less than 100% of the other company.2. A company has been consolidated with our income statement, and our company owns 100% of the other
Which of the following would be classified as an extraordinary item on the income statement?1. Loss on disposal of a segment of business 2. Cumulative effect of a change in accounting principle 3. A sale of fixed assets 4. An error correction that relates to a prior year 5. A loss from a flood in a
Changes in account balances of Gross Flowers during 2008 were as follows:Increase Assets $400,000 Liabilities 150,000 Capital stock 120,000 Additional paid-in capital 110,000 Assuming there were no charges to retained earnings other than dividends of $20,000, the net income(loss) for 2008 was 1.
The following relate to Owens data in 2008. What is the ending inventory?Purchases $580,000 Beginning inventory 80,000 Purchase returns 8,000 Sales 900,000 Cost of goods sold 520,000 1. $150,000 2. $132,000 3. $152,000 4. $170,000 5. $142,000
Which of the following is true when a 10% stock dividend is declared and distributed?1. Retained earnings is increased.2. Stockholders’ equity is increased.3. Stockholders’ equity is decreased.4. Authorized shares are increased.5. The overall effect is to leave stockholders’ equity in total
Which of the following is true when a cash dividend is declared and paid?1. The firm is left with a liability to pay the dividend.2. Retained earnings is reduced by the amount of the dividend.3. Retained earnings is increased by the amount of the dividend.4. Retained earnings is not influenced by
Which of the following would be classified as an extraordinary item on the income statement?1. Loss from tornado 2. Loss on disposal of a segment of business 3. Write-down of inventory 4. Correction of an error of the current period 5. Loss from strike
If the investor company owns 30% of the stock of the investee company and the investee company reports profits of $150,000, then the investor company reports equity income of 1. $25,000.2. $35,000.3. $45,000.4. $50,000.5. $55,000.
Which of the following items are considered to be nonrecurring items?1. Equity earnings 2. Unusual or infrequent item disclosed separately 3. Discontinued operations 4. Extraordinary item 5. Cumulative effect of change in accounting principle

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