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financial reporting
Financial Reporting And Analysis Using Financial Accounting Information 11th Edition Charles H. Gibson - Solutions
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 “Motorola Inc” (or under Ticker Symbol, enter “MOT”). Select the 10-K submitted February 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 “Belden” (or under Ticker Symbol, enter “BDC”). Select the 10-K submitted March 5, 2007. For the years
With this case, we review the profitability of several restaurant companies. 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, LSS/A&W, Yum
Daktronics∗ included this statement in its 2005 annual report:Requireda. Compute the following for 2005 and 2004:1. Net profit margin 2. Total asset turnover (use year-end assets)3. Return on assets (use year-end assets)4. Operating income margin 5. Return on operating assets (use year-end
Starbucks presented the following in its 2006 annual report:Notes to Consolidated Financial Statements (in Part)Note 19: Segment Reporting (in Part)Segment information is prepared on the same basis that the Company’s management reviews financial information for operational decision making
a. Prepare horizontal common-size analysis for operating revenues. Comment on the results.b. Prepare horizontal common-size analysis for long-lived assets. Comment on the results.c. Comment on the vertical common-size analysis for operating revenues.d. Comment on the vertical common-size analysis
John Dearden and his wife, Patricia, have been taking an annual vacation to Stowe, Vermont, each summer. They like the area very much and would like to retire someday in this vicinity. While in Stowe during the summer, they notice a “for sale” sign in front of a self-service station. John is 55
Which of the following could cause return on assets to decline when net profit margin is increasing?1. Purchase of land at year-end 2. Increase in book value 3. A stock dividend 4. Increased turnover of operating assets 5. None of the above
Minority share of earnings is 1. The total earnings of unconsolidated subsidiaries.2. Earnings based on the percent of holdings by the parent of unconsolidated subsidiaries.3. Total earnings of unconsolidated subsidiaries.4. Earnings based on the percent of holdings by outside owners of
Which of the following items will be reported on the income statement as part of net income?1. Prior period adjustment 2. Unrealized decline in market value of investments 3. Foreign currency translation 4. Gain from selling land 5. None of the above
Which of the following ratios will usually have the lowest percent?1. Return on investment 2. Return on total equity 3. Return on common equity 4. Return on total assets 5. There is not enough information to tell.
Which of the following ratios will usually have the highest percent?1. Return on investment 2. Return on total equity 3. Return on common equity 4. Return on total assets 5. There is not enough information to tell.
A reason that equity earnings create a problem in analyzing profitability is because 1. Equity earnings are nonrecurring.2. Equity earnings are extraordinary.3. Equity earnings are usually less than the related cash flow.4. Equity earnings relate to operations.5. None of the above.
Return on assets cannot rise under which of the following circumstances? Net profit margin Decline 1. 2. Rise 3. Rise 4. Decline 5. The ratio could rise under all of the above. Total asset turnover Rise Decline Rise Decline
Net profit margin × total asset turnover measures 1. DuPont return on assets.2. Return on investment.3. Return on stockholders’ equity.4. Return on common equity.5. None of the above.
Earnings based on percent of holdings by outside owners of consolidated subsidiaries are termed 1. Equity earnings. 4. Minority earnings.2. Earnings of subsidiaries. 5. None of the above.3. Investment income.
Which of the following is not a type of operating asset?1. Intangibles 4. Inventory 2. Receivables 5. Building 3. Land
Equity earnings can represent a problem in analyzing profitability because 1. Equity earnings may not be related to cash flow.2. Equity earnings are extraordinary.3. Equity earnings are unusual.4. Equity earnings are not from operations.5. Equity earnings are equal to dividends received.
Total asset turnover measures 1. Net income dollars generated by each dollar of sales.2. The ability of the firm to generate sales through the use of the assets.3. The firm’s ability to make productive use of its property, plant, and equipment through generation of profits.4. The relationship
Gross profit analysis could be of value for all but which of the following?1. Projections of profitability 2. Estimating administrative expenses 3. Inventory for interim statements 4. Estimating inventory for insurance claims 5. Replacing the physical taking of inventory on an annual basis
If a firm’s gross profit has declined substantially, this could be attributed to all but which of the following reasons?1. The cost of buying inventory has increased more rapidly than selling prices.2. Selling prices have declined due to competition.3. Selling prices have increased due to
Ideally, which of these ratios will indicate the highest return for an individual firm?1. Return on assets 2. Return on assets variation 3. Return on investments 4. Return on total equity 5. Return on common equity
a. Which of the following is not considered to be a nonrecurring item?1. Discontinued operations 2. Extraordinary items 3. Cumulative effect of change in accounting principle 4. Interest expense 5. None of the above
Consecutive five-year balance sheets and income statements of Mary Lou Szabo Corporation are as follows:Requireda. Compute the following for the years ended December 31, 2003–2007:1. Net profit margin 2. Total asset turnover 3. Return on assets 4. DuPont return on assets 5. Operating income
Transactions affect various financial statement amounts.Required Indicate the effects of the previous transactions on each of the following: net profit, retained earnings, total stockholders’ equity. Use + to indicate an increase, − to indicate a decrease, and 0 to indicate no effect. a. A
Dexall Company recently had a fire in its store. Management must determine the inventory loss for the insurance company. Since the firm did not have perpetual inventory records, the insurance company has suggested that it might accept an estimate using the gross profit test. The beginning
The following financial information is for A. Galler Company for 2007, 2006, and 2005:Requireda. For 2007, 2006, and 2005, determine the following:1. Return on assets (using end-of-year total assets)2. Return on investment (using end-of-year long-term liabilities and equity)3. Return on total
D. H. Muller Company presented the following income statement in its 2007 annual report:Requireda. Based on these data, compute the following for 2007, 2006, and 2005:1. Net profit margin 2. Return on assets (using total assets)3. Total asset turnover (using total assets)4. DuPont analysis 5.
Selected financial data for Squid Company are as follows:Requireda. Compute the following for 2007, 2006, and 2005:1. Net profit margin 2. Return on assets 3. Total asset turnover 4. DuPont analysis 5. Return on investment 6. Return on total equity 7. Sales to fixed assetsb. Discuss your findings
Dorex, Inc., presented the following comparative income statements for 2007, 2006, and 2005:Requireda. Calculate the following for 2007, 2006, and 2005:1. Net profit margin 2. Return on assets 3. Total asset turnover 4. DuPont analysis 5. Operating income margin 6. Return on operating assets 7.
Day Ko Incorporated presented the following comparative income statements for 2007 and 2006:Requireda. How did 2007 net sales compare to 2006?b. How did 2007 net earnings compare to 2006?c. Calculate the following for 2007 and 2006:1. Net profit margin 2. Return on assets (using ending assets)3.
Revenue and expense data for Vent Molded Plastics and for the plastics industry as a whole follow:Required Convert the dollar figures for Vent Molded Plastics into percentages based on net sales. Compare these with the industry average, and comment on your findings. Sales Sales returns Cost of
The balance sheet for Schultz Bone Company at December 31, 2007, had the following account balances:Total current liabilities (non-interest-bearing) $450,000 Bonds payable, 6% (issued in 1982; due in 2013) 750,000 Preferred stock, 5%, $100 par 300,000 Common stock, $10 par 750,000 Premium on common
Income statement data for Starr Canning Corporation are as follows:Requireda. Prepare an income statement in comparative form, stating each item for both years as a percent of sales (vertical common-size analysis).b. Comment on the findings in (a). 2007 2006 Sales $1,400,000 $1,200,000 Cost of
• Ahl Enterprise lists the following data for 2007 and 2006:Required Calculate the net profit margin, return on assets, total asset turnover, and return on common equity for both years. Comment on the results. (For return on assets and total asset turnover, use end-of-year total assets; for
G. Herrich Company and Thomas, Inc., are department stores. For the current year, they reported a net income after tax of $400,000 and $600,000, respectively. Is Thomas, Inc., a more profitable company than G. Herrich Company? Discuss.
What is return on investment? What are some of the types of measures for return on investment? Why is the following ratio preferred?Why is the interest multiplied by (1 – Tax Rate)? Net Income Before Minority Share of Earnings and Nonrecurring Items + [(Interest Expense) x (1 - Tax Rate)] Average
How does operating income differ from net income? How do operating assets differ from total assets? What is the advantage in removing nonoperating items from the DuPont analysis?
The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall.
Would you expect the profit margin in a quality jewelry store to differ from that of a grocery store?Comment.
What is the advantage of segregating extraordinary items in the income statement?
How does operating income differ from net income? How do operating assets differ from total assets? What is the advantage in removing nonoperating items from the DuPont analysis?
The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall.
Would you expect the profit margin in a quality jewelry store to differ from that of a grocery store?Comment.
What is the advantage of segregating extraordinary items in the income statement?
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 “Ford Motor Company” (or under Ticker Symbol, enter “F”). Select the 10-K filed February
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 “Intel Corp” (or under Ticker Symbol, enter “INTC”). Select the 10-K filed February 26,
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 “Flowers Foods Inc” (or under Ticker Symbol, enter “FLO”).Select the 10-K filed February 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 “Google Inc.”(or under Ticker Symbol, enter “GOOG”). Select the 10-K filed March 1, 2007.a.
With this case, we review the debt of several restaurant companies. The restaurant companies reviewed and the year-end dates are as follows:1. Yum Brands, Inc. (December 30, 2006; December 30, 2005)“Yum Brands consist of six operating segments; KFC, Pizza Hut, Taco Bell, LJS/A&W, Yum
Fair Value of Financial Instruments—At December 31, 2004, 2005 and 2006, the Company’s financial instruments included cash and cash equivalents, trade receivables, marketable securities, accounts payable, notes payable to shareholders, subordinated notes payable and subordinated convertible
On April 11, 1997, we established the TransAct Technologies Retirement Savings Plan [the“401(k) Plan”], a defined contribution plan under Section 401(k) of the Internal Revenue Code. All full-time employees are eligible to participate in the 401(k) Plan at the beginning of the calendar quarter
The Retirement Restoration Plan provides death benefits and supplemental income payments for senior executives after retirement. The Company recognized expense of $5.2 million in 2006, $6.4 million in 2005 and $7.1 million in 2004. The aggregate projected benefit obligation of the Retirement
Safeway participates in various multi-employer retirement plans, covering substantially all Company employees not covered under the Company’s non-contributory retirement plans, pursuant to agreements between the Company and various unions. These plans are generally defined benefit plans; however,
Celtics Basketball maintains disability and life insurance policies on most of its key players.The level of insurance coverage maintained is based on management’s determination of the insurance proceeds which would be required to meet its guaranteed obligations in the event of permanent or total
We lease certain sales offices, showrooms and equipment under non-cancelable operating leases that expire at various dates through 2020. During the normal course of business, we have entered into several sale-leaseback arrangements for certain equipment and facilities. In accordance with GAAP,
At the end of 2006 and 2005, property, plant and equipment at cost and accumulated depreciation were:The company capitalizes interest expense as part of the cost of construction of facilities and equipment. Interest expense capitalized in 2006, 2005 and 2004 was $118 million, $111 million and $316
Which of these items does not represent a definite commitment to pay out funds in the future?1. Notes payable 2. Bonds payable 3. Minority shareholders’ interests 4. Wages payable 5. None of the above
Which of the following statements is correct?1. Capitalized interest should be included with interest expense when computing times interest earned.2. A ratio that indicates a firm’s long-term debt-paying ability from the balance sheet view is the times interest earned.3. Some of the items on the
Under the Employee Retirement Income Security Act, a company can be liable for its pension plan up to 1. 30% of its net worth.2. 30% of pension liabilities.3. 30% of liabilities.4. 40% of its net worth.5. None of the above
The ratio fixed charge coverage 1. Is a cash flow indication of debt-paying ability.2. Is an income statement indication of debt-paying ability.3. Is a balance sheet indication of debt-paying ability.4. Will usually be higher than the times interest earned ratio.5. None of the above
In computing debt to tangible net worth, which of the following is not subtracted in the denominator?1. Patents 2. Goodwill 3. Land 4. Bonds payable 5. Both 3 and 4
A times interest earned ratio of 0.20 to 1 means 1. That the firm will default on its interest payment.2. That net income is less than the interest expense (including capitalized interest).3. That cash flow exceeds the net income.4. That the firm should reduce its debt.5. None of the above
Sneider Company has long-term debt of $500,000, while Abbott Company has long-term debt of$50,000. Which of the following statements best represents an analysis of the long-term debt position of these two firms?1. Sneider Company’s times interest earned should be lower than Abbott Company’s.2.
Which of the following statements is false?1. The debt to tangible net worth ratio is more conservative than the debt ratio.2. The debt to tangible net worth ratio is more conservative than the debt/equity ratio.3. Times interest earned indicates an income statement view of debt.4. The debt/equity
All but which of these ratios are considered to be debt ratios?1. Times interest earned 2. Debt ratio 3. Debt/equity 4. Fixed charge ratio 5. Current ratio
In computing the debt ratio, which of the following is subtracted in the denominator?1. Copyrights 2. Trademarks 3. Patents 4. Marketable securities 5. None of the above
A firm may have substantial liabilities that are not disclosed on the face of the balance sheet from all but which of the following?1. Leases 2. Pension plans 3. Joint ventures 4. Contingencies 5. Bonds payable
There is disagreement on all but which of the following items as to whether it should be considered a liability in the debt ratio?1. Short-term liabilities 2. Reserve accounts 3. Deferred taxes 4. Minority shareholders’ interest 5. Preferred stock
a. Which of the following ratios can be used as a guide to a firm’s ability to carry debt from an income perspective?1. Debt ratio 2. Debt to tangible net worth 3. Debt/equity 4. Times interest earned 5. Current ratio
Consecutive five-year balance sheets and income statements of Laura Gibson Corporation are shown below and on the following page.Requireda. Compute the following for the years ended December 31, 2003–2007:1. Times interest earned 2. Fixed charge coverage 3. Debt ratio 4. Debt/equity ratio 5. Debt
Allen Company and Barker Company are competitors in the same industry. Selected financial data from their 2007 statements follow.Industry Averages:Times interest earned 7.2 times Debt ratio 40.3%Debt/equity 66.6%Debt to tangible net worth 72.7%Requireda. Compute the following ratios for each
The consolidated statement of earnings of Anonymous Corporation for the year ended December 31, 2007, is as follows:Requireda. Compute the times interest earned for 2007.b. Compute the times interest earned for 2007, including the equity income in the coverage.c. What is the impact of including
For the year ended June 30, 2007, A.E.G. Enterprises presented the financial statements shown on page 280.Early in the new fiscal year, the officers of the firm formalized a substantial expansion plan. The plan will increase fixed assets by $190,000,000. In addition, extra inventory will be needed
Mr. Parks has asked you to advise him on the long-term debt-paying ability of Arodex Company. He provides you with the following ratios:Requireda. Give the implications and the limitations of each item separately and then the collective influence that could be drawn from them about Arodex
Individual transactions often have a significant impact on ratios. This problem will consider the direction of such an impact.Required Indicate the effect of each of the transactions on the ratios listed. Use + to indicate an increase, − to indicate a decrease, and 0 to indicate no effect. Assume
Kaufman Company’s balance sheet follows.Requireda. Compute the debt ratio.b. Compute the debt/equity ratio.c. Compute the ratio of total debt to tangible net worth.d. Comment on the amount of debt that Kaufman Company has. Assets Current assets Cash Short-term investments-at cost (approximate
Sherwill’s statement of consolidated income is as follows:Note: Depreciation expense totals $200; operating lease payments total $150; and preferred dividends total $50. Assume that 1/3 of operating lease payments is for interest.Required a. Compute the times interest earned.b. Compute the fixed
• Jones Petro Company reports the following consolidated statement of income:Note: Depreciation expense totals $200; operating lease payments total $150; and preferred dividends total $50. Assume that 1/3 of operating lease payments is for interest.Required a. Compute the times interest
• Consider the following operating figures:Depreciation expense totals $40,000.Required a. Compute the times interest earned.b. Compute the cash basis times interest earned. Net sales Cost and deductions: Cost of sales Selling and administration Interest expense, net Income taxes $1,079,143
• Speculate on why the disclosure of the concentrations of credit risk is potentially important to the users of financial reports.
• There is a chance that a company may be in a position to have large sums transferred from the pension fund to the company. Comment.
• When examining financial statements, a note that describes contingencies should be reviewed closely for possible significant liabilities that are not disclosed on the face of the balance sheet. Comment.
• When a firm guarantees a bank loan for a joint venture that it participates in and the joint venture is handled as an investment, then the overall potential debt position will not be obvious from the face of the balance sheet. Comment.
• Comment on the implications of relying on a greater proportion of short-term debt in relation to long-term debt.
• A firm has a high current debt/net worth ratio in relation to prior years, competitors, and the industry.Comment on what this tentatively indicates.
• Consider the accounts of bonds payable and reserve for rebuilding furnaces. Explain how one of these accounts could be considered a firm liability and the other could be considered a soft liability.
• Consider the debt ratio. Explain a position for including short-term liabilities in the debt ratio. Explain a position for excluding short-term liabilities from the debt ratio. Which of these approaches would be more conservative?
• What portion of net worth can the federal government require a company to use to pay for pension obligations?
• Operating leases are not reflected on the balance sheet, but they are reflected on the income statement in the rent expense. Comment on why an interest expense figure that relates to long-term operating leases should be considered when determining a fixed charge coverage.
• Indicate the risk to a company if it withdraws from a multiemployer pension plan or if the multiemployer pension plan is terminated.
• Why is the vesting provision an important provision of a pension plan? How has the Employee Retirement Income Security Act influenced vesting periods?
• Explain how the debt/equity ratio indicates the same relative long-term debt-paying ability as does the debt ratio, only in a different form.
For a given firm, would you expect the debt ratio to be as high as the debt/equity ratio? Explain.
• One of the ratios used to indicate long-term debt-paying ability compares total liabilities to total assets.What is the intent of this ratio? How precise is this ratio in achieving its intent?
• Is it feasible to get a precise measurement of the funds that could be available from long-term assets to pay long-term debts? Discuss.
Why is it difficult to determine the value of assets?
• Discuss how noncash charges for depreciation, depletion, and amortization can be used to obtain a shortrun view of times interest earned.
• List the two approaches to examining a firm’s long-term debt-paying ability. Discuss why each of these approaches gives an important view of a firm’s ability to carry debt.
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 “Amazon Com Inc” (or under Ticker Symbol enter “AMZN”). Select the 10-K submitted February 16, 2007.a.
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